Background
Following China’s economic reform in 1987, the Chinese Communist Party began its state-capitalist market experiment, juggling a fine balance between economic growth (through the active introduction of western technology and capital), and the political stability of China’s socialist society.
During this period, a capitalist model of market economy was carefully instilled into the then closed socialist economy of China, starting with a few experimental regions or Special Economic Zones (SEZs) Shenzhen, Xiamen, Zhuhai, and Shantou. Within the confines of these SEZs, selected foreign companies were permitted to invest capital and build facilities under the principles of safeguarding China’s sovereignty while maintaining an open-door policy economically.
The economic reform brought foreign capital, technology, and management knowledge that turned China’s vast natural and labor resources into rapid economic growth. The shift from a closed socialist economy to a relatively open market economy stimulated a period of high urbanization, industrialization, and economic growth in the 1980s and 1990s. According to the Chinese Ministry of Commerce, China’s nominal GDP grew at an annual average of 15.5% in the 1980s, increasing to 18.5% in the 1990s.
This period of fast economic development also exposed various issues–a widening urban-rural gap, market dysregulation, local officials’ blatant abuse of power, and severe labor exploitation, to name a few. This also brought about social change within China – socialist labor relations defined by life-long and assigned professions were gradually replaced by a market model of contract-based labor relations.
Important labor laws in China and a period of reform
China’s economic reform fundamentally transformed the nature of the planned socialist economy and Chinese people’s social relationships. Renminbi, the Chinese currency, gradually regained market exchange value and finally, in the 1990s, completely replaced and phased out the coupons Chinese citizens used to exchange daily necessities in the planned economy era. Chinese citizens began to be able to freely participate in the open market economy and legally own property. However, this transition also brought immense uncertainty throughout the country, which, in Deng Xiaoping’s own words, were “…crossing the river by touching the stones” (摸着石头过河) as they attempt to traverse the new terrain of the new form of economy.
Porcelain and water coupon, image sourced from Yicai.
The authorities recognized that the market reform called for new legal frameworks to address issues and draw boundaries for the private sector’s activities. The labor framework then was divorced from the international rule of law and market standards, and was thus seen as a threat to economic progress. Therefore, in this period, a slew of new laws were introduced to stabilize the dysregulated market, increase foreign investors’ confidence, and align the Chinese legal framework closer to international standards.
Among the new laws introduced, the earliest and most important labor-related laws were the 1992 Trade Union Law and the 1995 China Labor Law. According to these laws, it was mandatory for workers to be paid in full and on time for their labor, with proper compensation for working overtime, paid leave, national holidays, proper rest, equal protection against discrimination, social security, and free participation of trade unions that represent the rights and interests of workers. Under the newly introduced laws, the aforementioned were all considered basic and protected labor rights. In addition, employers would only be able to terminate the employment contract if the employee had “seriously breached” the employer’s internal regulations.
More recently, the most important and most controversial new law introduced was the 2009 Labor Contract Law (LCL), which came under the scrutiny of business stakeholders for its “overprotection” of labor. The law set out to regulate and specify businesses’ contracting practices for internships, as well as established regulations for workers working for a given entity for under and over a 10 year threshold. It also stipulates that employers and workers “should” sign written labor contracts to establish labor relationships.
Under the LCL, the employer is entitled to terminate the employment contract if the employee had “seriously breached” the employer’s internal regulations (“Serious Breach Dismissal Cases”). Despite the view of businesses that the LCL “overprotected” labor, a 2022 study analyzing over 2,000 “serious breach dismissal cases” found that Chinese courts are in no way “pro-labor”, and in fact were more “pro-employer”. The study also found that courts in most cases failed to conduct a substantive review on the fairness of such dismissal cases.
Labor dispute process
The principal institution in this process is the labor dispute arbitration committee (LDAC). LDACs handle the majority of labor disputes in China.
Mediation
In May 2008, the Law on Mediation and Arbitration of Labour Disputes (hereby LDMAL) was enacted, which stipulated that the LDACs must take up mediation before arbitration, and arbitration must occur before civil litigation. This thus introduced a four-phased approach in handling labor disputes: mediation, arbitration, first instance civil suit, and second instance civil suit (or an appeal).
Following the introduction of the LDMAL, many cases were resolved before the arbitration process. While mediation can speed up the potentially lengthy legal process, it can also lead to workers giving up some of their legal rights and settling for a compromised outcome. Notwithstanding, tf either party were dissatisfied with the result of the mediation process, they can then progress to an arbitration at the local LDAC. The arbitration process therefore became a prerequisite for civil suits.
Arbitration
Today, it is relatively straightforward and inexpensive for most workers to submit a case to the LDAC. Notably, workers only need to submit an application with supporting evidence, along with an application fee of 10 RMB (around 1.4 USD). However, some employees such as government workers, military personnel, and those over the official retirement age are excluded from this process according to the LDMAL. Further, arbitration claims must be filed within one year of the day the dispute arose. By contrast, the statute of limitation for other regular disputes (beyond labor) is three years. The one-year requirement can thus significantly hinder workers from issuing arbitration claims, especially for cases involving occupational diseases such as pneumoconiosis, which often does not present symptoms for several years.
Upon a glossary review, the vast majority of disputes accepted by LDACs, following the mediation process, are related to remuneration, social insurance payments, and contract termination. A smaller portion of arbitrations involved work-related injury.
Civil Suits
Following the arbitration process, if either party is dissatisfied with the LDAC’s decision, and if the dispute involves remuneration, work injuries, damage, work hour, rests and vacations, and social security, either party can file a civil suit at a People’s Court within the jurisdiction within fifteen days of the arbitration ruling. However, the strict prerequisites and tight timelines have been proven to be difficult for workers to follow through.
Conclusion: Chinese Workers Remain Unprotected
Although the Chinese legal framework has put in place laws to protect and safeguard labor rights, the enforcement of employers that violate these laws is wholly inadequate. From China Labor Watch’s research and interviews with workers in China, we continue to find that many Chinese employers in fact breach the law in their contracting practices, but are not taken to court. In addition, courts in economically developed regions such as Shanghai are incentivized to protect business interests–a matter that is connected to the Courts’ function to uphold social stability. Seeking redress through official or legal mechanisms have thus left many workers disappointed.
Second, while all workers in China have the right to form or join a trade union by law, in practice, all company unions must be affiliated with the one legally-mandated body, the All-China Federation of Trade Unions (ACFTU). Previous attempts at organizing independent labor unions have universally met with repercussions. As such, union offices are often known to workers as a mere formality that sometimes offer social welfare benefits such as occasional cookies and gifts as tokenistic gestures. In addition, the ACFTU has historically failed to intervene in protecting workers’ rights.
The failure of the ACFTU to stand with workers, along with other institutional issues to the Chinese economy including the hukou household registration system that severely limit migrant worker of rural background’s class mobility, have meant that after four decades of economic reform, the majority of China’s workers have yet to benefit from the country’s “miraculous” economic development. Instead, the country has seen a widening income inequality where a small group of Party and business leaders have become obscenely wealthy, while the majority of China’s workers are left behind.
As China’s economic growth is projected to slow in the coming years, we envisage that an ever-increasing number of workers will be delegated to low-paid, precarious employment with little or no welfare benefits, with impact to not only low-wage workers. Recent unemployment statistics of university-graduated Chinese youths demonstrated that job precarity is not exclusive to the “under-educated” class, and even the late former State Premier Li Keqiang admitted in a press conference at the end of the 2020 National People’s Congress that, based on official statistics, 600 million people in China still had an average income of less than 1,000 yuan (150 USD).
All in all, workers’ rights remain largely unprotected due to the confluence of systemic issues that favors employers over workers, despite a strong legalistic framework in a so-called socialist country. These issues are likely to be exacerbated if China’s economic growth continues to slow over time.