On his first day as head of Greater China at Lockton Asia, Alex Yip talks exclusively to StrategicRISK about human capital, regulatory and economic risks in mainland China

The former chairman and general manager of JLT China believes that the shortage of quality talent is a key risk for almost all entities doing business in China.

“Local and international businesses are struggling to retain and attract quality staff,” Yip says.

“This is going to have a significant impact on the sustainability of commercial operations in their current form.

“In an increasingly open market, these pressures are being felt in businesses of all types – multinationals, SMEs and state-owned operators and all having to pay far more attention to this issue.

“Employee development planning and, increasingly, succession planning is therefore essential to retain and grow the pool of talent within an organisation.”

The good news, Yip says, is there are a lot of young, smart, and fast-learning people out there.

“China, after all, is a pretty big place,” he says.

“Given proper development and training, these young people will become future assets.

“However, organisations need to be willing to invest in people and have a long-term view of business planning of its business and profit margins.

“Each year, there is not only a pool of graduates in the mainland, but a large number of talented Chinese students from the universities of Western countries who are preparing to return to their home country.”

A well planned employee development program for young people can be a powerful tool in attracting and retaining talent, Hong Kong-based Yip adds, as it allows businesses to sustainably fill future supervisory and managerial roles.

Increased enforcement

As the economy of China develops, it is natural and reasonable to predict that previous rules and regulations will also need to adapt to the new business environment.

Yip believes that government regulation will need to respond to new ways of doing business, new technologies, new threats and new markets.

“Regulation will not necessarily increase, but it will reflect the government and the peoples’ needs,” he says.

There are a number of regulatory requirements around reporting routines and the identification of any possibly irregularities to the authorities, which Yip says create costs that must be factored in when doing business in China.

“In terms of general commercial business, there are still many differences that foreign companies need to be aware of,” he says.

“In relation to, for example, contract disputes, I believe that the usual way in the Chinese culture is to start with friendly negotiations.

“Failing that, I believe that arbitration and litigation are common ways to reach an agreement or settlement.”

Yip disagrees with the view that a contract is used as a guide only, and that is not enforceable.

“I can understand the commercial consideration behind a legal action, but that happens in any part of the world when one is doing business,” he says.

“Having said that, I am not ruling out the risk of non-performance or the frustrations around some contracts that organisations should take into consideration.”

Economic slowdown

The Chinese Government would prefer to see the economy have a ‘soft landing’, according to Yip, when compared to the “very hot, or even overheating, economy of the past years”.

“Problems of overcapacity in the manufacturing sector, and the over-reliance on government spending to drive GDP growth are ways to readjust to a slower pace and to ensure a soft landing,” he says.

“It is also natural to see that the weak European economy is leading to the slowing down of exports which does have an impact of lowering GDP.

“However, the Chinese government is working towards offsetting this impact by encouraging up domestic consumption.

“The rate of urbanisation is fast, [and] demand for consumer products, services, housing, education and medication are increasingly attracting domestic expenditure within the growing middle class.”