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March 5, 2009 - Wolfgang Clement
As a new year gets under way and memory fades of the spectacular sights of the Beijing Olympics, a variety of fundamental questions have been asked about the state of the Chinese labour market and the impact of the global recession upon what hitherto has been the most strongly performing economy on the globe.
Towards the end of 2008, a variety of press reports began to indicate significant levels of labour shedding across the PRC. So, too, was there some evidence of companies relocating their activities in neighbouring countries such as Vietnam. At the same time, reports in the official Xinhua news agency have confirmed that the phenomenon of "the strike" is now openly recognized as a feature of the Chinese labour market, with taxi drivers in one of the country’s largest cities reported to have engaged in collective protest action.
Such reports beg questions as to how effective the recent round of labour market reforms and legislative innovations are proving in delivering protection for Chinese worker-citizens at a time of economic volatility and downturn. At the same time, initial indications are emerging of the early operation of important new laws concerning individual labour contracts and dealing with resolution of labour disputes through the mechanism of “labour arbitration”.
The framework underlying a modern regulatory system for the Chinese labour market has been largely completed in the course of the past 12 months. Thus, on 1st January 2008, new laws relating to the individual employment relationship -- focusing upon regulation of the contract of employment -- came into effect, along with an important “framework” piece of legislation in the guise of an Employment Promotion Law, setting out the road-map for labour market development and active employment policy over the coming decade. Those key measures were followed, in May 2008, by a new Labour Disputes (Arbitration and Conciliation) Law, which sets out to modernise and professionalise the framework for labour arbitration to deal with individual disputes concerning non-payment of wages, failures by employers to pay social welfare insurance payments, and termination of employment.
The final piece of this labour market regulatory jigsaw is currently being put into place, in the form of a framework Social Insurance Law, a draft for which has been issued for public consultation in the first two months of 2009. That Law seeks to lay the foundations for a modern social insurance system at the national level, with administration to be organised at provincial and lower levels.
It is interesting to note that a number of commentators have already sought to place some of the blame for reported labour shedding and relocation of production at the door of the recent Labour Contract Law. Such an analysis is undoubtedly, however, far too simplistic, since many of the more significant impacts of that Law will only take effect from early in 2009. For example, a provision converting fixed term, part-
time and agency placement contracts into "indeterminate contracts of service" in the event of failure by an employer to comply with the formal requirements set out in the Law for such "atypical forms of work", will only start to take effect once the employer has been in default for one year -- with the consequence that nothing in 2008 could attract that sanction, and, thus, be regarded as a reason for corporate decisions to downsize or to relocate. On the other hand, innovative “self-executing” sanctions (in the form of a “double wage penalty") for failure by employers to pay due wages, merely reflect the operation of new effective sanctions in the event of wilful default by employer – which, once again, is hardly likely to have provoked the kind of labour shedding or relocation reported in recent press accounts. By the same token, the impact of the Employment Promotion Law will only be felt once government policies for the Chinese labour market begin to be implemented within the framework of ambitions set out in that piece of legislation.
Meanwhile, statutory modifications to the system of labour arbitration to deal with disputes over individual rights, introduced in the Labour Disputes (Conciliation and Arbitration) Law, appear not, as yet, to be delivering tangible (or any) benefits, in the face of a dramatic rise in the number of individual labour disputes being registered before the Labour Arbitration Committees of provincial labour bureaux. This explosion in registered individual labour disputes continues a trend which has been evident since the turn of the century, and has lain at the centre of the Chinese legislator’s concern to achieve effective reform in this area.
On the basis of less than a full years’ experience of the new arrangements, however, it is impossible to say what primary drivers lurk beneath this dramatic rise in the number of labour disputes. It is likely that the enactment of new legislation has served to heighten awareness of individual labour rights (such as the right to be paid at minimum wage levels, the right not to have unlawful deductions made from wages, or the right to ensure that termination of the employment relationship at the initiative of the employer is dealt with according to the procedural framework set out in legislation). There has also been substantial publicity for the new arrangements, which must also have served to heighten awareness on the parts of Chinese worker-citizens as to their rights at work and the mechanisms for enforcing those rights by way of labour arbitration and the People’s Courts. Indeed, there must be some possibility that such a heightened awareness is serving to outweigh any efficiency gains delivered by the reformed legislative frameworks. Whatever the explanation, however, it is, as yet, too early to draw firm conclusions about the effectiveness or otherwise of the new legislative arrangements.
What does appear clearly, however, is an intention on the part of the Chinese regulators to move in the direction of labour market supervision and regulation reflecting "Western-style" human resource management models. Indeed, even the former Ministry of Labour and Social Security and the Ministry of Personnel, have were recently merged into one “super ministry”, reflect this trend in their new name -- the
Ministry of Human Resources and Social Security. So, too, is there evidence of a desire to make "effective access to justice" available to Chinese citizens in pursuit of their individual labour rights. This can be seen in the reformed procedures for labour arbitration, which indicate a clear intention to modernise and professionalise the processes of dispute resolution, including the adoption of a streamlined “Labour Arbitration Court” model first test-bedded in Shenzhen and subsequently extended to more than half of China's provinces.
At a time when even the apparently unstoppable growth in Chinese productivity and economic growth has been adversely affected by the cold winds of global recession, the signs are that key elements of a stable regulatory framework for labour market relationships have been put into place with a genuine intention to deliver effective protection for worker-citizens accompanied by mechanisms to ensure that such protection is made effective in practice.
Whether, as some commentators are beginning to suggest, this constitutes clear evidence that China has made a conscious decision to withdraw from "the race to the bottom" remains a matter of some conjecture. However, after a year of experience with China's new labour laws, there seems some cause for optimism that a measure of regulatory stability may have been achieved which will assist in ensuring that conditions in the Chinese labour market do not display undue volatility at a time of dramatic economic challenges and pressure. Such a situation can only be welcomed by inward investors and those whose concern is to continue the development of strong and stable commercial relations with the People’s Republic of China as a full partner in the global economy.
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