Will China’s New Labour Contract Law Hurt Foreign-invested Companies?
By Vincent Cheung
Aiming to find a balance between encouraging foreign investment and improving workers’ life quality to tackle the country’s serious side effects of the enormous economic growth. NPC Law Committee, enacted the long-awaited new China Labour Contract Law on June 29, offering a magnificent increase in the protection of the employee’s rights and entitling bigger power to the all-China Federation of Trade Unions (ACFTU). The law caused a growing concern about the potential less favorable investment environment in china. The US-China Business Council warned that the Draft Law may reduce employment opportunities for Chinese workers and negatively impact China’s competitiveness and appeal as a destination for foreign investment.”
Some companies had expressed concern that the new law is likely to increase wage costs, give unions too much influence and control over company rules and make it more difficult to dismiss employees for unqualified performance. After the first draft was approved in March 2006, Wal-Mart, Google, General Electric and other multinational corporations were aggressively lobbying to restrict new rights for Chinese employees and some of the companies even threated to leave China for countries like Pakistan and Thailand if the law finally came into force. Chinese government will never risk the country losing her attractiveness for foreign investors. There are four reasons why the new labour contract law won’t have serious negative impact on
1.     Poor Enforcement Â
The impact of the law lies in the government’s wiliness and ability to enforce it. Chinese people seem to be too flexible to be in full compliance with any rules. In some sectors, Chinese’s laws are even more rigorous than the laws of developed countries, but enforcement is the real problem. With much probability, there will be a watered-down version of the new labor contract law when it comes to Local governments, who are much keen on attracting foreign investment and therefore has huge tolerance for foreign investors. Some officials of local governments dare to sacrifice everything for GDP growth. We shouldn’t neglect that, in china, where independent worker’s union is illegal, All-China Federation of Trade Unions (ACFTU) has strong ties with local government. Nobody should take it for granted that an independent voice that is totally on behalf of the workers can be heard. To some extent, it’s a law that is in favor of foreign companies. Some employees’ ignorance of protecting their rights will also make the enforcement worse. A lot of China employees are still unaware of the enactment of the new law, let alone using it as a protection of their rights.
 2.      Removals of Some Pro-worker Provisions From The Original Draft Â
Foreign corporations and American Chamber of Commerce’s aggressive lobby was proven to be very effective. They successfully force legislators to remove some critical pro-worker provisions from the first draft, and the revised draft was deemed to be a “significant improvement†in their eyes. Despite of the Chinese government’s concession, a second round of lobbies was soon launched to further scale down the protections for workers and tremendously undermine the power of the union. The law does not give unions the right to block layoffs; instead, they have only the right to be consulted. Some National People’s Party Congress representatives are influenced by the employer lobby, and not surprisingly, there are concessions on the details in the final draft. Â
 3.     A Better Law Environment  The EU chamber said it was not concerned about the negative impact of the law on European investment in China, because it moved the labor market in the direction that many European countries have gone “The surge of foreign investment in China is a firm rebuttal against the concerns. A more mature legal environment should be considered as an advantage in attracting foreign investment,” the chamber said in a statement. Studies indicate that the market size and growth potential is the major reasons for absorbing foreign investment.  Some lawyers argue that China’s new labor contract law targets primarily at domestic companies that didn’t not use labor contracts and that generally failed to comply with China’s old laws. There are more foreign companies that have a strong track record of signing contracts with employees and bringing to China their global work rules and environmental, health and safety practices — which usually far exceed local rules and standards. For example, Nike has virtually repudiated AmCham’s position. According to Nike Vice President Hannah Jones, “Nike has a long history of actively supporting the Chinese government’s efforts to strengthen labor laws and protections of workers’ rights.Xin Chunying, chairwoman of the NPC law committee said the new labour contract law won’t influence foreign companies’ investment in China, because, in her personal opinion, an enterprise’s ultimate profit is in proportion with its compliance with law. New law won’t hurt those companies which strictly complied with the old law  4.     A Lower Labour Mobility Rate Â
 “I’ve analyzed every single resignation case of our company’s employees, and the analysis result indicates that, after the enactment of the new labour contract law, the labour cost increase will stay within a controllable range to those enterprises that strictly complied with the old labour law.†Argued the Nasdaq listed company www.ctrip.com ‘s Hiring manager Miao qiwei, who is also recognized as an expert at labor law. He advocated a “change of thought†of the enterprises to cope with the new challenges brought by new labour contract law. He showed his appreciation for the new law’s endeavor to “restrict mobility of human resourcesâ€, which will decrease the hiring cost significantly. Â
In the long run, the law would provide foreign investors with a better investment environment.
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PTC is an International Business Consulting Firm provides foreign investors with service to set up businesses in China. You can reach Vincent by vincent@pathtochina.com
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