Loud Thoughts

Starting July 20th, Beijing will be an easy to move-around city only for the Olympians.

First the most expected: only cars with license plates that are even can drive on the even days, odd plates for odd days. This means, on average, only half the cars are allowed on the roads. Beijing Municipality has done this trick many times and most citizens are used to it, but never for 2 months. On the wrong days, take a taxi (exempt), public transportation, car pool, or just work from home.

Next comes 200RMB fine for driving on the “Olympic Only” lanes. These are like car-pool lanes, just reserved only for those special permit. “Chump change,” you said. “I will pay US$30 for a speedy commute.” It is 200rmb per violation with no upper limit. You can get a ticket every 2 minute. By the way, same for the 1st rule.

All residential areas, particularly popular for foreigners or migrant workers, are now checked several times a week. Police or neighborly citizens come knocking on the door, request to enter, and survey the house for any strangers. Those without proper documentation — national ID card, passport, residential permit, etc. — disappeared.

Foreign worker’s family members used to work under a single working permit, although technically issued only to an individual. No more. Those without working permit to their name got dismissed, sometime after many years of employment.

Visa processes are so restrictive that legitimate visitors are turned away. For business visas, the sponsoring company must guarantee that the visitors will abide all laws and stay out of trouble. The consequences can be quite undesirable, particularly to the head of the company that made such promises.
The number of visitors is so low that hotels and landlords are busy adjusting the income expectation downward. Renters who were evicted now find themselves in buyer’s market and quite an enjoyable bargaining position.

All subway stations have erected airport-like security check-points. Passengers carrying liquids must take a sip to board. I don’t know what will happen to grocery shoppers.

No large trucks may enter the city, except for those carrying perishable vegetables, meats, and other groceries. Small trucks may enter or leave the city only from mid-night to 5am.

Postal or delivery services cannot accept anything liquid, powder, with compressed air, with battery, or electronic. The online auctioning sites are suffering major sales reduction. Companies rely heavily on couriers.

No major network changes. If a company wishes to move from one location to another, it cannot change the routing configuration by the telecom operator or ISP.

Knock-off hand-bags or pirated DVD? Forget it! The popular shopping places are all hush-hush when customers approach. Many DVD/CD shops simply shut the doors, “We are temporarily close and will be open soon.” “You know, it is Olympics,” said the shop keeper. “Come back in September and we will have more to show you.”

Foreign workers changing job must de-register immediately. This means the company must cancel their working permits within a day or two. Further, the visa must be changed to a non-working visa (L-visa) or switch to the new company immediately. This is a bit twisted since the visa-changing process takes 7 working days. To do this properly, a foreign worker must submit the passport and working permit to the government at least 7 days prior to the last working days. L-visa (tourist) holders now cannot ship large amount of things out of the country. To move out of China, a Z-visa holder must arrange the shipment prior to the changing of the visa then. The proper process is then: find a new job, arrange shipment, move to a temporary place, resign from old job, wait at least 7 working days, and leave the country for the new job.

All factories near Beijing have stopped or significantly reduced their industrial pollutant output since this spring. Beijing is frantically trying to improve its air quality, to no avail. Rumors said they are seeding rain clouds to “wash out” the air. (It is usually a bright blue day after the rain.)

No eating dogs anymore. Historically, Chinese and Koreans enjoy eating dogs. They are known to restore the warmth in body in winter days. “Out of respect to the culture of our visitors,” said government officials. “Dog meats are not served during Olympic time.” Trucks transporting meat will be inspected and fined for violation.

Last night, we saw 3 armed military personnel at the street corner. There was no obvious reasons for such sentry. Each of them held a big gun, wore helmet, bullet-proof vest, and combat boots. They wore black uniform instead of normal Liberation Army color. The intimidation effect is quite impressive.

Mr. XI JingPing (ç¿’è¿‘å¹³, Vice Chairman of the Party, widely believe to the successor to Mr. HU in 4 years) said, “All we want is have a safe Olympics.”

Well, he has spoken, it shall be done. Beijingers will live in the new forbidden city until September 20th (after the special Olympics). Many of them couldn’t wait for this to be over.

Too many dread the request from headquarters every year or so, “Your term is coming to an end.” What follows is the all-too-common maneuver to renew.

As designed, and often so used, the generous bundle of compensation and perks commonly known as the expat package, is for short-term assignments typically of 2 to 5 years. At the end of the term, the individual returns to the home country. The trouble comes when one gets addictive to China. It is vibrant, culturally rich, and friendly. The expatriated wishes to stay for indefinite term but don’t want to give up the nice package.

From the corporate side, the arrangement is excessively expensive and conceptually difficult. The package usually costs 2 to 3 times the person’s US salary; how could a temporary deal becomes many years, seemingly not ending? The corporate wants things clean. It also wants compensation to be fair: to those hundreds of local employees as well as more in headquarters.

But there is no need for confrontation. There is a way to make both sides happy. Ready?

Assumptions

For ease of discussion, we will assume that you, the assignee, is from the USA. You are a senior person that provide good value to the company. In other words, you are competitive and worth your money.

With that assumption, the rationality for localization is not about saving money. The company should be willing to provide you with reasonable and competitive compensation. What they need is the right argument to justify it. If this assumption is not true, then you are not really competitive, from the company’s point of view. You should either accept the lower pay or seek other jobs.

The basis of the discussion starts from the simple principle: your income should remain relatively the same after the localization. The goal is not to degrade your quality of life drastically.

The company wishes to do good business in China. Otherwise, you have no value here anyway.

Considerations

China and the US agreed not to double tax. This means the same money will not be taxed in both China and the US. China, however, do not have the same agreement with the state of your residence. You will have to pay state income taxes for whatever income declared in your federal tax return.

Both China and the US has progressive tax rates. You should have a firm grip on your effective tax rate: the amount of taxes divided by your effective income.

Perks are generally not taxed in China if the company pays for them. They are taxable income in the US.

The working days you spent in the US are usually subject to the US income taxes. China’s tax process are not sophisticated enough to refund you those. How many days you will stay in the US? How many of them you will be working?v

Your company probably have a pre-tax 401k matching program for US employees. There is no such thing in China. You should consider asking for this.

If you have dependents in the US. Who will pay for their medical insurances?

Unlike the US, personal relationship is the foundation of all business interaction. As such, social prestige is part of the business. People do judge you on where you live, the car you drive, the clothes you wear, etc. The company should consider these with its compensation design.

Contrary to the common belief, the senior talents in China frequently receive equal or even higher pay than their US counter-parts. Only junior ranked are less expensive. This is really just the simple function of supply and demand. I found the “crossing point” to be at the director grade. This is true for both MNCs and local enterprises.

China citizens are not allowed to own foreign stocks. Many companies worked around the laws, but you may also find yourself excluded from future stock option grants.

Lastly, if you consider retiring in the US, what you really to compute is the rate your retirement fund accelerates. Does localization implies retiring in China? Both the company and yourself should make this point clear.

Calculator

Here’s China’s personal income tax table. You should verify its accuracy, since China adjust the tax-free income regularly.

To use this table, find your range, multiply the in-range portion with the tax rate and add in the “quick deduction” value. Don’t forget to deduct 800 first.

For example, if you make 90,800 a month, first minus 800 to get 90,000. Find the 8th rung. Your in-range portion is (90,000 – 80,000 =) 10,000. Multiple that by the tax rate of 40% (=4,000) and add in the quick deduction number of 10,375. Your monthly tax will then be 4,000 + 10,375 = 14,375. Your effective tax rate is then 14,375 / 90,800 = 15.8%.

Next figure out your US tax bracket. The simplest way is to average your 3-year total tax paid by your 3-year total adjustable income. Don’t forget state taxes.

Now, if your China effective tax is X and US Y. If your pre-tax US income is Z, the rough equivalent China income shall be Z * (1 – Y)/(1 – X). Convert that answer from US$ to RMB. If your company pays bonuses, or extra-month’s pay in China, factor those in.

Now the Perks

You should try to arrange most of perks to be paid out by the company directly. They are then not taxed in China, but still taxable in the US. So add them all up and multiply them by Y and add that amount to your China income. I know that your China income is then subject to its taxes and will become your US income again. The computation is too complicated and not really amount to much. This simple method will do.

How to Negotiate

At the end of the day, you must be worth the compensation. Be sensitive to the decision maker’s judgment. He or she will eventually decide whether you are worth whatever you are asking for. A totally fair deal may be too much for him or her to pay. You must accept this and know your bottomline. Most companies are willing to give you an enticing compensation package if it is justifiable according to the policies, reasonable, defensible to the general constituents, and scalable to a general class of employees.

The education assistance is easy. Your children have their future in the US and should not be jeopardized by your assignment in China. Family first, not compromisable.

House and car services are a bit trickier. Supposedly, a localized person should provide his or her own housing. But the company should really take care of the differences. China’s houses are in general more expensive and the mortgage terms much worse. Don’t forget management fees.

The same argument applies to car services. Cars are luxury items in China and are 30% or more expensive than the equivalent in the US. Given that, it is really not much more to hire a chauffeur. Note that normal social protocols expect senior managers to arrive at social functions driven.