The Debate Over Raising Chinese Labor Standards Goes International

Aaron Halegua*

“U.S.-based corporations are opposing legislation to give Chinese workers new labor rights.”1Global Labor Strategies, a non-profit center based in Boston, offered this appraisal of U.S. companies in China that suggested amending the hotly contested Chinese draft Labor Contract Law (LCL). An October 13 article in the New York Times quoted sources alleging that the American Chamber of Commerce (AmCham) in Shanghai threatened that U.S. companies would divest from China if the law was passed.2 Is this response by these U.S. corporations justified? Was this even their actual response? Are their criticisms of this legislation legitimate? Are accusations that they are working to keep down Chinese labor standards accurate? The labor conditions faced by Chinese workers are rightfully a subject of great concern, as is the role that U.S. corporations play in affecting these standards. However, before such questions can be fairly answered, it is necessary to understand the current labor situation in China, exactly what the draft law proposed, and what the likely effects of passing the law would be.

The Plight of Chinese Workers: A Problem of Low Enforcement, Not Low Standards

Few would contest the terrible conditions faced by many Chinese workers – especially the 150 million members of the “floating population,” who migrate to urban areas from their poor homes in the countryside. These men, women and children often work without written contracts in dangerous conditions for up to eighteen hours per day and under $100 per month. They often receive no vacation and no overtime pay. Moreover, these meager salaries are usually paid late, and even then, are frequently not paid in full.3

But the problem is not that Chinese labor standards are too low. The 1994 Labor Law requires that employers sign contracts with workers and provides for a minimum wage, the monthly distribution of wages, a forty-four-hour work week, mandatory rest and vacation, and overtime pay. The 1994 Law furthermore enumerates a host of civil and criminal penalties to be imposed on non compliant employers. On paper, many of China’s labor standards are more generous than standards in some developed countries. But these standards are largely ignored, both by employers and by the government agencies responsible for their enforcement.

The primary reason that labor standards are not enforced is that local officials lack any real incentive for doing so. Local officials’ performance evaluations, which determine their salary and chances for promotion, focus primarily on economic growth. These officials may also benefit directly from local businesses’ success through personal investments, tax collection, or bribes. These motives generally trump any interest in protecting an easily replaceable, uneducated worker from another province. Thus, local officials – and the local labor bureaus which they oversee and control – are loathe to upset employers by vigorously enforcing labor standards.

How Does the LCL Address this Problem?

The draft law does little to address this problem. Like the laws already on the books, the primary focus of the draft law is on labor standards. It restates many existing standards, modifies others, and introduces some standards in new areas. For instance, it tightens regulations on probationary periods and on non-compete clauses, it grants more rights to workers with fixed-term contracts, and it requires ambiguous contract terms to be interpreted in favor of the employee. However, the rights and standards which Beijing writes on paper do not help workers unless they are enforced throughout the country. So how does the draft law help to ensure that workers actually enjoy these rights?

The LCL’s strategy for protecting workers is to increase the role of labor unions in decision making. For instance, the law would require union approval of changes to company regulations or policies, including those on training, rest and vacation. Union approval is also required to dismiss more than fifty employees at once. For any employee who is fired, employers are required to notify the union, which may challenge the legality of the firing and oblige the employer to provide a written response. Unfortunately, however, these provisions are unlikely to have a meaningful impact given the current state of labor unions in China.

The first problem is that no labor unions exist in a substantial portion of enterprises in China. The New York Times reports union membership dropped during the 1990s from 130 million to about ninety million by 1999.4 While unions exist in virtually all state-owned enterprises, the number of such companies has been shrinking throughout the reform era. Privately owned and foreign invested enterprises, which compose a growing proportion of the Chinese economy, are far less likely to have unions. Further, it is in these latter types of enterprises that China’s most vulnerable laborers, migrant workers, are often employed.

The second, and far more substantial problem, is that Chinese labor unions are rarely more than tools of local officials and management. In China, there is only one legally-sanctioned union – the All-China Federation of Trade Unions (ACFTU) – whose branches all answer to the local government and the Chinese Communist Party. The primary interest of the ACFTU is not in fostering class conflict but in preserving social stability. Most union officials answer to the employer, who pays their wages and is able to fire them at will. Far from being elected representatives of the workers, union officials are often relatives and friends of the employers or other managers within the company. Such unions are obviously quite different from the western model and quite unlikely to vociferously represent workers’ interests by challenging employers. Indeed, both officials and employers believe the unions’ purpose is to help placate workers and discourage them from protesting.5

Unions have already tried and failed to serve as workers’ advocates. Under the 1994 Labor Law, collective labor contracts must be signed by labor unions. However, reports suggest that union officials often sign the contract prepared by the employer or labor bureau without question. It seems improbable that employers’ friends will behave any differently simply because the new law grants unions the right to “bargain on an equal basis” with management. The manager of a Chinese firm which has a union explained to the Guardian why he is not worried about the new law. “[I]t is impossible for the trade union to act against me. . . . Even if the new law strengthens its power, it’s me who pays their wages. If the chairman of the trade union raises a strike, I’ll dismiss him.”6

There are signs that the ACFTU will try to expand the number of workers and enterprises that it reaches. In fact, it has explicitly set goals of increasing unionization in foreign-invested enterprises and of unionizing migrant workers.7 Its establishment of unions in Wal-Mart stores throughout China could be interpreted as a victory in this effort. Some have suggested that adopting the LCL could also catalyze the formation of unions, as compliance with the law would be impossible for companies lacking unions. However, any expansion of union presence and rights will do little to help Chinese workers if these unions remain mere rubber stamps. Moreover, unions formed in response to the law are likely to be created by management in a top-down manner which reinforces their lack of independence and inability to meaningfully advocate for workers.

The Substance of U.S. Corporations’ Response to the LCL

Given the above assessment of the draft law’s impotence, it may seem odd that U.S. corporations would be so opposed to it. As Global Labor Strategies alleges, “foreign corporations are attacking the legislation not because it provides workers too little protection, but because it provides them too much.”8 The reason for this opposition is that U.S. firms are not free to simply ignore labor regulations as are their Chinese counterparts. While neither group of companies is significantly pressured by Chinese authorities or unions to comply with labor standards, U.S. corporations do receive some domestic pressure to, at the very least, not violate Chinese law. Thus, U.S. corporations are in the minority of businesses in China that will actually be forced to implement any new laws and will thus feel the effects of any such legislation.

Two associations which represent U.S. companies’ business interests in China, the U.S.-China Business Council (USCBC) and the American Chamber of Commerce in Shanghai, have submitted written proposals to China’s top legislative body for amending the LCL.9 Many of the comments submitted by these organizations do not simply seek to amend the law in employers’ favor but raise legitimate concerns. One such set of concerns is that several terms of the draft law are too vague to understand or implement. For instance, three different maximum probationary periods are set for “senior technical professional,” “technical” and “non-technical” workers, but no further definition of these terms is provided. Similarly, labor unions are given the right to veto all rules “concerning the immediate interests” of the laborers. Employers are required to pay an employee’s annual salary to enforce non-compete clauses, but does this mean just their basic wage or include benefits and bonuses as well?10 The proposals call for the legislature to use greater clarity and specificity in defining these terms.11

Another set of recommendations by the two U.S. organizations proposes correcting what appear to be the excesses or, perhaps, oversights of this pro-worker legislation. For example, while the 1994 Labor Law voids contracts when either the employer or employee commits fraud, the LCL only invalidates contracts when the employer acts fraudulently. Also, the LCL seems to indiscriminately create non-fixed term contracts when a labor contract is not formed and to demand severance payments when contracts are not renewed. Thus, it appears that even if an employee refuses to renew her expired contract, the enterprise still owes her a severance payment. Both organizations also object to the requirement that any discrepancy in a labor contract be interpreted in the worker’s favor. Instead, AmCham’s report suggests that external, objective criteria be provided for judging and defining labor relationships.

The organizations also argue that, in addition to being vague or unfair, certain provisions could have negative repercussions for China’s economic growth, its ability to attract investment, or its workers. For instance, they claim that capping non-compete clauses and limiting the training costs for which employees can be held liable will make foreign companies reluctant to bring advanced technology into China or to invest heavily in training workers. The LCL also regulates the use of labor brokers, which is likely to discourage employers from using them.12 If a company hires an employee through a labor broker, it may only sign one fixed-term contract with that employee and then must hire the employee directly; if it does not, the company may not use a labor broker to hire another individual for the same position. The USCBC contends that this provision will limit companies’ ability to find the best person. Further, it argues that the provision ignores the seasonal or temporary nature of the work for which labor brokers provide a valuable service and could mean fewer job opportunities for the migrant workers who use these services.

Another, more compelling concern of American corporations is that they are put at a relative disadvantage with Chinese firms by increased and asymmetrically enforced labor standards. As AmCham argues, adopting the LCL would perpetuate the current situation in which “the one who violates laws remains unpunished while the one who observes laws is punished.” Instead, they argue – and correctly – that the real key to stopping the abuse of Chinese workers lies in improving enforcement of the laws and standards already in place.

Other Actors’ Concerns about the LCL

Even if many Chinese corporations have not vocalized their opposition to the draft law, it is not the case – despite what some reports seem to suggest – that U.S. corporations are alone in their opposition to the proposed legislation. Organizations representing other foreign businesses, such as the EU Chamber of Commerce, have taken similar positions.13 Far more significant, though, is that actors within China, including non-business interests, have openly criticized the law. Some have criticized specific provisions in the draft. For instance, one very pro-labor law professor from Sichuan University has recommended striking a seniority provision which requires that newer employees be laid off before older ones. She argues that this discriminates against younger employees, who need jobs just as badly as older workers.14

More fundamentally, some Chinese academics oppose the whole practice of setting new, higher labor standards. Dong Baohua, a labor law professor from Shanghai, argues that even current standards are too high for China’s present level of economic development, which makes compliance prohibitively costly. One must wonder what good results from having high labor standards on paper which virtually nobody enforces. Certain negative consequences of such an arrangement seem clear though, such as decreasing respect for the rule of law.

Academics, officials, and workers also question the efficacy of the LCL’s focus on the labor union as the mechanism for ensuring Chinese workers’ rights. Even many within the ACFTU bureaucracy criticize unions’ deference to local officials and company managers. There is increasing recognition that if unions are not inspired by workers and created in a bottom-up manner, they will remain toothless. In one conversation with the author, Dong Baohua was emphatic that rights should be given to the workers, who should then choose whether to transfer these rights to unions of their own creation. He believes that “giving these rights to the union directly is like not giving them at all.”15

The Form of U.S. Corporations’ Response to the LCL

Even if some are not sympathetic to the actual positions advanced by these American corporations, the means by which they are promoting them are noteworthy. The process by which the National People’s Congress (NPC), China’s top legislative organ, drafted and considered the LCL has been remarkably democratic and open for that body.16 In writing the law, teams of academics and other experts were brought in to offer expertise and even invited to submit drafts. In March 2006, once a draft was ready, the NPC not only made it public but invited the public to comment on it. During the following month, nearly 200,000 comments were received, with 65% of them from ordinary workers.

Participation by AmCham and the USCBC has been supportive of this process. The two organizations submitted written comments to the NPC consistent with the established procedure. Representatives of various U.S. corporations also testified before the NPC on the potential impacts of the LCL. The overworked and understaffed NPC was very much seeking the opinions and advice of outside labor experts and these multinational companies offered their suggestions. Moreover, whatever the Chinese legislature finally decides – whether it adopts their suggestions or not – few have doubted that these companies will then comply with the new regulations.

Such participation is far preferable to what most Chinese companies are doing. Insiders suggest that many Chinese companies view passing this law as a government priority and fear that voicing any criticism or opposition to the draft would threaten their relationships with top officials. Therefore, they say nothing about this law that hurts their interests, and instead, if the law is passed, they plan to rely on their government relationships to evade any new requirements. Thus, they will not participate in the democratic exercise of seeking to draft a good, fair law, but will work to undermine the whole exercise by refusing to enforce whatever standards are eventually agreed upon.

Such a rosy picture of U.S. corporations’ involvement in the legislative process is somewhat tarnished by the allegation that these companies threatened to divest from China if the law is passed as currently drafted. This accusation seems to be based on two sources: first are the suggestions by AmCham and similar groups that passage of the draft law might negatively impact China’s investment environment; second is a claim that 20 AmCham representatives stormed into a meeting of scholars about the law, demanded the floor, and made such threats. Starting with the latter, AmCham has denied that these people actually represent the organization in any official capacity. It does seem a bit surprising that AmCham would be preparing a forty-two-page written response to the NPC and simultaneously sanction such a rash and brazen action.17 Nonetheless, if AmCham did in fact organize such actions, such behavior and tactics are reprehensible.

As for the more subtle threat, in which U.S. companies suggest that raising labor standards may negatively effect China’s investment environment, this seems to be a mere statement of fact on how multinational corporations operate. Corporations will always migrate to the country with the most favorable economic conditions. To pretend that labor standards do not matter in this calculation would be misleading. Thus, it seems fair to make this an element in the debate over the LCL. Those involved in the drafting process have suggested that the current draft was basically written by the ACFTU and pro-labor academics. The content of the LCL suggests this is likely. It seems appropriate that somebody voice the concerns of the business community as well. Whatever the legislature decides to do in the end, the Chinese government would be grossly negligent if it were not at least thinking hard about how any new legislation would impact the foreign investment which is responsible for so many Chinese jobs.

Assessing the NPC’s Revisions to the LCL

Now that a revised draft of the LCL has been completed, it seems that the comment process helped to improve the clarity and structure of the draft law. For instance, the maximum length of probationary periods is no longer determined by how “technical” the job is, which is hard to define, but by the more objective measure of the length of the contract. The new draft also clarifies which company rules qualify as involving employees’ “vital interests” and thus cannot be changed without consulting workers. Instead of having a few scattered sections that address labor brokerage, the revised draft has a chapter of 11 sections that sets stricter regulations on these companies, delineates the legal relationship between and relative responsibilities of labor brokers and the employing companies, and clarifies the rights of the workers in such arrangements (for instance, affirming their right to join unions).

Although the recommendations of AmCham and USCBS were adopted in certain areas, not all changes favored employers. For example, the ceiling on penalties for non-compete clauses was removed, but the scope of their use was limited to senior managers and technicians and the two-year maximum remains. The revised draft allows employers to require a period of employment for workers that receive one month of training (instead of six), but it also explicitly requires that workers receive appropriate wage raises during the training period. Many provisions of the revised draft actually seem even more pro-worker than the original. When laying-off workers, employers are no longer required to reach consensus with the trade union, but must merely explain the situation to them. However, the NPC did maintain the provision protecting more senior workers and now requires employers to consult with the union when dismissing 20 workers, not 50.

Most importantly, the revised draft responds to calls to ensure enforcement of new and existing labor standards. More responsibility is placed upon labor officials at the county levels, as opposed to the village and township levels, presumably to overcome corruption and local protectionism. Specific financial penalties have been added for an employer’s violation of certain provisions, such as the failure to conclude a written contract with an employee. Further, if an employer fails to pay an employee on time, the revised draft also allows that worker to file a lawsuit directly with the local court.18 Finally, the revised draft gives some teeth to labor unions. Instead of simply granting unions the power to “supervise” the employer’s compliance with legal and contractual provisions, the revised draft empowers them to bring a claim when such a violation occurs and to support individual employees that bring cases to arbitration or court.

Given the intense debate about the LCL amongst Chinese actors, it is difficult to assess how influential AmCham, USCBC, or other foreign actors were in bringing about these revisions. Nonetheless, AmCham has already prepared a new set of comments on the revised draft; however, this time the document has only been made available to AmCham’s members instead of posted on its website. Despite this measure, labor groups are likely to still obtain a copy and criticisms of AmCham and its members will follow soon after. But if the goal is to really improve the situation of Chinese workers, the focus cannot be exclusively on U.S. corporations and their lobbying activities. The critical issue is how to make Chinese companies comply with labor standards.

Helping Chinese Workers Requires Focusing on Chinese Companies

Reports suggest that the compliance rates for U.S. companies that hire Chinese employees directly are actually quite high. The problem lies in the fact that much of the manufacturing of goods for export is performed by Chinese factories to which U.S. corporations subcontract the work. Most U.S. companies demand that these Chinese factories meet certain standards, which at least require that China’s minimum legal standards be met, and conduct routine audits to ensure compliance.19 However, Chinese factory managers often keep two sets of books, instruct child laborers to hide from inspectors and employ other tactics to deceive U.S. companies into believing that their standards are being met. One experienced compliance manager for a multinational company “estimates that only twenty percent of Chinese suppliers comply with wage rules, while just five percent obey hour limitations.”20 Given the government’s unwillingness to crack down on these factories and the powerlessness of unions, U.S. corporations may actually be the workers’ most active ally in such cases.

This is not to say that U.S. corporations in China should be immune from criticism. They could always do more to ensure that the factories they work with are not violating the law and they could always be more generous to the employees they hire directly – which is probably true of corporations everywhere, not only in China. Moreover, the persistent demand for goods at rock bottom prices by companies such as Wal-Mart certainly puts pressure on Chinese suppliers to cut corners and violate labor standards.

Nonetheless, demonizing U.S. corporations by characterizing them as opposing better conditions for Chinese workers or even “lobbying for the maintenance of sweatshop conditions”21 because of their stance on the LCL is somewhat unfair. These companies have not called for totally abandoning the law, but rather recommended several specific amendments at the invitation of the government. While these suggestions are consistent with these corporations’ economic interests, many are also legitimate criticisms of the current draft and are shared by other actors in Chinese society. Finally, one can not help but agree with AmCham’s appraisal that passage of the law would do little to help the vast majority of Chinese workers and those who most need help. The most significant effect probably will be to punish the few companies that already comply with labor standards and leave the vast number of non-compliant companies untouched. Chinese workers’ greatest enemies are employers who do not follow the law and the officials that let them get away with it. Improving the situation of Chinese workers does not require raising labor standards; it requires finding ways to enforce the ones that already exist.

An Alternative Approach: Empowering Workers

One path towards enforcing the rights that already exist is to empower workers. Workers are proving to be increasingly interested in protecting their rights and improving the workplace, but they lack the knowledge and channels to effectuate such change. This has been recognized even by those organizations that have sought to enforce labor standards primarily through conducting compliance audits. Such programs make managers very defensive and are limited by the amount of time the inspector is physically present at the factory. These organizations are now adding programs that teach workers about their rights and help them to establish constructive dialogues with managers. This strategy is proving effective.22 The international labor movement ought to be increasingly focused on such efforts that seek to empower workers.

Strengthening organized labor is a good way of empowering workers. Some organized labor groups in the U.S., particularly the AFL-CIO, refuse to recognize or work with the ACFTU because of its lack of independence from the government. However, the ACFTU is the only show in town and as the LCL reveals, the Chinese government sees the ACFTU as the engine of labor reform. Moreover, the ACFTU may itself be reforming. Anita Chan notes that in the recent establishment of union branches in several Chinese Wal-Mart’s, the ACFTU was forced to break from its traditional, top-down model of organizing because management was unwilling to cooperate.23 After grassroots mobilization techniques succeeded in establishing unions anyway, an editorial on the ACFTU’s website celebrated this achievement and the “new line of thinking” about organizing.24

U.S. labor organizations are particularly well-suited to offer assistance and share experiences in grassroots organizing and union management. An opportunity exists to support reformers within the ACFTU, reformers that want to shape it into a more independent, proactive body – exactly the type that the AFL-CIO criticizes it for not being. SEIU has already decided on a strategy of engagement and cooperation. Perhaps the international labor movement ought to be criticizing U.S. labor groups that do nothing to help Chinese workers just as they go after U.S. companies that are exploiting Chinese workers.

Of course, the ACFTU will not overhaul itself overnight. But, similarly, merely passing new laws will not cause instantaneous improvements either. The international labor movement should have a multi-pronged approach to advancing the labor situation in China, an important part of which focuses on better educating, organizing, and empowering workers to translate legal rights into meaningful changes on the factory floor.

* Aaron Halegua is a first-year student at Harvard Law School. Prior to law school he worked for Yale Law School’s China Law Center in Beijing. This analysis relies on a translation of the revised draft prepared by the Beijing office of Squire, Sanders & Dempsey LLP.
[1] David Barboza, China Drafts Law to Empower Unions and End Abuse, N.Y. TIMES, Oct. 13, 2006, at A1.
[2] Id.
[3] For a fairly comprehensive description of the difficulties faced by migrant workers in China, see AM. FED’N OF LABOR AND CONG. OF INDUS. ORG., BENJAMIN L. CARDIN & CHRISTOPHER H. SMITH, SECTION 301 PETITION 55-106 (2006),
[4] Erik Eckholm, Workers’ Rights are Suffering in China as Manufacturing Goes Capitalist, N.Y. TIMES, Aug. 22, 2001, at A8.
[5] In fact, the official slogan of the ACFTU is “defusing contradictions, strengthening unity, promoting production and stabilizing situations.” Feng Chen, Between the State and Labour: The Conflict of Chinese Trade Unions’ Double Identity in Market Reform, 176 CHINA Q. 1013 (2003).
[6] Chris Gill, Work: Come the Revolution: ‘Made in China’ Often Means Long Hours and Low Pay for Its Workers. But Labour Law Reform Could Mean That Soon They’ll Have More Rights Than UK Employees, THE GUARDIAN, June 24, 2006, at 3.
[7] Guan Xiaofeng, “70% Target for Unions in Foreign Firms,” CHINA DAILY, Jan. 5, 2007, at 3,available at
[10] For a discussion of other provisions in the LCL that could prove costly for U.S. companies, see Alexander May & Tong Jia, China’s Onerous New Labor Law, FAR EASTERN ECON. REV. (Jan./Feb. 2007) 36-38.
[11] It is actually quite common for China’s legislature to pass laws with vague provisions and then rely on the ministries, courts, and other bodies to later issue regulations that specify their meaning. However, if the legislature hopes to get meaningful comments and debate on the draft law, then there is good reason to put more of the “meat” into the law itself.
[12] Labor brokers are similar to headhunters or temp agencies in the U.S. and are widely used in China. Workers found in this way often have no contract with either the employer or the labor broker. It is particularly difficult for such workers to seek legal redress because courts are often unclear as to whether the broker or the hiring company is the real “employer” and to what the respective responsibilities of each should be.
[13] For the official position of the E.U. Chamber of Commerce in China, see EUROPEAN CHAMBER OF COMMERCE IN CHINA, STATEMENT ON THE DRAFT LABOR CONTRACT LAW (2006),
[14] Wang Jianjun, “Lao dong he tong fa” bu neng cheng shou zhi zhong – dui jiu ye quan de li xiang bao hu [The “Labor Contract Law” Cannot Support the Burden – On the Ideal Protection of the Right to Employment], CHINA’S LABOR AND SOCIAL SECURITY LAW NET, Nov. 12, 2006, available at
[15] Interview with Dong Baohua, in Cambridge, MA (Oct 23, 2006).
[16] In July 2005, the NPC had made a draft of the highly controversial Property Law public and official sources report that 15,000 comments were received. Draft Property Law Tabled to Legislature for 7th Reading,
[17] See Apo Leong, A New Class War is Brewing in China, 59 ASIAN LAB. UPDATE (2006), available at (discussing the identity of the alleged representatives).
[18] Generally, workers are first required to bring such claims to a labor arbitration committee, the decision of which can then be appealed to the court. This provision should therefore reduce the time and money a worker must spend to enforce a labor contract.
[19] The research of Anita Chan actually suggests that the pay and conditions in Western-invested enterprises are far better than in Asian-invested factories (for example, investors from Korea, Hong Kong and Taiwan), which have a reputation for mistreating workers. ANITA CHAN, CHINA’S WORKERS UNDER ASSAULT: THE EXPLOITATION OF LABOR IN A GLOBALIZING ECONOMY 11 (2001).
[20] Dexter Roberts & Pete Engardio, Secrets, Lies, and Sweatshops, BUS. WK., Nov. 27, 2006, at 53.
cgi-bin/getdoc.cgi?dbname=109_house_hearings&docid=f:26031.pdf , at 4-6 (discussing the new types of programs which Social Accountability International (SAI) and Verité are conducting in China).
[23] Anita Chan, Organizing Wal-Mart: The Chinese Trade Union at a Crossroads, JAPAN FOCUS, Sept. 8, 2006, available at
[24] Id. Some have suggested that it was actually the pressure exerted by high-powered government officials – and not the workers – that forced Wal-Mart to allow the formation of unions. Nonetheless, the incident can still have an important impact if it is perceived as being bottom-up and has influenced the thinking of ACFTU officials.

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