China’s Labor Laws Need a Re-Think

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Workers regularly abusing regulations to get payoffs

Op-Ed Commentary: Chris Devonshire-Ellis

Mar. 16 – One of the issues in the on-going class struggle in China is the difference between workers and company bosses. With China still very much following the path of its “socialist revolution” (now, of course, with Chinese characteristics), the one party state tightened up its labor laws two years ago and made it more difficult for staff to be dismissed. While elements of class struggles have been going on forever, the recent amendments imposed by China upon businesses in the country have now had a good two years to settle in. Have they worked? That depends upon your point of view.

Conflicts certainly seem to have risen. In older, perhaps more naive days in China, going on strike was tantamount to “interfering with a company’s financial well-being” and could be considered a criminal offense. Up until, in fact, two years ago, strikes in China were very rare. Now, these are relatively common, well-organized and specifically designed to force management’s hand – such as the parallel strikes organized at various factories of the same company to ensure production would be crippled on a national basis. This occurred despite the original dispute arising in just one location.

The use of labor tribunals and incidents of the union being called in to mediate have also risen dramatically. On one hand, it could be said that the new law is working perfectly well, and the rise merely suggests a growing awareness of workers’ rights and how naughty employers had previously been. On the other, one could argue a rise in labor disputes is unhealthy and is symptomatic of a badly designed set of regulations. As my firm deals with labor issues on occasion (we’re accountants, and money always comes into it somewhere), we’ve seen a huge rise in such cases. Often, however, the law meant to prevent abuse of workers is now being used to abuse the employers. It’s unbalanced, and in its implementation, unfair.

Cue, for example, the recent proposals to allow workers to negotiate pay rises and welfare and to provide them with seats on the board. The management of a company is (usually) qualified to be there because it has a suitable business educational background. In many instances, they may well have committed their own financial investment. Pare up then the MBA-holding manager who has to listen to a Bolshevik-styled worker rant on. The methods of communication and debate are totally different, and this can lead to breakdowns and frustrations on the parts of both. It can also lead to the dissemination of information about the company that should remain privy only to the directors and shareholders. In my view, a seat on the board has to be earned. China is about to pass laws that will provide a workers’ representative with such an office. I doubt the understanding of fiducial responsibilities have risen so far.

The labor law as regards unemployment is also being abused. Workers are deliberately, on occasion, performing badly to get themselves sacked and thus claim unemployment payoffs. Just prior to Chinese New Year, we were involved in several instances where a group of workers demanded to be dismissed – purely in order to claim unemployment benefit and return home to their families with a large check. When local government has to be called in to arbitrate, the situation can become messy. The unemployment aspect of China’s labor law has been poorly thought out, and it is being used as a weapon to force the employer to part with large sums of cash. This cannot be right, fair, or desirable.

While the government has stated it wants to increase the salaries and welfare of workers, provide them with more protection and rights, it is only doing so through a series of poorly drafted regulations that end up hurting the employer. To some extent, this problem has become so bad that many businesses now simply cannot afford to hire. They will become uncompetitive and die. Rather than use the labor law to provide workers’ rights, the government would be far better off tackling the issue by sorting out the mess that is currently the social welfare system. Until they do, the burden of workers welfare and rights will increasingly fall on private enterprises, and not where it should be – the Chinese welfare system.

Chris Devonshire-Ellis is the principal of Dezan Shira & Associates, China’s largest foreign direct investment focused practice. The firm provides labor law advice among other due diligence, tax and accounting services. Please contact Richard Hoffmann for assistance at legal@dezshira.com, visit the firm at www.dezshira.com or download the practice brochure here.

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3 thoughts on “China’s Labor Laws Need a Re-Think

    Gary Jones says:

    Thats a shrewd observation there Chris, and your piece demonstrates how how communist in part the Chinese still can be. The social security system is broken, widely despised and seems to exist to line the pockets of those who run it, meanwhile its the wicked capitalists who are being made to pick up the burden of hiring and retaining staff, regardless of the economic situation of the company. The ‘iron rice bowl’ has effectively been repositioned from government to the private sector. The political risk is now there in hiring staff in China, and its going to get worse. But I think you may be calling on deaf ears for a rethink. Shades of your “Communist China Price” piece in the Telegraph last year I believe.

    Chris Devonshire-Ellis says:

    @Gary – Thanks for that. Yes, China should be looking at worker stability through its social welfare structure instead of de facto passing it onto businesses. “The Communist China Price” – thanks for reminding me – where the real cost is actually 30% higher than stated. Interested readers may care to visit the original text here: https://www.china-briefing.com/news/2010/07/21/the-communist-china-price.html – Chris

    Jim says:

    Definitely, the Chinese government leaned over backwards to help the worker. The good news is that Chinese and Western companies are both being impacted by the law and so the playing field is relatively level in this regard, though some crafty people will prey on Western companies. Clearly, businesses must look very carefully at the character of their hires now. Trouble makers are much more costly than they used to be. Hire with character in mind and then watch them closely during probation. Probation of 3 months with close supervision of character is very useful even after a good hiring process.

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