Foreign Tax not about Foreigners

Perhaps this issue is old hat and considering the fact that much of the implementation and enforcement of China’s Social Security Law is, shall we say, open to debate, there might be no purpose at all in even thinking about it. But I have been. And I have come to the conclusion that every expat out there who is complaining about payouts into a fund they will never really take advantage of has completely missed the point.

The Law (as it is known) has very little to do with pensions for old foreigners and much more to do with opportunities for young Chinese. Consider this number: 37. That is the percentage that employers will have to add on top of their foreign employees salary just to comply with the new law. As China Briefing put it at the time:

“The main concern for employers will be the additional cost. While most cities currently implement a “ceiling” for contributions which limits the amount payable each month by the employer to a few thousand RMB, this is by no means universal and Dalian has removed this cap already. If this trend continues throughout the country, it may be that companies are required to make contributions of up to 37 percent on the entire monthly salary paid to their foreign employees.”

Let us not kid ourselves. How many of us are truly factoring our China pension in when contemplating twilight years with little employment? Most expats who find themselves paying into this plan will also find themselves on a plane back home within a few years. Maybe even a few months. The good thing for those temp. guys is that the surplus paid into the social security fund will be refunded as a lump sum when leaving China. Here the WSj breaks the tax on foreigners down in brief.

What this really looks like is a tremendous burden on the employer and an incentive to hire cheaper, local labor with a similar skill set. A decade ago this law would have been a burden and nothing else. But today many young Chinese are returning from studying abroad while those graduating from local colleges are interacting with the world – either way the youth are gaining the know-how to operate within an international setting. But most important of all, there are millions of them (look here and here for a bit more info on China’s youth) and they are looking for work.

I think it’s brilliant (if indeed my wild guess has any merit whatsoever) and probably very necessary. Consider that the Cultural Revolution had as much to do with surplus young people as it did with general Maosanity – Read Yu Jianrong on the subject of “educated youth or 知情“. Most critical analyses of that period shake their heads at the colossal WASTE. We can look all over the world for desperate measures by the authorities to give their young, energetic people something to do: the Crusades and the Viking raids, for example. Now those were wasteful.

As far as I am concerned, wasting overpaid foreigner’s cash in a roundabout attempt to stimulate hiring of slightly under-qualified locals seems like a pretty good alternative to … historical precedent.

 

 

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