Despite Good Intentions, China's New Labor Law Leaves as Many Issues Unresolved as It Addresses

Ren Hongmei is a young baker with Li Cheng, a Dalian-based family business that operates a bakery chain in various cities. Ren works 12 hours a day, 7 days a week in a Li Cheng bakery in Yizheng, midwest Jiangsu, without a contract. She was sick for a couple of days in June and went to the hospital; she wasn't paid on those days. She made RMB 1,114 in June, paid as late as August 5th.

Ren is no average unskilled worker waiting to be exploited. A trained baker, she is articulate, smart, hard-working and determined, and knows a thing or two about her rights. When she worked in a café at Hongqiao in Shanghai, she bargained with the owner for a higher salary. She called 110, an emergency police service when an employment agency refused to return her deposit. But she found there was not much she could do to improve her current employment terms, except for quitting. (In fact, she is mulling over exactly that.) Most of her colleagues work even longer hours. Yin Xiangxin, her boy friend, makes more than RMB 5,000 a month as a supervisor in another bakery chain, also working 12-hour days without a contract for 10 years.

Like many other workers, Ren and Yin are not aware of the passage of a new labor law that aims to protect employees by emphasizing written contracts, equal pay and long-term job security. The sweeping reform was passed by the Standing Committee of the National People's Congress (NPC) in late June, immediately following public outcry over the brick kiln slavery scandal in northern China’s Shanxi Province. Although the two-year legislation process has been noted for its balanced inclusion of different parties' views, labor law experts still hotly debate the validity, applicability and enforceability of the new law.

"If it can really be enforced, all of us will surely be better off," Ren noted after learning about the new law.

Legislative Drama

The long-expected law was finally passed by the Standing Committee of the NPC on June 29, and it will take effect on January 1, 2008. In many respects, it is seen as a historical milestone in Chinese legislation. On March 20, 2006, the office of the Standing Committee solicited public opinion on the law's draft. In merely a month, 191,849 opinions were submitted. According to People's Daily Online, the Committee's move represented "a landmark event in democratic law making."

The first draft was released as early as December 2005. "It was a radical version, with many strict and even harsh rules," recalled Amy Zhang, a Shanghai-based consultant with Hewitt, the global human resource consulting firm. "The measures in the first draft were very costly to companies, and the rules would be very hard to implement." Zhang said the legislation became more rational as time went by. "The final version is actually quite good, balancing the interests of employers and employees. [The NPC] solicited many views from different parts of society and incorporated some of them, making the law far more applicable."

Although local and U.S. media reported that the American Chamber of Commerce, PRC, was lobbying against the new law, Jim Boyce, director of public affairs and communications at AmCham, was eager to set the record straight. "We have never opposed to the labor law," Boyce told China knowledge@wharton. "Actually, we have had two meetings with representatives from All-China Federation of Trade Unions (ACFTU) and arranged several meetings between the law drafters and our members. We are very happy that [the legislators] really listened to the voices of different people, and balanced different opinions in the new law." He added, "It is one of the best things the Chinese government has done."

Even the U.S. Congress played a small part in the legislative drama. On March 23, Liu Cheng, a law processor at Shanghai Normal University, was invited to testify to the Progress Unit of the U.S. Congress about multinationals lobbying against the passage of the new labor law. At the Young Scholar Salon on Labor Law held in Shanghai on May 7, organized by the Shanghai Association for Labor Studies, Liu said that the Congressional hearing was "unprecedented."

Edging to the Left

The passage of the new labor law reflects many changing undercurrents in Chinese society. Dong Baohua, a professor from East China University of Politics and Law, vice chairman of the China Association of Labor Law Studies, and a high-profile, vocal critic of the new law, observed in an interview with Xin Min Weekly in June 2006 that "After reforms, the government gave priority to efficiency, and labor law was somewhat marginalized. [The current] administration emphasizes fairness and harmony, and labor law comes to the center stage."

The leftist camp advocating more government interference in economic activities to address unfairness and social ills is gaining ground in China. Chang Kai, a professor at Renming University of China and head of the Labor Law Task Force, said in the same Xin Min interview, "Labor-capital conflict is a major conflict in China's market economy now…. Protection of private rights has caused the swelling of private rights, threatening some people’s right of survival." Chang noted that a power vacuum between the dismantling of the old system and the establishment of the new system is the reason behind radical actions in some quarters. "Labor law has to resolve the issue, to achieve nominal and even real equality, which calls for the interference of public power."

The ACFTU has played a very active role in the legislation process as well. "The new law is an all-out victory for ACFTU", said Zhang of Hewitt. Over the past two years, the ACFTU has participated over 30 meetings with the Ministry of Labor and Social Security, the Legislative Office of the State Council, and the Legislative and Law Commissions of the NPC. At a special press conference on the passage of the new labor law, the ACFTC noted that it "submitted over 100 opinions to the Standing Committee and most of them have been adopted and reflected in the new law."

Liu Cheng is another strong supporter of a more assertive labor law that addresses social injustice. At the Young Scholar Salon, Liu was very critical of multinationals, which "produce sweat shops and demand low procurement prices." He singled out Wal-Mart, which "grows rapidly on low costs." However, on July 25, Wal-Mart gave warnings to two Chinese suppliers, Yue Wing Cheong Light Products and Mainland Headwear Holdings Ltd., for alleged labor irregularities. This means the two companies will be investigated within 120 days. If a supplier is warned four times in two years, its contract will Wal-Mart will be rescinded.

According to Liu, "Corporate social responsibility is just a public relations tool of multinationals." Some American scholars advocate corporate law rather than labor law to govern market competition, he argued, "Without labor law to address unfair competition, there will simply be more sweat shops." Scholars like Liu are increasingly finding a receptive audience in today's China, where many people are unsettled by the recent brick kiln and coal mine scandals, sweat shops and disenfranchised migrant workers. 

Differing Opinions

The new labor law strengthens worker protection by requiring written contracts -- including non-fixed term agreements -- equal pay, and more restrictions on contract termination. When a contract is terminated under certain circumstances, the employer is required to pay compensation to the employee, and if an employer terminates a contract in violation of the law, an employee can demand the continuation of the contract, and the employer must oblige.

Companies and individuals react quite differently to the new law. Contrary to the media spin, many multinationals are actually positive about it. Zhang of Hewitt, for example, noted, "If enforcement is strong, the new labor law is not a bad thing at all to foreign-invested enterprises (FIEs), especially good companies, since they tend to observe laws well. Now they can be at a level playing field with state-owned enterprises (SOEs) and private businesses."

Ctrip, a NASDAQ-listed company with 5,500 employees at its Shanghai headquarters, also welcomed the new law. Will Miao, the company's human resources manager and a labor law expert, told China knowledge@wharton, "I have done an exit survey on every employee leaving Ctrip, and my finding is that in a law-abiding business like ours, the costs under the new law can be managed, controlled and even avoided." He advises companies to "change their mindset" under the new law. Miao also praised the new law for "its restriction on labor movement." As a human resources manager, he feels a lot of pressure with staff turnover. "Ctrip's annual turnover is 20-30% …. The market environment is not conducive to staff retention; the jumping-around culture is not healthy."

Small and medium enterprises (SMEs) operating on thinner margins, on the other hand, feel squeezed and threatened by the new law's provisions for longer-term contracts. Eric Gu, chairman of Jiu Jiu Duck, a snack-food franchise operator, said, "We will naturally take care of our staff if the business is prosperous. I feel the new law might actually hurt employees, since we will be more reluctant hiring when firing becomes so costly and difficult." His view is echoed by another small business owner, who prefers to stay anonymous: "People can vote with their feet. Eventually, employers and employees in bad faith will find it difficult to hire or be hired. Why does the government interfere in it?"

At the Young Scholar Salon, Huang Yizhou from the planning and wage division of the Shanghai Labor Protection Bureau argued that the new law didn't reflect the values of people born after the 1980s, who care more about experience and job satisfaction than stability and compensation. Will Miao, on the other hand, thinks labor law need not take particular consideration of this group, as they are not in a particularly weak position and don't need special protection.

There are some white-collar professionals who feel that the new labor law brings more job security, but not all of them are entirely happy about the legislation. Kevin Jin, a marketing manager with Honeywell, for one, feels that he is on a more generous contract than the new labor law dictates. "The new labor law caps the compensation due to an employee, when the contract terminates, at three times the average local salary. This means we will actually get less." Many white-collar professionals had protested against this clause when the third draft was being reviewed. Zhang of Hewitt notes that the new law was intended to be skewed towards lower-level, unskilled workers, hence this provision.

Not Quite as Intended

Unfortunately, the lower-level workers that the new law tries to protect are the least aware of it. According to a labor law expert, many restaurant waiters, shop assistants, salon aestheticians, and hotel staff are even not aware of the passage of the law, not to mention the heated debates on what kind of labor law China really needs.

In a paper titled, "The Target Choices of China's Basic Labor Law," Dong argues that China needs a labor law characterized by "low standards, wide coverage and rigorous enforcement," on the basis that "low standards are the prerequisite for wide coverage and rigorous enforcement." China's labor market is rife with problems -- frequent coal mine accidents and workplace injuries, and unpaid wages on a large scale. Legislators as well as scholars are keenly aware of these issues, but have come up with different solutions. Professor Chang Kai's answer is to raise labor standards, but Dong believes “high standards” will lead to "narrow coverage" and "weak enforcement". On the other hand, "The new law might hurt the workers it tries to protect," Dong wrote in another paper. "For example, to cope with difficulty in firing, companies might be more unwilling to hire, and some job positions might not be created." 

 

Front-line human resources professionals are giving the benefit of doubt to the effectiveness of the new law. According to Zhang, "The new law has been so hotly debated, and the whole nation is watching. We are not sure how effective the law will be enforced, but we do hope law enforcement could be strong." As to the critics on Chinese people’s law awareness, Will Miao of Ctrip says it’s a matter of time. “As time goes by, workers will be more legally aware. It is already happening in Shanghai."


Published : 2007.08.15



 
















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