China’s new labour law reflects something unusual for the Party: business’s input. After more than a year of public consultation, Beijing has tried to strike a balance between worker protections and investors’ interests. Whether the plan will succeed is yet to be seen—but if public consultation is a trend, that’s a corrective mechanism worth applauding.
Businesses have long complained about Beijing’s arbitrary regulatory process, under which sweeping new rules could be issued at any time with little warning and no chance for public discussion or revision. That’s slowly changing. Starting with the Marriage Law of 2001, Beijing opened up the drafting process for public comment. The Property Rights Law approved earlier this year and the Labour Contract Law, released Friday, went though similar comment periods.
For the labour law, especially, that’s a useful process as it touches every part of business on the mainland. The law’s chief aim is to require that all long-term employees have contracts. If employers and workers don’t sign one by the end of the employee’s first month, a standard set of protections kicks in. If enforced, that will be good news for the millions of low-skilled, often abused entry-level workers streaming into China’s coastal cities. It won’t affect foreign companies much, as most make employment contracts mandatory anyway.
The law’s other main pillars—collective bargaining and termination rights, however, were controversial from the get-go. The first draft was released in March 2006; comments were opened to the public last year. And comment the public did—about 190,000 submissions from individual companies, lawyers, chambers of commerce and the like.
The 2006 draft contained provisions that would have made it difficult to hire and fire workers—perhaps a provision that wouldn’t matter much now, in a time of labour surplus, but would bite in the long run. The final law makes it easier to fire senior managers but standardizes severance packages for entry-level staff. Employers also won the right to include non-compete clauses in employment contracts, grandfather in existing ones, and—in a step forward for Beijing —will have until 1 January 2008 to comply.
But the Party didn’t budge much on collective bargaining and that’s what may, at some point, hurt foreign businesses the most. The new law creates “employee representative councils,” a la Germany. From 2008, workers are empowered to negotiate wages and human resources policies, such as annual leave and working hours. It’s unclear how strong these rights will be; the language is vague. The Party-controlled labour union, the All-China Federation of Trade Unions, wants congresses established in all private enterprises. A red flag, for sure.
The law’s final impact will depend largely on how hard it’s enforced, and on this front, again, only time will tell. Labour law enforcement has historically been uneven in China, with foreign firms facing higher standards than local firms. The new law does not differentiate between local and foreign firms or joint ventures.
Any step to enhance China’s rule of law will help encourage more investment, leading to more and better-paying jobs. On this score, the “how” of the labour law’s drafting is a big step forward, despite some flaws in the details of the law itself. That’s something employers and employees alike can cheer.