CHINA’S LABOR MARKET: KEY ISSUES
Álvaro J. San Martín Rodríguez*
One of the pillars of China’s booming economic growth is its labor market. Behind the world’s second-largest economy – made up of a labor force of over 900 million and based on the foundation of solid and growing economic stability – is a working population subject to very different labor conditions to those of its western competitors, creating a advantage and a high degree of attractiveness for foreign investors. This article will explore the labor market and labor rights situation in China, the role played by the government, workers’ organizations and international actors as well as the future prospects of a country considered to be the “factory of the world”.
The protagonist of one of the most spectacular transformation stories of our time, China is determined to be our planet’s leading economic power.
As the world’s most populous country per the most recent census, with more than 1.404 billion people, it lies well ahead of its main competitor, the United States, a country which by Beijing’s estimates it will surpass as the planet’s leading economic power by 2025.
The economy of the People’s Republic of China is the world ‘s second largest in terms of nominal GDP and the largest in purchasing power parity according to the International Monetary Fund. Since the initiation of reforms and development in 1978, China has exceeded all expectations reaching GDP growth of 6.9% in the second quarter of 2017, up from 6.7% during the same period in 2016, per a statement from the National Bureau of Statistics (NBS) on July, 2017.
However, in a globalized world, capital remains the only force that truly transcends borders and labor relations remain dependent on the internal regulations of individual countries. In China, this powerful economic development has moved far faster than progress in labor rights.
Although the situation has changed significantly since reforms began in 1978, China still lacks an applied framework for labor rights in relation to its western competitors and their application is in many cases still ineffective.
The Employment Contract Law, which sought to unify all employment matters in a single legal body, was approved in 2007. However, its scope is not all-encompassing and a large part of the provisions of the previous Labor Law of the People’s Republic of China from 1995 remain in force. The result is a considerably fragmented regulatory framework that hinders the understanding of the system by foreign investors.
This article will provide a brief guide to the current situation of labor relations in China and analyze the prospects and challenges facing the nation as it looks to rise to the top of the world economy.
- CHINA’S ECONOMIC GROWTH AND THE ROLE OF ITS LABOR MARKET
Following the proclamation of the People’s Republic of China in Tiananmen Square in 1949, a paternalistic regime came to power which, for most Chinese workers, guaranteed a series of rights considered a social contract in exchange for political loyalty. This was a historic moment for a country which at that time boasted a precarious economy with little or no scientific and technological development, a small industry and high poverty rates.
Most of these workers, especially those from urban areas, gained job stability and access to housing; only a small percentage were recruited from rural areas to cover production peaks. This situation led to a deceleration of the Chinese economy in relation to its capitalist competitors, suggesting the need to introduce new reforms for regeneration.
Starting in 1978, the so-called ‘Architect of Change’ Deng Xiaoping would lead a period of surprising economic growth, radically boosting the economy without changing the country’s political foundations.
In the first period of reforms (1978-1984) controls on the agricultural sector were relaxed considerably, thus allowing the emergence of small-scale industries. Along with the devaluation of the yuan, China managed to establish an economic model of investment, savings and cheap exports that lasts to this very day. In addition to un-collectivizing agriculture and surprisingly increasing the productivity of farmers, China opened up to foreign investment and the creation of private enterprise.
The second period of reforms (1984-1993) decentralized state control and allowed the provinces to invest in growth formulas. Private companies changed the work landscape and did not have to give to their workers the same benefits as those enjoyed by employees of state-owned enterprises – their working conditions rested in the hands of the free market – which meant the progressive dismantling of the socialist contract. By removing the social benefits that the workers had traditionally enjoyed, companies became more competitive, creating huge business opportunities.
From 1979 to 1995, 220 million new jobs were created, 20 million more than under the traditional socialist system. Between 1979 and 1998, 14.7 million new jobs were created per year, significantly more than the 8 million new jobs created per year under Maoism.
Although the great population difference between the urban and rural sectors was clear in this early period, economic reform generated great changes in socio-economic conditions, both within and outside the agricultural sector which had favored the growth of rural enterprises. In a stable environment with little competition, the peasants’ initiative and entrepreneurial ambition led to the rise of rural enterprises, which multiplied the number of workers from 22 million in 1978 to 123 million in 1995.
Despite this growth, over 500 million peasants have moved from rural areas to urban centers since 1978. In 1972 the rural population accounted for 82.81% of the country’s total population. By 2016, it accounted for less than half (43.22%) per World Bank estimates. In Europe this change took place over a period of 150 years; in Latin America it took over two centuries. This excessive acceleration in the urban population was a consequence of economic improvement and the need to provide the rapidly industrializing economy with an appropriate labor force.
These socio-economic developments were accompanied by changes, mainly in the workplace, both good and bad. While they brought reduced political control in the workplace, freedom to choose occupation, access to consumer goods and wage increases, millions of workers displaced from rural areas suffered from extremely harsh working conditions and others employed by state enterprises lost their jobs without the possibility of relocation.
In 1995, China’s first unified national labor code came into force. Featuring 107 articles that included basic rights such as promotion of employment, wages, working hours and protection of child labor, it was published and promoted intensely by the Chinese government with the aim of normalizing the principles and employment conditions but also widely criticized for its significant shortcomings.
The lack of effectiveness in their application by local governments, employers’ unfamiliarity, ignorance on the part of workers and the fear of reprisals limited the reach of the law in practice. In the ensuing 10 years, these limitations granted (mostly foreign) companies to impose all kinds of abuses on workers.
By this time, the creation of employment was no longer associated with political factors or ideology; it was now subject to market forces and the labor capacity, skill and ability of the worker. Conditions were therefore very different. In an environment in which a booming and aggressive industry desperately needed labor, the weak and limited labor regulations laid out by the Labor Contract Law of 1995 were not enough to prevent the violation of many workers’ rights, leading to the non-payment of wages, excessive working hours, security conditions and mass layoffs. Worker discontent was reflected through the emergence of strikes and demonstrations and even collective suicides in several company workforces.
To cool this labor unrest, the Chinese authorities focused the common consensus framework between workers and companies on the employment contract. Despite the fact that it provided both job opportunities and business profitability, contracts were not always very useful and were often either signed without all the necessary information or not signed at all.
There was also another new development in this critical socio-occupational context: the mobility of workers not up to company demands. New technologies demanded that organizations require a higher level of employee training and consequently the Chinese labor market became more dynamic, thus brining on the end of traditional socialist full employment model.
In this labor scenario, it was not until 2001 that changes in the Chinese labor market began to take place. These changes, always linked to the structural and institutional changes in the global economy, took center stage during China’s entry into the World Trade Organization (WTO).
On December 11th 2001, after 15 years of arduous negotiations, China entered as the 143rd member of the WTO and brought about the arrival of goods from all over the world to the globe’s largest market and, at the same time, the flow of Chinese products to 159 nations. Foreign companies, notably European and American, have significantly increased their investments in China by facilitating the opening of factories in a variety of sectors, providing investors with greater security and increasing the supply of jobs (especially in the textile industry).
From this moment on, Chinese authorities increased their efforts to guarantee worker rights. Among other measures, the approval of the Law on Occupational Safety (2003) that granted the workers the right to leave their jobs immediately if exposed to situations that endangered their lives or infringed on health and safety regulations. Migrant working conditions were also boosted through recommendations from the State Council. In 2005, the Ministry of Labor and Social Security of China issued an order stating that the formalization of a written contract was not essential for a worker to demonstrate the existence of an employment relationship with his employer, offering legal overprotection to millions of Chinese workers.
All these measures were the prelude to the most important labor changes of the last 15 years. These were introduced in 2008 with the entry into force of the Law on Conciliation and Arbitration of Labor Disputes, the Labor Promotion Law and, most importantly, the Labor Contract Law. These brought the country closer to labor regulations that reflected international best practices, with an emphasis on fixed-term and indefinite employment contracts required by law and more developed mechanisms for conflict resolution.
The Labor Contract Law introduces important improvements in employee labor protection without limiting the ability of companies to compete in the market by encouraging the conclusion of fixed employment contracts, modifying the maximum probation periods and improving the internal processes of business restructuring. The Employment Promotion Act introduces measures to combat discrimination against internal migrants, establishes a framework for vocational training and guidance and encourages employers and companies to invest in workforce training. Finally, the Law on Arbitration and Resolution of Labor Disputes improved the effectiveness of agreements in labor disputes, simplified and reduced the procedure for workers, as well as tightening costs in the event of employer non-compliance.
The Labor Law of 1994 established three ways to resolve labor disputes: litigation, arbitration and conciliation. The latter has proved the most popular form of resolution but litigation is gaining ground due to the broad capacity of courts to protect labor rights through foreclosures, sanctions and the like. Due to China’s aggressive economic growth, the deprivation of the business world and the workers’ growing awareness of labor law, more and more employees are going to court to have their rights recognized.
This, in fact, benefits the authorities as they look to defuse labor disputes through legal channels. At least 60% of judgements handed down are favorable to workers, though the number vary remarkably by province.
The working conditions of Chinese workers have thus improved considerably in recent decades. Workers’ demands are continuous, however, and unrest is commonplace.
In a country where the right to strike is not contemplated as such (only under the Chinese Federation of Trade Unions, or ACFTU, which is controlled by the government itself), therefore leaving employees who mobilize themselves open to arrest (not strictly for striking but for altering traffic, business or the social order) labor conflicts have been increasing progressively since 2008.
Labor disputes peaked in 2015 and 2016; while 200,000 labor disputes were recorded in 1999, by 2008 the number had risen to one million. Since then, most of the provincially-set minimum wages have grown by over 20% a year, and there are very few territories that permit minimum wages below the equivalent of 100 euros a month or one euro per hour.
Per a study by Xiliang Feng, an analyst at China’s Capital University of Economics and Business, around 75% of labor disputes are pay-related, while less than 2% relate to working conditions. In addition, in a third of cases, the conflict is resolved by agreement between the parties without the mediation of the judicial system. Access to the internet and to social networks makes increasing numbers of workers aware of their rights and allows them to organize themselves appropriately to obtain their demands, a development that has led to an increase in protests across the country.
This change in conditions has led many companies to look for other, more profitable places to produce their products. China does not publish factory closure or relocation figures but, per an analysis by Justina Yung of Hong Kong Polytechnic University commissioned by the Hong Kong Federation of Industries, the number of plants held by Hong Kong enterprises operating in the Pearl River Delta near Hong Kong fell by a third between its peak in 2006 and 2013. Many of those factories moved to lower-wage countries.
China’s labor costs have grown above the inflation rate for years, according to BMI Research, and are currently quadruple those of Bangladesh, Cambodia, Myanmar and Laos.
In recent years, it has been observed that the spectacular pace of economic growth experienced by China since the late 1970s based on a development strategy centered on exports and labor-intensive production has been focusing towards an economic strategy of internal investment.
This strategical shift away from an excessive dependence on the external market towards an increase in domestic consumption and the promotion of the country’s services sector has not yet compensated for the decline in exports but it has managed to stabilize the economy and the working conditions of employees who are increasingly aware of their rights.
- CURRENT SITUATION OF THE LABOR MARKET IN CHINA AND LABOR RIGHTS.
Labor law in China does not differ significantly from international law standards except for forced labor (legally permitted for convicted prisoners and those convicted in administrative labor sanctions) and the freedom of association (to be discussed in detail below). The violation of labor rights is not due to a precarious normative system; rather it can be attributed to a deficiency in its application. The most relevant demands in the growth of labor disputes relate to working hours, wages, discrimination, security measures and social benefits.
We will now analyze some of the most relevant labor issues to provide an insight into current working conditions in China.
- A) CONTRACT REGIME AND TERMINATION OF EMPLOYMENT RELATIONSHIP.
When looking at the regulatory context in which workers are hired in China, observers must first look at the Labor Contract Law approved on June 29th 2007, which came into force in 2008.
This legislation, though it sought to consolidate all labor issues in a single framework, is limited in scope and thus forces the application of provisions from previous labor legislation, namely the Labor Law of 1995.
There are other regulatory matters that are also regulated autonomously such as maternity, matters relating to the social security system or syndication. These laws are usually supplemented by regulations that specify the principles that are collected by their superiors and make their application more practical but at the same time make their normative framework more complex.
Competency in labor matters lies with the Ministry of Human Resources and Social Security, which is responsible for developing and enforcing the laws and is divided into different Labor and Social Security departments with regional and local competency (usually sanctions and inspections) in their own territories.
With regards to the labor contract itself, Chinese labor law establishes that it must include basic information (such as the identification of the parties involved, duration, job description and place, hours, remuneration and responsibilities, among others) and can be negotiated between the two parties.
This must be written and must be formalized within a maximum of one month from the beginning of the provision of services by the worker, under pain of penalties. These penalties oblige the company to pay the employer twice his salary for up to a maximum period of 12 months and, even if this has not yet been formalized in writing, it will be understood that the worker is employed on an indefinite basis by the company.
Employment contracts must include probation periods determined expressly in the contract. During this period the salary of the worker cannot be less than the local minimum and must be at least 80% of the contractual wage. If the decision is taken that the worker is unsuitable for the position, notice of at least three days must be given to ensure that the employee in question is not entitled to compensation. The length of the probation period is dependent on the duration of the contract.
Though permanent contracts are encouraged, there are several different types of contract, among them fixed-term, objective-based and permanent. A worker can acquire permanent status after fulfilling one of the following three conditions: working at the company for 10 or more consecutive years while being less than ten years from retirement; when a state-owned enterprise has to put in place a new contract due to restructuring; or renewing after two contracts of fixed duration.
A contract can be terminated by either the company or the employee at any time. Chinese employers can terminate employee contracts as long as they do so in accordance with certain laws and regulations. There are several situations in which a company is not permitted to terminate an employee’s contract, including pregnancy, occupational illness or if the employee in question has worked at the company for more than fifteen years and is less than five years from official retirement.
Workers are not eligible for compensation or prior notice in the following circumstances:
– If the employee does not comply with the terms of the contract during the probation period
– If the employee seriously violates company rules
– If there is a breach of duty or significant damage to the company
– If the employee is prosecuted for an offense under the law.
– The employee has additionally established an employment relationship with another employer which materially affects the completion of his tasks with the first-mentioned employer, or he refuses to rectify the matter after the same is brought to his attention by the employer; or
– The employee uses such means as deception or coercion, or takes advantage of the employer’s difficulties, to cause the employer to conclude an employment contract, or to make an amendment thereto, that is contrary to the employer’s true intent.
An employee must be provided 30 days’ prior written notice and severance:
– If the employee has fallen ill or sustained a non-industrial injury and, at the end of the medical treatment period, can neither engage in the original work nor in other work arranged by the company;
– If the employee is incompetent and remains incompetent after training or assignment to another post; or
– If performance of the original employment contract becomes impossible due to a major change in the objective circumstances upon which the employment contract was based at the time of its conclusion, and consultations between the parties fail to produce agreement on amendment of the employment contract.
The calculation of this allowance considers the average salary of the last twelve months, with a maximum of three times of average local salary (per the official tables). Total compensation cannot exceed the average annual salary.
The compensation, if the period worked is between six months and a year, will be one month’s salary. If it is less than six months, it will be only half a month’s salary. If the dismissal is contrary to the law, the worker has the right to request reinstatement or compensation of up to twice the amount mentioned previously.
There must be a period of notice of 30 days in the following cases: when the worker has been incapacitated to perform his work and provided that this situation lasts after the period of medical leave, the probation period, or after the change of position; in cases of low performance of the worker following by a change of position or a period of training and in the event that the circumstances under which the contract was signed suffer substantial variation that prevents the achievement of the objectives signed on the contract. This notice period can be corrected with the payment of an extra month of work.
With regards to collective dismissals, the competent authorities have a leading role, which according to the new Labor Contract Law must approve any restructuring of staff that the companies intend to carry out.
They must give 30 days’ notice to the trade unions or workers (if the company does not have a union) and the authorities on the decision to give effect to these measures and there are priority criteria to include or not certain workers affected (such as contract types or duration in the company).
The strip to consider collective redundancies is more than 20 workers or 10% of the workforce in a company. The reasons why the employers can carry out this collective dismissals are: the employer is undergoing restructuring under the Enterprise Bankruptcy Law; the employer has serious difficulties in terms of production or operation; the employer switches production, introduces a major technological innovation or revises its business method, and, after amendment of employment contracts, still needs to take that step; other major changes in the objective economic circumstances relied upon at the time of conclusion of the employment contracts.
The termination of the contract by the worker is less limited than by the employer; it can occur at any time and a period of notice of 30 days must be respected in any case (with exceptions in which certain circumstances such as threats, illegal orders or in which the life of the worker is endangered).
With regards to hiring procedures, it is necessary to consider an important term within the contracting processes: ‘Hùkǒu’, or the system of permits for temporary residence and registration of residence applied among Chinese nationals.
Chinese workers have freedom of movement throughout the country but the moment they decide to work and live in a place other than where their hùkǒu is their social rights (such as education or housing) are scaled back to avoid labor disputes. To avoid disputes it is advisable to hire workers whose hùkǒu coincides with the place where the company is located or with their residence permit in force.
Hiring in China is carried out directly by the company or through intermediaries such as public or private employment agencies, fairs or other means of communication. Different means are available to businesses according to the particular situation.
Foreign companies are free to hire workers through the so-called Labor Service Corporations, created by the government, which maintain continuous contact with the Representative Offices of foreign companies. These organizations are responsible for many of the human resources management tasks that companies need such as facilitating the selection of personnel, training, social security procedures, obtaining visas and work permits, legal advice and transmission and management of Hùkǒu.
Among these organizations is FESCO, the first body created for this purpose and which leads the market share of these services. There are other corporations, however, such as China International Intellectech Corp. (CIIC), China Star Corp., China International Talent Development Center and China International Enterprise Co-operative Corp.
- B) WORKDAY AND PERMITS
The working day in China consists of 40 hours per week distributed across five eight-hour days. This time can be extended, following union consultation, for a maximum of 36 hours per month.
There are several reasons why these guidelines may not be adhered to, such as emergency repairs to equipment, lines of transportation or public supplies that are out of service and which can therefore affect production; natural disasters, accidents; and other reasons that may endanger the life, safety or health of workers.
Workers are entitled to eleven days of vacation per year, Chinese New Year or Spring Festival, Qingming Festival (tomb-sweeping festival), Labor Day, Dragon Boat Festival, Moon Party or Mid-Autumn Festival and national holidays. In addition, workers have the right to days off relative to the number of years worked in the company and their work experience but these entitlements must be established in the contract, collective labor contract or worker manual. Each province usually grants a series of additional days (between 7 and 20) to married men over the age of 25 or women over 23, in line with the policy of delaying the marriage age.
Overtime pay is 150% of normal pay on a normal working day, 200% if on a rest day and 300% if over the holiday period. Employers who do not grant employees vacation must compensate them with 300% of his daily wage for each day.
Permits exist covering maternity leave (after the birth of the child, with a duration of 90 days), bereavement (between one and three days in case of death of direct relatives), sick leave (illnesses and accidents) and marriage (usually three days after the wedding).
- C) COLLECTIVE RELATIONS, UNIONS AND STRIKES.
The All-China Federation of Trade Unions (ACFTU) is the only recognized and legal labor organization in the country. All company unions depend on this organization and any form of independent trade union organization is illegal.
Despite the deep changes in the Chinese economy since the late 1980s, the main function of the ACFTU continues being to help the government maintain social and political stability, using the pattern of social programs, legal counsel for workers and opposing workers’ mobilizations so that they have an autonomous basis of collective bargaining power, without actually reflecting the defense of the working class. Because of this situation, and because of their links with the government and employers (because they are directly financed by the companies), unions are strongly criticized by workers.
Although the system of labor dispute resolution in China is similar to that of Western countries (tripartite and composed by workers, employers and government), in practice the workers’ share is not represented as it should be. This situation provokes circumstances that favor the violation of labor rights, as reprisals to union representatives who truly try to defend the interests of their colleagues.
In July 2017, controversy was unleashed by the arrest of Chinese activist Hua Haifeng for investigating abusive labor conditions in footwear factories of a famous American clothing brand. In September 2016, three labor activists were given suspended sentences of up to three years linking their involvement with “overseas organizations hostile to China.” They had been helping workers in the southern province of Guangdong win payment of wages and unpaid benefits in disputes against employers, but were convicted of “ignoring national laws and organizing mass gatherings that disturbed social order,” Xinhua cited a Guangdong court as saying.
However, this does not prevent labor activism from sleeping in China, if not rather the opposite. There has been a notable increase in the number of strikes and protests by workers in all sectors of industry and all regions of China in recent years and they are now practically on the agenda, being normalized by trade unions. Factories of foreign companies such as IBM, Walmart, or vendors of major brands such as Apple or Samsung have been embroiled in labor disputes to improve or not worsen the conditions of their workers, projecting to the world the reality of a change of the employment circumstances.
Despite this situation, labor legislation has in recent years evolved to favor the conditions of workers and thus their bargaining power with the company. New labor regulations grant union participation in matters such as collective agreements, the determination of internal company regulations and even individual dismissals. Collective bargaining has gained prominence in recent years through this unique tool available to the government and, for the time being, the only one legalized in terms of workers’ organization.
At this critical point of workers’ representation, where union activism and repression by the central government grow at the same speed, it is essential for China’s correct and stable development that both employers and the official union recognize this new reality and adapt to the circumstances demanded by the market.
China has not ratified any of the conventions of the International Labor Organization relating to freedom of association and collective bargaining, although it has done so with regards to child labor and labor discrimination.
- D) SOCIAL SECURITY
Social Security contributions are mandatory in China, representing an additional payment of around 40% of the worker’s salary (though percentages may vary from one municipality/province to another).
These contributions are made up of three compulsory funds which must be paid by both workers and employers (medical care, unemployment and retirement pensions) and two voluntary funds which only the employer must pay (accidents at work and maternity).
In addition to these there also exists a wage overhead for companies of the so-called Housing Fund which, although it is also prescriptive, is not part of the Social Security system. Workers and employers are required to participate in this fund to build, buy or rehabilitate employee housing. As in the case of insurance, expatriate workers are not allowed to participate in.
- E) FOREIGN WORKERS’ REGIME.
As noted above, the labor regime in China is governed by a single set of rules, regardless of worker nationality. There are only a few exceptions for foreigners, namely certain exemptions in matters of tax and social security and the need to obtain visas and residence permits for expat workers.
Chinese law gives priority to Chinese nationals when filling vacancies for foreign-funded enterprises, except in cases that require overt special needs. Generally, foreign companies hire Chinese personnel across the board except for in management positions, where very specific technical know-how is needed in the initial years following the establishment of a company.
For a foreigner to work in China, a work permit and visa are required and they must apply for a residence permit. The issuance of a Z visa (work visa) takes several months and the procurement procedure follows several steps. A letter of notification for a work visa must be requested by the Chinese employer to the Office of Foreign Affairs and to the Local Department of Labor and Social Security a license to be able to hire a foreigner.
Foreign workers must apply for a Z visa or work visa at the Chinese Embassy or Consulate in their country of origin. Upon arrival in China they must apply for a work permit at the local Department of Labor and Social Security and the residence permit at the corresponding police station within 30 days of arrival.
The Development Regulation of the New Social Security Law entered force on October 15th 2011 and it is mandatory for foreign workers to contribute to Chinese social security, which has in turn increased labor costs for companies with foreign workers.
These costs are borne by both employees and workers of companies with foreign workers who have a work permit, foreign specialist certificate or other type of employment certificate or are employed by local employers or foreign-based companies and assigned to China.
These workers must be affiliated to the Chinese Social Security system with the obligation to contribute compulsory benefits in China unless there is a Social Security Agreement between China and the country of origin of the worker in question.
- F) LABOR COSTS. WAGES
Businesses in China must pay their workers the minimum wage established by local authorities and that they communicate to the Council of State.
This is determined based on economic development, living standards, corresponding security contributions and CPI (Consumer Price Index) and varies according to the geographical areas and worker qualifications; they are therefore not a reliable indicator of real wages in China. It should be noted that Chinese minimum wage does not include food, transport and housing allowances, social security contributions, housing funds, overtime, compensation for providing services under certain conditions (night shifts, harmful environments or extreme temperatures) in addition to the voluntary special pay on the Chinese New Year.
In areas where openness to foreign firms has been greater, wages are higher because of competition for labor, high turnover, and local regulations. It is advisable for any foreign investor to know the average salary of the area where they plan to invest and set up a company, to contact with one of the labor service corporations, the Labor Bureau or one of the agencies designed to promote foreign investment.
With respect to the differences in minimum wage levels from province to province, general trends differ greatly from each other taking into account faster growth in less developed regions than in developed regions. The minimum wage growth rate in Shanghai dropped to 8.4% in 2016 while the Guangdong provincial government announced that it would maintain 2015 minimum wage levels in 2016 and 2017. In contrast, Guizhou Province saw the greatest rise in minimum wage levels in 2016: 55%.
From June 2015 to June 2016, 22 regions changed their minimum wage levels and in 2016, the average growth rate fell to 14.5% from 17% in 2015. Beijing has established a monthly minimum wage of 1720 yuan per month (263 USD), Shanghai a minimum of 2190 yuan per month (335 USD), Tianjin a minimum of 1850 yuan per month (283 USD) and Chongqing with 1500 yuan per month (230 USD).
As we’ve seen, China has sufficient legal bases to defend workers’ rights and improve their quality of life; the problem lies in the deficiency in the application of this legal system.
Except for forced labor and freedom of association, there is no significant difference in standards when compared to international labor rights. There is, however, a lack of enforcement, a lack of commitment from authorities and the absence of trade union organizations to ensure that labor rights improve considerably.
Despite this it is undeniable that advances have been made, although perhaps not at the desired pace and scope. Discontent and the growth of social conflicts have forced the authorities to gradually create a system for improving working conditions, but its inadequate application has led to a rise in labor disputes.
This inefficiency of the Chinese labor legislation is due to the need to increase the number of inspections, as well as inspectors and their competencies. Inspections in China are scarce and a negative and consistent report of the business reality is rarely issued, deriving responsibility for sanctioning to the courts and saturating them in the process.
This, coupled with a shortage of labor, has forced regional governments to increase the minimum wage to retain their workers, causing many foreign investors to relocate their industries to neighboring Asian countries such as Vietnam, Cambodia or Bangladesh where labor costs are lower and where they can replicate the market conditions that initially drove them to set up shop in China.
In March 2016 Oxford Economics published an investigation indicating that the productivity-adjusted labor costs in China are only 4% cheaper than in the US, a fact caused by a rise of wages in the country at a far higher rate than the increase in productivity, as well as the strengthening of the yuan in recent years. The study shows that manufacturing production per employee in the United States grew by 40% from 2003 to 2016, up from 25% in Germany or 30% in Great Britain. While productivity has doubled in India and China, the US remains between 80% and 90% more productive.
Per estimates by ANZ Bank economists, there will be a transition to these Asian countries by foreign and Chinese multinationals from now until 2030. However, the relocation of some foreign industries does not appear to have had a major impact for two main reasons. In neighboring countries, such as Cambodia, there are signs that workers do not tolerate terribly low wages for a long time, since many of them are heavily unionized. Also, in recent years China’s economic policy has moved towards absolute independence, just as in previous years it had focused on foreign investment.
Not surprisingly, 71% of the foreign companies consulted for Roland Berger’s 2015 Business Confidence Survey said that the reason for operating in China is the subsequent ability to easily supply products to its lucrative market.
It should also be noted that China is now in the middle range of Asian countries in terms of cheap labor and has a long way to go before reaching minimum wage rates in the more developed Asian countries such as Japan and South Korea. Productivity is even higher than wages and experts estimate that it will continue to rise.
China’s labor market faces significant structural problems such as poor enforcement of the legal framework for the protection of labor rights, an aging population and an increase in wage costs. These do not, however, prevent the country from remaining the primary destination for foreign investment and manufacturing and a gateway for products into the Asian market.
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* Visiting Researcher at RCC at Harvard University. Professor of Labor Law and Social Security at the Complutense University of Madrid. Attorney at Bufete Casadeley. This Article has benefited from the comments and suggestions made during presentations at the University of León, Complutense University of Madrid, University of Washington and Harvard University.
 See “World Population Prospects: The 2017 Revision”. United Nations Department of Economic and Social Affairs, Population Division, custom data acquired via website, September 2017, available at https://esa.un.org/unpd/wpp/DataQuery/
 The United States is estimated to have a population of 323 billion making it the third most populous country in the world, see “Annual Estimates of the Resident Population: April 1, 2010 to July 1, 2016 – 2016 Population Estimates”. U.S. Census Bureau.
 See GONZALEZ GARCIA, J. y XUE DONG L.: “El mercado laboral en china: situación actual y perspectivas”, Comercio Exterior, Vol.49, num.7, 1999, pág. 627
 See CHANG YU “Desarrollo de empresas rurales y empleo en el campo”, Economia rural China, 1994 y SHI Q., China, Pekin, 1996 both in GONZALEZ GARCIA, J. y XUE DONG L.: “El mercado laboral en china: situación actual y perspectivas”, Comercio Exterior, Vol.49, num.7, 1999, pág. 630.
 World Bank Staff estimates based on United Nations, World Urbanization Prospects, available at https://datos.bancomundial.org/indicador/SP.RUR.TOTL.ZS?locations=CN
 With this fact, the collateral damages of this rural immigration have manifested. “The unprecedented influx has created overcrowding, social disorder and downward pressure on wages in the cities, as the Chinese economy, even with impressive double-digit growth, fails to create enough jobs to accommodate all rural migrants. Thus the most ambitious among them see leaving China as an attractive option.” More about the migration phenomenon of Chinese workers in KWONG, P.: 2007. Chinese Migration Goes Global, YaleGlobal Online, 2017, available at http://yaleglobal.yale.edu/display.article?id=9437.
 This improvement of the working conditions is a reflection of the economic and social evolution that is taking place in China. Respect for the law and human rights has direct positive consequences on society and although violating it in the short term can increase profits, it removes the incentive to invest in people or in new technology, so eventually hindering growth. See MATTIOLI, M.C. y SAPOVADIA, V. “Laws of Labor.”, Harvard International Review, núm. 26 (2), pags. 60-64
 Data extracted from an illustrative map of labor disputes prepared by China Labor Bulletin, available at http://maps.clb.org.hk/strikes/en
 Zeng Feiyang, director of the prominent labour rights group the Panyu Workers’ Centre, was given a three-year sentence suspended for four years, while his co-workers Tang Huanxing and Zhu Xiaomei received 18 months suspended for two years, according to information published by The Guardian on September 27, 2016. See in https://www.theguardian.com/world/2016/sep/27/china-labor-activists-sentenced-for-helping-workers-in-wage-dispute.
 Chinese market is estimated that in 2020 will represent 20% of the global market, a similar level to that of North America and Western Europe. These positive estimates are the result of an investigation conducted by Euromonitor and published in the Financial Times on February 27, 2017. Available at https://www.ft.com/video/566dc6b8-db59-38b9-b5ce-07205c76626c