On 1 July 2011, the PRC Social Insurance Law came into effect. In its Article 97, the new law very generally provides that foreigners working in China are able to participate in the Chinese social security system. However, from the law itself, it is not clear whether such participation is mandatory or not.

On 10 June 2011, the PRC Ministry of Human Resource and Social Securities issued the draft Interim Measures on Participation of Social Insurances by Expatriates Working in China (the "Measures") for public discussion. According to the Measures, basically all expatriates working in China will be required to participate in the PRC social security system in the future. However, until now, the Measures have not yet become effective.

In the meantime, most of the provinces such as Shanghai, continue their practices from before the PRC Social Insurance Law came into force, according to which the participation of expatriates in the Chinese social security system is optional and the types of social insurances which can be engaged by expatriates are limited to pension, medical, work-related injury insurance. Only few provinces such as Tianjin already require expatriates to join the Chinese social security system.

We expect that in the near future, the Measures will be officially issued by the central government with some further amendments. For implementation, the local governments will stipulate their own policies based on the Measures.

Below are some key issues stipulated in the Measures:

  1. Scope of Application

The Measures shall apply not only to expatriate employees who are directly employed by entities established in China, but also to those who have concluded employment contracts with overseas affiliates and are seconded to work at subsidiaries or representative offices in China.

  1. Social Insurance Funds

Expatriate employees working in China must participate in the same funds as Chinese employees, i.e. pension, medical, work-related injury, unemployment and maternity insurances.

The calculation of the social insurance premiums is also the same as for Chinese employees. The rates are determined by the local governments and will, therefore, vary from city to city. In Shanghai, the employer shall contribute social insurance premiums at a total rate of 37% of its total payroll, while the employee’s rate is 11% of the monthly salary. The calculation basis is capped. The cap is determined jointly by the local Labor Bureau and the Statistics Bureau every year. The current cap for Shanghai is RMB 11,688. That means that for expatriates in Shanghai with salaries above the cap, the annual extra costs amount to RMB 51,895 for the employer and RMB 15,428 for the employee.

  1. Entitlement to Pension Benefits

Expatriate employees are entitled to pension benefits at the statutory retirement age, i.e. 60 for men and 55 for women, provided that contributions have been paid for 15 years. The benefit payment does not require that the employee is still resident in China.

If the expatriate employee leaves China prior to reaching the retirement age, his or her personal pension account will be reserved and can be revived when he or she works in China again. Alternatively, the expatriate may apply for immediate payment of the balance in his or her personal pension account and terminate the pension relationship in China when he or she leaves the country.

  1. Exemption based on Treaties

If a treaty to avoid double payment of social insurance premiums exists between China and the home country of the expatriate employee to avoid double payment of social insurance premiums, the employee may be exempted from part of the Chinese social securities under certain conditions. Until now, China concluded social security treaties with Germany and South Korea only.

  1. Conclusion

In any case, with the effectiveness of the Measures, the costs of employing foreigners in China will rise. It will be interesting to see how the Measures will be implemented in the different provinces and how much room there will be for local particularities.