Wall Street Journal: Workers' Rights in China

China's Labor Contract Law is one of the most controversial pieces of legislation enacted in China this decade. It provoked a storm of criticism from both the domestic and foreign business community, who now claim it has led to the demise of 10,000 factories in the Pearl River Delta alone since it went into effect on Jan. 1.

The factory closures, in reality, had more to do with rising material and transport costs and China's appreciating currency. However, because the law does give China's workers more rights, it means workers have much firmer legal ground to stand on when seeking redress for violation of their rights. That has implications for companies doing business in China. And how smoothly the law is implemented has implications for Beijing.

In the capital city of southern Guangdong province, home to a large proportion of China's factories, local media reported the number of labor dispute cases filed in the first two months of 2008 equaled the total number of cases filed in Guangzhou in all of 2001: 5,385. This is an acceleration of an already-existing trend. Labor dispute cases have increased on average by nearly 30% a year since the early 1990s to reach 317,000 nationwide by the end of 2006.

This upsurge has presented the Chinese government with a huge problem: lack of resources with which to enforce the law. Inflation-adjusted funding and staffing for arbitration committees and other public redress institutions have barely changed over the last decade. In Guangzhou's central Haizhu district, for example, the arbitration committee's three members of staff work six days a week and hold evening sessions three times a week. The whole of Jiangsu province (a population of about 74 million) did not have a single officially certified occupational injury or illness appraisal center until 2003.

The government has attempted to solve this problem with yet more legislation, the Labor Dispute Mediation and Arbitration Law, which will go into effect on May 1, but once again the unintended consequences of this new law could be to make matters worse. The newest law will make it easier for employees to seek arbitration and will streamline the time-consuming procedures that currently weigh down labor dispute cases. The law for the first time makes arbitration committee rulings in routine cases legally binding, abolishes the arbitration application fee, and extends the time limit for filing an arbitration case to one year from the current 60 days.

These provisions will work only if arbiters handle those cases in a fair and impartial manner. Arbitration courts are often under the supervision of the same local officials who have an acute interest in the success of the employers against whom workers are complaining. The local governments rely on the companies for tax revenues and employment. Sometimes officials have financial stakes in the companies, too.

To ensure that the new labor legislation is properly enforced, Beijing will not only have to provide far more financial and human resources but also make wide-ranging changes to the system of public redress – something, until now, it has not been willing or able to do.

First, China has to tackle its fear of independent monitoring bodies. Even if Beijing pours money into its arbitration system, there's little evidence that it can keep pace with monitoring the mounting flood of claims. Establishing an independent supervisory system composed of labor unions and NGOs to monitor arbitration committee and court adjudication procedures would help.

Second, China must allow the news media to report labor disputes freely, so that cases in which workers have been denied fair and timely redress can be promptly and accurately brought to public attention. Until now, that's been an anathema to a Party whose grip on power is predicated, in large part, on controlling information flows. But the media can also help the Party manage an increasingly pervasive problem with corruption, by highlighting offenders.

Third, China can tackle the root of the problem directly: the treatment of workers on the factory floor. Until now, the official unions have had little power to collectively bargain better pay and working conditions, even though existing legislation allows them to do so. Making the unions more democratic, accountable and representative would help.

Fourth, China can work to modernize its antiquated household registration system which ties workers to their home town and leads to institutionalized discrimination against migrants. To date, China's arbitration committees have received government funding based on a headcount of permanent urban workers. In cities like Shenzhen, where migrants compose over 70% of the working population, that's a big problem. The central government in Beijing needs to radically overhaul the household registration system to accurately reflect where people live and work if these inequities are to be resolved.

Until Beijing and local governments solve these problems, the new labor laws won't be much help to workers and will continue hitting businesses – and Beijing's dream of creating a "harmonious society" will remain an illusion.

Mr. Crothall is editor of China Labour Bulletin, a nongovernmental organization that promotes workers' rights in China.