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UNCLAS SECTION 01 OF 02 GUANGZHOU 031579 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ELAB ECON EINV CH
SUBJECT: South China's White Collar Worker Shortage 
 
 
¶1. (U) SUMMARY AND COMMENT: Speakers at an October 16 conference on 
human resources organized by the American Chamber of Commerce - 
South China addressed the increasingly serious competition among 
foreign multinationals in the Pearl River Delta (PRD) for the 
limited number of skilled professionals in the area.  The 
competition, which focuses on pay scales and which is expected to 
last three-to-five more years, has led to an ever higher turnover 
rate for company managers, who are jumping between companies in 
pursuit of higher pay.  Just as serious, companies are poaching more 
and more on one another's staff.  Human resource (HR) consultants 
and companies are tackling the problem with performance-based pay, 
career advancement, supplemental benefits, and non-compete 
agreements.  Foreign multinationals may be making the situation 
worse by putting too much emphasis on English skills and not 
developing talent from within their ranks.  END SUMMARY AND 
COMMENT. 
 
Pay Race in the Pearl River Delta 
--------------------------------- 
 
¶2. (U) Media reports and business surveys are clear and consistent 
about China's severe lack of skilled professionals.  One commonly 
cited statistic stands out: China has only 5,000 internationally 
qualified managers to fill a demand for 75,000.  Managers give 
little thought to jumping from one firm to another.  A 2006 survey 
by Mercer HR Consulting reported that wages in Guangzhou, located in 
the PRD, would rise 8 percent in 2006, up from 7.2 percent in 2004. 
Wages in Beijing and Shanghai will rise 7.5 percent in 2006. 
Guangdong has raised its minimum wage seven times during the past 12 
years.  According to Mercer, managers can earn a 50 percent pay 
raise by switching companies and some managers in PRD-based firms 
are earning as much as their Hong Kong counterparts. 
 
¶3. (U) Companies are also more willing to poach staff from 
competitors.  A Metlife branch manager recently told the Consul 
General that competitor Sunlife had hired away one-third of its 
Beijing office staff.  Turnover rates have increased from 8.3 
percent in 2001 to 13.8 percent in 2006, according to Hewitt 
Associates.  Mercer believes the current pay race for white collar 
workers will continue for three-to-five years before cooling down. 
 
 
Survey Says: There's a Shortage 
------------------------------- 
 
¶4. (U) At the HR seminar hosted by the American Chamber of Commerce 
- South China, several hundred HR professionals, company managers, 
and HR consultants agreed with a recent survey of 80 PRD 
foreign-invested companies that a lack of skilled talent tops the 
list of HR concerns here.  According to the survey, other challenges 
include poor leadership skills, poor communication skills, high 
turnover, and low motivation.  Surveyed companies confirmed this 
labor environment had already led to poaching and unsustainable wage 
increases.  (Interestingly, survey respondents did not cite as a 
primary concern China's draft labor law, which will affect 
companies' ability to use temporary workers.)  These results echoed 
the findings of the 2006 Mercer survey of China's skilled labor 
market. 
 
Creative Solutions: Career Advancement and Non-Competes 
--------------------------------------------- ---------- 
 
¶5. (U) PRD companies are trying to think creatively about how best 
to tackle the problem, relying less on pay scales and more on 
employment satisfaction.  According to the AmCham survey, companies 
are developing special retention plans, redefining HR strategies, 
and changing their recruiting methods.  "Best practices" that Mercer 
has been teaching foreign multinationals in China include promoting 
long-term career advancement, with opportunities for work abroad and 
rotations among different departments. Performance-based pay is 
another way for companies to move beyond the traditional promotion 
scheme.  Other HR strategies include sign-on bonuses and 
supplemental benefits such as housing, savings, and pension 
contributions. 
 
¶6. (U) Approximately half of the companies surveyed by AmCham use 
non-compete agreements in employment contracts.  Of those that do 
not use them, half plan to introduce them in the future.  Of those 
that do use them, half have experienced a breach in contract during 
the past three years.  Results of enforcement actions have been 
mixed, as police and courts lack experience and interest in pursuing 
such cases. 
 
Foreign Firms' "Addiction to English" 
------------------------------------- 
 
¶7. (U) There was one somewhat, but not entirely, contrarian 
 
GUANGZHOU 00031579  002 OF 002 
 
 
viewpoint expressed at the conference.  U.S. HR consultant Irv 
Beiman, Chairman of Shanghai-based eGate Consulting, said that 
China's shortage of skilled workers is much less acute than claimed. 
 He encouraged foreign companies to break their "addiction to 
English" and broaden their recruitment net, using internal 
interpreters and bilingual staff to bridge the language gap.  He 
also said foreign companies should look for natural leaders from 
within their ranks instead of relying on training.  He suggested 
that many successful domestic companies have stronger middle 
management than they are credited with. 
 
GOLDBERG