Back in the heyday – although that is probably not the right word – of colonial expansion here in China, many of the 'foreign devils' living and doing business lived lives of opulence and luxury far removed from anything most ordinary Chinese could ever imagine. A century on, even after China had undergone so much turbulence, a similar situation was beginning to develop. Buoyed by China's opening to the west in the 1980s, many companies moved production and opened offices in China in the later part of the last century and the early part of this. As part of this eastward business migration came the new generation of taipans, the expats.

Photo: The Other View

The situation ten to fifteen years ago, when major multinationals first began to plant roots in China, and for several years after, ensured that expat employees were in the box seat when it came to compensation. There were two clear reasons for this. First, in the early days of China's economic expansion, the country was far from the most desirable overseas posting – overseas luxuries were scarce, entertainment options were limited and the whole experience was mired in bureaucracy. Second, after years of a state run economy and limited technological development, China's knowledge base was decidedly thin and talent was scarce – even in 2008, multinational companies were complaining that experienced and qualified employees were scarce. Imagine the situation at the turn of the millennium! This shortage of talent meant that over the last ten years expat managers and technical experts were crucial to many companies expansion in China.

The combination of these two factors ensured many expats could enjoy extensive remuneration packages. Naturally, the first aspect of this was a high salary, often well over 30 or 40 times that of their local colleagues. On top of this, though, came an impressive variety of perks. Ten years ago, public transport in China was dirty and unreliable, and the majority of companies believed that expensively recruited expats could not be expected to use this. So, a car – often complete with driver – was one of the first things provided. Along with this came free private schooling for children, expensive accommodation and bonuses for living in such a 'difficult' place.

This situation is now beginning to change. For many expats in China the salaries are still substantial, but the perks and bonuses are beginning to dry up. This process began small, but is growing fast. The catalyst came in major financial centers such as Hong Kong and Singapore, where members of the financial industry were the first to suffer after the bubble they had worked to create burst so spectacularly. However, the phenomenon soon spread, both geographically and through different industries. It has now permeated several other sectors in Mainland China – with manufacturing being one of the hardest hit. I found a particularly pertinent example of this in the auto industry in Tianjin. Several major producers use European consultants to ensure product quality and to weed out any imperfections. These consultants would be housed in lavish service apartments in the city center at high cost to the companies. However, over the past few months these have been vacated and replaced by regular apartments much closer to the site at the fraction of the cost. This saves the company money both on the accomodation and on transport to and from the city.

The fact that companies have begun to cut their cloth a little more sensibly in financially turbulent times is by no means news in itself. However, the circumstances that have allowed them to do it here in China are certainly worth exploring. The most obvious is China's economic growth and development. A decade of 10% plus GDP growth has brought China much closer to the west. This process has been accelerated by financial crisis, which China - thanks to immense reserves of foreign cash – has been able to weather better than countries in the west. All this means that companies can no longer afford to splash the cash so lavishly on expat perks. The second factor is the knowledge gap between China and the west, which has also closed considerably. In fact, it has now become just that, 'a gap', rather than the gaping chasm that it was before.

These two points mean that whilst expat talent is still valuable, it is no longer as indispensable as it once was. Chinese employees are now far more capable of meeting many of the needs of major multinationals at a much reduced price. Even if the financial crisis were to abate tomorrow, it is unlikely that the perks will ever be back in quite the same way. The Chinese economy will continue to grow and the knowledge gap will continue to narrow.
 

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