Oct 09, 2011
By Christopher Myer
In June of 2011, the draft of the "Provisional Measures for Foreigners Working in China regarding Participation in the Social Insurance Scheme" was publicly released, stating that starting from July 1st, foreigners would have to pay into the Chinese social security system, and consequently sparked worries about what that exactly meant and whether or not we could opt out of it. Just a few months later, on September 6th, 2011, despite our hopes that it would simply disappear, the China’s Ministry of Human Resources and Social Security issued the "Final Provisional Measures" which will take effect starting on October 15th, 2011. While the "Final Provisional Measures" cleared up a few of the initial ambiguities about how exactly foreigners would pay into China’s social insurance system, many foreigners are still very sceptical about the actual benefits they can derive from contributing, and since this final draft still leaves many questions unanswered, it does little to quell anyone’s resentment. Given the complexity of the situation, and though it remains to be seen how this policy will take shape or form, it is important that foreigners working in China understand the "who, what, when, why etc." of what is about to happen.
A Foreigner’s Guide to the New (Mandatory) Social Insurance System
Photo: photophoto.cn, 3lian
What is it?
The "Provisional Measures for Foreigners Working in China regarding Participation in the Social Insurance Scheme", "Social Insurance Law", or simply "The Law" for short, mandates that all people employed in China have the same right to enjoy China’s social insurance system, which consists of five types of insurance:
1) Basic pension
2) Basic medical
3) Unemployment
4) Maternity
5) Work-related injury
Who does it affect?
Chances are, if you are reading this article and are not a full-time student (or working illegally), this policy will affect you. According to "The Law", all foreigners employed by either Chinese or overseas-funded businesses, foundations, organisations, social groups etc., who have worked in China for longer than six months must participate in the social insurance system, i.e., pretty much all foreigners working in China (in the current version of "The Law", it remains unclear whether or not this includes Hong Kong, Macau and Taiwan residents who work in mainland China). Those hoping for some sort of "opt-out" option are also out of luck, as is stated numerous times through the various legislation and press releases… this is mandatory. Having an international insurance will not get you a ticket to bypass "The Law". The only chance you have at opting-out is if you are a foreign employee from one of the nations which has entered into a social insurance treaty with China, which is currently a very short list: Germany and South Korea. Even then, only under certain circumstances will you be given permission to opt-out.
When does it start?
When the first draft of "The Law" was released in June, it stated that starting July 1st, foreigners would begin paying into the social insurance system. After a few months of official silence on the matter, it was announced on September 6th that the "The Law would be taking effect starting October 15th." Also currently unclear is whether or not foreigners will owe back-pay for July, August and September.
How much is this going to cost?
Monthly social insurance fees will be paid by both the foreign employee and by the employer in accordance with the regulations set by "The Law". The fee will vary depending on the average salary in the city where you work. As such, expect to pay more if you live in one of the Tier 1 cities. For example, foreigners living in Beijing, Shanghai and Guangzhou must all pay about 11 percent of the first 12,000 RMB of their monthly salaries. Oddly, earnings above that amount are not taxed, which means that any foreigner living in Beijing, regardless of whether they pull in 10,000 RMB per month or 100,000 RMB per month, are all going to pay about 200 USD for social insurance (low-level teachers are no doubt pretty annoyed with this). In addition to this, employers are required to contribute even more to the social insurance system – double or triple the amount (up to three times the average salary in the city):
Beijing = about 32 percent of the foreigner’s monthly salary
Shanghai = 37 percent of the foreigner’s monthly salary
Guangzhou = about 24 percent of the foreigner’s monthly salary
Why?
And now for the big question that is on every foreigner’s mind: Why? The official line is that this policy will help foreign workers enjoy the same social security benefits in China as Chinese nationals do! While for many foreigners who already had insurance, this seems unnecessary, but this is exciting news for foreigners employed in China who currently have no insurance policy. But what about the rest of us? Expat criticisms to this plan have ranged from rationally upset: this plan punishes teachers and other "low wage" foreign employees in China while turning a blind eye to the millionaire businessmen and consultants; to overtly derogatory: the government is tired of foreigners working in China stealing all of the good jobs and earning a king’s ransom.
Although it is unlikely to be reported as such by the Chinese media, many people believe that the underlying intention of the new policy is to use this influx of cash to alleviate some of the pressure on China’s social safety net that is likely to occur in the near future as more and more Chinese reach the age of retirement. The numbers behind "The Law" seem to support this notion: according to one estimate, the new regulations mandating foreigners contribute to the social insurance system are expected to raise as much as 1.5 billion USD a year. As a foreigner working in China, I am obviously not thrilled about this idea…but I’ll be damned if that isn’t a brilliantly masterminded scheme!
Other Problems
So let's hypothetically say that the goal of this policy was not to use foreigners' money to pay for China’s soon-to-be massive wave of retirees… does the social insurance system actually benefit foreigners? Experts who have already studied "The Law" in depth seem pretty concerned about its ambiguities, vagueness and inability to provide details: the specifics of how to actually reclaim a pension after leaving the country, if it is 100 percent reclaimable, whether or not it is taxed and other questions remain unclear; how and where foreigners can use their medical insurance in China, i.e. in the international sections of Chinese hospitals or in international clinics, is also unknown; how foreigners can take advantage of the unemployment insurance, if as is often the case, visas do not allow them to live in China long-term without employment etc. The overarching concern however is what "The Law" will do to the job market prospects for foreigners in China. Besides the irritation that every foreigner employee in China just took a mandatory pay-cut of about 1,000 RMB per month, will employers still be willing to hire foreigners if they have to pay an additional social insurance contribution fee of 3,000-4,000 RMB a month? Time will tell.
©
By Christopher Myer
In June of 2011, the draft of the "Provisional Measures for Foreigners Working in China regarding Participation in the Social Insurance Scheme" was publicly released, stating that starting from July 1st, foreigners would have to pay into the Chinese social security system, and consequently sparked worries about what that exactly meant and whether or not we could opt out of it. Just a few months later, on September 6th, 2011, despite our hopes that it would simply disappear, the China’s Ministry of Human Resources and Social Security issued the "Final Provisional Measures" which will take effect starting on October 15th, 2011. While the "Final Provisional Measures" cleared up a few of the initial ambiguities about how exactly foreigners would pay into China’s social insurance system, many foreigners are still very sceptical about the actual benefits they can derive from contributing, and since this final draft still leaves many questions unanswered, it does little to quell anyone’s resentment. Given the complexity of the situation, and though it remains to be seen how this policy will take shape or form, it is important that foreigners working in China understand the "who, what, when, why etc." of what is about to happen.
A Foreigner’s Guide to the New (Mandatory) Social Insurance System
Photo: photophoto.cn, 3lian
What is it?
The "Provisional Measures for Foreigners Working in China regarding Participation in the Social Insurance Scheme", "Social Insurance Law", or simply "The Law" for short, mandates that all people employed in China have the same right to enjoy China’s social insurance system, which consists of five types of insurance:
1) Basic pension
2) Basic medical
3) Unemployment
4) Maternity
5) Work-related injury
Who does it affect?
Chances are, if you are reading this article and are not a full-time student (or working illegally), this policy will affect you. According to "The Law", all foreigners employed by either Chinese or overseas-funded businesses, foundations, organisations, social groups etc., who have worked in China for longer than six months must participate in the social insurance system, i.e., pretty much all foreigners working in China (in the current version of "The Law", it remains unclear whether or not this includes Hong Kong, Macau and Taiwan residents who work in mainland China). Those hoping for some sort of "opt-out" option are also out of luck, as is stated numerous times through the various legislation and press releases… this is mandatory. Having an international insurance will not get you a ticket to bypass "The Law". The only chance you have at opting-out is if you are a foreign employee from one of the nations which has entered into a social insurance treaty with China, which is currently a very short list: Germany and South Korea. Even then, only under certain circumstances will you be given permission to opt-out.
When does it start?
When the first draft of "The Law" was released in June, it stated that starting July 1st, foreigners would begin paying into the social insurance system. After a few months of official silence on the matter, it was announced on September 6th that the "The Law would be taking effect starting October 15th." Also currently unclear is whether or not foreigners will owe back-pay for July, August and September.
How much is this going to cost?
Monthly social insurance fees will be paid by both the foreign employee and by the employer in accordance with the regulations set by "The Law". The fee will vary depending on the average salary in the city where you work. As such, expect to pay more if you live in one of the Tier 1 cities. For example, foreigners living in Beijing, Shanghai and Guangzhou must all pay about 11 percent of the first 12,000 RMB of their monthly salaries. Oddly, earnings above that amount are not taxed, which means that any foreigner living in Beijing, regardless of whether they pull in 10,000 RMB per month or 100,000 RMB per month, are all going to pay about 200 USD for social insurance (low-level teachers are no doubt pretty annoyed with this). In addition to this, employers are required to contribute even more to the social insurance system – double or triple the amount (up to three times the average salary in the city):
Beijing = about 32 percent of the foreigner’s monthly salary
Shanghai = 37 percent of the foreigner’s monthly salary
Guangzhou = about 24 percent of the foreigner’s monthly salary
Why?
And now for the big question that is on every foreigner’s mind: Why? The official line is that this policy will help foreign workers enjoy the same social security benefits in China as Chinese nationals do! While for many foreigners who already had insurance, this seems unnecessary, but this is exciting news for foreigners employed in China who currently have no insurance policy. But what about the rest of us? Expat criticisms to this plan have ranged from rationally upset: this plan punishes teachers and other "low wage" foreign employees in China while turning a blind eye to the millionaire businessmen and consultants; to overtly derogatory: the government is tired of foreigners working in China stealing all of the good jobs and earning a king’s ransom.
Although it is unlikely to be reported as such by the Chinese media, many people believe that the underlying intention of the new policy is to use this influx of cash to alleviate some of the pressure on China’s social safety net that is likely to occur in the near future as more and more Chinese reach the age of retirement. The numbers behind "The Law" seem to support this notion: according to one estimate, the new regulations mandating foreigners contribute to the social insurance system are expected to raise as much as 1.5 billion USD a year. As a foreigner working in China, I am obviously not thrilled about this idea…but I’ll be damned if that isn’t a brilliantly masterminded scheme!
Other Problems
So let's hypothetically say that the goal of this policy was not to use foreigners' money to pay for China’s soon-to-be massive wave of retirees… does the social insurance system actually benefit foreigners? Experts who have already studied "The Law" in depth seem pretty concerned about its ambiguities, vagueness and inability to provide details: the specifics of how to actually reclaim a pension after leaving the country, if it is 100 percent reclaimable, whether or not it is taxed and other questions remain unclear; how and where foreigners can use their medical insurance in China, i.e. in the international sections of Chinese hospitals or in international clinics, is also unknown; how foreigners can take advantage of the unemployment insurance, if as is often the case, visas do not allow them to live in China long-term without employment etc. The overarching concern however is what "The Law" will do to the job market prospects for foreigners in China. Besides the irritation that every foreigner employee in China just took a mandatory pay-cut of about 1,000 RMB per month, will employers still be willing to hire foreigners if they have to pay an additional social insurance contribution fee of 3,000-4,000 RMB a month? Time will tell.
©
