Ethical Performance
inside intelligence for responsible business


business readies itself as China agrees reforms

October 2007

Companies operating in China have been given until the end of this year to prepare for a new legislative regime designed to extend the protection of workers rights.

The recently passed Labour Contract Law that comes into effect on 1 January 2008 requires employers to submit any plans for changes to pay, hours, insurance, safety, holidays and training for discussion to a workers’ congress, with employers and trade union representatives jointly deciding on workplace agreements.

Independent trade unions are currently illegal in China. All existing trade unions are under the umbrella body the All China Federation of Trade Unions (ACFTU), a government bureaucracy. The new law gives these officially sanctioned trade union representatives the right to sign collective contracts with employers on behalf of workers, sets out new requirements on severance pay, makes written contracts mandatory, and strongly discourages fixed-or short-term contracts.

Intertek, a global auditing body that carries out ethical supply chain monitoring in China on behalf of a number of companies, said that ‘employers across China will [now] have to re-evaluate their practices for hiring, making workplace rules, and setting probation periods’ – and that overseas sourcers managing compliance programmes in China ‘will have to revisit the way evaluations and monitoring are carried out.’

However the European Chamber of Commerce in China and other business associations questioned the enforcement record of the Chinese authorities.

‘The most important point is implementation of the law’, said Jorg Wuttke, the chamber’s chairman. ‘In the environmental sector we see Chinese legislation even stricter than European law, yet implementation is sometimes non-existent. A large gap between legislation and local governments’ ability to implement laws has a detrimental impact on the credibility of the rule of law.’

Liu Jichen, director of the law department at the ACFTU, expected the law to provide a more stable business environment and to encourage foreign investment. ‘With working conditions improved and rights protected, employees will feel more secure, which leads to higher productivity,’ he claimed.

China has long been one of the most challenging countries for multinationals sourcing goods, due to its neglect of human rights and intolerance of independent trade union activity.

The legislation has been welcomed by business associations abroad, despite earlier opposition from the American Chamber of Commerce. A number of companies operating in China, including Nike, Ericsson, General Electric and Procter & Gamble, supported the draft law (EP8, issue 9, p3).

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