China: Reforms And Changes Of Foreign Employment Policies In China

Last Updated: 12 February 2018
Article by Aaron Yizhou Deng

I.General Policies of Foreign Employment

In China, only "qualified" entities are legally permitted to "employ" people (i.e., "employees").  In particular, all domestic businesses or other types of entities are qualified to directly hire people, while not all foreign entities doing business in China are so qualified. For example, a representative office in China of an overseas entity which was incorporated in a jurisdiction other than China is not qualified to directly hire employees because under China law such office can hire employees only by way of a seconding arrangement with a personnel seconding entity.

However, is a foreign-invested entity, such as a so-called wholly-foreign owned enterprise("WFOE") or a sino-foreign Joint Venture in China ("Joint Venture") qualified to directly hire employees without resorting to the services of a seconding entity?

The answer is yes. This is because under China law a WFOE or Joint Venture is deemed as a "domestic" business which status enables it to directly hire people.

Further, can a WFOE or Joint Venture hire expatriate employees? The answer is yes once again, subject to satisfaction of a complex series of permit and approval procedures as specified below.

While a WFOE or Joint Venture in China, in hiring and recruiting Chinese employees must comply with the Labor Law of China("Labor Law"), Employment Contract Law of China("ECL") and other employment laws and regulations, it must, in addition to compliance with the foregoing employment laws and regulations, follow China's statutes governing foreign(expatriate) employment, such as the Exit and Entry Administration Law of China(《出境入境管理法》, effective as of July 1, 2013),the Regulations of China on Administration of the Entry and Exit of Foreigners (《外国人入境出境管理条例》, effective as of Sep. 1, 2013),the Administration Rules of Employment of Foreigners in China (effective as of May 1, 1996) , as well as the rules and regulations promulgated by the State Administration of Foreign Experts Affairs of China ("SAFEA"),the current watchdog in this regard and statutes and treaties governing foreigners' social security. The operations under those laws, rules, regulations and statutes are, as a matter of fact rather complex which needs advice and assistance by legal professionals.

II.Major Points of Reforms and Changes

As regards the specific policies and procedures of hiring foreign employees, reform programs have been carried out since the beginning of 2017 by the authorities, leading to drastic changes worth noting by foreign employers doing business in China, in contrast to the previous procedures.

Before the said reform, foreigners' employment in China was subject to a comprehensive system of employment permits administered by the former Ministry of Labor and later Ministry of HR and Social Security and their local labor bureaus. Such system required five-step procedures for an employer (including a WFOE and Joint Venture) to hire foreign employees.  

First, the employer should apply for a permit of foreign employment so that it could be eligible for hiring foreigners. Second, a letter of notification of visa eligibility and a copy of the employer's permit would be delivered to the would-be foreign employee. Third, the employee went to a Chinese consulate to apply for a work visa. Fourth, after the employee's entry into China with the visa, the employer should apply for a work permit for the sake of him/her. Finally, with the work permit and work visa the employee should apply to the Bureau of Public Security (i.e., the police) for a residence permit. Then the employee may commence working for his/her employer.

After the said reforms in 2017, drastic changes took place. First, the authority administering the entire approval procedures were changed from the Labor Bureaus to the SAFEA and its nationwide branch offices.

The second change is that the two sets of administrative approval procedures formerly applicable to "foreign experts" and non-expert foreign employees respectively have been consolidated to a single system of administration and approval called Permit System of Foreigners working in China.

Third, the administration method of foreign employees in China has been reshaped into a categorization system under which foreign employees are classified into three categories, namely, Class A, Class B and Class C. Those three classes of foreign employees are separately administered under their respectively applicable rules and standards.

Class A is defined as Elite Foreign Talents, an equivalent to the formerly termed "foreign experts" before the reform. Class A includes Nobel Prize earners, foreigners who are or were members of a state science or engineering academy, senior managers of the Fortune 500 companies, innovative entrepreneurs who invest in China with proprietary intellectual properties, and post doctors below the age of 40. As ever before, those Class A foreigners can easily obtain work visa and work permit from the authorities.

Class B is defined as Foreign Professional Talents, an equivalent to the non-expert level foreign employees before the reform. This class mainly includes foreign talents whose salary rate is no less than four times the local average social salary standards in the preceding year, foreign language teaching staff, and foreigners with a bachelor's degree or higher ones and at least two years of working experience.

Class C is defined as Miscellaneous Foreigners, specifically referring to foreigners working in China for less than 90 days, foreign interns, qualified foreign students and foreign graduates from overseas universities.

From the definitions above, it is apparent that most of the expatriate employees hired by WFOE or Joint Ventures in China fall within Class B. The good news is that the conditions of Class B is rather easy to meet because foreign employees' salary rate is generally high so as to easily meet the four times average social salary standard above, and also because they were generally well educated and thus can easily satisfy the academic degree condition above.

III.Process of Applications and Approvals

Currently for an employer in China to hire foreign employees, the applications, submissions and approvals are both done electronically on the website of SAFEA and physically handled by its local offices. The information on the website of SAFEA is interconnected with other relevant authorities such as police and local labor bureaus, substantially streamlining the entire process. The application process is generally as follows:

  1. both the would-be employer and foreign employee electronically file their applications on SAFEA website;
  2. SAFEA will conduct a preliminary review of the electronic application;
  3. if SAFEA is satisfied with the preliminary review(if not satisfied, then it will notify applicants to complement submissions),then it will collect hardcopies of the application documents from the applicants for a confirmation review;
  4. If SAFEA is satisfied with the confirmation review, then the information about the applicants will be passed to police. For Z or R visa applicants, the information will be passed to local labor bureaus as well;
  5. The applicant then should file an online application for a work permit and then submit hardcopies of materials as required;
  6. The authorities will review the electronic application for work permit, and if satisfied, will approve it and notify the applicant to collect a Certificate of Work Permit, which up the process of work permit application; then a residence permit can be obtained from the police with the work permit.

Of course the complex process above, which takes one to two months, is only a beginning of the foreign employment in China. For one thing, the drafting of an employment contract for a foreign employee is challenging and professional because the laws and rules governing foreign employees are complicated with lots of legal pitfalls and substantially different from those governing Chinese employees. Then come the handbooks applicable to foreign employees, the termination of employment, severance package rules, overtime pay, sick leave, annual leave, social security requirements, disciplines and the like. In all, the employment of foreigners in China is highly specialized calling for expert assistance throughout the process of the employment to prevent and minimize legal risks.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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