For many years China has been a magnet for foreign investment. Between 1980 and 2011, China experienced double-digit GDP growth in 16 of those years. America’s position as the world’s largest economy is under threat; The Economist currently predicts that China’s GDP will outstrip the USA’s by 2019. But this rapid and unprecedented growth has slowed since 2011, with the Chinese government lowering its growth target in an attempt to foster sustainable development and address concerns around wealth inequality. “The Chinese economy is going through a transition period,” says Jin Zhang, China managing director at Russell Reynolds. “In today’s environment the theme is not only about attracting foreign investment in China, it is also about Chinese companies investing in other markets.” Indeed, according to statistics from China’s Ministry of Commerce, quoted in the China Daily, outward foreign direct investments (FDI) during the first 10 months of last year rose 25.8% to $58.2 billion, while inward FDI fell 3.5% to $91.7 million.

Indeed, China’s 12^th Five Year Plan (which runs from 2011-2015) identified seven core industries to focus on. Three of these relate to energy and sustainable development, while the other four focus on research and development, indicating an intention to move up the supply chain, shifting from ‘Made in China’ to ‘Designed in China’. “The economy in China is divided,” says Train Luo, managing partner, China at CTPartners. “In the traditional industries, like manufacturing, there is not much innovation. However, there is a huge wave of innovation-driven companies, focusing on e-commerce, the internet, financial technology and consumer electronics. China needs to go from a manufacturing-driven economy to an IP-driven economy.”

Searching for local hires

One of the central drivers of a healthy economy is a secure middle-class. However, there is evidence to suggest that the number of middle-class Chinese nationals leaving the country for new opportunities is rising significantly. Despite high compensation levels and the opportunities to acquire significant personal wealth, individuals are leaving for Australia, Canada and Southern Europe in search of a better quality of life, a life where they don’t have to worry about air pollution or the quality of the food they eat, a life where couples can have more than one child. A recent article in The Economist said: “Many [Chinese nationals] are going for good, and unlike past waves of Chinese emigrants, they include accomplished mid-career professionals who have little to gain financially by leaving.”

With a large proportion of the country still working in traditional industries, the boom of the last 30 years has created tremendous wealth inequality – indeed the income gap between the rich and poor has now overtaken the gap in the United States and is now among the largest in the world. To help address this, organizations in China are often looking to local hires. Steve Mullinjer, regional leader, Asia Pacific at Heidrick & Struggles, says: “Our [Heidrick & Struggles’] experience suggests that approximately 55-60% of multinational companies have replaced foreign expatriates with local hires in the past three to four years. Historically fewer than 10% of Chinese job candidates on average would be suitable for work in a foreign company because of their poor command of English and an education system that focuses on theory rather than practical skills.”

While there is clearly a desire for businesses to address long-standing societal issues like wealth inequality and poverty, it remains to be seen whether the Chinese education system is sophisticated and relevant enough to create the next generation of talent. In the short term, the desire for Chinese-born executives was bolstered by some returning nationals from the West. Set against the troubled economic environment of the Financial Crisis, and the consequential low levels of executive mobility, China’s growth appealed to some executives, as Bill Farrell, managing partner at Boyden explains: “The expatriate community saw a chance to play their part in what they saw as a great economic story.”  

“In the US I was used to taking time to contemplate…in China you will be left behind”

But how transferable are the soft skills that the returning expatriates and executives who have never lived or worked in China have developed during their time in the West and what cultural differences can they expect?

“In terms of corporate culture, Chinese companies in the early stage of globalization are probably 20-30 years behind their competitors,” says Luo. While organizations in the West are increasingly being challenged about whether top-down management is optimal for getting the most out of their talent, it is the favored style in China. “In multinational companies there is an expectation that recognition comes with good performance and time,” Farrell says. “To be able to get the best global talent, local Chinese companies need to offer similar recognition. When Chinese companies are giving serious consideration to recruiting a Western expatriate they have to understand that there are different expectations than if they were recruiting somebody from the same province.”

To read the full feature in Search, The Global Executive Talent Quarterly from the AESC, click here.