Decline in Foreign Hires at German Companies in China

German Firms in China Shift to Hiring More Local Talent, Foreign Employees Drop to a Record Low

The proportion of foreign employees at German firms in China has decreased to a historic low of 3.8%, according to the latest report from the German Chamber of Commerce in China. The report for 2024 indicates a decrease of 11.2 percentage points compared to pre-pandemic levels. In large German companies, the percentage of foreign employees stands at 81%, while for companies with fewer than 50 employees, this figure is only 43.6%, marking an 18.8 percentage point decrease from 2019.

The survey reveals that an increasing number of German companies are opting for local employees over foreign ones, citing reasons such as salary levels (68.5%), business connections (35.2%), difficulty in attracting foreign talent (18%), and personal income tax reforms (15.7%). Other factors contributing to this trend include cultural differences, language barriers, benefits, and the competitive capabilities of local employees in multinational corporate environments.

This shift reflects a strategic adjustment in the human resource policies of German companies in China and a growing dependence on local talent markets.

Besides Germany, other countries have also been reducing their workforce size in China, reflecting a broader trend among multinational companies.

• United States: Many American companies have been scaling back their expatriate workforce in China. This trend is driven by several factors, including rising costs, local talent availability, and geopolitical tensions between the U.S. and China. Companies are increasingly hiring local employees who are familiar with the domestic market and regulatory environment.

• Japan: Japanese companies have also been reducing their foreign workforce in China, focusing more on hiring local talent. The reasons include cost-saving measures, the difficulty of expatriate assignments during the COVID-19 pandemic, and an emphasis on localization strategies to better compete in the Chinese market.

• South Korea: South Korean firms have similarly shifted towards employing more local Chinese staff rather than foreign workers. This trend is partly due to cost considerations and the benefits of having employees who understand the local market and can navigate cultural and language differences more effectively.

These shifts in workforce strategies reflect broader challenges and adjustments that multinational companies are making in response to changing market dynamics, including the rise of local talent and increasing operational costs in China.

Key Takeaways

• Foreign employees at German firms in China have reached a historic low of 3.8%.
• The proportion of German firms hiring foreign employees has decreased to 65%, down by 11.2 percentage points.
• Large companies show a higher inclination towards hiring foreign employees, with 81% of them having foreign staff.
• The hiring rate of foreign employees in small companies has dropped to 43.6%, marking an 18.8 percentage point decrease.
• Lower salary levels are the primary reason for replacing foreign employees, accounting for 68.5%.

Analysis

The decline in foreign employees at German firms in China, driven by factors like lower salary expectations and local talent competitiveness, impacts both expatriates and local labor markets. Short-term effects include reduced cultural diversity and potential skill gaps, while long-term implications may foster stronger local innovation and integration. This shift also affects multinational talent strategies and may influence future investment and operational models in China.

Did You Know?

• Foreign employees at German companies in China have reached a historic low
  • Explanation: This reflects the decreasing trend of foreign employees in German firms operating in China, indicating a shift in hiring practices towards local talent.
• Lower salary levels are the primary reason for replacing foreign employees
  • Explanation: This highlights the significant role of cost in driving companies to replace foreign staff with local employees. Lower salary expectations and potentially reduced costs associated with local hires are influencing this decision.
• Personal income tax reforms
  • Explanation: This refers to changes in tax policies concerning personal income, impacting the financial advantage of foreign employees working in China and potentially influencing companies' decisions regarding the employment of foreign versus local staff.