By Natalie Thomas
BEIJING (Reuters) - China's smog is making it harder for foreign firms to convince top executives to work in the country, the American Chamber of Commerce in Beijing said on Wednesday, offering some of the strongest evidence yet on how pollution is hurting recruitment.
Some 48 percent of the 365 foreign companies that replied to the chamber's annual survey, which covers businesses in China's northern cities, said concerns over air quality were turning senior executives away.
Pollution is "a difficulty in recruiting and retaining senior executive talent", said the report. The 2014 figure is a jump from the 19 percent of foreign firms that said smog was a problem for recruitment in 2010.
China's slowing economy, however, remained the top risk for companies, the report added.
Foreign executives increasingly complain about pollution in China and the perceived impact it is having on the health of themselves and their families. Several high-profile executives have left China in recent years, citing pollution as the main reason for their decision to go.
Almost all Chinese cities monitored for pollution last year failed to meet state standards, but northern China suffers the most. It is home to much of China's coal, steel and cement production. It is also much colder, relying on industrial coal boilers to provide heating during the long winter.
The capital Beijing, for example, is surrounded by the big and heavily polluted industrial province of Hebei. It is also choked by traffic.
By contrast, China's commercial capital Shanghai, in the south, suffers less air pollution. Indeed, a similar survey conducted by the American Chamber of Commerce's Shanghai branch did not ask if pollution was affecting recruitment.
Premier Li Keqiang "declared war" on pollution at the opening of the annual session of parliament this month, part of a push to wean the world's second biggest economy from credit-fuelled growth to more sustainable development.
China also pledged on Sunday to make 60 percent of its cities meet national pollution standards by 2020.
Lulu Zhou, associate director of the Beijing Office of international recruitment agency Robert Walters China, said some foreign executives were using pollution to negotiate higher salary packages.
"We have seen some senior level professionals ... who are concerned about relocating to Beijing because of the pollution," she said.
In a sign of the growing corporate concern over pollution, Japanese electronics firm Panasonic Corp has told its unions it will review the hardship allowance paid to expatriates in China because of the air quality, a spokeswoman said on Wednesday.
And a state-owned Chinese insurer said this week it would offer Beijing residents insurance cover against health risks caused by air pollution, promising to pay out 1,500 yuan ($240)to policy holders hospitalized by smog.
The policy, available for people aged 10 to 50, will also pay out 300 yuan when the city's official smog index exceeds 300 for five consecutive days, a level considered "hazardous", according to a notice posted on the People's Insurance Company of China (PICC) website (www.epicc.com.cn).
Beijing's official air quality index (AQI), which measures airborne pollutants including particulate matter and sulphur dioxide, routinely exceeds 300, and sometimes hits levels higher than 500.
SLOWING ECONOMY THE BIG CONCERN
Despite the concerns over pollution, China's cooling economy, which government leaders project to grow this year at about 7.5 percent, posed the greatest risk to companies, according to those polled in the Beijing survey.
Firms increasingly reported a stagnation or contraction in operating margins compared with previous years, it said.
As a result, more foreign firms saw China "as just one of many investment possibilities", the report said.
Nevertheless, a majority of companies surveyed remained optimistic about the business outlook for the next two years.
"This optimism is driven by our membership's confidence in their own ability to adjust and deal with the challenges," said Mark Duval, China president of the American Chamber of Commerce.
Many members had high expectations that recently announced economic reforms might deliver, Duval added.
But two in five respondents to the Beijing survey said the business climate had become less welcoming for multinationals, with a similar number saying foreign firms were being singled out in a series of pricing and corruption investigations.
Those investigations have targeted various sectors, including pharmaceutical and milk powder multinationals, as well as American technology companies.
Most recently, China's anti-monopoly regulator said Qualcomm Inc. was suspected of overcharging and abusing its market position. The U.S. chip giant has said it was cooperating with the investigation by the National Development and Reform Commission.
Respondents also chafed at perceived state enterprise favoritism, with 77 percent believing policies benefiting state-owned firms had negatively impacted their business.
"My judgment is that the biggest area that drives (this response) would be market access," said Duval.
Protection of trade secrets and company name theft were among other issues worrying businesses. Half of all respondents said that protecting confidential company data was a concern.
Other difficulties were a lack of clarity and inconsistency in the application of laws and regulations, the survey said. ($1 = 6.1920 Chinese yuan)
(Additional reporting by Ritsuko Ando in Tokyo. Editing by Dean Yates)