REGULATORY COMPLIANCE: PAPER TIGERS IN CHINA Chris Nyland, S. Bruce Thomson and Cherrie Jiuhua Zhu Working Paper 4/09 July 2009 Abstract Managing employer social protection compliance is a particularly difficult regulatory issue in emerging economies like China. Utilizing empirical evidence generated by eight case studies conducted in Shanghai this paper details how employers respond to attempts by the state to manage their social protection behavior and why social insurance is deemed to be a significant operational cost that is likely to be avoided or evaded. The picture presented builds on recent statistical analysis of Chinese business compliance behavior and reveals insights difficult to generate due to managers’ concerns that admitting to non-compliance may cause them difficulties with employees and/or the state. This study argues that 1) Shanghai managers will tend to engage in non-compliance if this is deemed a strategic option that can raise their competitive edge in spite of concerns about the need to maintain an image as good social citizens; 2) that regulations need to be uniformly enforced on all firms if all employers are to be expected to comply; and 3) that firms incorporate the costs and benefits associated with social protection into their labor management strategies through a conscious policy of internal segmentation. This paper is a work in progress. Material in the paper cannot be used without permission of the author. DEPARTMENT OF MANAGEMENT WORKING PAPER SERIES I S S N 1 3 2 7 – 5 2 1 6