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Rising costs increase pressure on Chinese companies

Reporter: Chen Tong 丨 CCTV.com

11-08-2016 16:23 BJT

A fresh survey from the Ministry of Industry and Information Technology shows that more than half of Chinese companies are feeling the impact of rising labor costs.  Companies are trying to cut labor costs but it's not as easy as one might think. 

The government survey shows 56 percent of 6,000 firms surveyed say they are under heavy pressure due to rising costs of labor, financing, and land. Forty-six percent of them complain of rising labor costs, more than those who complain about any other sector of rising prices. Things appear to have gotten more difficult since the survey was completed.

"The increase in taxes will definitely raise costs for companies. Companies will have to bear the tax increases because staff only care about how much cash they actually receive. Staff will pass on the pressure to companies. Employees will say no to more income taxes, and so eventually it's the companies that will be covering that cost."said Zhao Tengda, iTrusty.com's president.

Which is to say that although the taxes will be paid by employees themselves, the resulting reduction in their take-home pay will still have to be covered by the firms because company administrators will need to offer more to retain staff. Industry insiders say high-end firms, such as finance companies, are those which will suffer most. The State Council notice also says there are plans to lower taxes for low-income groups, such as those in low-end manufacturing industries.

"Companies' profitability is weakening in the downward economic cycle. As that happens, the companies will be very sensitive to cost hikes due to staff welfare improvement. The improvement will eat into profits. The industries with more elite staff will be the ones to suffer most from the tax reform."said Song Jie,General Manager of G&E Human Resources Consulting.

China decided earlier this year to reduce the amount of social insurance and housing provident funds that enterprises have to pay for their employees. That should reduce company costs by a total of over 200 billion yuan by the middle of 2017. Still, companies continue looking for other ways to lower staff costs. Temporary workers sound like a good approach to some -- salaries are comparatively low, but on the other hand employing temporary staff has risks of its own.

"We've seen a lot of companies are now using more flexible staff. For example, restaurant workers may come to work for two hours and just won't come tomorrow. Delivery men come to work for the Double 11 Festival, but leave after just two weeks. Globally and domestically, a lot of companies are using temporary workers but the industry is not regulated." said Zhao Tengda.

Companies may not be able to check the backgrounds of all temporary workers, and so there can be risks in terms of safety and company reputation. The Ministry of Human Resources and Social Security says that companies may employ no more than ten percent of their workers on a temporary basis.

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