Letter from... China

The People’s Republic of China’s (PRC) proposal for a tough new labour contract law had attracted sharp criticism from multinationals and local companies. But a fresh draft released in late December is raising hopes that the legislation will not be as draconian as once feared.

The second draft appears to address many of the concerns expressed by the business community by eliminating requirements the first draft would have imposed on employers. ‘A lot of the stuff that was very problematic has been taken out or somehow watered down,’ said Andreas Lauffs, Hong Kong-based head of the PRC employment practice at law firm Baker and McKenzie.

The heated debate over the proposed law, which began with the release of the first draft for public comment last spring, underscores the PRC’s growing importance to the global economy.

The PRC not only manufactures a large and increasing share of the world’s clothing, shoes, toys, consumer electronics and household appliances. It is also becoming a research and design hub for international companies and a key emerging market in many industries.

A decade ago, changes in the PRC’s labour policy would not have been an issue for international debate. Today, American Chamber of Commerce members in the PRC consider the draft labour contract law one of the most important issues of the year.

The law is intended to strengthen protection of workers’ rights amidst the country’s rapid economic growth. Among the changes the first draft proposed were giving a larger role to unions in approving company decisions, imposing a standard probationary period for new hires, and limiting the damages employers could pursue from a worker who changed jobs in industries with proprietary information.

After the PRC published the law for public comment, the American Chamber of Commerce in Shanghai, the US-China Business Council and the European Union Chamber of Commerce in China all voiced concerns. In the month after it was released, the draft attracted almost 192,000 comments, more than any other law in the PRC’s recent history except the constitution.

In its comments on the first draft, the US-China Business Council warned that ‘several provisions would result in the loss of rights rather than the gaining of rights, as the draft law intends. The draft law may also reduce employment opportunities for the PRC workers and negatively impact the PRC’s competitiveness and appeal as a destination for investment’.

Ironically, since the anti-sweatshop movement of the 1990s, American and European companies have become public champions of labour rights where they operate overseas. Several years ago, Reebok went so far as to help some of its suppliers in the PRC set up branches of the national labour union.

The PRC’s labour law, in effect since 1995, is strict by international standards on issues such as working hours, but it is unevenly enforced. And the All-China Federation of Trade Unions (ACFTU), the only union allowed in the country, has been relatively weak over the past three decades of economic reform.

This may be changing, however. Last summer, employees at a Wal-Mart store in southern Fujian province set up a branch of the ACFTU, the US retail giant’s first union in any country. Observers believe this expansion of the ACFTU is part of Beijing’s efforts to create a ‘harmonious society’ by better protecting workers’ rights.

The debate over the labour contract law is not over yet. The Standing Committee of the National People’s Congress, the PRC’s top legislative body, did not vote on the second draft, sending it back for further revision. Groups like the American Chamber of Commerce are still reviewing the second draft.

It could be a while before employers know what will be expected of them. Draft legislation in the PRC can go through multiple readings before becoming law.

Bradley Leon is based in Hong Kong.