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New labor law means better image but at higher cost
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Will China's new labor contract law mean a better image and a move up the industrial ladder? Or will it push up wages and erode the country's competitive advantage? And among these possible outcomes, which matters more? It depends on who you ask.


Zhao Yumin, an expert with the Chinese Academy of International Trade and Economic Cooperation, which is under the Ministry of Commerce, told Xinhua that China should shed its sweatshop image. "We will develop the economy with the purpose of promoting people's welfare and the new law aims to ensure that workers' rights are protected," in line with world trends.


The Labor Contract Law, due to take effect on Jan. 1, 2008, entitles employees of at least 10 years' standing to sign contracts that protect them from dismissed without cause. The law also requires employers to contribute to employees' social security accounts and sets wage standards for employees on probation and working overtime.


Many small local companies complained that the law would send up their costs and worsen their situation, which they said was already being made difficult by a stronger currency and the scrapping of export tax rebates.


However, Chen Xinmin, a human resources expert with South China Normal University, said that "some companies reacted too strongly because they are so spoiled that they mistakenly equate advanced personnel management with the right to fire people at will."


Statistics indicate that about 40 percent of private-sector employees lack labor contracts, and critics have charged that unpaid wages, forced labor and other abuses have accompanied China's economic boom.


The outcry culminated in June when a slave-labor scandal came to light in which hundreds of farmers, teenagers and even children had been forced to work in brickyards, enduring beatings and confinement.


"Companies should regard the law as an opportunity to improve their management, capital-labor relations and productivity," said Bao Yujun, president of the China Society of Private Economy Research.


"Foreign companies reject poor labor standards, too," said Zhao, adding that she didn't believe the law would lead to multinationals moving their operations out of China to countries where labor costs were even lower.


"Global companies came to produce in China because of the low costs but also because of the huge market," she added.


Although some U.S. companies believed that China was losing its competitive edge to rising costs, many were realizing the market potential that China has long promised, according to a recent report from the American Chamber of Commerce in Shanghai.


As economic reforms have improved the climate for U.S. companies in China, the vast majority of them planned to increase investment in the country, said the report.


Zhang Yansheng, head of the International Economic Research Institute under the National Development and Reform Commission, said that "the new law is part of the progress China has made to perfect its market economy system" and that China would create a better business climate by updating the legal system. And if companies did decide to move to places with cheaper labor, that was just "the rules of the market economy," he said.


"As China's population ages, industries that are too labor-intensive will have to move out of the country" anyway, he said. "Although China has a bigger population, India has two times as many young workers as China." He added: "China must upgrade its industries. The world's factory should not be merely a packaging plant or a composing room with low-quality laborers."


As China strives to restructure its economy and raise workers' incomes, companies that solely relied on cheap labor would not have good prospects in any case, said Wang Yiming, an expert in personnel management with the Chinese Talents Society.


Statistics indicate that Chinese workers' pay has been rising rapidly in recent years. Wages rose 14 percent in 2005, according to the central bank. And monthly wages rose 18.8 percent in the first nine months of this year, according to the National Bureau of Statistics.


Labor costs in China are low by developed-world standards, equating to perhaps 2-3 percent of what workers earn in the West, but China is hardly the lowest-cost location in the world. For example, textile workers in coastal provinces cost about 1 U.S. dollar per hour, but that's three times as much as in Vietnam, Cambodia or Bangladesh, according to Deputy Minister of Commerce Gao Hucheng.


China's advantage in low labor costs has become an unhealthy model of growth and led to a loss of national welfare, said experts.


(Xinhua News Agency December 30, 2007)

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