This is China! BLOG

Musical Chairs in the Yangtze River Delta

I recently had lunch with an American manager of a services company in Shanghai. The company provides office services predominantly to Western companies investing in China. His staff is overwhelmingly Chinese. The company is growing rapidly.

We talked about how hot the labor market is in Shanghai now. John (not his real name) told me that on average salaries for Chinese professionals have been rising seven- to eight-percent per year in Shanghai. As long as they stay in their jobs. Which on average now is about a year, eighteen months at a stretch.

“To hire someone with experience, who has English communications skills, I will have to pay at least 20% more than what they are making at their current company.” And therein lies the rub of why Shanghai is fast becoming uncompetitive in many sectors from a salary point of view, especially in manufacturing, which is exhibiting the same escalation: rampant salary inflation for individuals without the depth of experience necessary to make companies truly competitive in the global market.

A British manager in Suzhou recently told me over beers he’d had a bad day that day because a production manager they had hired was not going to be starting his new job with the British fellow’s company. “He told his current employer what he is going to be making at the new company, so he could bid up his salary before year’s end review. The current employer took the bait. A friend of his who already works at our company told me he actually likes his old company; he just wanted more money, and had little intention of moving on to another business.”

“Can you just go down the list and pick the next candidate to hire?” I asked.

“No, I have to start all over again.” He covered his face with his hands to keep from seeing the long process ahead, expensive and time-consuming, which again might end in disappointment.

And more money is what the bright young things are getting nowadays. John back in Shanghai told me that he is receiving resumes from Chinese nationals that are asking for US$100K salaries for middle management jobs. “Some of these guys are making more money than my brother back in the States.” His brother is University educated with advanced training in the medical profession.

Frankly, there is no solution to the salary escalation problem plaguing the more developed parts of China. This is one market forces will have to normalize. We Western employers here can only wait until the investment fever cools down, with fewer Western companies entering the field, and with Western and Chinese companies moving on to x-tier cities in inland China and to countries like Vietnam.

Until then, Chinese employees will be playing musical chairs with their salaried positions until the music stops. Then we’ll all have to see just how many chairs we employers have been willing to leave remaining.

Bill Dodson
SUZHOU, China