After so many years of continuous strong economic growth, and absolutely sizzling rates for the past year or so, most non-HR people in China would probably be looking at a long hot summer of continued economic growth. HR staff, meanwhile, would mainly be focused on the new Labor Law and its impact on the employer-employee relationship.
Both groups would be focused on the wrong thing, if the VAT rebate kicks in as the Chinese government is planning.
There is little reason to believe that it won’t. The mechanism is simple and the rebate has been adjusted before. From now on exports will be treated as domestic sales and the VAT amount will no longer be returned to exporters.
Put simply, when this happens the ratio of exports to imports changes. Imports, relatively speaking become cheaper, and Chinese exports become expensive relative to products from overseas countries.
The measure is not measured, or timid. China will abolish export tax rebates for 2,800 export items. The textile industry, with miniscule to almost-non-existent profit margins, is set to get hit the hardest. The impact will be felt in textile and garment plants in China, but it will also feed into the high street in overseas countries. China is on your back, and your feet, and possibly your head. Clothing yourself will become more expensive.
This change was not signalled early so the ports in China are currently jam packed with containers waiting to leave before the date. Most didn’t make it. Boston Consulting Group even have a timely report entitled, Surviving the Rip Tide- How To Profit From the Supply Chain Bottleneck’. It looks at the lagging infrastructure in China, but even the authors probably didn’t expect to see the kind of race to export that we saw recently. Of course, if things happen as expected this bottleneck will soon be over.
There have been numerous efforts over the past year to slow down the Chinese economy, such as taxes and slower investment approvals, but finally we may have the magic bullet.
The broad results that are sought are a slowdown in China exports, a reduced trade surplus, a weaker RMB, a shift to higher value added manufacturing, a decline in polluting industries and hopefully a soft landing for the overall economy. That’s a very precise target, even for a magic bullet.
Hiring Impact
So we can expect some pain from this decision and an impact on hiring. The central government expects companies in China to restructure their entire industries, move away from low value added or polluting activities and thus change the way they have traditionally made money.
Re-structuring industries and changing the way you make money are hard and long-term. Reducing hiring off the back of fewer exports is not.
So what should we be seeing?. Here’s hoping for a reduction in skills demand and an easing of the burden on hiring departments. Third party suppliers of hiring services should be looking at an easier time finding and closing people. Clients will be harder to get but the work will be easier to deliver. Sendout Ratios should improve, as should Job Offer to Onboarding ratios.
Now we can all exhale … If the current clampdown on the food industry and polluting companies near the Taihu lakeare factored in we could be looking at a perfect storm of slowing influences.
Just don’t expect a huge improvement. If we get lucky, the ideal scenario, which is a soft landing, will transpire and we will all sing the praises of the central government. If it doesn’t, expect the application of another stick.
Having all the carrots you can consume sounds like a great situation to be in but it limits your options massively.
[First posted on [url=http://www.talentinchina.com]Talent in China[/url]]
[Frank Mulligan• Entrepreneur-Recruiter-Speaker • Talent Software • [url=http://english.talent-software.com]http://english.talent-software.com[/url] • frank.mulligan@recruit-china.com]
