Conflicts of interest and the ineffectiveness of China's labour laws

THE Chinese government's response to the increasing number of labour disputes across the country has been twofold; on the one hand it has sought to protect workers' rights through new laws and regulations, while on the other hand it has tightened social controls and blocked the creation of independent trade unions. The government has consistently implemented a top-down approach to labour issues, without the meaningful involvement of the workers themselves. This report examines the effectiveness of this approach in the context of China's rapidly changing socio-economic structure.
1: The impact on China's labour laws of state-owned enterprise (SOE) reform and the growth of private enterprises.
China has undergone massive economic and social change in the decade since the promulgation of the Trade Union Law in 1992 and the Labour Law in 1994. Most small- and medium-scale SOEs have either been bankrupted, merged or privatized, while the large-scale SOEs have restructured and laid-off millions of workers. In many SOEs, the government officials who were managing the enterprises suddenly became owners, very often creating disputes with labour in the process. As the state sector declined, so the private sector increased. According to official Chinese statistics, from 1996 to 2001, the number of private enterprises in the country tripled from 440,000 to 1.32 million, private enterprises as a proportion of Chinese companies grew from 16.9 percent to 43.7 percent, the number of employees in private enterprises quadrupled from 8.02 million to 31.7 million, while the percentage of Chinese workers in private enterprises rose from 4.4 percent to 19.2 percent. Most of these private enterprises were small-scale business. In 2001, 90 percent of China's private enterprises employed fewer than 50 workers.

The owners of private enterprises have now secured an important foothold in the Communist Party and are becoming increasingly influential in shaping government policy. And private enterprise bosses are using their financial resources to buy both political power and very often immunity from prosecution.

As the nature of Chinese companies and their management changed, so did China's workforce – from being the "leaders" of the country during the state-run economy to one of the lowest social classes at present. As the number of workers in SOEs decreased, the number of workers in private enterprises and migrant workers in cities without permanent residency rights increased rapidly. From 1983 to 1999, the number of workers in collective enterprises and SOEs decreased by 70 million, while the number of workers in private enterprises and migrant workers in cities grew to nearly 100 million.

Over the last decade, government policy has generally favoured the rights of capital over labour.  Social security and workers' health and welfare systems have been reformed so that the responsibilities of individual enterprises have been reduced, however an effective alternative has yet to materialize. And after the 1989 Beijing Massacre, the government cited "the need to preserve social stability" in its continued repression of labour disputes and protests.

The Labour Law went into effect on 1 January 1995, however the rights of China's workers have improved little. This is partly because the law has not been enforced but also because it and other labour legislation contains serious deficiencies. China's labour laws do not give workers the genuine right to free association. Workers have the right to join and organize unions, but must be part of the sole nationwide labour union, the All China Federation of Trade Unions (ACFTU) which must support the Communist Party. China's labour laws do not clearly specify that workers have to represent workers in the collective bargaining process, and under China's constitution workers do not have the legal right to strike.
2: The conflict between law and policy, and the resultant erosion of urban workers' rights
The economic policies of the Chinese government over the last two decades have allowed businessmen to become rich through the appropriation of state assets while millions of urban workers have been thrown on the scrapheap. And once workers have been made redundant, it has proved very difficult for them to find new employment. In 2000, the percentage of laid-off workers who found new work was 35 percent, in 2002 it was 26 percent. According to a study of 66 cities in 2002, among the laid-off workers who were re-employed, 85.4 percent only obtained temporary employment.

The government has shown scant regard for workers' rights, and even though it has introduced legislation to protect workers rights and benefits, whenever a conflict arose between government economic policy and law, the law usually lost. China's labour laws have clear provisions designed to prevent forced retirement and the termination of employment without severance pay, yet these two practices are widespread and increasingly common throughout China.

3: The conflict between law and policy, and the resultant erosion of migrant workers' rights
For China's 130 million migrant workers, conditions are even worse than those of urban workers.  The root cause of this social disparity is China's household registration (hukou) system. The government introduced the hukou system in 1958 in order to control rural migration into cities. It required rural migrants to register with the labour bureau of the cities they migrate to. This system became the basis of the discrimination migrant workers currently face in obtaining employment, social security benefits and schooling for their children. Many employers feel no need to sign labour contracts with migrant workers, offer them social security or respect minimum wage requirements. And a key reason why management can get away with such flagrant violations is that the penalty for such behavior is very slight, especially when compared to the economic benefits of not meeting the rightful needs of migrant workers. Moreover, if management can bribe local officials, they don't have to pay any penalty.

The Chinese government has instituted various measures in order to better protect migrant workers' rights, but all to no avail. The ACFTU has attempted to include migrant workers in local unions, but given the dependence of local unions on local governments and management, the chances that migrant workers will benefit from such an association are virtually zero. In July 2003, the law was amended to better protect migrant workers, but the new benefits are limited, and it remains extremely difficult for migrant workers to obtain their legal entitlements.

4: The difficulties of implementing China's labour union laws
The ACFTU remains China's sole trade union, independent unions are illegal. China's labour laws clearly stipulate that labour unions must accept the leadership of the Chinese Communist Party. Within enterprises, unions are dependent on management, and very often union leaders have close ties with management, compromising their ability to effectively represent workers. Union officials view themselves as part of management, and side with management and government officials in supporting the need for social stability. Whenever there is conflict between workers and management, most union officials will forsake workers for in order to protect themselves.

In 2001, the ACFTU launched a drive to establish as many unions in as many companies in China as possible. During this programme, the ACFTU issued statements through official government channels, claiming great success. However, in our investigations, we discovered these official reports were often falsified. For example, in the second half of 2001, the local government of Shanxi province reported that in one county, unions had been created in 136 local companies, but the actual number was 30. The ACFTU has created many "fake unions" within private enterprises, existing in name only but without any real power. This unionization drive has increased the dependency of the unions on government and management and worsened the image of unions in the eyes of workers.

5: An analysis of the ineffectiveness of China's labour laws
In theory, China's labour laws should be enforced and monitored by the local labour bureaus and unions. But as of 2002, China had 3,196 labour upervisory bodies at the county level or higher with over 24,000 staff. Such a supervisory system is clearly inadequate in a country with millions of companies and hundreds of millions of workers. Local governments emphasize the growth of the economy and tax revenue. As far as the local governments are concerned, the treatment of workers and whether management violates labour regulations are of secondary importance; what is important is creating an attractive investment environment.

In recent years, collusion between officials and business has become the biggest obstacle to the implementation of China's labour laws, with in many cases, management openly opposing labour officials. A major source of income for China's labour bureaus is fines for violations of the labour laws. But officials must strike a balance between collecting enough fines to sustain their organization, and not incurring the ire of management. It is common for labour officials to bargain with management, so that fines will be modest, but paid on time. Labour bureaus lack the ability or power to impose heavy fines and often need the cooperation of other government departments to collect fines, but this cooperation is rarely forthcoming.

Moreover, since labour supply exceeds demand, China's workers often have no choice but to accept work without a written labour contracts, and as such find it almost impossible to guarantee their legal rights.
During the process of economic reform, the rights of private business have increased rapidly, while the rights of workers have decreased. China's labour laws are in conflict with the government's policy of fostering a market-driven private sector. Local government officials, whose interests coincide with business and whose aim is to develop the local economy, have often protected businesses in their violation of labour rights, thus rendering China's labour laws ineffective. China's workers are unable to form independent organizations, they have no legal right to strike, and their petitions and law suits are rarely successful. The balance of power between management and labour is weighted firmly in management's favour, and China's workers have virtually no means of protecting their rights.

While legislation for legislation's sake is pointless, CLB believes it is very important that China's labour laws are improved, and we make the following recommendations:
1)    China's labour laws must give workers the right to strike.
2)    Unions should be granted greater autonomy and a clear distinction made between union officials and government officials.
3)    The clause upholding the authority of the Chinese Communist Party in the union must be eliminated, as this translates as maintaining the control of business and management over the unions.

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