A Labor And Employment Law Practitioner Takes A Thoughtful Look At China's New Workplace Laws

Friday, December 1, 2006 - 01:00

Editor: On October 13 The New York Times carried a front-page story about China's attempt to adopt laws to crack down on sweatshop operations and to protect the rights of workers by giving labor unions real power for the first time since turning to market forces a quarter of a century ago. You are someone who has spent his career in the labor and employment law arena. I think our readers would be very interested in your thoughts on what is underway here.

Coleman: There is a great deal of speculation about this development, which may well be a very prudent move by the government to cover its back. There is a substantial amount of workplace unrest in China, and in recent years this has been on the increase. Over the past 25 years or so, millions of workers have come from the countryside to work in factories in urban areas, particularly in Beijing and on the coast. There have been well documented abuses of these workers in terms of wages, hours and working conditions. Unless the government addresses these abuses, and, perhaps more importantly, is perceived to be addressing them, there is a real potential for very serious problems, including workplace violence.

It is important to consider the astonishing transition that has taken place in China since the decision to open its economy to market forces was made. During these years, China has emerged as a major manufacturing power - and the ever increasing exports of certain sectors have propelled the Chinese economy into the ranks of those of the world's largest - has become a member of the World Trade Organization, and has become one of the major players in the global economy. The benefits of this transition have not flowed across Chinese society in a truly equitable way, however. Large regions of the country and literally hundreds of millions of people - the source of the workforce at which the new laws are directed - have been largely left outside the benefits that have derived from the country's modernization. In coming to places like Beijing and Shanghai, however, these people have seen with their own eyes what has been, what is being, accomplished, and they wish to participate in those benefits. They are also increasingly aware, I think, of their contribution to their country's modernization. At the time this process began, everyone in China, or almost everyone, experienced the same privations. Over the past quarter century the gap between the haves and the have-nots has grown significantly. And, as I say, the latter group - particularly in the urban areas where they constitute the workforce - is well aware of the discrepancies in income and standards of living.

Private labor unions are banned in China. There is a single state-sponsored labor union umbrella organization, the All China Federation of Trade Unions or ACFTU. Its appearance in the workplace affords the government at least some protective cover in that it conveys to the workers the impression that they are represented by a state-sponsored entity charged with looking after their interests. It remains to be seen to what extent the ACFTU actually assumes such a role. China's accession to the WTO, however, does constitute its acknowledgement of certain international standards for the workplace. The thought occurs to me that the new laws may be a step, albeit tentative, toward those standards.

Editor: What do you make of the Times ' report that American and other foreign corporations with operations in China have lobbied against the implementation of the new laws?

Coleman: The multinationals which have come out against unions in the workplace in China are opposed for the same reasons they are in this country. Many already pay the highest wages in China to factory workers, and the working conditions they provide are far superior to those that local enterprises provide. Some of the multinationals may do so in order to avoid bad publicity at home; others may have a genuine human rights agenda. All of them are concerned, however, about the impact of unions in the workplace on their expenses. Over the past two years alone, the increase in wages has been astronomical - 12 to 20 percent in some categories. This is the consequence, at least in part, of a shortage of skilled and well-trained workers, which China is now experiencing for the first time.

American enterprises, including trade associations, are not speaking with a single voice here. There are certain manufacturing companies in the U.S. that would like to see wage increases and better working conditions in China because it will contribute to making American companies more competitive, or at least that is the thought. In the past labor has been cheap in China and the cost of compliance with workplace standards minimal. If labor unions in the workplace make manufacturing operations in China more expensive, the logical conclusion is that American manufacturers will be better able to compete with their Chinese counterparts. There will still be significant gaps in costs, however.

Editor: Western consumers and shareholders alike accept that taking advantage of lower labor costs is a legitimate business interest. No one, however, wishes to be associated with a company that exploits its workforce or imposes working conditions that do not meet international standards, irrespective of whether local law permits such behavior.

Coleman: I think a number of things are converging here. In the first place, I think the Chinese government is acting to protect itself by making an effort to improve wages and working conditions for this large part of the workforce that has had minimal benefit from China's modernization. At least so far as foreign employers are affected by the new law, there is a nationalistic feature to this undertaking. It also coincides with China's adherence, through its membership in the WTO, to internationally accepted norms and standards concerning workplace conditions. And it is also in step with the concept of corporate social responsibility which has become such an important part of the boardroom discussion in recent years throughout the West.

For the foreign companies investing in China, one of the principal concerns is that there be a level playing field. These new laws will translate, in time, into greater expense: increased wages, more expensive if not shorter hours, and cleaner, safer and inevitably more expensive workplace conditions. If they apply across the board, however, a company's competitive position should not be compromised. And its reputation as a good employer should be enhanced, something that will have a public relations value all over the world.

Editor: There has been a problem in China with having the right laws on the books and then failing to enforce them. Could the present undertaking evolve along similar lines?

Coleman: Of course. The jury is still out, and only time will tell whether any of these proposals will actually be enforced. This is a new initiative for the Chinese government, and I believe they are monitoring its evolution with a great deal of care.

Editor: You mentioned corporate social responsibility. Some think that, in the absence of local law or a lack of enforcement, a foreign company is required to meet international norms for working conditions. Do you agree?

Coleman: All things being equal, of course the right thing to do is to conform with international norms in the absence of local law or any enforcement of whatever law is in place. I hasten to add, China is a very complicated place. It is a huge country with hundreds of millions of people in the workforce, hundreds of thousands of factories, and uneven control from the center. There is no question in my mind but that there are multinational corporations willing to take advantage of this situation to enhance their competitive position. Such a state of affairs provides justification for the Chinese government's attempt to address workplace conditions through the new laws. But they are going to do it their way, with a state-sponsored union, not private ones. China will not countenance a repetition of what occurred in Poland with the Solidarity movement.

In certain respects the U.S. multinationals are interested in having higher - and inevitably more expensive - standards imposed on everyone. Many of their competitors have not paid the wages, limited the hours or improved working conditions the way American employers have - indeed, many have not been able to afford such steps and remain competitive. The new rules do appear to level the playing field in imposing the same standards on everyone. Nevertheless, there is an almost automatic reaction on the part of management - and this is true of management everywhere - that is antipathetic to a labor union coming into the workplace. Management assumes that a partner, and one without capital, expertise, inventory or anything else of value to the enterprise, is being imposed on them. They also assume that this partner is going to increase expenses and dictate wages, hours and working conditions. And who is to say they are wrong at this point, even if it is the ACFTU? This scenario is going to have to play out over time. The situation may look very different two years hence.

Editor: If the cost of doing business in China rises - and that appears to be inevitable as the country continues to modernize - foreign corporations have the option to take their operations elsewhere. Is that not also one of the factors under consideration on the part of the Chinese authorities?

Coleman: I am sure it is. And that option - taking the operation to some other and less expensive jurisdiction - may become available to the many private enterprises that the Chinese themselves have developed over the last 25 years. We are witnessing a very dynamic and fluid situation, one in which no one has all the answers. To paraphrase an old Chinese proverb: "May you live in interesting times."

The one certainty here is that the Chinese government is going to monitor what is underway very carefully. And they will look abroad for potential precedents. When Russia turned to economic reforms and some degree of competition entered the system, it did not take too long for people - at least some people - to begin to earn money and to acquire the things they had been denied under Soviet rule. I think people are pretty much the same everywhere in desiring to participate in economic growth and to give their families a better life, even if it takes another generation. If those rising expectations are not properly channeled, however, they can instigate dissatisfaction and even political instability. There is great promise in the developments that are underway in China, but there is a recognition on the part of the authorities that there are dangers as well. I would submit that this effort to improve workplace conditions in China is a carefully calibrated attempt to navigate some potentially troubled waters.

Please email the interviewee at jcoleman@nixonpeabody.com with questions about this interview.