Growth market China: How European companies manage the delegation of power

Sebastian Hindelang was born in 1983. He holds a Master of Business Administration degree of FOM University of Applied Sciences.
His professional career is focused on the Transaction Banking market. He is currently employed by a major German bank. Among positions in Cologne, Frankfurt and New York, he currently holds the position of a Product Manager in Frankfurt.

Dominik Hedrich was born in 1984. He holds a Master of Business Administration degree of FOM University of Applied Sciences.
He works as an external IT consultant and software developer for various larger and medium sized enterprises.
His main focus is the architecture and development of collaboration platforms such as web-based portals.

Extract:
Chapter 2.3.3, Labour market:
Economically speaking, labour should be utilised where it realises the highest return. In other words, labour should go to where it is the most productive and where the best-paying jobs are. However, China s household registration system, called hukou, and its locally administered insurance and pension systems make mobility difficult (The World Bank, 2012a, p. 32).
Since 1986 China has made an effort to set up a social system. The major pillars should be health insurance, unemployment insurance and retirement provision. In former times, these issues fell under the responsibility of state-owned companies creating a situation where employees were bound to a particular state-owned company for their entire life. This hindered or even made it impossible to transfer the acquired claims to a different employer and lead to reduced mobility among employees (Kraus, 2004, p. 44). Similarly, the current household registration system foresees no or only reduced access to social entitlements, including healthcare, education and household for rural migrants in urban areas. Only urban residents receive these social entitlements. As a result, in the year 2010 only 19.5 per cent of the population migrated across provincial boundaries as per official records, compared with 45 per cent within the Republic of Korea (The World Bank, 2012a, pp. 32-33).
Unofficial migratory labour is another phenomenon. In 2007 it is estimated that approximately 250 million workers migrated from a rural area to an urban area. However, these workers are not registered. Beside other preconditions, a work contract has to be presented. These are mostly non-existent although workers have a right to one. The majority of workers have long working hours and a low salary. As they are not registered in the new location, as highlighted in the previous chapter, access to health services or education services for their children is denied or only available at high prices that they cannot afford. As a result the supply of health services is not sufficient and the children usually remain with their relatives in their home town (Klüver, 2007).
In addition, a reduction of the labour force is expected in the next few years. This comes as a result of the one-child policy as well as the declining participation rate among older workers (The World Bank, 2012a, p. 32). The shrinking workforce and its poor mobility lead to increased salaries. This development is further supported by the government s decision to increase the minimum wage in line with the latest five-year plan s goal to improve the lives of Chinese citizens. On average wages have increased by approximately 20 per cent in China as a whole. As a result, China s image and reputation as a low-wage country is already changing as new trends begin to manifest themselves. Labour intensive industries such as the textile industry, rather invest in Vietnam or Bangladesh than in China (Ricking, 2012).
2.3.4, Consumer market:
The rising wages and salaries have a positive side effect on purchasing power of the Chinese consumers so the former producer of goods becomes the purchaser of the same (Ricking, 2012).
Not only is the current situation an improvement but the perspective has improved, too. Young Chinese obtain higher levels of education including international exchange programs. It is expected that the next generation of adults will consists of many more skilled, middle income workers (Kalish, 2009, p. 10). In addition, the increasing participation of women in the workforce translates into a higher level of discretionary spending by Chinese women (Kalish, 2009, p. 14). Domestic demand is likely to further increase, as this is part of the next five-year plan.
Consumer spending did not rise as much as consumer income in the same time period. The difference can be seen in an increase in household savings. Various reasons can be attributed to this increase in savings. Traditionally state-ow