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Are foreigners in China subject to social insurance contributions?

Are you considering a job with a foreign company in China or are you planning to send an employee on a job assignment to China? The good news in 2021 is that expat relocations to China offer great opportunities for both employers and employees, but the idea of relocating does require a thorough understanding of the local and regional social security requirements.

This Pacific Prime China article looks at what they are and the obligations of foreign employees and employers towards the social security system in China.

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The social security system in China

China has an exemplary social security system in place to ensure its people (and foreign employees) are protected against unexpected financial difficulties and health-related events. The system consists of a set of rules and laws that every foreign and local employer in China has to abide by, which includes undertaking certain responsibilities to maintain and improve employee welfare.

The social insurance schemes and housing funds in China

According to the 2011 “Interim Measures for the Participation in Social Insurance of Foreigners Employed in China”, the Ministry of Human Resources and Social Security requires foreign employees working in China to participate in the country’s national social insurance scheme.

This means any foreign worker employed by a legally registered entity/organization in China or any foreign employee assigned to a registered representative office of a foreign company must participate in the five mandatory insurance schemes.

China’s 5 mandatory insurance schemes and housing fund

China’s social security system consists of five different types of mandatory insurance schemes, plus one mandatory housing fund. The five mandatory insurances are pension, medical, unemployment, work-related injury, and maternity. See below for a summary of the aforementioned schemes and housing fund:

1. Pension scheme

As a foreign employee in China, you can receive a pension (after retirement) based on the amount accumulated from your contributions over the years. To benefit from this scheme, you need to pay at least 15 years of contributions, which will vary depending on the jurisdiction you are in (see the tables for Beijing, Shanghai, and Guangzhou below).

2. Medical insurance scheme

Health will be top of mind for you, especially during the ongoing COVID-19 pandemic. In the event of a severe illness or non-occupational injury, you can rest assured that part of the treatment costs will be covered by the social medical insurance scheme.

The medical insurance scheme works by reimbursing medical expenses directly to designated hospitals for treatment. This form of direct billing is great as patients will no longer need to pay for the treatment in advance and then wait for compensation.

Note: The social medical insurance scheme only covers treatment accepted and managed by government-approved (mainly public) hospitals and clinics (excluding international clinics and hospitals). Therefore, foreign employees may want to consider supplementary insurance or secure comprehensive health insurance for foreigners in China to cover treatment at international hospitals and/or clinics.

3. Unemployment insurance scheme

Life is never certain and this includes work. In the event of redundancy and under normal circumstances, you may claim unemployment benefits in China for a maximum of 24 months.

4. Work-related injury insurance scheme

Accidents at work can happen at any time. The work-related injury scheme in China covers the cost of medical treatment should an occupational injury or illness occur.

5. Maternity insurance scheme

During your maternity leave, you are guaranteed to receive reimbursements from this scheme, provided you meet the full criteria.

What’s more, your monthly payments from the maternity insurance scheme during the maternity leave period will be based on your average wage/salary. To obtain this benefit, you must pay 3 months of monthly funds, and related medical services must comply with China’s family planning policy.

Note: If you already have an existing private health insurance plan, why not add a maternity health insurance plan as a rider? You could include better options and limits, as well as choose your medical professional or hospital for when you finally give birth. Just be beware that add-on benefits usually come with a waiting period too, so be sure to read the fine print.

Interested? If so, contact us and one of our health insurance advisors will reach out to you.

Housing fund scheme

China understands the importance of housing and the means needed to help people save to purchase housing. The housing fund scheme serves that very purpose.

Note: As a foreign employee, you are generally not required to contribute to the housing fund scheme. Nevertheless, many cities and provinces allow foreign workers to make housing fund contributions voluntarily, which is a measure to incentivize and attract foreign talent from abroad.

Who contributes to what social insurance scheme in China?

The premiums for pension, medical, unemployment insurance, and mandatory housing funds are jointly contributed to by both the employer and employee, while the premiums for work-related injury and maternity insurance are solely contributed to by the employer.

Note: The rate for each scheme varies depending on the local government/authority and jurisdiction.

There have been cases of employers and employees agreeing mutually to not contribute to the social security and housing fund schemes to minimize labor costs and maximize an employee’s net salary, but this practice is deemed illegal in the eyes of the local authorities.

Foreign employers and employees are encouraged to abide by the local laws to avoid complications and impacts further down the line from the local authorities.

Social insurance contributions in China vary depending on jurisdictions

Although China’s social security law was publicized by the central government in 2011, the actual processing and administration of the contributions are governed by local authorities in their respective provinces. As such, for each type of insurance and housing fund, the employer and employee contribution rates differ as per the local jurisdictions. More so, these rates are subject to annual changes and reforms.

This means foreign employees planning to relocate to China should bear in mind that their contributions will vary depending on where they are working. For example, Beijing, Shanghai, and Guangzhou have entirely different contribution rates as shown below from HROne.

Beijing contribution rates for 2021

Type of social insurance Employers rates Employee rates
Pension 16% 8%
Medical 10% 2%
Unemployment 0.8% 0.2%
Work-related injury 0.16% to 1.52% N/A
Maternity 0.8% N/A
Housing fund 12% 12%

Source: HROne

Shanghai contribution rates for 2021

Type of social insurance Employers rates Employee rates
Pension 16% 8%
Medical 9.5% (10.5%*) 2%
Unemployment 0.5% 0.5%
Work-related injury 0.16% to 1.52% N/A
Maternity 1% N/A
Housing fund 7% 7%

Source: HROne

*According to Song

Note: Shanghai, which was exempt from the law since 2009, will be subject to the system from August 15th, 2021. Foreign employees and employers will have to commit to the above rates, in accordance with the law introduced in 2011.

Guangzhou contribution rates for 2021

Type of social insurance Employers rates Employee rates
Pension 14% 8%
Medical 7% 2%
Unemployment 0.32% to 0.8% 0.2%
Work-related injury 0.1% to 0.7% N/A
Maternity 0.9% N/A
Housing fund 5% to 12% 5% to 12%

Source: HROne

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What are the key obligations for foreign employers in China?

As a foreign employer, running a business in China is a massive undertaking and requires transparency across all levels of operations. With that said, under the social security system, whenever you hire new employees in China, you’ll need to register them with the local “Social Insurance Bureau” and the “Housing Fund Bureau” to activate their accounts. This form of compliance is necessary to ensure that businesses do not take advantage of employees, and more.

Along with being compliant, you are also responsible for correctly calculating and withholding payments. By not monitoring payments and/or failing to contribute to the system, you could suffer repercussions further down the line such as reputational damage and unnecessary labor disputes.

Consequences could include being put on a “name and shame list”, which could inevitably ruin your business and obscure future recruitment plans.

What if the gross salary for workers is not high? Can employers and employees mutually agree not to contribute?

As mentioned before, not contributing is considered illegal but in the case where the gross salary is low, this could be overlooked. However, if a court case were to arise between the employee and employer, the court would consider such an agreement to be invalid. As a result, the employer might be required to repay the evaded social security or pay an extra severance payment to its employee in case of termination.

What is the obligation for foreign employees in China?

In all cases, foreign employees working in China are required to participate in China’s social insurance scheme. However, foreign employees are also eligible for social insurance exemptions if they come from countries that have social insurance exemption agreements with China.

As of writing, 12 countries have reached such agreements with China and 11 such agreements have been implemented between China and the following countries:

  1. Germany
  2. South Korea
  3. Denmark
  4. Canada
  5. Finland
  6. Switzerland,
  7. Netherlands
  8. Spain
  9. Luxembourg
  10. Japan
  11. Serbia
  12. France*

*China has signed agreements with France, but it has yet to come into effect. Pacific Prime China will update once the exemption comes into effect.

If your company is based or headquartered in any of the above countries, you can discuss with them your obligation to contribute to the schemes.

Learn more about expat life in China

The thought of working in China is an exciting prospect for many but can be daunting for those that are inexperienced when it comes to traveling abroad for work. At Pacific Prime China, we have over 20 years of experience carefully supporting expats the world over with their health insurance needs and understanding of what to expect from the country’s healthcare system.

Further reading:

Our advisors are located in two offices: Shanghai and Beijing, and consist of a number of local Chinese and expat advisors. You are guaranteed to receive the best health insurance plans from many of the region’s top insurance companies while keeping to your budget.

Would you like further guidance? Our complete guide to moving abroad as an expat will provide you all the details to consider and make your transition to China a seamless one.

Contact us to speak to one of our advisors today!

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Disclaimer: Pacific Prime China solely represents, operates and manages locally regulated insurance products and services in the territory of PR China. Any references to Pacific Prime Global Company or Group, the international services, insurance products or otherwise stated written or verbally, is for introduction purposes about our overseas network only as each entity is fully independent.

Content Creator at Pacific Prime China
Jimmy is a content writer who helps simplify insurance for readers interested in international private medical insurance. He is on a mission in Thailand to support locals, expatriates, and businesses by bring the latest news and updates to his Pacific Prime blog articles.

His expert view and wealth of knowledge on insurance can also be found in his blogs for China, Dubai, Hong Kong, and Singapore.