cp.signals – China Policy 20 April 2016

capital weighs in on labour

Finance minister Lou Jiwei 楼继伟 has crossed agency boundaries to call for

revisions to the 2008 Labour Contract Law . With lower growth, and the state

moving to reduce enterprise burdens, expect changes to the law in favour of

business as soon as end 2016.

debate The Labour Contract Law was passed during a time of rapid economic growth

and migrant worker exploitation. The official trade union (ACFTU) and the labour

ministry helped draft the law, which codified stronger worker protections than the

watershed 1994 Labour Law . It required written contracts, mandated

non-fixed-term (lifetime) contracts for long-term workers, and forced employers to

pay higher severance fees.

Since coming into effect on 1 January 2008

● more workers have formal contracts and thus social insurance coverage;

between 2006 and 2009, for example, contract rates in Guangdong’s Pearl

River Delta increased from 43 to 62 percent and medical insurance

participation from 33 to 52 percent

● labour-related court disputes increased substantially, rising from 350,000

nationwide in 2007 to 690,000 in 2008 and remaining elevated

● subcontracting has become more common, prompting a 2013 revision that

attempts to limit subcontracting to ten percent of a firm’s workers

Lou has led official questioning of the law, which would normally fall under the

purview of the labour ministry (MoHRSS). He explicitly called for

revising provisions that favour workers on 19 February 2016, and again at a Two

Meetings press conference in March. Drawing comparisons to uncompetitive

southern European economies that have high levels of worker protections, Lou

argues that the law

● does not adequately protect part-time and self-employed workers

● discriminates against new hires, as firing them is difficult

● fails to motivate firms to invest in advanced training for workers who might

leave for another company, creating a shortage of highly skilled workers

To boost the economy, says Lou, revisions are needed to increase labour market

flexibility and rebalance power toward employers.

outlook

The economic boom that smoothed the original law’s passage is slowing down.

Policymakers’ calculus has changed in favour of pro-capital supply-side reforms.

Revising the law is symbolic of state efforts to lower business costs, despite

expert consensus that the law’s restrictions only account for a small share of

enterprise burdens.

Lou has stepped outside the bounds of his own ministry in calling for revising the

law, which suggests he enjoys high-level support. As a result, opposition to

changing the law has been muted, even among labour advocates: MoHRSS and

ACFTU have largely fallen into line, despite affiliated researchers voicing

concerns about the need to protect workers.

Changes are likely to

● rebalance contract termination costs; currently, employers are fully

responsible for severance payments

● clarify contract renewal procedures to allow one worker to have multiple

fixed contracts with the same company

● exempt small- and medium-sized enterprises (SMEs) and high-level

workers

Revising the law to exempt SMEs fits state efforts to reposition itself as a

champion of mass entrepreneurship and innovation, a key buzzword since 2015.

Promoting SMEs gives reformers more fuel to push reform quickly: although not

on the annual legislative agenda, revisions could occur as early as end 2016

should State Council call a special legislative session.

Revising the law would provide momentum for other ‘supply-side’ legal reforms

with greater potential impact on worker incomes and business costs, such as

lowering social security contribution rates. State Council executive committee has

approved plans to further reduce contribution rates, and Premier Li Keqiang 李克强 encouraged provinces to push rates even lower.

context 13 apr 2016: State Council executive committee lowers firms’ pension

contribution rate by one percent in surplus provinces, and lowers unemployment

insurance rate by 0.5-1 percent

18 mar 2016: Li Keqiang encourages more autonomy for provinces to lower social

security contribution rates to lower enterprise burdens

16 mar 2016: scholars and lawyers gather in Shanghai to debate the law,

signifying increasing concern from academic and legal circles about potential

revisions

7 mar 2016: Lou Jiwei proposes revising the Labour Contract Law at a Two

Meetings televised press conference

29 feb 2016: MoHRSS begins researching how the law should apply to new forms

of employment, like big data and cloud computing

19 feb 2016: in a speech at the influential 50 Economic Forum, Lou claims

revision will help balance worker and employer interests

1 jan 2016: Lou cites need to improve the law in an essay in Qiushi , the leading

Party journal

1 jul 2013: revised Labour Contract Law takes effect

28 dec 2012: Labour Contract Law is revised to strictly limit use of subcontracted

workers; more than 550,000 public comments are submitted in a month

1 may 2008: Labour Dispute Mediation and Arbitration Law comes into effect,

clarifying procedures for resolving labour disputes through arbitration and the

judicial system

1 jan 2008: Labour Contract Law comes into effect after being passed by the NPC

six months prior

mar 2006: nearly 200,000 comments are submitted on the draft Labour Contract

Law during the 30-day period of public comment; foreign chambers of commerce

strongly oppose the law

1 jan 1995: Labour Law comes into effect, setting baseline labour standards

roundtable high labour costs not to blame for economic woes Wang Jiangsong ⺩江松 | Da’an

Rising labour costs are not the problem for firms, argues Wang, a sociologist and

advocate of labour rights. The main burden comes from government monopolies

and corruption. Land, logistics, financing and taxes are all also much more

burdensome than labour. Worker quality of life remains low: higher wages have

been offset by higher cost of living. Revising the law against labour will target

those who are already weak.

major imbalances in the Labour Contract Law impede economic activity Dong Baohua 董保华 | Caixin

‘One-size fits all’ legal protections in the Labour Contract Law place excessive

burdens on businesses, says Dong, who has researched Chinese labour law

since the 1980s. Strict rules make it hard for SMEs to attract high-level managers,

hurting long-term business development. Dong recommends exempting SMEs

and high-level managers from the law, recognising some forms of acceptable

non-written or non-standard contracts, and allowing unlimited fixed-term contracts

for employees.

revisions must take worker and business viewpoints into account Wang Tianyu ⺩天⽟ | Caixin

Elites have driven current discussion of the Labour Contract Law , with no input

from workers and businesses, says Wang. Elites are focused on the law because

it, in combination with the 2008 Labour Dispute Mediation and Arbitration Law, has

encouraged workers to use both arbitration and the court system to resolve

disputes. Lowering the barrier for workers to defend their interests through both

courts and arbitration increases cost pressures on firms.

in the spotlight

Lou Jiwei 楼继伟 | finance minister

A former computer programmer and Zhu Rongji 朱镕基 protégé, Lou rose through

the ranks to become chairman and CEO of China Investment Corporation, the

sovereign wealth fund. Lou, known for his straightforward style, has advocated

market-liberal labour, social security and fiscal reform ideas. His recent proposals

to revise the Labour Contract Law , force retirees to pay into the pension system,

and lower enterprise social security contribution burdens have shaped major

social policy debates in the first half of 2016.

Dong Baohua 董保华 | East China University of Political Science former professor

and lawyer

A drafter of the original 1994 Labour Law , Dong has been researching labour and

social security law for nearly thirty years. In the debate on the Labour Contract

Law , he warned that it would cause three waves of unemployment: first, before

the regulations take effect; second, when the original contracts expire; and third,

when contracts are converted to fixed-term hires. Improve the system, says Dong,

by allowing non-fixed-term contracts and relaxing stringent protections.

Jiang Ying 姜颖 | China Institute of Industrial Relations professor and law school

dean

Jiang heads the law school at the China Institute of Industrial Relations, the

university affiliated with the official trade union (ACFTU). A drafter of many recent

labour laws, Jiang wrote the textbook On theLabour Contract Law . Her 2011

research found that 45 percent of large firms increased subcontracting after the

Labour Contract Law was passed. Jiang spoke out to counter finance minister

Lou’s calls to revise the law: employees who receive specialised training or

possess confidential information cannot resign at will as Lou suggested, says

Jiang. The law is needed to protect workers, adds Jiang, because firms are

already empowered by the Enterprise Law and Corporation Law .

in case you missed it… cp.signals —domestic policy movement

e-comm tax rules ain’t so bad

the road less foreign

cp.positions —audit of shifts across policy sectors

mid april: Li raises his voice

end march: test for zombie debt restructuring

cp.focus —exploratory analysis

tech leap to moderate prosperity: China’s 13th 5-year plan

choice cuts: Chinese popular music

cp.observer —monthly roundup

march roundup: meetings over, Xi hits the road

Chinese New Year roundup: the coming of 3D policy

Copyright © 2016 China Policy. All rights reserved.