2015-Best-Practices-China-0315

BEST PRACTICES FOR EFFECTIVE
RELOCATION TO CHINA
GUIDE FOR GLOBAL MOBILITY MANAGERS

1 | BEST PRACTICES FOR EFFECTIVE RELOCATION TO CHINA | CARTUS
Best Practices: China
For global mobility managers, as well as business and
organizations worldwide, China continues to loom large on the
scene as a business powerhouse, and, in turn, it continues to
present both opportunities and challenges for relocation
programs and assignees.
For the past several years, China has ranked among the top destinations
receiving—and expected to continue to receive—relocation volume from
companies around the globe. Respondents from our 2014 Policy & Practices
survey ranked it #2 on the top destinations list.
2014 TOP DESTINATIONS*
1) United States
2) China
3) United Kingdom
4) Singapore
5) Hong Kong
And although China is rated the second highest location in terms of its
importance to companies’ business goals (Cartus’ Biggest Challenges survey
2014), it has also been rated among the most challenging locations for both
companies and assignees over the past few years.**
Challenges in Managing
Relocation for Your Company
Importance to
Future Business Goals
Location Percentage Location Percentage
Africa 69% North America 51%
Indian Subcontinent 55% Greater China 41%
Greater China 53% Europe 35%
Companies doing business in China face critical issues when talent decisions
are in play, and primary among them is how to get top candidates to accept
an assignment to China in the ﬁrst place, and then how best to support them
once there—issues that are at the top of mobility managers’ daily agendas.
* Cartus 2014 Biggest Challenges Survey
** Cartus 2014 Policy & Practices Survey
BESTPRACTICES:CHINA

CARTUS | BEST PRACTICES FOR EFFECTIVE RELOCATION TO CHINA | 2
The top challenges in Greater China, according
to Cartus’ 2014 Biggest Challenges survey,
are intercultural issues, finding suitable local
candidates, and controlling relocation/
assignment costs—the last being intensified by
a continual escalation in local prices for rental
housing, cost of living, etc., which increases
issues for all assignees.
Housing and language issues rounded out the
top five concerns. Survey respondents also
mentioned issues familiar to companies doing
business in China: the rapidly changing nature
of regulations and requirements in China,
including tax, visa and immigration, and work
permits. Payroll, currency, and compliance
issues are also frequently cited. Health and
safety concerns, such as pollution and air
quality, paint toxicity, and lack of medication
standards, are also common.
Finding suitable local candidates remains a
key issue, although companies are making
progress in terms of understanding more
clearly what is needed to recruit and engage
local Chinese professionals.
Companies dealing with many of these
challenges have instituted a number of
approaches, including:
Considering shorter term assignments,
intra-regional or “local-plus”
Providing greater hardship allowances
outside Tier I—but potentially
trimming or eliminating them in Tier I*
Offering split family options (where
allowed)
What do mobility managers need to know
about these challenges—and what kinds
of policies and practices can they put into
effect to ensure that their programs, and their
assignees, can be successful in China?
In the pages that follow, we describe the best
practices that Cartus has evolved to address
major issues raised by our clients and their
assignees in China.
TOP CHALLENGES: AN OVERVIEW
What are the key challenges, and what steps can be taken to mitigate the risks?
Challenges in Greater China (percent rated 4 or 5 on 5-point scale)
* Note: Although there are
different approaches to
categorizing China’s city tiers,
they typically refer to issues
such as economic development,
infrastructure, and historic or
cultural significance. This Best
Practice document primarily
focuses on China’s Tier I cities,
typically including Beijing,
Shanghai, Guangzhou, and
Shenzhen. Second-tier cities
include Tianjin, Chongqing,
Chengdu, Wuhan, and Xiamen.
Third-tier cities include Guilin,
Hangzhou, and Zhongshan,
among others.
54%
53%
48%
47%
46%
40%
39%
38%
33%
16%
Complying with laws and regulations
Controlling relocation/assignment costs
Transportation
Finding suitable local candidates
Attracting qualified candidates
Structuring compensation packages
Moving into areas with limited infrastructure
Managing relocation for your company
Economic instability
Safety and security
Housing
53%
53%
53%
53%
Intercultural issues
Language issues
Payroll and currency issues
Schooling
59%

Cultural Issues
Assignment success in China depends to a significant
degree on an understanding of Chinese culture and of the
traditional cultural values, such as hierarchy, face, and
relationships (guanxi).
HIERARCHY
The concept of hierarchy is deeply embedded in the Chinese culture.
Rooted in the precepts of Imperial China and Confucian philosophy,
hierarchical guidelines cross over into virtually every aspect of society—
family, government, and business—and are reflected in everything from
language and greetings to seating at events and business protocols.
The hierarchical world view includes elements such as clearly defined power
structures, clear lines of authority, and respect for elders and those
in authority.
How does hierarchy influence work in a multinational company? In Chinese
business culture, this is reflected in a clear gap between management and
the general workforce. The power structure is clear and unquestioned,
and everyone knows their role in the group. In addition, age, gender,
and position in the company all matter when it comes to interactions and
how one is treated in the business hierarchy. Subordinates will not correct
superiors in group settings, and decisions are typically made at the highest
levels in the organization. To quote an old Chinese saying, “One heart
cannot serve two masters,”matrix reporting lines often cause confusion for
Chinese employees, who must ask themselves: Who is my true leader—my
direct-line manager, or the dotted-line manager?
“SAVING FACE”
One way harmony is maintained in China generally, and in business
specifically, is through careful attention to “face.” In China, “face” (or one’s
reputation, to define the term loosely) can be lost, given, and/or saved. One
can “lose face” simply by causing someone else to lose face. Even beyond
not correcting their superiors, subordinates usually do not even ask questions
of them in group settings, and confrontation is to be avoided. For example,
if a subordinate doesn’t understand a request and shows his concern, he
might be thought of as not smart enough to understand what was being
asked. Or, his boss might be thought of as not having done a good enough
job of explaining the request. If both parties lose face and this is witnessed by
others, the result is a lose-lose situation—clearly something to be avoided.
BESTPRACTICES:CHINA

How does face influence international
assignees working in China? In order to save
someone’s face, instead of saying “No”
directly, your Chinese counterparts will show
their concern by saying “Maybe”,“That will be
difficult,” or simply by remaining silent. Many
assignees do not understand such indirect
communication and, therefore, they miss
the key message completely. For assignee
success when working in China, the skills of
reading between the lines and listening for
hidden messages are crucial.
RELATIONSHIPS
Relationships, or “guanxi,” are very important
in China. Establishing and building trust
are key, and relationships with family or
friends can make a huge difference in the
potential for professional development or
opportunities. To build trust initially, you
will need to make a good first impression
by having a third party introduce you to a
new group or contact. This demonstrates
that you are worthy of being vouched for
or are significant enough to be shared with
others. “Name dropping,” often frowned
upon in some cultures, is actually a good
way to demonstrate to others what a strong
connection you can be; it gives you value in a
relationship or social setting.
How can this concept of relationships
increase assignees’ success? Some simple
practices illustrate how an assignee can put
relationships to work. For instance, in many
cultures’ workplaces, it is perfectly acceptable
to eat alone in the cafeteria or spend time at
your desk, but eating alone in China sends
the message that people are not worthy of
your time. It’s best to eat in a group and share
your food with your colleagues to develop
strong relationships. This is very important for
assignees in China, as Chinese contracts are
typically finalized at a banquet after sharing
a nice meal together and drinking Chinese
white wine (sorghum).
Additional cultural values in China include
a world view that is group-oriented, rather
than individual. In other words, “we” before
“me.” Group harmony is viewed as being
orderly and well-behaved, and references to
a successful initiative, for example, should be
phrased as, “My team finished this,” versus “I
met the deadline!”
Reciprocity is also of key importance in
Chinese culture and is usually associated with
gift giving and favors. When giving gifts, of
course, company protocols and sensitivity
should be considered: a gift does not have
to be expensive, but could be something
of meaning, such as something from an
assignee’s home or corporate location. Gift
giving should take into consideration cultural
meaning as well: watches, for example, or
items packaged in sets of 6, should never
be given as gifts, as these are symbolic of
death. And whether it is a gift or a favor, keep
track of what you receive and be prepared to
reciprocate—with interest!

TOP TIPS FOR SUCCESS
Even if your corporate culture is very strong,
assignees who pay close attention to the
preceding three cultural business drivers
in China will gain the trust of their Chinese
colleagues, and will have a much greater
chance of accomplishing their assignment
objectives.
Demonstrate flexibility in thinking
outside the familiar linear patterns.
Keep in mind the Chinese world view
of “me” versus “we” in speaking of
accomplishments and initiatives.
Respect hierarchy. Understanding
the role that hierarchical thinking and
guidelines play in both day-to-day and
business behavior can make sense of
practices that often seem confusing
to expatriates, especially those from
Western cultures. For example, a
“maybe” that really means “no,” and
the lack of subordinates’ interaction
with superiors in meetings make sense
in the context of the strict hierarchy and
decision-making process.
Be mindful of the role of “face.” Losing
face—or causing someone else to lose
theirs—is to be avoided at all costs.
Even simple actions, such as posing a
question to a superior in a meeting, can
lead to a loss of face—on both sides.
Understand the value of relationships.
Even simple activities, such as making
a point of eating with others instead
of alone, can go a long way toward
building and reinforcing good working
relationships with Chinese colleagues.
Be aware of reciprocity. Accepting—
and returning—hospitality offered is
important. Be careful to keep track of
(and reciprocate) both gifts and favors.
Remember that a gift received some
time ago may need to be reciprocated
with an “inflation factor” applied—in
other words, if that gift is worth more
now, your return gift should reflect that
new value.
Provide the right support. Cross-cultural
training is especially important for
assignees moving to China, given the
comparative differences from Western
business culture.

Language
Language issues loom large for assignees in China. In fact,
respondents to Cartus’ 2014 Biggest Challenges survey rated
China as the #1 problem area for assignee language challenges.
For daily tasks, a lack of familiarity with the language can make life
challenging, even in large cities such as Shanghai and Beijing. Mandarin
(also known as ‘Pu Tong Hua’) is the common language for both business
and social, as there are many dialects in China. English isn’t widely spoken,
and the majority of transport, road, and building signs are written only in
Chinese. Ayis (domestic helpers) are considered a “life support” and are a
common fact of life for many assignees, but not all ayis (or personal drivers)
speak English at a high level.
To reduce frustration, spouses need to learn how to speak basic Mandarin
with the ayi as well as with drivers—both key for assignees to avoid
misunderstandings and facilitate communication of basic needs, at
a minimum!
Basic knowledge of Mandarin is a must. As a result of the language
issues in China, language training, especially in Mandarin is strongly
recommended for all assignees and their families relocating to China.
Use expert trainers for “survival language” basics. Many assignees
believe that Mandarin is a very difficult language to learn, but if the
assignee and spouse zero in on their immediate needs, learning
Mandarin becomes easier. Applying “language learning shortcuts,”
an approach used by many expert trainers for learning Mandarin—or
any other language—can help. For the first few lessons, the assignee
should learn how to count, tell time, and give directions in Mandarin.
Learning how to speak sentences, using a fluency journal, and focusing
on survival language—such as taxi language—can help assignees
navigate daily life.
Incorporate cultural values. Language training should also include an
understanding of the cultural backdrop and role that the concepts of
face, hierarchy, and relationships play in day-to-day interactions, in both
social and business settings.
BESTPRACTICES:CHINA

Housing
Housing is probably the most important issue from an
assignee’s perspective: A wide variety of housing is available in
the major cities, with many different neighborhoods offering
very different lifestyle experiences, from serviced and non-
serviced apartments and central city living to larger properties
with gardens in the city suburbs.
We recommend that assignees and their families always take a look-see visit
to preview the types of properties available. This will set expectations about
the rental market from the outset. Families should remember that properties
are usually rented furnished or partly furnished; that the detailed finishing is
not always to the standard expected at home; and that appliances such as
dishwashers, ovens, and dryers are typically not included in Chinese kitchen
design. Assignees should also be aware that if they want to remove and/or
change items, they may be charged by the landlord.
With pollution levels quite high in certain cities, some assignees conduct
air quality tests as part of the home search process. In these instances, it
is worth considering paying an additional allowance to the family for the
purchase of air filtration units, if these are necessary.
Also, the leasing market is quite active, particularly in April through
September when landlords receive a number of offers on a property and
normally accept the highest and those with the fewest requirements from
the assignee. For that reason, it is recommended that families prepare two
or three backup property options in case their first choice doesn’t work out.
Given the size and congestion of Chinese cities, we recommend that
assignees arrange schooling for their children first, and carefully consider
commute times both to the school and to their place of work when making a
housing choice.
Assignees should also ensure they fully understand what is included in the
rental payments prior to signing a lease; for example, management fees,
heating, etc.
BESTPRACTICES:CHINA

Plan a “look-see” visit. We recommend
a pre-move visit for the assignee and
their family that includes a preview of
the property types available. This will set
expectations about the rental market
before the home search begins.
Don’t use the Web! Reliance on Internet-
based property research is not advised,
as real estate web listings are notoriously
unreliable and are not regulated by any
kind of “trade descriptions” act.
As a result, listings are often out of
date, inaccurate, too good to be true,
or unavailable.
Understand what “furnished” means.
Property in China is normally rented
either fully furnished or partially
furnished (with basic appliances and
some bathroom fixtures and fittings).
It is quite common for the landlord
to wait and purchase furnishings after
a tenancy has been agreed upon.
Dishwashers, ovens, and clothes dryers
are not commonly used in China, and
space is rarely available in kitchens to
install them. If assignees want to change
furnishings that are in place prior to
the rental agreement, there may be a
charge.
Be prepared for ongoing tenancy
issues. The quality of housing varies
greatly, although many properties will
look fine on the outside! Generally,
renowned developers offer better
quality homes. Mold and mildew are
common even in new properties, and
less attention to detail in finishing is the
norm. Similarly, the quality of fixtures
and fittings varies, and assignees should
be prepared for “snagging” issues (i.e.
identifying and resolving defects) when
they first move into a home. Consider
providing ongoing tenancy assistance
and coordination.
Don’t be put off by a sloppy
appearance. During house hunting,
some properties may look messy or dirty.
Landlords typically clean the premises
only after the lease agreement has
been signed.
Have backup plans in place. The leasing
market is quite active, and Cartus
recommends that after the home search,
families should select two or three
backup property choices in case the first
choice doesn’t work out.
It is possible to negotiate. Lease
negotiations are sometimes possible.
In these instances, landlords will
typically favor an earlier start date, fewer
additional requirements for preparing a
property, and/or a longer lease term.
Confirm what is included in rental
payments. Assignees should ensure that
they fully understand what is included
in the rental payments prior to signing
a lease; for example, management fees,
heating, etc.
Cash on hand is key. Organizations need
to make sure that security deposits and
rental payments are available as soon
as possible because the landlord will
expect payment before the start date.

Schooling
In the past few years, many international schools in China have
opened or expanded to accommodate the demand from
incoming expatriate families. China leads the way for signiﬁcant,
rapid growth in international schools when you consider that in
2000, there were only 22 international schools, and today, there
are more than 400 international schools throughout China
catering to students of all nationalities!
SCHOOLING “WATCH OUTS” TO KEEP IN MIND
In most instances, only students with foreign passports may attend an
international school, and class sizes are usually around 20 students, with a
teacher and a teaching assistant. The most widely used curricula are UK,
U.S., and International Baccalaureate (IB). English is usually the language
used in international schools, and most schools offer Mandarin Chinese as
a second language, with some implementing bilingual programs. Foreign
language teachers are usually from the native countries of the language
taught to ensure an optimal learning environment. Some of the new
international schools in China include:
Hangzhou Chinese International School – opened 2014
Hangzhou World Foreign Language School – opening 2015
Keystone Academy (Beijing) – opened Sept. 2014
Harrow International School Shanghai – opening 2015
The Britannica International School Shanghai – opened Sept. 2013
Wellington College Shanghai – opened Aug. 2014
The excellent international schools that exist in China’s Tier I and II cities
have topnotch facilities, but there is a downside: some of the more popular
schools have long wait lists, and assignees need to plan well in advance to
secure their school of choice. Most families will apply to several schools to
maximize their chances of successful entry.
BESTPRACTICES:CHINA

SPECIAL NEEDS SCHOOLING
IN CHINA
It is worth noting that special needs schooling
in China is very limited. Some international
schools will be able to accommodate mild to
moderate learning differences, but many lack
resources and staff to address more complex
diagnoses. Furthermore, certain brands of
medication may not be available in China,
so pre-planning may include researching
alternatives with doctors or making
arrangements for periodic international
deliveries. It is important to make sure that
the child with learning differences can be
supported in the host country, as that could
put the entire assignment in jeopardy. Families
have spent a considerable amount of time and
resources to ensure that their child has the
support they need in their home country, so
they will not move if similar resources cannot
be secured in the new location.
Additionally, more and more parents with
young children are choosing to expose
them to the Chinese education system in
an effort to give them a strong Mandarin
background early on, while also avoiding
the high international school fees. For some
families, local schools may be an option with
enough planning and preparation to manage
expectations. Homeschooling is legal,
although not as widely practiced compared
with other countries. As China continues to
develop, its education options and standards
are rising.
BEYOND THE TOP TIER CITIES
In Tier III and IV cities, schooling options are
limited or unavailable, and this can prove
challenging for relocating families. The
quality of teachers and delivery of curricula
may vary, so it’s important to make an in-
person visit to speak with staff and teachers,
ask questions, and observe the students
interacting with each other and with their
teachers during a typical school day. Some
assignees who live in Tier III and IV cities
have their families live in a Tier I city (also
known as a “split family” situation) because
in Tiers III and IV, international schooling is
limited or nonexistent. In these situations,
the dependent’s residence permit will have
to be arranged in the city where the assignee
lives. NOTE: These situations depend wholly
upon the local government education
bureau. Where appropriate, additional policy
and program support should be given to
assignees who consider this split family option
to accommodate educational needs.
Allow sufﬁcient advance planning time.
Advance planning is essential to identify
educational options and incorporate
wait list times in the process. Due to the
lengthy application process and high
demand for popular schools, assignees
are encouraged to apply to preferred
schools as early as possible. Detailed
research on all the options available and
school visits during a look-see trip are
important best practices.
Consult a professional. A local,
professional education consultant with
home-host knowledge can help ensure
the best ﬁt for a child and ease the
stress in a complex schooling landscape.
Policy and program support should
also be given to assignees considering
a split family option to accommodate
educational needs.

BESTPRACTICES:CHINA
Health, Environmental,
and Medical Issues
Companies regularly report ongoing concerns with health,
environmental, and medical standards in China, in both Tier I
and Tier II-IV cities.* Specific issues include food safety, air
pollution, paint toxicity in apartments, authenticity of
mainstream medication, and access to medical care. Preventive
measures, such as masks and air testing, are common. In some
situations, facilities, such as schools, are reported to have taken
extreme measures, including building domes over their playing
fields. The air pollution issue has been mentioned by Cartus
survey respondents as a prime cause for split family situations
for China-based assignees, and it is frequently a cause of
assignment turndowns.
* Various criteria exist for defining the tiers of cities in China, but they usually concern
economic development, infrastructure, and historical and cultural significance. China’s
Tier I cities usually refer to Beijing, Shanghai, Guangzhou, and Shenzhen. Tier II cities
include Tianjin, Chongqing, Chengdu, Wuhan, and Ziamen. Tier III cities include Guilin,
Hangzhou, and Zhongshan, among others.
Top Challenges in China—
Tier I Cities
Top Challenges in China—
Tier II-IV Cities
Health, environmental,
medical standards
(including food,
air pollution)
60% Health, environmental,
medical standards
(including food,
air pollution)
54%

RECOMMENDATIONS:
Perform upfront tests. As pollution levels
in some cities can be extremely high,
assignees often conduct air quality tests
to ensure that the location they select has
optimum levels. Since many landlords will
not agree to any clause in the lease
related to pollution issues, and are only
responsible for documented issues, many
companies perform additional tests such
as those on water, furniture, and paint, as
well as for the presence of lead. Such
testing is typically expected to be paid
for by the client/company.
Testing can be performed only by
registered inspection companies. Input
from some Cartus clients indicates that a
few companies have begun performing a
“residential assessment,” which includes
a structural, safety, and air quality review,
once a property has been selected.
Consider simple mitigation steps that
can help. Some companies have found
that minor problems—whether detected
before or after lease signing—can often
be mitigated through simple steps, such
as air filters, fans, or dehumidifiers. Air
filters with absorbent material can be
effective in capturing harmful chemical
gasses, trapping them and preventing
their release into the atmosphere.
However, some assignees still have
concerns about the air quality and may
continue to report medical symptoms.
Some companies approach this by
agreeing to cover the costs of moving,
lease cancellation (if applicable), and
obtaining a new residence if the air
quality tests show unsatisfactory results.
If the tests come back within acceptable
limits, but the assignee still wants to
move, the assignee would normally be
expected to bear the related costs.
Explore housing assessments and
hardship allowances. Other solutions,
such as upfront city assessment to
determine realistic available housing
choices, help to determine budgets
and set expectations; pre-selection
by the company and ongoing tenancy
management can help manage housing
concerns on assignment. Organizations
may consider providing an additional
hardship allowance so the assignee and
family may purchase health-related items
such as face masks and air filtration units.

Transport
Getting around China’s large cities can be difficult without
knowing the language. Road signs are not always displayed in
English, and local driving styles can be hazardous. In major
cities, the volume of traffic makes for long queues, regular
delays, and gridlock—especially at peak times. Taxis are
numerous, but the drivers do not typically speak or read
English, so assignees using taxis should exercise caution. They
should know where they are going and how to get there, and
have a colleague write down destination addresses in Chinese.
It is also helpful to have a friend’s phone number handy in case
you need more assistance with indicating to taxi drivers where
you want to go. Public transport is fast and efficient, but it is
crowded and often difficult to navigate without an
understanding of the local language.
Provide car and driver. We recommend that assignees in China receive
a car allowance to enable them to utilize the services of a car and a
driver. Cars are normally leased by the company, rather than purchased,
for this purpose. The leasing term is typically annual, with a one- or two-
month notice period following this. Typically, the assignee is responsible
for the vehicle rental cost, the driver’s salary, fuel, and any associated
tolls/taxes/fees. A car allowance should be in the region of RMB15,000-
RMB20,000 per month. Some companies determine the size of the car
allowance according to job position but some base it on family size
as well. Typically, the cost of insurance is included in the car lease, and
the assignee and other family members are not permitted to drive the
car themselves.
Take numbers and directions if using taxis. Taxi drivers do not typically
speak English. Clear directions and/or business cards in Mandarin, with
destination information and backup friends’ phone numbers, are critical
to make certain that assignees get where they want to go.
BESTPRACTICES:CHINA

Regulatory Issues
Regulatory issues of all kinds—visa and immigration, Social
Security regulations, compensation, payroll, and tax—pose
huge issues for mobility programs and assignees in China. It is
critical to be aware of the ins and outs of these areas when
developing policy and establishing practices that can help
ensure that things run smoothly.
VISA AND IMMIGRATION
The visa and immigration process for China is complex. Different cities have
various rules and interpretations, and the application process and time
schedule can be lengthy. Respondents to recent Cartus surveys point to
this issue, remarking that visas and their limitations may be different in
various cities.
Supporting documentation, such as birth certificates and non-crime
certificates, are required, and applicants also need to show proof of a
medical examination. Changes were made to the visa types and categories
in 2013 relating to exit and entry, stay and residence, and the employment
of expatriates, and stricter enforcement measures (including fines) were
introduced for non-compliance. With the new Exit-Entry Administration Law
and the Exit-Entry Administration Regulations in force, it is likely that the
Chinese government will conduct extensive and stringent compliance audits
when approving visa applications.
Furthermore, new rules effective from January 1, 2015, on short-term work
visas mean that some international assignees working in China for up to 90
days may require work authorization, and may have to apply for a “Z” visa
in order to engage in certain work activities. While most business travelers
can continue to complete short-term projects using the current M or F
visas, companies should check to ensure that their short-term visa program
remains compliant.
BESTPRACTICES:CHINA

RECOMMENDATIONS
Planning and coordination are critical.
A successful relocation depends upon
careful coordination of all aspects of
an assignee’s move. We recommend
that companies that relocate families
to China apply early, select a good
immigration provider to ensure
professional advice, keep travel
arrangements flexible to accommodate
processing delays, and track and renew
any expiring visas and permits well in
advance of expiration.
Companies may also want to consider
increasing the assignment authorization
process to allow for delays or shifting
timeframes.
Work permits determine timing.
In China, time schedules are typically
driven by the work permit application.
It is important that companies
understand the latest visa regulations
and appreciate that they can vary by city
and province. Items such as household
goods cannot be released until the work
permit is obtained, so careful timing of
this aspect of the move will ensure that
additional costs are not incurred on
shipment storage or extended periods
in temporary accommodation.
SOCIAL SECURITY
Following the introduction of a law in 2011,
foreign workers in certain cities are expected
to participate in the country’s Social Security
system by contributing toward five insurance
categories: pension, medical, work-related
injury, unemployment, and maternity. The
contribution amount varies from city to city.
The legislation dictates that once a work
permit application has been submitted,
Chinese companies have 30 days to register
their foreign workers in the country’s Social
Security system. The rules around payments
are still unclear, with some cities adapting
these measures while others have not yet
done so. Given the uncertainty, companies
typically aim for compliance while attempting
to determine the full details supporting the
new procedures. Some businesses have
removed assignment types (e.g., extended
business travel, where payroll remains at home
location) in order to simplify administration.
We recommend that companies contact their
tax/payroll provider or legal firm for details on
this complex area.

COMPENSATION, PAYROLL,
ALLOWANCES
China’s restricted currency and tax policies
complicate many of the issues involved
with compensation and payroll, as well as
payment of expenses and allowances—
with implications for both companies and
assignees. The issues and potential best
practice solutions are outlined below. Due
to the complexity of these areas, the
recommendations and tips are included in
the explanatory text for each issue.
Home/Host Payroll Issues
Split Payroll
Chinese Renminbi (RMB) is a restricted
currency, and this can cause issues for
assignees when moving money into and out
of China. For example, regulations restrict
the amount of money that can be converted
from overseas currency to RMB on a daily
basis, often requiring assignees to visit banks
several times in person to make transactions
or withdraw money.
There is also a yearly restricted limit of US
$50,000 which is important to note should an
assignee need to pay rent in local currency.
For this reason, we suggest operating a split
payroll scenario where your assignees receive
a portion of their salary in China (via your
local payroll department or third-party payroll
provider), and the remaining percentage in
their non-China home/host payroll. That also
provides a mechanism for paying allowances,
including all lump-sum payments, as well as
other miscellaneous allowances. Your third-
party provider should be able to provide in-
depth information on how to treat these costs.
If desired, you may want to have your third-
party company instruct your China payroll to
make allowance payments in China. If there
are expenses to be covered by an allowance
prior to the assignee’s arrival in China, a plan
should be in place to make some type of
facilitated payment, allowing the assignee to
cover those expenses while en route.
Shadow Payroll
With a split-payroll arrangement, you will have
to operate a shadow payroll since China does
have a shadow payroll requirement.
The term “shadow payroll” describes a
process in which compensation amounts
are entered into the payroll system that do
not actually create net pay to the assignee,
but rather ensure that taxes are paid in
compliance with all local and global tax
requirements. In order to remain compliant
in China, compensation paid from sources
outside China—including accounts payable—
must be added to the China payroll system.
Appropriate China tax will then be calculated
and remitted to the host tax authorities.
Some companies use other terminology for
the shadow payroll process, such as “memo
payroll” or “mirror payroll.” Although the
terminology is different, the theory and
purpose are the same.
Relocation Expenses
Because of China’s tax policies, it is most
beneﬁcial for companies to contract locally
with a third-party company that is registered
as a China-based entity to ensure compliance
in processing funds and tax. The information
below discusses the reasons for this and the
potential value for companies in adopting
this approach.

Offshore Remittances
When payments are being made between
companies or business units that are not
both located in China, especially when the
payments exceed a specific dollar value (set
at US$30,000 or equivalent), regulations
relating to China’s Renminbi (RMB), a
restricted currency, make the process more
complex. In practice, when an offshore unit
bills the China-based organization for costs
incurred in China, that China-based entity has
to pay a specific tax in addition to an amount
of business tax. Not only does the process
entail extremely detailed documentation
and the involvement of tax authorities, but in
addition, banks may ultimately not even be
willing to process the remittance.
Because of these requirements, for
those expenses that occur in-country, we
recommend that companies outsource to
providers who are registered as China-based
entities (either a WOFE or a legal entity). This
will ensure compliance in processing funds.
Fa Piao Requirements
Although this local contracting approach
eliminates the issues involved with offshore
remittances, companies do then have to
adhere to the country’s tax policy, which
involves the collection and reporting of Fa
Piao. The Fa Piao is an official tax invoice
provided by businesses to consumers (both
individual and corporate) for the amount of
services or goods rendered. Fa Piao is used
by Chinese tax authorities to calculate and
collect taxes. All expenses incurred in China
are required to be supported by a Fa Piao for
tax purposes, with a few exceptions: security
deposits and payments made to government
agencies (e.g., customs, immigration, etc.),
both of which can be supported by either
a receipt from the landlord or an official
receipt from the appropriate agency. When
expenses are incurred outside of China,
an invoice or receipt is required as the
supporting document.
Payment of Expenses
Administering the collection of Fa Piao—
required for any expense paid in China—is
a highly manual and administrative process.
When one considers all of the third-party
vendors that need to file monthly tax receipts
to remain compliant (including landlords,
schools, and non-contracted suppliers), the
best practice is to outsource this administration
to your relocation company, as well as to
ensure that the employee always requests the
Fa Piao if it is not included with the receipt.
Again, it is best to contract with a third-party
relocation firm that is registered as a China
entity with an appropriate business license.
Contracting with a properly licensed third-
party firm also facilitates the payment of
relocation service fees made by a company
to its relocation firm. Additionally, the way in
which the contract is structured impacts those
payments that fall under the VAT scheme
(currently being expanded in China), and may
allow your company to recoup the VAT and
avoid additional potential taxes.

SUMMARY RECOMMENDATIONS
Assignments to China, with the multiple
challenges of language, the environment
and regulatory, housing and schooling issues,
can take a toll on assignees and create
additional cost—both direct and indirect—
to the business.
One key step to take in advance is to address
up front preparation before the employee
makes the decision to move. This preparation
can help companies and assignees
determine the level of investment necessary
for assignment success. A second step is
to be prepared to customize policies and
approaches. Here, it is not enough to focus
on country-level solutions; your program
should include customization of speciﬁc
elements of policy and service delivery at
the city level to address location-speciﬁc
challenges. The end goal is to ensure that the
right kind of talent can be attracted, and that
that talent is supported properly to maximize
assignment success.
A customized approach will:
Ensure that enhancements to the
relocation program respond to
logistical challenges,
Enable the assignees and accompanying
family members to orient themselves
more quickly to the cultural differences;
and,
Strengthen the company’s ability to
attract the right kind of talent to this
dynamic market.
With so much to consider in a relocation to
China, it is critical that the provider managing
the move retains an overall coordination role.
This will ensure that all aspects of the move,
such as visa, schooling, household goods, etc.,
will be managed in an optimum timeframe
to meet the expectations of the company and
the assignee.

Content for this publication was provided by Cartus Consulting Solutions, Cartus Intercultural and Language Solutions,
Cartus China Destination Services team, and School Choice International.

© 2015 Cartus Corporation | All rights reserved.
Cartus and the Cartus logo are registered trademarks of Cartus Corporation.
The information in this publication is general information, current as of April,
2015. Cartus suggests that you consult your own tax or legal advisor with
respect to your speciﬁc situation.
www.cartus.com | connect with us:

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