China's labour pains

Around 200,000 submissions poured in after the draft was made public in March, with two proposals – one making it harder for employers to terminate contracts and another handing additional power to labour unions – proving particularly contentious.

Employees are already in a relatively strong position in China, with arbitration statistics from Shanghai showing that workers wholly or partially won 87% of 14,000 cases. Now, the new law makes life harder for employers, effectively ending the current system of fixed-term contracts with a new system whereby an employer has to pay severance if a fixed contract is not paid on its expiry. Critics say this means open-ended contracts will apply – a 'job for life' mandate that they claim returns China to the 'Iron Rice Bowl' of China's socialist past.

The new law is largely designed to provide better protection for migrant and low-end blue collar workers who often find employers flouting labour laws by terminating contracts without notice and withholding wages.

Critics say that in stiffening protection for the lowest paid workers, legislators are making the market much harder for everybody.

Andreas Lauffs, a specialist in China employment law at the US law firm Baker & McKenzie argues: "It will put China in the neighbourhood where France and Germany used to be before they started reforming their labour systems. People went to China because of low labour costs and a flexible labour market. Will they continue to go if China is just becoming a new Europe?" Lauff adds that the system means that a company hiring an employee in the expectation of having them for one year "can overnight become an open-term contract, potentially sitting on your payroll for the rest of their life".

Meanwhile, the labour reform package also proposes strengthening the power of the unions, which all ultimately answer to the All China Federation of Trade Unions (ACFTU). On the face of it, this is another effort to protect China's army of industrial workers. Last year, 26,700 workers died from industrial illnesses and injuries, and Chinese companies stand accused of reducing labour costs by 47% through suppressing strikes, barring unions and ignoring laws on minimum wage and child labour.

Under the new law, union involvement will be required throughout the labour contract process. Without a union, many day-to-day activities will be impossible. But, critics argue, the ACTFU is not a normal union organisation. It is a government-oriented body, and its primary responsibility is to look after the economic interests of the Chinese state, not necessarily employees.

The real reason the government wants to boost the power of the ACTFU, say observers, is to ensure that China's rising new breed of independent unions – free from government influence – do not get too powerful. They don't want the profit potential of state-owned giants like Baosteel being compromised by the demands of renegade independent union demands. If a union needs to be involved, the government wants it to be their own.

Many fear the new system will spell trouble for foreign companies investing in China. More power and influence for the ACTFU will, say critics, give China a stick to selectively beat up on foreign enterprises while protecting domestic players. Many hope that foreign companies will respond by supporting union movements as far removed from government influence as possible, boosting the popularity and power of union movements that truly represent workers' interests.

Source: China's labour pains
China Economic Review, July 2006 Vol 16 No 07

Review by James Curtis

This article was first published on World Business

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