Foreign companies in China are dispensing with non-essential expats; but expats are also losing enthusiasm for China, says Matthew Plowright.

Like many expats in China, Chas Pope, Associate Principal at London-headquartered engineering firm Arup, expected to be in China for only a couple of years when he moved to Beijing in 2003. He stayed for 14 years. And like many China expats of his generation, he recently decided to move on, relocating to Singapore. ‘The construction boom has tailed off,’ he explained. ‘There had to be a correction, and the market should recover eventually. But it can be someone else’s job to ride the next wave.’

His experience has become common, with high-profile departures of long-term China expats and reports from relocation and real estate firms suggesting that this is part of a bigger trend than the usual cyclical slowdown. Official statistics are sparse and dated, but there is clearly less demand for expatriate talent than five or ten years ago – at least relative to local hires.

Peter Smith, China Managing Director at recruitment firm Michael Page, cites several reasons for this change. These include: tightening profit margins; the need for fluent Mandarin speakers; a growing pool of Chinese-born candidates with international experience; improving skills of local hires; and corporate localisation strategies. ‘The knock-on effect is that the appetite for expats is diminishing,’ Mr Smith says.

Companies used to hire international students and new graduates as interns and for junior roles quite easily. ‘Hiring expatriate graduates who don’t have at least two years’ work experience is now virtually impossible,’ says Mr Smith. Today, even expats with fluent Mandarin (a pre-requisite for junior roles) and specific skills in growth areas, still have to overcome tighter enforcement of visa rules.

“Five years ago, 80% of our directors were international. Now, it’s only 5%.”

Senior-level expats have been less affected, but this is also changing. ‘Five years ago, 80% of our directors were international. Now, it’s only 5%,’ says Mr Smith. Companies that have operated in China for many years are seeing local hires rise up the management ranks.

Increasingly unattractive

Meanwhile, for many expats who are still in demand, especially those with young families, China is losing some of its allure. According to HSBC’s 2016 Expat Explorer Survey of 27,000 expats worldwide, China’s attractiveness slipped seven places to 34th, below Russia (17th), Vietnam (19th), India (26th) and Saudi Arabia (31st).

Health concerns, mainly relating to air pollution, are a particular worry, as Mr Pope’s alarming time-lapse video of smog rolling into Beijing shows. The HSBC survey ranked China worst out of 45 destinations for health, and second-worst for general life quality. ‘A lot of people leave soon after starting a family, because they don’t want to bring up kids [in that environment],’ he says. In fact, Beijing’s air quality improved last year, but more media attention coupled with greater availability of data has only heightened health fears.

Rising living costs are another expat deterrent. In its 2011 worldwide cost of living survey, the Economist Intelligence Unit ranked Shanghai 102nd; in 2016, it had climbed to 11th. The city’s rents rose by some 15% last year, double the salary growth rate. But given the slowing economy, narrowing margins and increasing domestic competition, companies are reluctant to compensate with higher salaries or hardship allowances.

Chinese talent, international experience

While there is still demand for expats, it has narrowed to those experienced Mandarin-speakers with expertise in growth sectors such as fintech, robotics, professional services, food and beverage and renewable energy. Chinese MNCs that are expanding globally, such as telecoms group Huawei, are also showing interest in non-Chinese managers with international business skills as they invest abroad. But again, there are more Chinese with international qualifications and experience. Michael Page now hires 80% of their Chinese graduates internationally. Meanwhile, local firms are recruiting Chinese-speakers with international experience, or Chinese-born candidates with foreign passports, to drive their international expansion.

Against a backdrop of slowing growth and rising competition, the heady expat days of the previous decade appear to be numbered. But there are ways that companies can effectively manage the decline.

Action points for companies

Consider hardship allowances. For companies that still need expats, offer higher pay or hardship allowances to compensate for health concerns and rising living costs—at least in the short term.

Experiment with trial postings. Post prospective hires to China temporarily so they can experience the cosmopolitan atmosphere and overcome any fears or concerns before fully signing up. But beware, tightening visa rules can complicate such arrangements.

Develop leaders with local roots. Recruit local talent with family ties to expensive, polluted cities such as Beijing, and provide them with a realistic route into senior positions.

Emphasise training and development. Top-quality training and development is essential. But you will be competing against Chinese firms that have also invested heavily in training and now offer excellent international career opportunities.

Matthew Plowright is Founder and China analyst at Red Goose Studio. He was previously Principal and Head of Research at China Confidential Financial Times.

This article was written for FT|IE Corporate Learning Alliance

© 2017 Corporate Learning Alliance