Indian businesses operating in China are shaken by China's decision to impose social security obligations for foreign employees, which will push up the wage bill by over 40 per cent. It has put expansion plans of some companies in a quandary while new investors may have to reconsider their plans.
"It will upset our cost calculations and affect business prospects. This will be on top of our existing expense on medical insurance," MVRabade, chief executive officer of Adani Power China, told TNN.
China has extended the social security system to cover foreign companies and their employees. Under the law, employers are expected to contribute 37% of salary and employees 11% into the social security pool. The maximum amount to be paid per month varies between 9,000 yuan and 11,600 yuan ($1,415 to $1,837) in various cities.
The plan has several components with employers and employees expected to contribute towards pension and insurance for medical, unemployment, maternity and work related injury.
"Indian companies will think twice before bringing in more personnel at senior levels. This will affect knowledge transfer between both Indian and Chinese staff," EB Rajesh, head of China office of the Confederation of Indian Industry, said.
The increase in cost is both sudden and sharp. It will force companies to redo their budget outlays, he said. Besides, the benefits offered under the social security system are not attractive for employees of Indian firms. "Indian employees prefer foreign-owned hospitals rather than government-run facilities because of the language barrier," Rajesh said.
Rabade of Adani Power wants the Indian government to try to convince China that Indian employees are covered by medical insurance, and deserve to be exempted. China has said it is prepared to exempt employees of countries that sign a reciprocal agreement provided they are making contributions to a similar scheme in their home country. Unfortunately, only three countries have come forward to sign such agreement with China, Xu Yanjun, deputy director general of National Social Security Management Centre under the Chinese ministry of human resources, told journalists on Friday.
Most Indian businesses see little hope in this area because India does not have a similar social security arrangement. Besides, New Delhi may not be keen to sign a reciprocal agreement with China on a sensitive labor issue.
Rabade also questioned the pension scheme, which offers pension payments after an employee has lived in China for over 15 years. Most foreign workers, who usually live in China for two to five years, would not be avail of it, he said.
I wish India follows suit with and Indian Social Security Plan. I do not think it is a Market Access barrier issue. It is labour friendly.