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Globalization and Chinese One World Philosophy

Globalization and Chinese One World Philosophy
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    China’s Labor Standards:Myths and Realities Baogang Guo, Ph.D.Dalton State College650 College DriveDalton, GA 30720 Prepared for delivery at the Conference on “China: Opportunities & Challenges for U. S.Companies” organized by the China Research Center (, February 7 th , 2003  1   China’s Labor Standards: Myths and Realities Baogang Guo China’s entrance into the World Trade Organization (WTO) in 2001 has generated aninvesting fever in China. As a sign of this enthusiasm, China’s attracted a record of US$54 billion foreign direct investment last year. For the first time China has surpassedthe United States to become the world’s most favored foreign investment destination. Atthe meantime, China’s foreign trade also reached a record of US$600 billion. In the nearfuture, we expect this upward tread will continue. Foreign businesses will be eager topour more money into China in order to get a share of China’s lucrative domestic market,and to take advantage of the abundant supply of very inexpensive labors.If you want to join the “gold rush,” and start your own business in China, you certainlywant to understand Chinese market and Chinese laws first, especially China’s laborstandards and labor regulations. If you do not do your homework, you may end up with alot of surprises. For example, some of your employees may ask your permission in yourbusy production season to get two weeks off so that they can return to their distant ruralhome to help their families harvest crops during the month of May or June. You mayhave to close your factory for a week or two to accommodate these requests. A mother of newborn child may also ask a paid half hour break to breast feed her babe for twice a dayduring her working hours. This benefit is indeed protected by Chinese labor laws.In this article, I want to focus on the issue of China’s labor standards. I would like toaddress the following three issues: status of Chinese labor laws, differences betweenChinese and American labor standards, and problems and challenges ahead. Status of Chinese Labor Laws For many years, China was under a planned economy with socialist-style labor-management system. Workers enjoyed very high political and social status. Since 1979,China has begun to dismantle the planned economy. The labor system is currentlyundergoing a major change. In recent years, China’s National People’s Congress (NPC)and various ministries have intensified their efforts to streamline the country’s labor lawsand regulations in order to narrow the gap between the Chinese labor standards and therest of the world. Three types of laws govern China’s labor standards: statutory laws,administrative laws, and international laws, and most of them were adopted in the lasttwo decades. o   Statutory lawsThe NPC is the highest law making body in China. But the drafting of various legal billsis primarily a responsibility of State Council and its subordinate ministries and agencies.  2 It may take a decade for a bill to finish the drafting process before the NPC has a chanceto deliberate on it. The number of statuary laws regarding labor standards is not veryhigh. The following two acts are most important ones. The Labor Act of 1994 is the first comprehensive labor standards law in China. It setsrelatively high labor standards in many areas. The Act covers minimum wage, childlabor, working hours, protection of women, forced labor, collective bargain and groupcontract, over time pay, vacation, holiday, labor protection, labor inspection system, andmany other areas. The Trade Union Act of 1992 codified a unitary form of trade union system. It gives laborunions a broader role in collective bargaining, the settlement of labor disputes, andenterprise management. With the enactment of this law, China has established the largestnetwork of trades unions with memberships currently exceeding 130 million. Althoughthe membership in a union is non-mandatory, employees in state sectors have beenthoroughly unionized with over 90 percent labor participation rate. Private sectors inurban areas are only partially unionized. According to the law, only one union is allowedin each company and institution. All of them must belong to the semi-official All-ChinaFederation of Trade Unions (ACFTU). o   Administrative lawsAdministrative laws are more important in China since Chinese economy is changingconstantly. Due to the shortage of statutory laws on some key policy areas, Chineseadministrative agencies have been given a larger role in making administrativeregulations, policies and orders. Many new measures and policies are normally carriedout through administrative regulations first. Some of them may eventually become astatutory law. For example, China’s family planning policy was carried out for more thantwo decades without any statutory law to serve as a legal basis. Only until recently the Population and Family Planning Act  was formally adopted in an effort to codify theexisting policies and practices. Administrative law is also an important means to amendthe existing statutory law. For instance, the Labor Act  stipulates that China’s officialweekly working hours should be 44 hours. However, the State Council has reduced thisto 40 hours a week in 1995. Many of the regulations are provisional. They are subject tochanges easily. Several of the regulations may be of interests to American investors.They include  Regulations on the Labor Management in Joint-stock Companies (1980),Provisional Regulations on the Labor Management of Private Companies (1989), Regulations on Labor Management in Foreign-owned Companies (1994), Regulations on Minimum Wages for Enterprises (1993), Regulations on the Protection of Female Employees (1988). o   ILO conventionsChina’s entrance into WTO may increase international pressure on China in the areas of compliance with the international labor standards. The International Labor Organization(ILO) is the world’s recognized body of formulating international labor standards. Overthe years, ILO has adopted over 170 international conventions. Through these  3 conventions ILO has developed a set of core labor standards which include freedom of association and collective bargain, freedom from forced labor, equality of employmentopportunity, gender equality, safe and healthy working conditions, etc.China has joined 23 of these conventions and only 20 in force. Among the 23conventions, the government of the People’s Republic of China (PRC) joined only 9 of them. All others were ratified during the era of Republic of China (ROC) prior to 1949,but were later honored by the PRC. In comparison, the United States has not been veryactive in adopting these international treaties either. The United States has only joined 14conventions and ratified only 12 by the Senate so far. Differences between Chinese and American Labor Standards One key concern of American labor groups is whether or not the WTO will help improveChina’s labor standards and promote human rights. To answer these questions we need totake a closer look at the Chinese existing labor standards, and make a comparison withthat of the United States.   There are obviously many differences between two countries. The United States has morethan 200 years of labor legislation, and has established a sophisticated legal system andgovernment institutions to deal with labor issues. China’s labor legislation has only beengiven some attention by the government in recent years. U.S. labor standards were raisedvery slowly over the years. China’s labor standards were strongly influenced by the on-going transition from socialist economy to a market-oriented economy, and by the levelof economic development.China’s labor standards are low comparing with many developed countries, but may notbe necessarily low in all areas. As a matter of fact, many Chinese workers, which weretreated at “master” of plants and factories during the pre-reform era, are actually moreright-conscience, and tend to have low level of tolerance of unequal and unfairtreatments. Foreign investors and managers need to be aware of this fact. Based on legalcodes of two countries, we can classify Chinese labor standards into three categories: o   Areas that have higher standards than the United StatesIn several areas, Chinese workers enjoy better protection than their U.S. counterparts.Workers in the urban areas have universal health insurance coverage. Health care isprovided under the newly established urban health care insurance scheme paid for byboth employers and employees contributions. Chinese workers have three one-week national holidays to celebrate Chinese New Year, the International Labor Day, and theNational Day. If overtime is required in weekends, workers will be paid twice of theirregular daily wages. If overtime is required during national holidays, employers mustpay workers three times of their regular wages. Women’s equal rights are also betterprotected in China. Women’s labor participation rate in China is 49 percent, much higher    4  Table: Comparing PRC and US Labor Standards in Several Key Areas Items China U.S. Health Insurance • Urban-based publicinsurance scheme tocover all employees • No public insuranceprogram for employeesOvertime pays • 1 ½ for over 44 hoursper week • 2 times for weekends • 3 times for nationalholidays • 1 ½ for beyond 40 hours • none • noneMaternity Leave • Paid leave for at least3 months • A half hour breastfeeding time, up totwice during workinghours • Unpaid leave for up to 12months • noneHolidays and vacations • At least 16 days • Paid vacation notimplemented • 5-6 days • Paid vacation 2-5 weeksEmployment involvement • Worker’s Congress forstate-enterprises, butnot required for privateenterprises • Consultation with tradeunion representativesLabor disputes • No right to strike • Mandatory arbitrationbefore taking legalactions • Right to strike after acooling period • Voluntary arbitration beforetaking legal actionsWages • Minimum wage law • Increased 16 times inthe last two decades • Minimum wage law • Increased very slowly than the world average of 34.5 percent. Chinese women make about 80.4 percent of men’s income, while in the United States, women only make about 70 percent of whatmen make. o   Areas that are comparable to the U.S standardsIn many areas, Chinese labor standards are comparable to that of the United States. Inthe area of child labor laws, the ILO standard for legal working age is 14 for thedeveloping nations, and 15 for the developed world. Both China and the United States setthe legal working age at16, which is slightly higher than the ILO standards. Bothcountries have minimum wages laws, and unemployment insurance benefits o   Areas that are below U.S. standards
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