Expanding into China? What Foreign Employers Should Know about Human Resource Management in China Today

Article excerpt

Business is booming in China. In the first half of 2005, total United States trade with China grew almost 24%, to $96 billion. Foreign investors launched about 41,000 new companies in China in 2003. There were roughly 460,000 approved foreign companies in China at the end of 2003 (Zhou, Lu, and Jiang, 2005).

Many of these 460,000 firms discovered that human resource management--recruiting, selecting, training, appraising, and compensating employees, and ensuring their safety and welfare--is different in China (Zhu and Dowling, Summer 2000). For example, threatened by the All China Federation of Trade Unions (ACFTU), the notably anti-union Wal-Mart recently agreed to let its Chinese workers unionize if they asked (MMR, 2004).

Surprises like these stem from two things. First, while China has moved far from central planning, vestiges of central planning remain. Examples include a government-run mandatory personnel file system, a single union, and restrictions on city migration. So, as one study concludes, "... 'Western' HR practices are becoming more prevalent in China, although the legacy of traditional practices endures and new challenges are emerging" (Zhu, Cooper, De Cieri, and Dowling, 2005). Managing people in general, and human resource management in particular is still different in China (Zhu and Dowling, June 2002).

Second, the employer will confront cultural differences when entering China, so its actions may produce unexpected results. For example, in a society that emphasizes saving face, performance feedback needs to be more oblique than in the West. Many Chinese still think of their employers more as family than as employers, and may expect employers to provide for their social welfare (Purdum, 2005). Many Chinese candidates are reluctant to sell themselves during an interview because of a strong cultural bias against boasting. Western firms' emphasis on employee empowerment may be somewhat alien to those raised in the more traditional, rule-driven Chinese business culture (Richards, June 2002a).

Understanding these differences and knowing what to expect can mean success or failure for the employer, because human resource practices affect organizational performance (Law, Tse, and Zhou, 2003). One study examined the relationship between human resource management and organizational performance in 62 Chinese-Western manufacturing joint ventures. The researchers found a positive relationship between high-performance human resource management practices and firm performance (Bjorkman and Xiucheng, 2002). In a study of human resource practices throughout the Asia-Pacific region, Watson Wyatt found that "Asia-Pacific companies with the best human capital management practices deliver significantly more shareholder value than those with poor people practices" (Watson Wyatt Worldwide, 2002). These people practices include, for example, recruiting and retention excellence, clear total rewards and accountability, and communications.

The present paper does not try to provide a comprehensive guide to managing the human resource function in China. Instead, it aims to provide foreign employers entering China with a practical understanding of the main human resource management issues they should prepare for, as well as with several important implications of these issues.


This paper relies on a literature review of current relevant articles focusing on human resource management in China. Except where a source was needed specifically for its perspective on broad issues relating to China's overall business environment (as with Williamson and Zeng, 2004), we screened papers by "China" and by numerous variants of keywords, focusing specifically on human resource management and its functions, such as "HR," "training," and "employee training." Source papers included refereed research studies, surveys and empirical reports conducted by local offices of international HR consulting firms, and articles from professional journals and news sources. …