As China's economic growth continues, so does salary growth and turnover rates among the labor force. The key findings of Aon Hewitt's 2012 China Human Capital Intelligence Report show that the 2012 national average salary increase in China was 9.1% with turnover of 18.9%. For CFOs of companies with operations in China, these trends represent higher long-term human capital costs for these divisions and greater challenges when it comes to attracting and retaining a talented workforce.
The Aon Hewitt report covers ten key industries, including real estate, financial, pharmaceutical and medical equipment, high technology, automobile, consumer products, retail, chemical products, logistics and manufacturing in China's largest cities -- Beijing, Shanghai, Guangzhou and Shenzhen -- as well as second- and third-tier cities. The table below shows average salary increases in the largest cities.
| City | Salary increases in the manufacturing sector | Salary increases in non-manufacturing sectors |
|---|---|---|
| Guangzhou | 10.1% | 9.1% |
| Shanghai | 9.8% | 9.3% |
| Beijing | 9.8% | 9.5% |
| Shenzhen | 8.9 | 8.9% |
| Source: Aon Hewitt 2012 China Human Capital Intelligence Report | ||
Higher salaries and growing turnover are a trend throughout China. For example, both salary increases and turnover rates in China's second- and third-tier cities are higher than the national average. Even though coastal areas of the country have attracted the most investment and have experienced the most competition for talent and highest salaries, inland areas are catching up as companies shift operations from expensive and highly competitive coastal cities to less expensive inland cities.
Such an approach only works for so long before competition for talent hits the previously less competitive locations. As this happens, companies have fewer locations to explore in order to save on human capital costs. For example, the report found that the intense demand for front-line workers is closing the differential between salaries in second- and third-tier cities inland and the second-tier cities in coastal regions, which is down to less than 5%.
This is also driving higher levels of voluntary turnover. From 2006 to 2012, voluntary turnover rose from 9.6% to 22.3% in the city of Chongqing and from 7.3% to 19.4% in Nanjing. Not surprisingly, this level of turnover creates a host of business challenges and risks, including high recruitment and training costs for employers and stagnation of the talent supply chain, according to the Aon Hewitt report. Turnover in specific industries is similarly high. Consider the following turnover statistics by industry:
| Industry | Voluntary turnover | Average salary increases |
|---|---|---|
| Retail | 31% | 9.1% |
| High-tech/manufacturing | 26.6% | 9.6% |
| Consumer goods | 19.5% | 9.65% |
| Health care | 19.2% | 9.5% |
| Source: Aon Hewitt 2012 China Human Capital Intelligence Report | ||
Although these trends are largely driven by the law of supply and demand, there are some steps companies can take to deal with turnover and salary inflation. In fact, getting back to basics by communicating with and creating attractive incentives for employee groups is a good place to start. The report notes that the employee cohort born in the 1980s is growing very rapidly, making it imperative that companies focus their efforts on engaging and solidifying strong relationships with those employees.
