AT the end of May, amid signs of a likely economic slowdown in China, the government released a set of labor statistics that bucked the trend.

Imports and exports may be down, but wages are up. Companies are continuing to expand their workforces and, even as China's growth cools, the country remains one of the most competitive markets for attracting and retaining employees in the world.

"The talent war is intense," says Mark Carriban, managing director of China for Hudson, a global consulting firm headquartered in New York that focuses on human resources. "For most sectors, there is probably more demand for top talent than there actually is top talent."

Even as China churns out an increasing number of college graduates each year, employees with managerial or other special skills remain hard to come by and companies are going to increasingly great lengths to attract and retain the nation's top talent.

While other markets floundered during the global financial crisis, China's economy remained relatively robust. Many firms responded by growing their operations in the country, building retail developments, manufacturing more automobiles and opening research and development centers tailored to the Chinese market.

In a recent survey conducted by Hudson, 60 percent of respondents in Chinese mainland said they planned to expand their workforces in the next quarter. "This is 50 percent higher than Hong Kong or Singapore," Carriban points out.

In addition, the wage increases of the last few years, although starting from a relatively low base, are impressively large. In 2011, wages increased by 18 percent, compared to a jump of 14.1 percent in 2010. Wages in the manufacturing sector climbed even more precipitously, increasing by just over 20 percent in 2011.

According to Carriban, the competition for talent has led to a pool of potential employees with high expectations: They are looking to advance quickly, and are willing to jump from company to company to speed the pace at which they gain responsibility and increase their salaries.

Generation Y

Compared with other markets, such as Europe and the US, the demographics for China's top talent skew relatively young. Because of the gap in education and work experience left by the "cultural revolution," (1966-76) many of the most desirable employees in the nation today were born after 1980, the group known as Generation Y. "This generation is the most well-educated, well-networked and aspirational generation China has ever seen," Carriban says.

Although China's education system has expanded significantly in the last 30 years, with the number of college graduates reaching around 6.6 million in 2011, many companies are looking for more than just a degree.

"I hear this story from headhunters and from local business schools," notes Wharton management professor Marshall Meyer. "Basically, local graduates aren't prepared to make senior management decisions ... They haven't really had the experience of taking initiative."

According to Henry Sheng, head of productized services in China for Hay Group, a global management consulting firm, many firms are looking for employees who can jump in and immediately make an impact. But recent graduates often need to be trained.

"This may be because of China's education system - your degree is often not very relevant to your future work," says Sheng. And while some companies are willing to invest in training new employees, the younger generation's tendency to move from job to job often renders the firm's investment useless.

Sea turtles

As a consequence of those trends, some of the most desirable hires are returning overseas Chinese, known in China as haigui or "sea turtles." These candidates have a combination of Western education, work experience and knowledge of China that make them extremely attractive to both multinationals and local companies.

"Many multinationals are trying to lower costs and hire local talent," Meyer notes. While haigui may not be as cheap as recent graduates, they will likely sign on for less than Western hires who would expect the firm to pay relocation expenses and an "expat package" that could include a housing stipend, education expenses for children and annual plane tickets home.

While the pool of desirable employees remains small, the number of companies looking to hire is increasing. Not only are multinationals continuing to expand their workforces in the country, China's state-owned enterprises (SOEs) are becoming increasingly desirable places to work. "The situation has changed over the last five years," says Carriban.

Before the financial crisis, if Hudson offered a high-value employee a choice between a position with a multinational and one with an SOE, the multinational would almost always be the top option. "They thought of the SOE job as not quite as sexy," he notes.

Today, more and more people are exploring opportunities with SOEs. The firms are becoming more sophisticated, Carriban adds, and as their HR services improve, management are better able to offer employees plans for career growth. "Business school graduates have gotten very cautious," Meyer notes. "The preference of many students is to stay within a traditional and secure system." SOEs are considered the safe option.

In addition, as many of China's CEOs and upper managers approach retirement age, Chinese businesses are starting to look more closely at developing succession plans and nurturing burgeoning talent. "In Chinese companies, company loyalty was like family - you were all in the foxhole together," says Meyer. "I don't know what you replace that with."

10-year options

Meyer cites the story of management at one Chinese firm who are so aware of the problem that they are working to establish a 10-year trajectory for replacing people, offering senior managers 10-year options that can be exercised only when they retire. "This is an incentive to build a loyal management team," Meyer notes.

As demand for China's top talent continues to heat up, the country's most desirable employees have high expectations of its employers. According to a Hay Group survey, employee priorities in Chinese mainland change with age. The youngest age group, which includes all employees under 30, is looking first for learning opportunities, second for competitive wages and third for the company environment. For employees aged 30 to 39, the first priority is wages, followed by the brand of the company and then learning opportunities. Employees aged 40 to 49 list a challenging environment as their top priority, followed by competitive pay.

Hay Group also found that employees who had recently moved from one firm to another listed leadership, lower than desired compensation and a lack of growth opportunities as their primary reasons for leaving.

According to Carriban, high-potential employees interviewed by Hudson in China's regularly cited salary and bonuses as their top concern when choosing an employer.

Beyond wages

While employees in China still list salary as their top concern, an increasing number of employees are looking for other benefits. Health care, education and work-life balance are all important factors in an employee's happiness at an organization.

In a recent survey conducted by the human resources consulting group Catalyst, 80 percent of respondents in China said that maintaining a healthy work-life balance was important to them. Forty-nine percent of women and 43 percent of men said achieving this balance is difficult.

"We found that, in China, people were generally less satisfied with the level of flexibility offered," says Laura Sabattini, senior director of research at Catalyst and the author of the report, which included India, China and Singapore.

Popular programs for improving work-life balance include allowing employees to work flexible hours or to work remotely. Some of these strategies can be difficult to implement because of Chinese law, however. Part-time work, for example, is difficult to arrange.

Once you've gone to work twice, legally it is no longer considered temporary work in China.

"Working from home is a growing trend, at least in Shanghai," notes Debbie Soon, senior vice president of strategy and marketing at Catalyst. Particularly at multinationals, where employees are often required to take conference calls at odd hours to coordinate with global teams, Soon says there is a growing awareness of the need for flexibility.

Making the workplace more flexible, however, is not always as simple as offering the option to work from home. Companies have to make it clear to employees that working flexible hours and remotely is acceptable - even encouraged - and won't result in penalties.

Adapted from China Knowledge@Wharton, http://www.knowledgeatwharton.com.cn. To read the original version, please visit:http://bit.ly/LNI7ey.