China's la­bor law un­der fire as re­struc­tur­ing threat­ens jobs

The Pak Banker - - 6BUSINESS -

China's la­bor pro­tec­tions are com­ing un­der fire from high places as eco­nomic re­struc­tur­ing pits of­fi­cials con­cerned about so­cial sta­bil­ity against a lobby ar­gu­ing in­flex­i­ble poli­cies are sti­fling job cre­ation and sup­press­ing wages.

Com­pany ex­ec­u­tives, es­pe­cially at for­eign or pri­vate firms, have long been crit­i­cal of la­bor con­tract leg­is­la­tion and min­i­mum wage laws that make it dif­fi­cult for own­ers of an ail­ing busi­ness to turn it around or find will­ing buy­ers.

Now pol­i­cy­mak­ers anx­ious to mod­ern­ize China's slow­ing econ­omy and slash over­ca­pac­ity in heavy in­dus­try are mak­ing sim­i­lar noises.

The ex­port pow­er­house prov­ince of Guang­dong, a tril­lion-dol­lar econ­omy that of­ten leads the way on mar­ket re­forms, said on Tues­day it would scrap sched­uled rises to the lo­cal min­i­mum wage in 2016, and keep it at 2015 lev­els - slightly over 1,500 yuan ($230) per month - through 2018.

On the same day, the of­fi­cial Xin­hua me­dia ser­vice high­lighted com­ments by fi­nance min­is­ter Lou Ji­wei, who crit­i­cized China's Labour Con­tract Law in a speech dur­ing the an­nual meet­ing of par­lia­ment.

The law dates to 2008, when China had a rep­u­ta­tion for sweat­shops staffed by un­der­paid work­ers, an em­bar­rass­ment for a rul­ing party that mo­nop­o­lized power in the name of so­cial­ism.

The law fixed a 40-hour work­ing week for most em­ploy­ees, reg­u­lated ma­ter­nity leave, and re­quired busi­nesses to be able to prove their case for sack­ing em­ploy­ees for in­com­pe­tence or crim­i­nal­ity or face heavy penal­ties.

Its stan­dards as­pire to those of de­vel­oped economies, rather than emerg­ing mar­kets, though en­force­ment is weak. The EU, for ex­am­ple, lim­its the work­ing week to 48 hours, while China's max­i­mum is about the same, af­ter al­low­ing up to 36 hours a month over­time.

Reg­u­la­tions say min­i­mum wages should be be­tween 40 and 60 per­cent of the lo­cal av­er­age - though in prac­tice 30-40 per­cent is typ­i­cal - com­pared with about 30 per­cent in the United States and 50 per­cent in Bri­tain.

Pro­tec­tions against dis­missal are com­pa­ra­ble to Ja­pan's. "The Chi­nese govern­ment wanted the best, the most pol­ished la­bor leg­is­la­tion they could find, and sim­ply im­posed it on an econ­omy that couldn't cope with it," said Ge­of­frey Crothall, com­mu­ni­ca­tions di­rec­tor at China Labour Bulletin.

Chi­nese wages have risen at dou­ble-digit rates since the 2008 act, so fac­tory work­ers now earn sig­nif­i­cantly higher than com­peti­tors in Bangladesh, Viet­nam and Cam­bo­dia, and some think la­bor pro­tec­tions are ham­per­ing an eco­nomic trans­for­ma­tion that will ben­e­fit work­ers in the long run.

"For en­ter­prises and em­ploy­ees, the ex­tent of pro­tec­tion af­forded by the La­bor Con­tract Law is un­bal­anced," Lou said, adding it en­cour­aged com­pa­nies to moves jobs from China to other coun­tries.

"Who even­tu­ally bears the costs? The work­ing class who the law was in­tended to pro­tect," Lou said.

Labour ac­tivists say the pro­tec­tions are still needed, and busi­nesses of­ten break la­bor law with im­punity, es­pe­cially if they have lo­cal govern­ment con­nec­tions.

The Xin­hua ar­ti­cle was cir­cu­lated in both Chi­nese and English with sup­port­ive com­ments from reg­u­la­tors, ex­cit­ing spec­u­la­tion that changes to the law could be afoot.

The tim­ing could suit Bei­jing, which aims to re­duce over­ca­pac­ity in sev­eral in­dus­tries, lay­ing off an es­ti­mated 6 mil­lion work­ers at state-owned firms in the process.

It wants to do so with­out a spike in un­em­ploy­ment or crimp­ing do­mes­tic con­sump­tion, but strong la­bor pro­tec­tions make com­pa­nies un­will­ing to cre­ate new jobs or pay much for the jobs they do cre­ate.

Danny Lau, who owns a fac­tory in Dong­guan city in Guang­dong, said he ex­pected the govern­ment would soon "con­sol­i­date and stream­line" the con­tract law to lower costs for man­u­fac­tur­ers.

That would be wel­come news to busi­nesses ex­as­per­ated by of­fi­cial in­ter­fer­ence in their op­er­a­tions.

"We have th­ese govern­ment bu­reau­crats who show up at our fa­cil­ity ar­bi­trar­ily, and they say, 'Let's look at your pay­roll'," said Ravin Gandhi, CEO of GMM Non­stick Coat­ings, which runs an of­fice in Dong­guan.

"And they say, 'Thirty per­cent of your fa­cil­ity work­force is go­ing to get a pay raise. Th­ese peo­ple here are go­ing to get 15 per­cent.' They don't look at your prof­itabil­ity, noth­ing."

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