China to require foreign workers to buy 5 insurance types

The Chinese government will require foreign workers to subscribe to five major types of social insurance from the middle of next month, causing headaches for foreign-invested companies in China.

The move is expected to raise labor costs nearly 50 percent, dealing a significant blow to corporate competiveness of foreign companies in China. Foreign workers also doubt if they will benefit from the new measure and worry if it will only add to expenses.

From Oct. 15, Beijing will require foreign workers in China to buy retirement, medical, unemployment, industrial accident and childbirth insurance.

The ratios of insurance premium payments differ from region to region. Premiums are also classified into payments to be made by companies and individual workers.

In Beijing, a company must pay 32.8 percent and individual worker 10.2 percent of his or her pay as premiums. This means the company and one worker end up paying an amount equivalent to 43 percent of the worker’s annual wage.

Under a mutual agreement on exemption, Koreans and Germans are exempt from the retirement pension, whose insurance premium ratio of 28 percent is the highest in China.

The Korea Trade-Investment Promotion Agency said that if a Korean worker who earns 12,603 yuan (2,000 dollars) a month in Beijing is exempt from the retirement pension, the premiums reach 1,890 yuan (290 dollars). If the worker is not exempt, the premiums shoot up to 5,419 yuan (847 dollars).

Foreign-invested companies, which heavily employ non-Chinese workers, are thus on high alert. One head of such a company said, “The measure will deal a severe blow to foreign-invested companies that hire many workers from their own countries.”

Not everyone is skeptical of the new insurance requirement, however. A source at the Korean Embassy in Beijing said, “The measure is in line with international practice since Korea also requires foreigners to pay premiums for four major types of insurance,” adding, “We will check for possible side effects.”

mungchii@donga.com