Since 1979, China has undertaken a strategy of economic reform that is essentially based on the “Open Door Policy” being followed by the “Four Modernizations” of the most perspective industries: agriculture, manufacturing, defense, and science and technology. Consequently, there was a shift from command economy to the one mostly driven by market forces. China’s entry into the World Trade Organization, social and economic reforms, industrial consolidation have made it a highly perspective country for foreign investment. Within the past 5 years, Shanghai General Motors and Shanghai Volkswagen more then doubled output – from 280,000 to 600,000 units. Going even further, country reached the largest output of steel in excess of Japan and United States together.

Lets analyze production a can of soda. While production costs in China account for only $0.18-0.19, United States production costs reach $0.70. At the same time, entrance into the World Trade Organization and focus on global market go hand in hand with the increase in standards for goods and services produced. Given the direct relationship between quality of products produced and company’s ability to retain talent workforce through effective human resource practices, the issue of labor turnover becomes a critical factor of the HRM strategy undertaken by a company.

As reported by scholars, the present situation in the labor market in China is healthy and stable. As reported by the Current Employment Statistics (CES) survey, the payroll employment increased by 2.1 million in 2004, which accounts for the first gain since 2000. Payroll employment remains stable – 97,000 below the peak level reached in February of 2001. Job Openings and Labor Turnover Survey points out s light increase during 2004; however, it is still considerably below the pre-recession years. In this survey, the total number of hires and separations that occurred monthly alongside with the number of job openings was measured.

At the same time, China Employee Attraction and Retention Survey 2004 reports that companies in China are having significant difficulties in trying to sustain the labor force in China. Survey covered 24 percent of companies from high tech industry, consumer industry accounts for the share of 19 per cent, chemical industry for as much as 14 per cent, pharmaceutical – 11 percent, automotive – 8, and service – 6 percent. As much as 54 per cent of all organizations confirmed an increase in labor turnover from previous years when it comes to professional and highly skilled staff. Companies covered in the survey use different strategies to sustain staff: 83 per cent of all companies employ health care and insurance benefits, 41 per cent provides health and fitness plans, whereas 24 percent offer flexible working hours. Interestingly, only 21 per cent of all organizations offer supplementary pension plans, and only 10 per cent offers subsidized loans.