CHINA FORECAST GDP and INFLATION GDP & Inflation Trends, % % Growth % Inflation 14 14

MERCER GLOBAL HR CONFERENCES

Shanghai HR Conference

CHINA AND GBA TALENT TRENDS

18 SEPTEMBER

Elley Cao, Senior Principal, China Career Product Leader, Mercer Jackson Kam, Senior Principal, Talent Strategy Practice Leader, AMEA, Mercer

GDP GROWTH 2016 – 2 0 2 0 ( I M F ) 6.7 6.6 GROWTH OF RESIDENTIAL INCOME 6.3 6.1 6.8 AND SPENDING 2018 ( y . o . y .%)

10.7 2016 2017 2018 2019 2020 7.6 8.8 6.8

per-capita disposable income per-capita spending T H E U S – C H I N A T R A D E W A R CHINA Urban Rural

GREATER BAY AREA (GBA)

Top 10 Countries by Nominal GDP Using PPP Exchange Rates by the Year 2030

China 64.2

India 46.3

USA 31.0

Indonesia 10.1

Turkey 9.1

Egypt 8.2

Russia 7.9

Japan 7.2

Germany 6.9

0 10 20 30 40 50 60 70

Source: Standard Chartered, Jan 2019 © MERCER 2019 Note: Estimates are in trillions of international dollars, using purchasing power parity measures 4 THE BIG PICTURE: CHINA FORECAST GDP AND INFLATION GDP & Inflation Trends, % % growth % inflation 14 14

12.3 12 12 11.3 10.6 9.8 10 10

8.6 7.9 7.9 8 8

6.4 6 6 5.1

4 4

2 2

0 0 1980-85 1985-90 1990-95 1995-00 2000-05 2005-10 2010-15 2015-20 2020-25

Real growth Inflation (CPI)

20 2

15 1.5

10 1

5 0.5

0 0 1980-85 1985-90 1990-95 1995-00 2000-05 2005-10 2010-15 2015-20 2020-25

Increase persons Population growth rate

China-World Exposure Index (trade, technology, and capital)

1.2 1.1 Weighted average 0.9 exposure of 7 large 0.8 1 0.7 0.7 economies = 1.0 0.6 1 China, France, Germany, India, Japan, United Kingdom, and United States 0.4

2000 2007 2012 2017

World exposure to China China exposure to the world

Escalations Tariff pre-Sept 1 Tariff after Dec 15

1st - $34bn 25% 30% (Oct 15)

2nd - $16bn 25% 30% (Oct 15)

3rd - $200bn 25% 30% (Oct 15)

4th - $300bn 0% 15%

• USD/CNY breaks 7 on Aug 5, 2019 • UBS forecast the US-yuan to move to 7.2 at end 2019 and 7.3 in 2020 in the case of trade war escalation

100% 2% 1% 6% 4% 5% 10% 9% 90% 12% 13%

80%

70%

60% Not a priority 78% 71% 50% 67% 74% One of many non-key priorities 68% Among top 5 priorities 40% Top priority

30%

20%

10% 19% 16% 17% 14% 14%

0% 2015 2016 2017 2018 2019

Has your company moved or does it plan to move any operations out of China? 100%

90%

80%

70%

60% 88% 87% 92% 92% 90% No 50% Yes, to another location

40% Yes, to the United States

30%

20%

10% 7% 6% 4% 6% 10% 5% 2% 4% 4% 3% 0% 2015 2016 2017 2018 2019

Global logistics ranking for China, Thailand and Vietnam

3.84 3.81 3.8 3.75

3.67 3.65 3.59 3.54 3.47 3.41

3.46 3.45 3.29 3.4 3.3

3.16 3.14 3.14

3.01 2.95

2.8 Customs Infrastructure International shipments Quality and competence Tracking and tracing Timeliness

China Thailand Vietnam

“General Motors, which was once the Giant of Detroit, is now one of the smallest auto manufacturers there. They moved major plants to China, BEFORE I CAME INTO OFFICE. This was done despite the saving help given them by the USA. Now they should start moving back to America again.” Trump tweet, 30 Aug 2019

Just the facts…

• GM is shutting 4 plants, leaving 29 in the US. It has 27 in China. • GM China serves only China (apart from 30,000 Buick Envisions sent to the US). • GM China has produced $16bn in profits for GM since 2010. • GM never “moved” US production in China. It has downsized in North America due to automation and lost market share.

• 9+2 Cities: HK + Macao, plus 9 cities in ZHAOQING Guangdong province GUANGZHOU HUIZHOU • GDP: 1.64 trillion USD FOSHAN DONGGUAN • Area: 56,000km2

SHENZHEN • Population: 71.12 millions ZHONGSHAN

MACAO JIANGMEN ZHUHAI HONG KONG • Shenzhen: to build a Demonstration Pilot Zone for Greater Bay Area Socialism with Chinese Characteristics (guideline issued on August 18, 2019)

2014 – 2018 GDP (GBA) Population in each city in GBA

1,490 109,070.3 Billion 101,843.0 2018 Resident population (10k) RMB 93,526.1 2016 Employed population (10k) 86,720.7 1,077 81,720.8 926 835 834 766 748 654

476 439 456 412 379 326 286 244 220 213 177 110 65 39

2014 2015 2016 2017 2018

GBA Goal of Five Strategic Orientations Shenzhen Pilot Zone

• Building a dynamic world- class city group • Better develop the GBA and enrich the practice • Becoming a global international technology and of the "one country, two systems" principle innovation hub • By 2025, become one of the leading cities in the • Providing support for the implementation of the world in terms of economic strength and quality “Belt and Road” initiative of development • Deepening cooperation between mainland China • By 2035, become a national model of high- and Hong Kong and Macao in the Qianhai, quality development, as well as a hub of Nansha and Hengqin development zones innovation, entrepreneurship and creativity with international influence. • Building a quality living environment that is suitable for residents as well as business and • By mid-21st century, become one of the top tourism. cosmopolis in the world and a global pacesetter with outstanding competitiveness, innovative capacity and influence

56,000 Area (km2)

Population (Million) 36,800 GDP (Billion USD)

21,500 18,000 17,200 16,400 17,700 8,800

7.7 23.7 71.0 43.8

SF Bay NY Bay GBA Tokyo Bay

Container Airport Passenger Area Resident GDP Per capita GDP Bay Area Throughput Throughput (10 thousand km²) population (10k) (Trillion USD) (Trillion USD) (10k Container) (Billion)

GBA 5.60 7,112 1.64 2.33 6,648 2.17 Tokyo Bay 1.35 4,383 1.77 4.24 776 1.23 New York Bay 2.15 2,370 1.72 8.21 625 1.32 SF Bay 1.80 770 0.88 10.53 242 0.81

Geographic Policy Transportation • 3+2 Economic circles and areas • 2017 GBA appeared in the • Guangzhou-Shenzhen-Hong Kong • Close to the world top shipping government working report high speed railway lane • 2018 GBA construction leading • Hong Kong-Zhuhai-Macao Bridge group hold the 1st time conference • The intersection of Silk Road Belt • Guangzhou-Zhuhai-Macao high and Maritime Silk Road • 2019 the GBA development speed railway planning outline was published

A SINGLE BIGGER MARKET CROSS-BORDER COLLABORATION • More cost-effective to target GBA as a single market • Clear market positioning for each city in GBA instead of individual cities encourages collaboration rather than competition • E.g. set up insurance customer service center to serve • E.g. launch liner routes that passes through ports GBA clients in premium payment, etc. within GBA, hence boosting the cruise economy

COST OPTIMIZATION POTENTIAL GATEWAY TO THE WORLD • Enhanced transportation network makes relocating to • Leverage HK/MC and their global trade ties for China cities with lower cost of business viable to open up its economy and go international • E.g. move logistics delivery hub from HK to western • E.g. leverage MC’s ties to develop FS platform for cities where rent is significantly lower China and Portuguese-speaking countries

ACCESS TO SPECIALISED TALENT POOL NEW PLATFORMS FOR COOPERATION • Enhanced transportation network and lowered criteria • 3 pilot districts within GBA will be developed as for GD/HK/MC residents to work within GBA allows for demonstrative zone for cooperation free flow of talent • E.g. Qianhai (modern service industry), Nansha • E.g. FS (from HK), Tech (from Shenzhen) (innovation & FS) and Hengqin (tourism)

2018 Population 2017 Population Rank City Increase (‘000) Growth Rate (million) (million) 1 Shenzhen 13.025 12.528 496.7 3.96%

2 Guangzhou 14.9044 14.498 406 2.8%

3 Xi’an 10.004 9.6167 387 4.02%

4 Hangzhou 9.806 9.468 338 3.57%

5 Chengdu 16.33 16.045 285.3 1.78%

6 Chongqing 31.0179 30.752 266.3 0.87%

7 Zhengzhou 10.136 9.881 255 2.58%

8 Foshan 7.9057 7.6567 249 3.25%

9 Changsha 8.1547 7.9181 236.6 2.99%

10 Ningbo 8.202 8.005 197 2.46%

NEW CITY POSITIONING NEW POLICIES TECH GIANTS & DISRUPTS THE VALUE ENCOURAGE THE FLOW OF INNOVATION PUSH CHAIN AND TALENT EVERYTHING (ESPECIALLY ACCELERATE JOBS DISTRIBUTION TALENT) TRANSFORMATION

Foshan: National manufacturing Guangzhou: GBA multi- Huizhou: Modern ecological city innovation hub functional center

Dongguan: World’s advanced Zhaoqing: Door to manufacturing center South-West of China ZHAOQING

GUANGZHOU Shenzhen: World’s Zhongshan: West-GBA HUIZHOU tech and industry tech innovation center innovation hub FOSHAN DONGGUAN

Jiangmen: GBA cross-industry SHENZHEN Hong Kong: World’s cooperation platform ZHONGSHAN financial, shipping and MACAO trade hub JIANGMEN ZHUHAI HONG KONG Zhuhai: New engine of GBA economy Macau: World’s travel and recreation center

ALONG THE VALUE CHAIN MATTERS Manufacturing industry value chain example

Zhuhai: electronic Foshan: furniture, home Jiangmen: cars, Zhongshan: medicine, Zhaoqing: auto parts, Hong Kong and information, home appliances, lighting, motorcycles, ships, electronics, electrical electronic information, Macau: sales and appliances, biomedicine, ceramics, machinery and microphones, hardware appliances, chemicals, agricultural products, marketing, customer petrochemical, equipment and bathroom, textiles, hardware, lighting, metal processing, food service machinery electronic information, clothing, furniture and beverage, chemical manufacturing, power petrochemicals, printing, industry energy new materials, shoes Primary Positioning

Basic R&D Application Engineering Procurement Production Assembling Marketing Sales Delivery After R&D & Logistics Service

Shenzhen: electronic Dongguan: electronic Guangzhou: Huizhou: digital, HOW WILL INDUSTRY ADVANTAGE information, information, electrical Automotive, petrochemical, clothing, AND VALUE CHAIN POSITIONING biomedicine, new machinery, furniture, petrochemical, shoes, OF EACH CITY EVOLVE IN THE energy, new materials textiles, paper, toys, electronics, electrical Cement, automotive FUTURE? chemicals, food and machinery and and parts beverage equipment manufacturing, transportation

© MERCER 2019 26 POLICIES TO ENCOURAGE TALENT FLOW Individual Income Tax (IIT) policy in GBA • Guangzhou, Jiangmen and Zhongshan High-level and urgently-needed talent working in the GBA has announced detail for IIT policy is eligible to apply for fiscal subsidies if their IIT rate is higher than 15% • Talent definition (Basic Requirement) • HK/Macao PR The application for subsidy is on an annual basis • Hong Kong residents who are part of the Hong Kong Admission Schemes for talents, professionals It will be granted by municipal governments of nine GBA and entrepreneurs; cities in the mainland and those subsidies are exempted from IIT • Residents of Taiwan region • Foreigners The fiscal subsidies will cover incomes as salaries, • Returnees with overseas education remuneration for personal services, royalties, business background and obtained foreign income, as well as allowances for honorary talent permanent residence status, and programs overseas Chinese;

© MERCER 2019 27 POLICIES TO ENCOURAGE TALENT FLOW (CONT’D) Shenzhen and other GBA cities’ attraction policy Shenzhen Hengqin – Zhuhai • Support Shenzhen in • Talents outside Zhuhai and graduated from top ranking implementing a more open universities within 5 years (former 985 & 211) or top and convenient system for 500 universities in the world can apply to move to the introduction of foreign Hengqin New District talent and allow • Enjoy living and renting allowance international contributors with permanent residence • Special talent reward to set up scientific and • Supporting fund for high-level talents who start up new technological enterprises companies in Hengqin and serve as legal • Reward to the winning team in innovation competition representatives

• Inflow from other parts of China and overseas (GBA as a talent magnet) • Convergence of “industry talent” towards expertise centers with distinct city positioning • Competition (back-and-forth flow) of “industry talent” among cities with similar or overlapping positioning (particularly in financial services and technology/innovation) • Dispersion and continuous flow of “functional talent” (e.g. digital marketing) within GBA • Relocation of lower-value jobs to lower-cost areas • Integration of South East Asia and overseas talent supply chain along One Belt One Road

VALUE POSITIONING, CRITICAL TALENT AND THE DIVERSE CHANNELS TO SOURCE TALENT 1 PRICE TAG 2 INTERNAL TALENT

CROWD-SOURCE PARTNER- TALENT SHIP TALENT

CO-OPETITION FREELANCE TALENT TALENT

3 TALENT DEPLOYMENT INTER- AND INTRA-REGION 4 WAYS OF WORKING

Time

Skills Place

Delivery Job Method Contents

The minimum wage level of 2014-2018 in Guangdong Province In RMB • The minimum wage 2,200 in Hong Kong is over 5 times more than that of Shenzhen 1,000 • The minimum wage 2014 2015 2016 2017 2018 in Macao is over 2 Shenzhen Guangzhou Zhuhai Foshan, Dongguan, Zhongshan Huizhou, Jiangmen, Zhaoqing times than that of Shenzhen CAGR of minimum wage (2014-2018) 10.0% 7.9% 8.2% 8.0% 7.0% 5.7% 6.0% 5.0% 3.5% 4.0% 2.0% 0.0% Shenzhen Guangzhou Zhuhai Foshan, Hong Kong Huizhou, Jiangmen Dongguan, Zhongshan Zhaoqing

© MERCER 2019 Source: Labor Department, The Government of the Hong Kong Special Administrative Region; The Social Security Fund of the Government of the Macao SAR 32 THE OVERALL SALARY GROWTH RATE OF GBA REMAINED STABLE, WITH THE HIGHEST SALARY INCREASE RATE IN GUANGDONG

Salary Increase Rate in GBA, 2015 – 2019 7.0%

6.0%

5.0%

4.0%

3.0%

2.0% 2015 2016 2017 2018 Planned 2019 Estimated Guangdong 6.7% 5.7% 5.9% 5.9% 5.9% Hong Kong 4.1% 4.0% 3.7% 3.8% 3.9% Macao 4.3% 3.6% 3.3% 4.1%

© MERCER 2019 Source: Mercer TRS Survey and Mercer Asia Pulse Survey 33 THE OVERALL SALARY LEVEL OF GUANGDONG IS INCREASING EVERY YEAR, WHILE THE SALARY COMPETITIVENESS OF TIER 2 CITIES GRADUALLY APPROACH GUANGZHOU/SHENZHEN

Salary Level in GBA (in RMB) Average pay gap 3,500,000 200% 177%

3,000,000 150% 136% 2,500,000

100% 2,000,000 82%

1,500,000 50% 38% Guangzhou 1,000,000 /Shenzhen

0% 500,000 -7.0% -14.3% -15.5% -14.0%

0 -50% 40 45 50 55 60 65 Para-Prof. Prof. Mgmt Top Mgmt

Hong Kong Guangzhou/Shenzhen Tier 2 cities in Guangdong Hong Kong Tier 2 cities in Guangdong

4 Bay Areas – Annual Total Cash Difference on Annual total cash by category USD 500,000 300,000 450,000

200,000 400,000

350,000 100,000

300,000 0 Operator- Operator- Operator- Professional Management Top Executive 250,000 entry experienced senior

200,000 Max-Min 150,000

100,000 The low labor cost in GBA means there is still

50,000 much room for development in the

0 transformation and upgrading of industrial Operator- Operator- Operator- Professional Management Top Management entry experienced senior structure as well as attraction and retention of

GBA Tokyo Bay Area New York Bay Area San Francisco Bay Area outstanding talents.

FOCUS ON THE BE INNOVATIVE GIVE NEW LIFE B U I L D F O R FOUNDATION A N D A G I L E TO YOUR EVP T H E F U T U R E

• Ensure foundational • Create agility in HR • Transform the HR • Redefine the HR architecture is in systems journey to deliver function to align with place • Meet employees better experiences business changes where they are • Create more flexible • Craft a future- & personalized focused reward solutions people strategy