China's 2008 Labor Law: Does It Work, or Is It Just a Financial Burden?

Our friend Lyle Morris has a well-reported piece at YaleGlobal on China’s new labor law, which went to effect at the beginning of this year.

Under the law, which affects both domestic and foreign companies operating in China, workers will see increased protection from labor unions and significant overhauls in policy ranging from contract formation to severance packages and job training. Arguably the most influential — and controversial — change centers on an open-term clause for long-term employees. The clause states that workers with 10 consecutive years, or having signed two consecutive fixed-term contracts with a company, are entitled to a contract without a fixed end date – essentially giving them lifetime employment. …

Many foreign enterprises voiced discontent with the law. Among them was Serge Janssens de Varebeke, then-president of the European Union Chamber of Commerce in China, who warned in a 2006 letter to the National People’s Congress that the “strict regulations” could raise production costs and “force foreign companies to reconsider new investments or continuing their activities in China.” …

Karen Lin, a senior fund manager at Paradigm Asset Management Co. in Taipei, predicts the law will add roughly 25 percent to the cost of labor in China, which typically accounts for 10 percent of total manufacturing costs. Companies that fail to adjust will start to feel major pressure on their profits within “five to six years,” Lin said.

It strikes me as a little bit duplicitous on the part of some foreigners to have their governments and citizens’ groups insisting on new regulations to improve human rights in China while business groups complain that such regulations cost too much money.

No matter which side of the debate you may stand on, it’s hard not to be a consumer of products created under these regulatory conditions. As Lyle writes, however, better laws on the books doesn’t necessarily mean better work conditions.

In the long run, whether or not the law is successful in curbing worker abuse is another matter. Critics point out that the while the law will add much needed rights for workers, its goal of reducing worker-abuse cases might be difficult.

“The impact it will have on migrant workers’ working conditions will be limited,” says Lauffs. “Simply passing a new law will not guarantee that the local labor bureaus will become more active in enforcing employees’ rights or companies will be more accommodating in coming into compliance.”

A fundamental question is whether Chinese workers will actually make use of their newfound power. “I think many workers will be hesitant to use their full rights under the law” says Zhangjian, secretary at a small electronics manufacturing company in Beijing. “Bringing too much attention to yourself could cost you your job.”





Leave a Reply

Your email address will not be published. Required fields are marked *