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China's new labour law

The challenge of regulating employment contracts

Chris White

'Labour disputes threaten stability' headlined the China Daily on 30 January 2007. The All-China Federation of Trade Unions (ACFTU) warned that the draft amendments on Employment Contracts should be passed by the National People's Congress (NPC, China's Parliament) in May or June, otherwise the increasing number of labour disputes or radical actions by millions of workers posed a threat to China's social stability.1

This was the morning I met Sun Wenbin, Director of the General Office Legal Department and Yao Li, from the International Department of the ACFTU. Sun Wenbin began his report by emphasising the ACFTU's consultative role with the National People's Congress (NPC). In 2005-06, public discussion had ensued on the draft Employment Contracts amendments. Such public debate is unprecedented, as usually it is behind closed doors. The union encouraged submissions and over 190,000 came in, many from workers. Contributions came from employers, academics, students, judges and labour lawyers, the Labour Ministry, the industrial relations community and NGOs.

Chinese employers strongly opposed the amendments, as did global corporations, the US business and European lobby groups in China.2 But arguably, as we shall see, these general labour law amendments to strengthen employment contracts are modest protections for Chinese workers in an increasingly precarious market economy. Such employer opposition is of major concern to the Australian labour movement. If it succeeds, Chinese low wages and conditions would not improve and further drive down Australia's already weak employee protections under WorkChoices. As well as the ACFTU lobbying in China, the labour movement and NGO's worldwide are backing these protections for millions of Chinese workers. In answering questions on Australia's labour laws, I advised there were no similar protections for Australian workers and that China ought not to follow the 2006 WorkChoices. Indeed, the China strategy for balancing the rights and interests of workers and employers is better in the particular Chinese political economy context. I explained that with our Prime Minister Howard gaining Senate control, labour laws unfair to workers and favouring corporations could not be stopped.

New employment contract amendments

What are they new labour laws about? Sun Wenbin and Professor Liu Chen from Shanghai University Law and Politics said the principles of the amendments are secure, but lobbying over the details continues. In China's private capitalist market, millions of workers have problems with fragmentation, casualisation, wages and overtime not paid, no legal employment contracts (e.g. for rural workers flooding into the cities) and the increasing exploitation by unfair employer tactics.

China's labour relations system under Mao Zedong was run by the state with all wages and conditions governed by the Party in the work unit, together with housing, education and health and social security. Since Deng Xiaoping's opening up to capitalism, employers in the private sector determine what happens at work. Labour law reform and general employment contracts introduced in 1995 and 2001 covering minimum wages, hours and OHS protections needed more detailed regulation of the industrial relations parties and the injustices of management practices.3

For millions of workers, employers rule with management prerogative, hire and fire at will, ignore existing labour laws and engage in the 'race to the bottom' exploitative practices. This, it is widely recognised, has gone too far. Liu Cheng said one problem is the short fixed contract with employers' tactics for shorter and shorter periods, with arbitrary dismissals. China has to have stronger labour law to prevent this trend so as to ensure employers pay salaries and benefits. There is to be a re-balancing for the worker's rights and improved 'workplace harmony' for the rights and interests of both parties.

The following are my summaries. I believe they are to go through the NPC in some form. The details are from a second reading draft of 20 December 2006 given to me, and are provisional.

1. Regulation of short contracts. This is an issue addressed in a new Chapter in the Labour Law on the Conclusion of Employment Contracts. The new principle is that a contract, once signed, the employer cannot, as now, dismiss and re-employ arbitrarily. The aim said Sun Wenbin is to remove continuous casual employment, so there is no such category. After three times, there has to be a more permanent 'open-ended contract'. This is critical, as the employer is responsible for health insurance and other social security benefits. The principles of 'lawfulness, fairness, equality, free will, negotiated consensus and good faith' are to govern the conclusion of the employment contract. Categories of employment contracts are described, the hiring process, part-time work and a Chapter on Termination.

When there are redundancies, then new minimum severance pay provisions are to apply, on one month's salary for each year of service with no cap. The principle is accepted, but the details are being debated. This change may deter redundancy or at least compensate workers, as thousands of state-owned enterprises have been privatised. In the private sector, workers are put off with no severance compensation and unemployed. Details on the termination of employment contracts are provided and a role for the labor union to put forward opinions and for the employer to study it.

2. Employment contracts for all. Some 12.2 per cent of employers employ without a written contract. Employees cannot enforce their rights (China Daily 30 January 2007 and ACFTU paper Economic Globalisation and Trade Unions 4-6 December 2006). Chinese judges are narrow legally. If there is no evidence of an employment contract, there is no hope of enforcement. Establishing employment contracts for all workers is a significant reform. Liu Cheng: The main problem is the mind of the employer denying the employment relationship. When a dispute occurs and the employer with a dark mind refuses to pay and when it is brought to arbitration or the People's Court, there is no evidence. So the new law will say there is a written contract and provide some minimum content.

One serious industrial relations enforcement issue is that millions of workers are not being paid on time, with disputes over wage arrears.4 Some 45 per cent of workers are not paid overtime when they are forced to work extra hours because they cannot finish their quotas in time. These issues are addressed. Employers will by law have to comply.

Broad mechanisms with guidelines allow the aggrieved employee to complain and the union to assist. This is to re-balance greater employer resources. When the employer cannot clerically produce a written contract, then the law deems it to exist with minimum content.

The arbitrator or judge has to enforce the worker's view of the existence of the employment contract. The employer can of course still show contrary evidence. Pressure will be on judges to not apply 'black letter law', the precise legal interpretation of every word, but look at the overall facts and merits of the case; a much needed reform of Chinese judicial literalism. Liu Cheng adds: Although there is no choice for this reform, the wording means the employment contact although legally recognised will not be the best, as over time the written contract at the beginning is fixed. The employment relationship changes with the development of enterprises and wages and conditions in the contract should get higher.

But this extension of minimum individual contracts, together with collective employment agreements, will apply to the millions of rural workers flooding into the Export Zones and to any worker presently without employment contract rights.

3. Probationary period tightening. Many employers put workers on lengthy probationary periods with lower wages and not providing the entitlements of more secure employment, such as health insurance etc. There is to be a sliding scale: • less than one year contract, less than a month probation; • 1 to 3 years, 2 months; • not less than three years, 6 months. • not less than 80 per cent below local minimum wage is set. • employers are not to repeatedly put workers on probation.

4. Consultation requirements. These are enhanced with 'the employee representative congress or all the workers' and the union, with rights to negotiate over company: • workplace policies, • personnel practices, • dismissals, • work hours and rest, • work quota management, • labour compensation and health and safety etc. Employer policies have no legal effect unless there is consultation.

5. Collective Contracts. There is a new section on collective contracts negotiated above the very low minimums, with provisions for employee agreement and the role of the union. Union consultation on collective contracts is a right. Industry-wide collective agreements are encouraged in construction, mining, catering services etc. Tripartite committees regionally are to supervise collective bargaining mechanisms for employers and the unions. Corporate HR managers are walking away from individual contracts to collective agreements, increasingly with the union, as e.g the head of Volkswagen in China says 'Chinese unions are friends of the company and they have always good relations to government offices.' The ACFTU is pushing urgently for greater legal reforms to ensure their consultation and negotiation rights in a separate Chapter on Collective Bargaining. Sun Wenbin: We need it urgently because the right of unions to conduct collective negotiations and at the same time with legal provisions can better regulate the rights and interests of the parties. Trade union committees in the workplace should be consulted.

This chapter will not go through in April, but in a later NPC session. The ACFTU does not collectively bargain as we know it and is not seeking the lawful right to strike. But these changes will lay that framework.

6. Labour hire. The local and overseas capitalists have been fiercely against the new regulations on labour hire firms, the labor broker firm or new regulation for despatched workers, as they are called. In recent years this labour hire industry has grown to service many 'just in time' industries. Worldwide labour hire corporations are in China. There is abuse and denial of any legal status for workers. So there is a need for the improved regulation of Placement Contracts. Liu Chen:

The principle is to limit the labour hire industry growth and bind both the labour hire company and the host employer and protect the worker with an employment contract. The principle is to have equal pay and conditions the responsibility of both the dispatcher and the host in labour disputes, so legally they are co-employers and the same level of wages on the same jobs. After two years, the principal host should employ the despatched worker. There is no such need, for severance pay will compel the employers to give up. If the cost of this phenomenon is made higher, the abuses will be reduced.

Sun Webing said Chinese employers were opposing this. Liu Cheng said he still had drafting issues and some sections were dropped, such as 'restoration', a sum of money for each despatched employee to be paid in reserve to the Labour Ministry. The drafting outcome is not in the public arena for a while. He is forbidden to disclose this, so we shall wait and see when the NPC meets.

7. Other reforms: a. China's bad OHS record is well known. Workers' rights to refuse dangerous work are strengthened. The right to criticise on OHS, and the right to report and lodge accusations on work conditions that endanger their lives or health are included. b. Regulating the employer abuse of competition restrictions forbidding, for example, in the huge IT sector on what knowledge senior professional and technical employees cannot use when they leave to go to competitors. This is the 'trade secrets' issue and what is called 'non-competes'. Employer opposition insists on being able to tie down professional and skilled labour. But knowledge transfer is important to the new employer and China's development. Drafting favours the existing employer. c. A new regulation is to stop the excessive employer rorting of withholding and recovering of 'training monies' for one month or more off-the-job professional technical training or vocational training when an employee leaves. The new law limits costs employers can recover and liquidated damages to be paid by the employee. d. A section on the performance and amendment of employment contracts. e. The employer is not to deceive or coerce or deny workers' rights or to use violence, threats or unlawful restriction of personal freedom to compel a worker to work. f. Lay off processes are introduced respecting the basis of seniority. g. Rights for an employee complaining about a violation are given, including for the labor union to provide support and assistance. h. Monitoring Inspections is in a section for the labour administration authorities operating from the State Council and at the autonomous regional levels and local People's Governments. Compliance is to be stepped up in all sectors of government against breaches. i. Laws govern all employers, state authorities and social organisations. j. The labour administration is to crack down on employers requiring their employees to provide security, retaining their ID cards and other papers. k. Detailed provisions on employer legal liability are in section 7. l. And a final clause, in case it was not noted, that employment relations in China of foreign enterprises are governed by these new provisions.

Major reforms Although short and general, these Chinese protections for workers are most interesting and should make a difference. They provide better protection than WorkChoices. The US corporations attacked all of these labour law amendments and made less than veiled threats that they would scare away investment.5 US investor opposition hit the New York Times on 13 October: 'China Drafts law to Boost Unions and End Abuse'. Liu Cheng and others organised lobbying in Washington. On 31 October, 27 members of the US Congress and Senate signed a protest about the US corporate lobby, and then more on 7 December 2006 and in the world media. Then US, European and international unions and NGOs criticised the corporate lobby response. Liu Cheng is to fly to Washington to continue his efforts. I asked who will prevail, the US corporate power or the Chinese government?

The government, but it is not enough if there is no support from labour supporters outside China. Some National People's Party Congress representatives are influenced by the employer lobby. Although the principles of the amendments are secure, there may be concessions on the details, so we call for help.

I asked him and the ACFTU if Australian business lobbies, BCA, ACCI and AIG were involved. They did not know for sure, asking do they follow the US? Sun Wenbin said he was as concerned with the strong opposition from local and Asian employers. He was confident that the Party would want to prevail. For President Hu Jintao, who backs the principles in the amendments, the reform is important. The outcome in detail will be interesting. Australian employers in China, who will still make big profits, need careful advice to comply and improve their social responsibility.

The next issue is how are these labour laws to be enforced? Liu Cheng: 'We must enhance the cost of employers violating the labour law. One of the problems is that employers and local enterprises and the local government look down on labour law.' The labour administration has new legal powers for compliance. The ACFTU will be campaigning to enforce these new laws. They are starting up 866 new legal aid centres to the existing 2,900. They are looking at their role in arbitration, together with employers and the government.

An important China debate is the role of the ACFTU. Is it changing step by step to an organising model? Or will it not change to be an effective collective bargaining voice for workers? How should unions outside China engage? There has been valid criticism from Chinese workers, and overseas unions, NGOs and academics about the weakness of ACFTU servicing, the common term being 'useless.' Guo Chen in the ACFTU Grass-Roots Organization and Capacity Building Department gave me a presentation of their organising. The big news is at the end of 2006 the largest most anti-union company in the world, Wal-Mart, was unionised. An historic breakthrough.6 The ACFTU aim is by the end of 2007, for 70 per cent of overseas companies will be unionised. This major development is widely debated.7

Increased labour disputes, not union organised but wildcat, and workers protesting in the streets are worrying Chinese stability. The response is an interesting issue indeed. More reforms in China's industrial relations system are coming. I attended a Labour Disputes conference at the Labour Institute, Renmin University, Beijing organised by Professor Chang Kai. Spirited debate occurred on the best model to enforce employment law and over a new dispute resolving system to deal with and settle individual and collective labour grievances. Later in 2007, the ACFTU, labour law professors and others in China's Industrial Relations community are putting up new draft amendments for a revision to the mediation, arbitration and judicial system. The debate is ongoing. I asked for the draft amendments for this next step, but will have to wait as they are being formulated. The Chinese advise, step by step.

Chris White is a labour law researcher living in Canberra and at the School of Law Flinders University and a former Secretary of the UTLC of SA. Since this report, Liu Cheng, Professor of Politics and Law at the Shanghai Normal University who is involved with drafting of the employment contract laws pushing for strong regulation, has toured the USA and his powerpoint is available from Chris. See report A new longer analysis is worth reading 'Undue Influence: Corporations gain ground in battle over China's New labor law - But Human Rights and Labor Advocates are Pushing Back'.

1 This Report is based on discussions with Sun Wenbin, Director of the General Office Legal Department and Yao Li, of the International Department of the ACFTU in Beijing 30 January 2007. I interviewed Liu Cheng, Professor of Law and Politics, Shanghai Normal University on 6 February 2007. I listened to Chang Kai, Professor of Labour Law at the Labour Institute, Renmin University, Beijing and Jingyi Ye, Professor of Labour Law and Social Security Law at the Faculty of Law, Peking University and other academics, employers, unions, labour lawyers and judges, key players at a Labour Disputes Conference, Beijing on 19 January 2007; Kan Wang from a Beijing NGO, and Jeremy Sun labour student, Sergio Grassi, visiting German labour relations expert. A copy of the draft second reading PRC Employment Contracts of 20 December 2006 is available from me.

2. Global Labor Strategies; 'Behind the Great Wall of China. US Corporations Opposing New Rights for Chinese Workers, Opposition may harm workers in the US and other countries.'

3. Rolf Geffken, (2006) Labour and trade unions in China, published by European Trade Union Institute for Research, Education and Health and Safety. A good summary of Chinese labour law to 2005,

4. News reports are many, e.g. China Daily 31 December 2006: 'Migrants frustrated over unpaid wages' about anger over 'the death of a young rural worker who was beaten up last week while claiming unpaid wagesÂ…'

5. They posted a 45-page attack: referenced in a global labour movement response and the international debate, from the Global Labor Strategies group; 'Behind the Great Wall of China. US Corporations Opposing New Rights for Chinese Workers, Opposition may harm workers in the US and other countries.' GLS is to report in February 2007. contact Also, Earl Brown 'Chinese Labor Law reform: Guaranteeing Worker Rights in the Age of Globalism' Japan Focus 24 Novemnber 2006; Earl Brown 'A Labor lawyer's Quick Take on Chinese Labor Law Reform.' The debate in the Chinese press can be followed on Labourstart go to China news.

6. Anita Chan's analysis is optimistic in 'Organizing Wal-Mart: The Chinese Trade Union at a Crossroads', in Japan Focus on September 8, 2006. Also Anita Chan, December 2006 'Organizing Wal-Mart in China: Two Steps Forward, One Step Back', New Labor Forum, forthcoming. Rolf Geffken September 21st 2006 lecture on 'Chinese unions and the limits of Wal-Mart's anti-unionism'. My report on Chinese unions unionizing Wal-Mart is available from the author. 'Enforce new labour law' China Daily 29 December 2006 'Strict enforcement of laws and regulations is vital to protect the rights and interests of workers, says a signed article in Yanzhao Metropolis Daily. It is important to make laws protecting workers' rights and interests. But legislation is only the first step. Without enforcement, even the best laws cannot help. The People's Congress should carry out their right to supervise law enforcement. It is their duty and also a public expectation.' 'China and the Global Sweatshop Lobby' 18/12/2006 International Union of Food, Agricultural, Hotel, Restaurant, Catering, Tobacco and Allied Workers Associations IUF. Rowan Callick 'Timewarp: a jump to the left on labour law': 'China's rulers no longer feel they can afford to wait for a new super safety net to evolve' 4/12/2006 The Australian Chen Guidi and Wu Chuntao (2006) The Life of China's Peasants Will the Boat Sink the Water? (2006 Public Affairs Perseus Books, New York). This expose is the story of the millions of rural peasants working the soil, near poverty, and their struggles. Since banned in China, it is now published in English. Will Hutton (2006) The Writing on the Wall: China and the West in the 21st Century (Little Brown) for a stimulating argument about China's political economy challenges.

7. Kan Wang 'Chinese Labor under a Changing Political Economy' (2006) (available author) gives his NGO perspective, from the low paid migrant worker sector. Although a lengthy quote, this is a relevant account. 'The Making of Labor Contract Law: a show time':

Nowadays, labor actions are becoming an essential style of social conflicts in China. The Blue Book of the Chinese Society in 2005 written by the Chinese Academy of Social Sciences, the governmental think-tank, calculated that class actions rose from 10,000 to 60,000 with the numbers of participants escalating from 730,000 to 3,070,000 between 1993 and 2003. The China Labor Statistics Yearbooks also showed that the labor dispute cases increased at 29.6% annually from 1994 to 2005, while the number of participants jumped 8.5 folds to 740,000 in 2005 compared to that in 1994. Workers under collective or class labor disputes accounted for 55.4% of the labourers under disputes in 2005. It is believed that the actual number of labor actions is far higher than official statistics. These actions subvert the power of the government, while persuading the ruling CCP to take quick responses to ease the social tension in labor relations. Thus, the making of Labor Contract Law comes to the stage.

The usual Chinese legislation follows an administrative process. The responsible governmental ministry first makes a ministerial draft law and submits the draft to the Legislative Office of the State Council of China for comments and revisions. Then, the Legislative Office hands the revised draft in the Work Meeting of the State Council, which puts together all ministers and heads of the Council to discuss important issues. Once receiving the approval on the meeting, the Legislative Office proposed the draft law to the Legislative Affairs Commission of the Standing Committee of the National People's Congress (NPC). After three rounds of in-house discussions, or 'readings', the draft law can be enacted as a law. During the whole process, different versions of the draft law are classified as state confidential. Civil opinions and feedbacks are not recognized, although the central government may symbolically consult with some official governmental organizations, such as the China Labor Studies Society, a think-tank affiliating to the Ministry of Labor and Social Security (MOLSS).

Participation from civil actors is seriously neglected. However, the legislative process of the Labor Contract Law did not follow this administrative custom. After MOLSS submitted its ministerial draft law to the Legislative Office of the State Council under the common procedure, the Office entrusted a third party, the Renmin (People's) University of China, to review and comment about the draft. This is the first time in the Chinese labor law history that the government involved an external organization to review a ministerial draft and even compose its own independent draft as an alternative to the ministerial one. There are three reasons leading to this new phenomenon in the labor legislation. Firstly, the state realized its inadequacy in mastering necessary knowledge in making a popular labor act. Secondly, the trustee is a politically reliable party with years of political consulting credibility and is experienced in putting the state ambition into acceptable social terms. Thirdly, it is expected that hot social tension can be cooled down if civil voices are heard during the legislation. Opinions from the People's University were partly included into the law draft of the State Council.

In the late of 2005, a draft law was handed in the Legislative Affairs Commission of the NPC. In this March, NPC released the draft law on its website for public comments, after its first reading. This offered another unprecedented case for the Chinese labour legislation. The real intention of the government is believed to further ease the discontents at the grassroots level by opening an official channel for public engagement. Within the one-month feedback period, 191849 public comments were received by the NPC, and about 65 per cent of the opinions were from ordinary workers.

Meanwhile, the Chinese academia splits into two groups and both use media to call on public supports, when the People's University holds the viewpoint that the state should enhance its role in guaranteeing labour rights and cannot leave the employment negotiations solely to the workers and employers, and the other group, led by the East China University of Politics and Law in Shanghai, urges a further withdrawal of the state from the labour market, including the intervention in the labour rights enforcement. Another debate concentrates to the labor standards of China, with the People's University expressing that low labour standards in China contribute to the deterioration of workers' livelihoods, and, the East China University of Politics and Law opposing this standpoint by declaring that inadequate implementation of the Labour Law comes as a result of high labor standards, which fail to represent the labor reality in China and make the enforcement efforts unaffordable. The previous unitary intellectual bloc of labour studies is dismantled and offers a chance for more dynamic discussion about labour issues in the future.

Business associations joined the legislative debate and proposed public letters to the NPC as well. AmCham and EU Chamber of Commerce both submitted their public concerns to the NPC on the possible revisit of rigid regulation and administrative control over employment. Domestic entrepreneurial associations carried on similar campaigns and they posed the influence through local people's congress representatives who took part in the in-house discussion within the NPC. The participation of the business associations led the debate towards technical issues on the draft Labour Contract Law. Some of the issues attracting attention include regulations over third party employment, severance payment and entry restriction to competitive industries of employees. Both international and domestic business organizations are lobbying for a law that guarantees the liberalization and deregulation of the labour market. Labour organizations are also active during the legislative period. ACFTU, the official representative of the Chinese labour, supported more regulations over employment and shared many views of the People's University against the business lobbies. However, the efforts from ACFTU cannot go so far as to exceed the guideline of the state, since it is under the systemic and institutional control of the CCP and government. Besides, ACFTU is very reluctant to link and lead similar calls from labour NGOs. In contrary, ACFTU is endeavoring to exclude the voice of NGOs into the legislation, due to mutual suspicion between the kinds of Chinese labour actors.

In spite of the lack of suitable legal status to offer collective feedbacks, labour NGOs managed to raise their voices through some academics, or directly posted the comments on the Internet. 'In the Hepatitis B Camp', an online network of Chinese hepatitis B carriers, who accounted for about 11 per cent of the population, showed their concerns by doing a joint research with the Peking University on the concerned issues and directly emailing to the NPC, for the purpose of advocating the removal of the discriminative articles on the draft Labour Contract Law, which required job applicants to confess their health conditions before establishing labour relations. A Hong Kong-based labor NGO, Asia Monitor Resource Center, organized and sponsored several seminars and publications on the legislation, including the first open debate seminar between the two academic groups of the labour studies. But, the institutional constraints for NGOs make it difficult and sensitive for the organizations to hold a joint civil frontline towards the legislative advocacy. Lack of the practice of solidarity weakens the influence from the labour organizations to counteract that from the business associations.

However, the active social engagement in the legislative process halted the unilateral actions from the government, although a unitary civil movement does not exist so far. Due to the hot social debate, the second reading of the Labour Contract Law has been postponed twice from August and October, to December 2006. The NPC is arranging close door discussion this time to avoid arousing more social contention. Since the public attention has already been attracted, it is impossible for the state to conceal the lawmaking issues and prevent the prospective debates after enactment even under the secret discussion process. The previous administrative legislation cannot sustain this time.

Meanwhile, the business associations also received negative attention from the state. In the theme speech on the Sixth Plenum of the 16th Session of CCP in October 2006, President Hu Jintao mentioned that the Party should use intuitional efforts to prevent the emergence of 'special interest groups' during the development of the market economy. The concept of 'special interest groups' implies the representative bodies of social actors and implicitly refers to business associations. It deserves to take into account that the speech was made at the time of a serious social debate over a labour legislation that can influence the interests of both the labour and the capital, between which the conflict is becoming the dominant social inconsistency in China.

Although it is possible that the Chinese government could launch a divide-and-rule strategy on the civil movement, even such a fragmented movement is enough to halt the attempts from the state to take unitary legislative action on the Labour Contract Law. Marketization of economy and liberalization of the society have reshaped the balance of power among the state, market and the civil society, and made it impossible for one player to conduct unilateral steps without negotiations with other sides.

For Chinese labour, lack of coalition between NGOs and official trade unions helps undermine its bargaining power and hence contributes to the enhancement of the low labour standards. Meantime, the current legislative debate shows that a less organized workforce is sufficient in arousing social attention and affecting the state legislation. The prospective growth of both labour and capital associations will further complicate this social game and their international connections are likely to form an intertwined global social movement in the long term. The room for the state manipulations is shrinking.


George Williams is the Anthony Mason Professor and Director of the Gilbert + Tobin Centre of Public Law at the University of New South Wales

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