How hairdressers shed light on China’s economy & an interview with a Headhunter: 20% salary hike expected

One of the frustrating things about living in China is finding a reliable hairdresser.  It’s not unusual for your favourite hairdresser to leave after only a few months.

Friends would often don baseball caps while grumbling about their latest dodgy haircut as their favourite hairdresser had left – within 1 year, you might have 4 different hairdressers at the same salon.  The reason?  The hairdressers wanted a higher salary.  

This high turnover is not just limited to hairdressers, but across most service industries in China – restaurants are another good example.  The food quality at great places often deteriorates because of chefs jumping to new kitchens.

hair pulling woman

My on-the-ground survey of people in China has so far dealt with the tough conditions of the diamond market, the end of the world and iron-ore re-stocking.

Headhunter interview: To get a view on the Chinese job market and salaries, I spoke to a veteran Headhunter in glamorous Shanghai.

Her views were reasonably nuanced – positive on some aspects, but lukewarm on others.  She had positive expectations on salary increases – on average up 20%!  This would not be surprising for those in China, but might sound incredibly high to non-Chinese.

Clients less likely to hire: Compared to 1 year ago, she thinks clients are less likely to hire.

She is seeing an average salary increase of 20% amongst her clients, though this is lower than last year.  She expects a 10% salary increase for her own employees.

This is very positive for consumption and is something that a lot of the uber bears on China tend to overlook.  Though I’m sure hyper-inflation would be their response.

Firms need to pay a double-digit salary increase in order to poach staff: 

  • 40-50% at the junior level: Junior staff can get salary increases of 40-50%, as their salaries are very low.
  • Senior end: Around 10-20% increase depending on the role.

The 40-50% increments for junior staff are not surprising.  Whenever I assess a Chinese service company for investment I always wonder whether service standards will be maintained because of high staff turnover.

Job-hopping is rampant amongst new Chinese grads.  Some reports put it at 30% amongst 1st-year grads.

I know that it’s common for turnover rates to be as high as 40-50% at the Big 4 accounting firms, particularly at the graduate and lower levels, as pay is so low (the WSJ notes that grad salaries are lower than that of migrant workers) and young grads have to struggle to make ends meet in high cost cities like Beijing and Shanghai.  And it’s given rise to the so-called “ant tribes“.

Conversely, there is a paradox in China’s job market.  Time has a good summary of China’s “Talent War” and notes that while:

“China may be the world’s most populous nation, churning out roughly 7 million college graduates every year, but elite companies…find the pool of talent to be thin.  In fact, large numbers of new graduates from second-and third-tier universities often struggle to get a job at all.”

excel2From my experience, a lot of Chinese grads lack a lot of very basic business skills, even the ones with US MBAs.

I always remember the overseas-trained MBA who proudly presented his financial model to me.

However it was impossible to read as it looked like a rainbow – every row was painted in a different colour, after I had shown him how to shade cells to highlight key results.  Except he took it way too literally.

One of the issues is the poor quality of the university system – in the early noughties China passed reforms which “re-labelled” a large number of technical colleges into “universities.”

The problem is that you may be a Computer Science major at one of these newer “universities”, but never ever see even one computer through your entire 4 year degree.

So once you graduate, you’re unemployable and it’s easy to see how someone could quickly become disgruntled – supposedly university educated, you instead have to scrounge around for a job you probably think is beneath you, while boxed up in an ant colony.

Recently I was at the Park Hyatt bar in Beijing with some overseas visitors.  They were curious about different aspects of China and asked the waitress about her background.  They were amazed to find out she had studied economics at a university in Beijing and was now a full-time waitress.

But I digress, let’s get back to the interesting answers from our Shanghai headhunter:

R&D, pharma, FMCG and retail were the sectors with the strongest hiring growth:  Interestingly these are all service industries, which is positive for China’s economy.  Moreover both R&D and pharma are “knowledge” industries.

While the transition of China’s economy from an infrastructure addiction to a domestic-demand driven economy will take time, the reality is that a lot of the service sector’s contribution goes unreported and is understated, because a lot of service businesses pay minimal tax.  For example if a customer doesn’t ask for an official “fa piao” at a restaurant, the restaurant doesn’t have to pay tax on this transaction.  This money becomes part of China’s massive grey economy.

Roles with strongest demand: Sales.  Which again shows the emphasis on the service sector.

e-Commerce and heavy manufacturing were sectors which have recently seen job cuts: The headhunter noted that e-commerce companies are not going as strong as hoped for, while heavy manufacturing is not a surprise.  e-Commerce is surprising to me given the dynamic nature of China’s internet economy.

Next 6 months positive: She doesn’t see job cuts in any specific sectors.

  • Positive on economy, though slower growth: She expects a stronger Chinese economy, but at a slow growth rate.
  • Consumption over exports: She noted that multinationals have started focusing more on domestic consumption vs exports, and that local Chinese businesses are “becoming more sophisticated and developing overseas business.”
  • Dealflow: M&A deals are still happening.

So in conclusion, hiring is still in strong in China, though not expected to be as good as last year.  Double-digit salary increases are still the norm and will provide a boost to domestic consumption.

Finally (and most importantly), if you live in China and find a great service business and want to see it maintained, make sure you give your hairdresser a big tip, thank the chef and be nice to the waitress!

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