China Gets Tough On Labor Laws…Kindof

After 2 years of debate and 3 drafts, the Chinese legislature is expected to approve a newer (and tougher) version of its national labor law this month. The current draft of the new law includes several provisions that seem a bit strange and/or cumbersome including a requirement that employers submit to the workers congress all proposed changes in workplace rules that involve pay, work allotment, hours, insurance, safety, holidays and training. Labor unions and Employers are then instructed to jointly iron out agreements. It also stipulates that severance be paid to workers after a fixed term contract expires that is not renewed.

Such broad and sweeping legislation is certain to have broad and sweeping ramifications on business in China, right? The government was so worried about this fact that, in an unprecedented move, they opened the law up to public debate – receiving 200,000 responses in the month that public commentary was allowed; business lobbies and Chambers of Commerce went so far as to threaten to remove entire business operations from China if their interests aren’t met; Scholars are ruminating over manufacturing jobs shifting to less developed nations like Indonesia and India.

However, like China’s 1994 Labor Law, the key issue is not the regulations themselves but how they are enforced. As is the case with much of China’s legislation, the labor laws contain relatively strong targets and directives, systematically ignored on the ground. For instance, current labor laws ensure workplace safety – but look no further than the string of mining accidents over the past several years to see endemic disregard. Current labor laws also mandate equal opportunity employment and no discrimination on the basis of sex – yet every woman I talked to when I was studying at Qinghua University said that employment discrimination on the basis of sex was institutionalized, transparent and accepted. As the Chinese say, heaven is high and the emperor is far away; what’s dictated in Beijing often means little on the ground.

I read an interesting analysis of this issue by old-China-hand Russell Brown on the China CSR blog. He points out that foreign firms are attracted to China not only because of the low cost of labor but also because of China’s highly efficient economic structure. Thus, the government needs to ensure that efficiency in the labor regime be maintained while addressing workers rights. Additionally, realizing the moral purpose of avoiding a ‘race to the bottom’ in terms of labor treatment, means ensuring that enforcement include all firms, foreign and domestic. Without effective enforcement, the race to the bottom will still occur, no matter what’s on paper.

Focusing on the last point, it can be assumed that while the new labor law, like the current one, does not single out foreign firms for separate treatment, they will be held to a higher standard than domestic firms in practice. This has certainly been true of the current legislation. In the case of Wal-Mart, KFC and Yum foods being compelled to incorporate unions at their stores by the All China Federation of Trade Unions, they were all being attacked by the government and media for labor treatment that was superior to their local competitors. Attacking foreign firms as a symbolic means of demonstrating that enforcement is progressing along with policy may be tempting, but at the end of the day, if China wants to ensure ‘harmonious’ relations between labor and capital, it must develop its enforcement regime to include domestic firms; new legislation needs to be accompanied with consistent enforcement across the system and accessible legal recourse.

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