China labour law under fire as revamp threatens jobs

China’s labour 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 labour 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 modernise 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 criticised 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 monopolised 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% of the local average – though in practice 30%-40% is typical – compared with about 30% in the US and 50% in Britain.
Protections against dismissal are comparable to Japan’s.
“The Chinese government wanted the best, the most polished labour 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 labour 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 labour 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 6mn workers at state-owned firms in the process.
It wants to do so without a spike in unemployment or crimping domestic consumption, but strong labour 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, ‘30% of your facility workforce is going to get a pay raise. These people here are going to get 15%.’ They don’t look at your profitability, nothing.”
As a result, GMM opened its next facility in India, which Gandhi said was 40% cheaper than China, even allowing for inferior infrastructure.
“Of course I’m going to take my foot off the gas pedal (in China),” he said. “I’ll put those dollars in India.”
When Reuters visited a printing factory in Chongqing in January, the boss was interrupted mid-interview by local officials, who had come to make sure he had paid salaries before the Lunar New Year holidays.
“(Last year) they called us into a meeting and said, ‘You can’t lay off employees’,” he added.  Many economists say China has posted lacklustre business activity and investment figures – while official unemployment stays below 5% – precisely because companies saddled with high wage bills and low profit margins can’t cut debt or invest.
“It’s better to support workers than supporting loss-making firms,” Li Yining, an economist at Peking University, said on the sidelines of the annual parliament meeting on Sunday.
Local officials have reason to be cautious about diluting protections, however, as a rise in worker protests in their patch can be both physically dangerous and career limiting.  Cui Ernan, labour analyst at Gavekal Dragonomics, said the government might even increase labour benefits to calm agitated workforces, particularly in regions with heavy lay-offs from coal and steel.
“Recent labour strikes at the end of 2015 and the beginning of 2016 are at historical highs,” she noted.