New Law Gives Chinese Workers Power, Gives Businesses Nightmares

Liu Qin, left, was laid off by a shoe factory that didn't pay her for months of work. "This time I want to find a new company with a good environment," she says. "Now it's not the factories choosing me. It's me choosing the factory." (By Ariana Eunjung Cha -- The Washington Post)
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Not all of these companies are leaving the country, however. Many say they are moving to less developed parts of China that offer tax breaks and other incentives to offset the increasing costs associated with the new labor law.

The law requires firms to provide contracts that include pension and insurance contributions. It also requires companies to pay workers who are fired a month's wages for every year worked.

Another costly component of the new law regards overtime. For extra hours on a weekday, companies need to pay workers 1.5 times the normal rate. On weekends, it's double time. On official holidays, it's triple time.

"Margins are small in the Pearl River Delta," said Shen Minggao, a Citigroup economist in Beijing. "If they have to raise wages, their profits would be squeezed and they would have to go out of business."

Stanley Lau, deputy chairman of the Federation of Hong Kong Industries, said the law requires too much of companies too soon. "With the new labor-contract law, all the principals of the factories will have big problems. Their burden is getting heavier and heavier," he said.

Nicholas Kwan, regional head of research for Standard Chartered Asia, is less concerned. He said some companies are already finding ways to get around the new law. "They will lay off the existing workers and rehire afterwards. Or employ someone else with less pension burden. There are a lot of techniques that companies are using."

Dongguan, one of six major cities in the Pearl River Delta, is known for its ubiquitous shoe, toy and paper-product factories filled with migrant laborers. Disney, Nike, Mattel, Wal-Mart and a slew of other American companies have made products here.

To the more than 200 million Chinese workers who have left the countryside to find jobs in factories or at construction sites, Dongguan is known for its two faces: It is revered as a place where fortunes can be made, but it has a reputation tainted by several high-profile cases in which factories were accused of employing child labor, cheating workers out of wages and bullying employees who tried to quit.

Until recently, however, factory owners and industry association representatives said labor relations were relatively peaceful.

"There used to be a harmonious and stable relationship between employers and employees, but now we are all at a loss," said Zhao Weinan, secretary general of the Dongguan Taiwan Business Association. Zhao blamed the new labor law for recent incidents of civil unrest, saying that the law has led to some misunderstandings.

Zhu Weiping, a professor of industrial economics at Jinan University, said there was a lot of discussion within the Chinese government about "whether or not it's the right time" for the labor law.

"For the long term, it's a must-happen road. The state cannot let the region's labor remain concentrated in manufacturing forever," Zhu said. But in the short term, officials recognized, the law could lead to clashes between workers and employers.

For example, an Aigo electronics factory said it would increase employees' mandatory contribution for the cafeteria, by about 100 yuan, or about $14, a month, while keeping their salaries the same, leading workers to strike. For several hours on the morning of Nov. 27, thousands of workers who walked off their jobs clashed with riot police. The employees returned to work after their managers agreed not to raise the cafeteria fee.

Dongguan officials emphasize that though some factories are closing, more continue to move in, and they say overall investment to the city will increase this year in dollar terms. They say that despite some initial confusion, many company owners are realizing that the new law is in their best interest.

"Most people consider the new labor law a law that protects only the interest of employees, but not protecting enough the interest of enterprise investors. This is in fact a misunderstanding. The new labor-law articles not only protect the interest and rights of employees, but also regulate their responsibilities," said Cai Kang, vice director of the Dongguan Bureau of Foreign Trade and Economic Cooperation.

Lately, the factory entrances of some of the larger companies in Dongguan are full of what look like vast unemployment lines. But the nature of the job-seeking crowds is deceptive. Nearly everyone is employed, just looking to upgrade his or her job.

Wei, who quit his job in early March, was in front of a computer company with more than 200 other workers on a recent workday, waiting for an interview. He said he was attracted to the new company because it offers a base salary equivalent to about $140 a month, 25 percent more than he made at his last job, including overtime. "I used to work at a factory that told me lies," he said. "I don't need to do that anymore."

A few blocks down, another crowd was waiting in front of a shoe factory.

Liu Qin was laid off from her job when the shoe factory she was working for went out of business. It didn't pay her for months of work. She said she thinks it may be the best thing that ever happened to her.

"This time I want to find a new company with a good environment," said Liu, 34, who has spent more than a decade working in the Pearl River Delta's factories. "Now it's not the factories choosing me. It's me choosing the factory."

Wang Erhao, 22, who is leaving his job at a small shoe factory to seek work at a larger one with better benefits, said he wasn't the least bit worried about finding a new job. It's an employee's market, he said. "You quit a job one day, and the same day you can have new work."

Researchers Crissie Ding and Wu Meng contributed to this report.