Why a good law has been misread

Wang Xiaoying / China Daily

Until a few months ago if you had asked foreigners living and working in China for a long time about the social security system here, chances are most of them would have said: "I didn't know it had one." - or something similar.

Last month, thousands of foreign workers became more intimately acquainted with the social insurance system when they and their employers started contributing to it as the new social security rules on foreign workers took effect in mid-October.

But the government should realize the perception gap created by the change in the Social Insurance Law, which was incorporated last year and implemented through a recent government regulation.

According to the regulation issued by the Ministry of Human Resources and Social Security in September, foreign nationals working on the Chinese mainland will pay up to 11 percent of their salaries as contribution, up to the maximum assessable salary that has been calculated nationally at an average of 11,688 yuan per month. Employers, too, pay up to 37 percent of their foreign employees' salaries up to this maximum salary ceiling.

The Chinese government has said the move will benefit foreign workers. Indeed, the lack of social security for foreign workers has led to many labor disputes in the past. Besides, it is an international practice to treat foreign and domestic workers equally and entitle them to the same social security norms.

Many foreign workers, however, cannot accept this. Some think they have been unfairly targeted, because the rights under the social security system have not been clarified. Others think the new move is intended to make hiring of foreign workers more expensive and therefore transfer the jobs to locals.

It is true that applying the social insurance norms to businesses that have high percentages of foreign workers - international schools for example - would raise the salary cost significantly and could lead to replacement of some junior- or mid-level foreign staff members by locals.

But it will have negligible impact on most businesses because most foreign workers earn more than three times the average salary of domestic workers, which is the maximum limit for assessing social insurance contribution. This means the effective rate of contribution will be much less and would fall steeply as an individual's salary rises above the maximum salary limit for exemption.

So why has the good-intentioned move created a stir? There are two explanations for this. First, the regulation does not address important issues such as how benefits are to be claimed. For example, unemployment insurance is included, even though foreign workers with work permits tied to specific employment contracts are not able to engage in general job search after the end of their contracts - a basic condition for claiming unemployment insurance.

That apart, there are vague provisions for foreign workers to claim their pensions through Chinese embassies abroad without being clear how embassies are to liaise with provincial and municipal administrations. In other words, the regulation is short on details and gives the impression that claiming benefits is not an important part of the process.

What's more, the relevant ministry knew that the change was going to be incorporated in the law - it possibly was one of the non-controversial issues for the government. Hence, it should have done more to publicize and discuss the change with foreign stakeholders such as the chambers of commerce immediately after the law was passed.

But it did not do so. The result: when the regulation was issued in June, it came as a bolt from the blue. It was not issued in a translated English version either, and initially the response time for consultation was only 7 days. It also left provincial and municipal authorities in the dark about what exactly they were supposed to do to implement the regulation.

Furthermore, the revised regulation has not answered legitimate concerns about the payment of benefits and the timescales for negotiating bilateral agreements to avoid the phenomenon of foreign workers paying social insurance twice.

The regulation is not anti-foreigner, but the relevant authorities should have done better in consulting those who will implement or be affected by them.

As such, the general lesson is clear - discussions and engagement in advance will lead to better laws and regulations without any loss of face caused by the need to make significant changes after they are issued.

For the current regulation, the ministry needs to do some important public relations work - explain face to face to foreign stakeholders the impact of the regulation; provide clear fact sheets giving examples of contribution calculations, benefits and any exemptions; address outstanding issues involved in claiming benefits across all insurances; and prepare a task force that can negotiate bilateral agreements with other countries and agree within reasonable time to avoid "double social insurance".

Finally, the message needs to go out loud and clear that social insurance is a benefit for all foreign workers, including those who come from countries whose social security is far inferior to China's, because they will be glad one day that they were enrolled in the system.

The author is an international financial consultant based in Kuala Lumpur and former fund management expert on the EU-China Social Security Project.

(China Daily 11/02/2011 page9)