A laver export company in Hai'an County, Jiangsu Province.	Tsingtao Brewery Group production line workers wearing protective masks.	A Japanese shoe factory in Huai'an County, Jiangsu Province.

On June 29th, after a long period of discussion and broad public participation, the Standing Committee of the National People's Congress (NPC) - China’s top legislative organ - adopted the Labour Contract Law. It comes into effect on January 1st 2008. This decision came earlier than expected, owing to recent media reports about worker abuse in Shanxi province brick kilns, and other instances of non-compliance with state minimum wage and working hour regulations, particularly by US-American enterprises. These ‘scandals,’ which revealed actual labour conditions in China, became a central topic for the domestic media. The new Labour Contract Law, therefore, is a socio-political signpost that can hardly be ignored by employers in China, especially in view of the Central Government’s aim for rapid progress in social issues and the Chinese public’s desire to see results.

Resisting Necessary Improvements

Foreign media have a different stance on the issue of labour conditions in China. Cheap, imported goods from China, and the ostensible threat that Chinese producers' lower manufacturing costs pose to European and US national industries, dominate their media reports. Terms such as “social dumping” are used to aggravate fears of fierce competition. Lobbying efforts by the American Chamber of Commerce, the European Chamber of Commerce and the US-China Business Council unambiguously represent important foreign investors such as Nike, Dell, General Electric, Microsoft and Ford who, a few months ago, threatened to withdraw capital investment from China were the new Labour Contract Law to be passed.

Foreign companies may fear fair labour standards, but European and American trade unions welcome the legislation process. The US-American labour union federation “Change to Win” have assured the Chinese trade union of their support in their efforts to defend and/or implement labour rights in China. Lobbyists from Europe and the US, meanwhile, have tried their best to eliminate as many improvements from the proposed bill as possible. The current wording of the law takes both on board: the numerous comments from Chinese trade union organisations, where most of the 190,000 or more received statements originated, and the demands of business associations. Yet certain companies are nevertheless grumbling about what seems to them a foul compromise with the unions:

International labor experts said several of the most delicate clauses had been watered down. But lawyers representing some big global companies complained that the new law still imposed a heavy burden.

''It will be more difficult to run a company here,'' said Andreas W. Lauffs, head of Baker & McKenzie's employment law group, which represents many of America's biggest corporations in China. (New York Times: June 30, 2007)

Aren’t these “global players” supposed to bring fair labour standards to developing countries, along with their investments?

In the recent past, foreign enterprises in China have lost their reputation as ‘model companies’. Wal-Mart, for example, has strongly opposed the establishment of trade union committees within its enterprise and puts extreme pricing pressure on Chinese suppliers, although common sense would indicate that such demands could not, in principle, be met by suppliers complying with state legal provisions (minimum wages, limits on working hours, overtime premiums etc.). It was not until trade unions and the Central Government put pressure on Wal-Mart to permit trade union committees within the company that the corporate management softened its tone.

Fast food chains such as McDonald’s, Pizza Hut and KFC tried to circumvent valid regulations by hiring employees via agencies. Chinese experience of foreign enterprises, therefore, indicates that internationally recognized major corporations put profit before justice. US-American and European enterprises have their own ideas on how to contribute to social welfare: Corporate Social Responsibility (CSR) is their magic mantra. This is a system that favours voluntary agreements over legal provisions on worker participation. CSR is a PR measure similar to a charity campaign that has certain social aims or limited environmental goals. Permanent establishment and expansion of social, ecological and above all democratic principles, however, is by no means a CSR concept; it is, on the contrary, something more likely to be prevented. The CSR goal is solely to revamp the image of corporate brand names, despite their continued intensive exploitation and absence of worker participation. CSR is celebrated as a voluntary contribution to society that appears to go beyond legal obligations, while trade unions are often refused their legal rights. Neither a full-time trade union chairman nor a trade union committee for female workers generally exists, even in big companies where they are required by law. Yet both fulfil important operational functions: trade union committees in China resemble, more or less, German work councils. They safeguard and represent workers’ interests by participation in and/or consultation with the management. Trade female worker trade union committees support female employees in their occupational careers.

The new Labour Contract Law: What are the basic essentials?

The new Labour Contract Law (LCL) supplements the existing Labour Law and Trade Union Law regulations. One of its most important changes is that of making obligatory a written labour contract for all employment. But even if there is no written agreement, legal rights and liabilities for both employers and employees are binding (LCL §10 and §11). Beyond that, fixed-term labour contracts are deemed exceptional and to be restricted (§ 14). To date, more than 60 percent of labour contracts are signed as short-term contracts for less than one year. Also of great importance - especially to job newcomers - are the new regulations on probationary periods.

The Labour Contract Law states that:

If a labour contract has a term of not less than three years or is open-ended, the probation period may not exceed six months.

An Employer may stipulate only one probation period with any given worker. (§ 19)

Trade unions are to negotiate and conclude collective contracts, in which the ‘favourability principle’ (wherein stipulated regulations and contracts may not fall below the standards of each higher level) applies. As a consequence, local trade union organisations play an important role in concretising, interpreting and implementing the law:

The standards for working conditions, rates for labour compensation, etc. stipulated in a collective contract shall be higher than the minimum standards and rates prescribed by the local People's Government. The standards for working conditions, rates for labour compensation, etc. stipulated in the employment contract between an employer and a worker may not be lower than those stipulated in the collective contract. (§ 55)

Moreover, the new Labour Contract Law stipulates that if a company “reduce[s] the workforce by 20 persons or more or by a number of persons that is less than 20 but accounts for 10 percent or more of the total number of the enterprise's employees, the employer shall explain the circumstances to its labour union or to all of its employees 30 days in advance, and it may reduce the workforce after considering the opinions of the labour union or the employees” (§ 41). The Labour Administration Department has to be informed and the personnel reduction can only be executed if certain conditions (economic difficulties, conversion of production, etc.) are fulfilled.

Legal Practice

Viewed as a whole, it is apparent that the government has realized that, in the struggle between labour and capital, the employee remains in the weak position unless it intervenes on its behalf, or as long as no unions are involved. Further regulations are to be added to the Labour Contract Law, because the rights of employees must be phrased unambiguously in order to be enforceable within applicable legal practice. In addition to concretising legal regulations, thus making them applicable, there are also intensive efforts in different areas to bring legal practice in line with written law. So far, building a constitutional state seems to be the main challenge to the reform and opening of China. Legal aid offices run by the trade unions, the labour administration and private initiatives have been trying for years to guarantee the legitimate claims of employees. Although there is still a lack of skilled advisers, employee awareness of legal regulations has risen. This is manifest in the rising number of work disputes, formally initiated by workers and submitted for labour dispute arbitration or to a local People's Court.

Moreover, mass media reports have had enormous influence on public interest in this topic. Disclosures of social evils and making “legitimate” workers’ protests public knowledge have exerted pressure on local governments to act. In the past, some failed to live up to their responsibilities as supervisory bodies. According to Yang Jingyu, chairman of the Law Committee of the NPC, “no more than 20 percent of small and medium sized companies or private companies sign labor contracts with employees in a bid to cut costs or evade the payment of social insurance premiums” (People's Daily: July 24, 2007). The Ministry for Labour and Social Security says that China aims to put 90 percent of its work force under the protection of formal labour contracts by the end of 2007 - before the Labour Contract Law comes into force. This would not only enormously increase legal certainty, but also lead to a noticeable rise in low-wage earners’ income. Anita Chan, labour relations expert at the Research School of Pacific and Asian Studies at the Australian National University, estimates the wage increase for migrant workers as a direct result of implementation of the Labour Contract Law at 50 percent or more. If the legal regulations pertaining to compensation, (minimum wages, overtime premium, etc.) are strictly adhered to, it will have a tremendous effect on the situation of low-wage workers in China.

Labour relations in China are still far from being universally institutionalised and vary greatly not only from province to province but also from enterprise to enterprise. In the meantime, legal terminology helps bridge many of the gaps in legal practice. Nowadays migrant workers - having been regarded as dirt-cheap labour in the past - can now claim their legal rights and be welcomed as members of Chinese trade unions. "The situation of workers in China is constantly changing. I am optimistic that the protection of workers is improving gradually," Constance Thomas, director of the International Labour Office (ILO) for China and Mongolia stated. The common goal being to create ‘harmonious’ labour relations in the near future, the Labour Contract Law is one big stride towards its achievement.