PRC: Is Hiring Expatriates Becoming More Difficult?

PRC authorities have launched New Work Permit Rules in April 2017. Consistent with the PRC authorities' attitude to "welcome high-end, control mid-level and restrict low-end expatriates" (鼓励高端，控制一般，限制低端), the New Work Permit Rules on the one hand streamline the expatriate work permit application process by removing the distinction between "foreign experts" and "foreigners", but on the other hand they indicate an intention to impose quota controls on non-expert expatriates and to tighten supervision of short-term illegal work in China.

While it is not clear on balance whether the New Work Permit Rules are more favourable or more restrictive than previously, the changes do signal that the PRC Government is taking an increasingly strict position in permitting expatriates coming to work in the country.

Overview of new rules

The new rules include the Notice to Implement the Expatriate Work Permit Rules on a National Basis (关于全面实 施外国人来华工作许可制度的通知), Guidelines for Expatriates to Apply for PRC Work Permit (外国人来华工作许可服务指南), and Classification of Expatriates to Work in China (外国人来华工作分类标准) (collectively, the New Work Permit Rules). Since October 2016, PRC authorities have run pilot programs in 10 municipalities and provinces to trial amended expatriate work permit rules. These New Work Permit Rules have incorporated changes based on the practical experiences of the trials.

Key features of the New Work Permit Rules

One and the same "expatriate work permit"

A major change is that expatriate work permits no longer distinguish between "foreign experts" and "foreigners". "Foreign experts" includes governmental officials, talent with special expertise, senior managers, senior technical personnel and talent working in specific sectors. Previously, a PRC employer was required to apply for a "foreign expert certificate" (外国专家证) for any foreign expert. However for "foreigners" (i.e. those with less work experience or expertise than foreign experts), the PRC employer was required to apply for a "foreigner work permit" (外国人就业证). In practice, the distinction between a foreign expert and a foreigner was not clear, especially in respect of senior managers, and therefore in practice the work permit requirements varied dependent on locality.

The New Work Permit Rules consolidate the foreign expert certificate and the foreigner work permit into one and the same "expatriate work permit" (外国人工作许可证) which should relieve some of the previous confusion. That said, the New Work Permit Rules allow any foreign expert certificates and foreigner work permits issued prior to April 2017 to remain in force until the expiration of their current term.

Streamlined application process

The New Work Permit Rules set out a detailed application procedure that an expatriate must complete in order to be able to lawfully work in China for more than 90 days. The steps are summarised below:

Step 1: PRC employer conducts online eligibility registration.

PRC domestic companies with no foreign investment must initially obtain approval from their relevant industrial authority to hire expatriate workers. This is not required for foreign invested enterprises (FIE).

Step 2: PRC employer applies for PRC Expatriate Work Permit Notice (中华人民共和国外国人工作许可通知) for the expatriate.

The PRC employer must submit the expatriate worker's qualifications, diplomas, no-criminal record certificate, physical health certificate, and employment/secondment contract.

Difficulties may arise where an expatriate worker is seconded from an offshore affiliate to work for a PRC entity and there is no employment contract in place with the PRC entity. While on a strict interpretation, the New Work Permit Rules allow the "PRC employer" to submit a secondment letter instead of employment contract, based on our experience and communications with the relevant authorities, it seems likely that the "PRC employer" may be required to submit an employment contract with the expatriate worker. This will give rise to a number of legal issues, including whether PRC labour laws will apply and if so, whether it can be displaced by contract as well as whether the PRC entity will be required to make social insurance contributions.

Step 3: The expatriate worker applies for a "Z" visa either outside or within the PRC.

Expatriates are generally required to apply for a "Z" visa outside the PRC. However, an expatriate worker will be permitted to convert his/her current valid visa into a Z visa within the PRC, where the expatriate:

1. is a Class A Talent (discussed below);
2. is the spouse or child of a PRC citizen (or a PRC permanent resident or expatriate holding a valid work permit);
3. currently holds a Z visa for another PRC employer; or
4. falls into another permissible category.

Step 4: The PRC employer applies for an expatriate work permit.

Within 15 days after the expatriate worker's entry into China with a valid Z visa, the PRC employer must apply for a work permit for the expatriate worker.

Step 5: The expatriate worker applies for a resident permit.

Within 30 days of the expatriate worker's entry into China, and after obtaining a valid expatriate work permit, the expatriate worker shall apply for a resident permit with the competent public security bureau.

Categorization of expatriates into Class A, Class B and Class C Talent

The New Work Permit Rules categorize expatriates into Class A Talent, Class B Talent and Class C Talent.

Class A Talent will generally include scientists, military experts, Global 500 global headquartered senior managers, personnel with globally recognized accomplishments, and other high-performing talent. Class B Talent will generally include senior managers, technical personnel and personnel with special expertise. Class C Talent refers to expatriates who provide temporary, seasonal, non-technical or service jobs that do not require substantial expertise.

The New Work Permits Rules also provide an Expatriate Evaluation Form to assess the appropriate class against a maximum potential score of 120 points. Scoring criteria include age, education background, work experience, salary, proposed length of stay in the PRC, Chinese language skills and location of the PRC employer. These factors are assigned with different weightings. An expatriate with a score of 85 or above, will be deemed as Class A Talent; an expatriate with a score of over 60 but less than 85, will be deemed as Class B Talent. Other expatriates will be deemed as Class C Talent.

The Expatriate Evaluation Form is however, only one method of determining talent classification. An expatriate satisfying other thresholds in the Classification of Expatriates to Work in China will also be categorized accordingly.

Class A Talent is not subject to quota or age restrictions. Class B Talent is subject to age restrictions (i.e. the expatriate must not be over 60 years of age) but currently no quota restrictions (although PRC authorities reserve the right to impose quota controls depending on market demand). Class C Talent is subject to quota restrictions; however, we are currently not aware of any specific quotas.

In addition, Class A Talent will be granted certain favourable treatment, such as the ability to apply to convert his/her current valid visa into a Z visa within the PRC, fast-track visa review and simplified documentary requirements for work permit applications.

Launch of online platform

An expatriate work permit online platform has also been launched with which the PRC employer may submit applications and track their status online. The online platform also assigns a unique code to each expatiate worker which they retain for their lifetime. The code is intended to assist in tracking expatriate's work history and personal credit in China.

Predictions for expatriate management in China

We foresee the three trends discussed below.

Quota control on non-expert positions

Considering the PRC authorities' statement that they will "welcome high-end, control mid-level, and restrict lowend" expatriates, it seems clear that it will be increasingly difficult for expatriates to obtain work permits for temporary, seasonal, non-technical and service jobs. FIEs are advised to evaluate the qualifications of their current and future foreign employees and adjust resourcing accordingly.

Tightened supervision on short-term illegal work in China

Consistent with the Notice on Procedures for an Expatriate to Work in China for a Short Term (Trial) (外国人入境完 成短期工作任务的相关办理程序(试行)), which require expatriates intending to work in China for no more than 90 days to obtain a Z visa, the New Work Permit Rules set forth detailed rules for applying for a short-term Z visa.

This suggests that the PRC authorities will increase their supervision of short-term visa holders and take increased enforcement action against short-term illegal work in China.

Development of expatriate personal credit system

Given that the online platform assigns each expatriate a lifetime unique code, it appears likely that greater data on expatriate's activities in China will be gradually collected and this may be used to form an expatriate personal credit system.

Herbert Smith Freehills can assist you with navigating the new requirements or advising on specific circumstances.

Written by Karen Ip, Partner, and Eunice Li, Associate.