Lin Min

CHINA announced last week new regulations that will extend the social security program to cover expatriates beginning Oct. 15. While officials say the move will benefit expatriates, it may not be welcome by expatriates and their employers.

According to South China Morning Post, expats from countries that have not signed bilateral agreements with China will have to pay up to 11 percent of their salaries to social security funds, while their employers may have to contribute up to 37 percent, which would mean a big increase in cost for companies hiring a large number of foreigners.

Most expatriates do not work permanently in China, nor do they plan to live here after they retire. Therefore, to many, the program just means extra cost, although they are allowed to withdraw the amount accumulated in their personal account under the funds when they leave China.

The Chinese Government has said it is both the right and obligation of everyone working in the country to contribute to social security, and it is an international practice for such funds to cover expatriates. This is true and the extension of the social safety net is justifiable. However, it is advisable that the government grant a grace period for the new regulations to take effect, allowing more countries to sign bilateral agreements with China on social security. Such agreements will allow expatriates holding passports of signing countries to be exempt from the new rule, avoiding paying double contributions. Currently only a small number of countries, such as Germany and South Korea, have signed such agreements with China. By contrast, the United States have entered into such pacts with at least 25 countries.

Granting a grace period would also allow the Chinese Government to explain to expatriates and their employers — most of whom know little about the new rule — on the details of the new regulations. In a report published Friday on the Post, the contribution to the funds was described as a new tax, which may cause misunderstanding that expatriates cannot get their money back when they leave China. In fact, expatriates and their employers will pay to personal and communal accounts under the social security funds and expatriates can withdraw from their personal account when they cease to work in the country. David Lore, an American journalist working in China, was quoted by the Post as saying: "My concern is that our money would go into somebody else's pocket."

Contributions to the funds will be calculated based on the salaries, rather than the incomes of employees as the Post described. In China, income may include salary, bonuses and many items of allowances. So the actual contributions by both expatriates and their employers may not be as big as many have expected.

The contribution rates to the program, which comprises pension fund, basic medical insurance fund, workplace injuries insurance fund, unemployment fund and birth insurance fund, also vary from city to city. A grace period will allow cities to work on appropriate details for local social security regulations concerning expatriates.

The Chinese Government should also address concerns among foreign firms that the new regulations would worsen the investment environment. The Post said all of the company officials it interviewed were critical of the new rule and one interviewee said his firm would ignore the new rule because it does not give a penalty for violation.

The new rule may also lead to concerns that it could force more expatriates to work illegally. According to Central Government statistics, 231,700 expatriates held work permits issued by the Chinese Government as of the end of 2010, while the total number of foreigners working in China is estimated to be about 600,000. That means two-thirds of them work here illegally and they will not be covered by the social security program. With China in dire need of foreign talent, the country should cut red tape concerning the employment of expatriates and avoid aggregating complaints among foreign firms and their employees. Allowing more time for businesses and expatriates to adapt to new regulations is especially important as the world economy braces for a possible "double dip."

(The author is editor of the Shenzhen Daily News Desk.)