20 October, 2016
Introduction
Asking Chinese employees to move to different regions within China can be a difficult task. Traditionally Chinese employees have often been be reluctant to move to a new administrative region for work purposes fearing that this may affect their access to the Housing Provident Fund ("HPF").
While recent changes to the HPF have made it easier for employees to move regions, issues still remain.
In this article, we analyse the issues for employees in relation to the HPF, discuss recent changes to the HPF scheme and identify issues that employers need to be aware of when asking employees to move regions.
A brief introduction to the HPF
China's rapid economic growth over the past three decades has changed Chinese society in a number of fundamental ways. Perhaps the most significant impact has been the vast migration of people from the countryside to China's cities to take up employment in the country's factories and offices. This migration placed a huge strain on the country's housing stock and the ability of Chinese workers to purchase a home.
In order to address this issue, the Chinese Government introduced the HPF Scheme. First launched in Shanghai in 1991 and later rolled out across the rest of China, the scheme, which is administered by the Ministry of Housing and Urban-Rural Development ("MOHURD"), requires all employees to contribute a proportion of their salaries to the HPF and employers to pay an equivalent contribution. Using this fund, employees can purchase property either from existing housing stock or in new developments. The launching of the HPF is credited with fuelling the construction of new housing across the country and increasing home ownership amongst Chinese workers and is widely regarded as a largely successful experiment in social engineering.
Implementation of the new policy
While the HPF scheme was seen as an innovate and positive development for the Chinese workforce, as with any large government program, there were difficulties with the administration and implementation of the HPF.
One particular issue that arose was the difficulty in accessing the HPF to purchase property outside an employee's home region. As a result, Chinese employees, particular older employees with families, were often reluctant to move to a new administrative region for the purposes of employment. This in turn presented difficulties for employers wanting to hire employees from another region, or transfer experienced staff from one region to another to help grow their business.
In order to address these issues, MOHURD, the Ministry of Finance and the People's Bank of China introduced a new policy in October 2014 whereby employees could apply for a loan to purchase property outside their home province (the "New Policy"). A year later, MOHURD, the Ministry of Finance and the People's Bank of China jointly issued the Notice on Effectively Increasing the Efficiency for the Use of Housing Provident Fund (the "HPF Notice").
The HPF Notice provides that where an employee seeks to purchase a personal property from a region outside of where HPF contributions were paid, the employee can apply for the individual housing loan from the HPF Centre in the location of the property.
The Notice on Practical Issues in relation to the Loan for Purchasing Personal Property outside Permanent Residence (the "HPF Administrative Notice"), issued by MOHURD on 15 September 2015 clarifies the administrative process for applying for HPF outside the permanent residence of the employee. In summary, where an employee pays HPF contributions at the location where his or her employer is domiciled (Location A), but wants to purchase a personal property elsewhere (Location B), the employee must apply for the loan via the HPF Centre in Location B. To complete the application process, the HPF Centre in Location B must verify that the employee has paid contributions to the HPF Centre in Location A, and the HPF Centre in Location A must provide relevant information to assist in the employee's application to obtain the Loan.
The process is shown in the following diagram (click to enlarge):
Where an employee purchases a personal property using a loan from HPF Centre in Location A and then moves to Location B, he or she will need to start paying HPF contributions to the HPF Centre in Location B. This will require the employee to withdraw HPF contributions made in Location B to repay the loan in Location A. This process is shown in the following diagram:
Diagram 2: Correlation between parties involved in withdrawing HPF (click to enlarge)
In order to safeguard rights of employees, most administrative regions in China have lifted previous limitations on withdrawing HPF for the purpose of purchasing property outside of the employee's permanent residence. In addition, an employee who moves to Location B to work can choose to transfer their HPF account from Location A to Location B.
Issues for employers
While the introduction of the HPF is generally regarded as a positive development, certain restrictions still remain. In particular:
- In each region, the amount capable of being withdrawn from the HPF will be subject to the local policy of the individual HPF Centre;
- HPF Centres impose varying time limits on application to withdraw money from the Fund. Typically the time limit is two years or less from the time of purchasing the property and the application to withdraw funds from the HPF;
- Despite the coming into force of the HPF Notice and the HPF Administrative Notice, there are a number of cities who have yet to implement the New Policy. These include Shanghai, Nanjing, Suzhou and Xiamen amongst others;
- Although Beijing implemented the New Policy, it is limited to applications for loans by employees outside of Beijing but who already have Beijing Hukou (household registration in Beijing).
In many cases, the failure to implement the New Policy has been due to insufficient funds to cover applications for HPF loans made from outside the region. Accordingly, employers cannot assume that the New Policy has removed all barriers to the hiring or transfer of employers from one administrative region into another.
Conclusion
In the quarter century since it was first launched, the HPF has become an important part of the social fabric in China. Chinese workers value their HPF entitlements very highly and in much the same way western workers value their pension or 401K funds. As a result, it can be difficult for employers to require Chinese employees to transfer their domicile from one region to another if that will make access to the HPF more difficult.
The introduction of the New Policy has partially alleviated these issues, but they have not been entirely eliminated. Whenever employers are looking to hire or transfer employees from one administrative region to another, there are a number of factors that need to be taken into account in relation to access to the HPF before the employer can determine whether the employee will accept. As this can be a very sensitive issue for many employees, employers would be well advised to seek advice from an experience employment lawyer before they make an offer to a new employee or request an existing employee to work in another region within China.
For further information, please contact:
Michael Crips, Partner, Clyde & Co
michael.cripps@clydeco.com
