Archives September 2008

China compels foreign companies to allow unions news

Foreign companies operating in China have been given a 30 September deadline to allow unions to be fomed in their offices and factories failing which, the companies could be publicly vilified or blacklisted by the union and also attract penalties from the government.

China is asking all foreign companies to permit state approved labour unions at a time when raw material costs have risen dramatically and labour costs escalated by 30 to 40 per cent, forcing foreign corporations to think twice about setting up shop in China.

Many large corporations had set up manufacturing units in China mainly because of cheap labour and also to avoid labour problems that disrupt operations in their own countries. The ongoing Boeing machinists and the strike threat at Arcelor Mittal steel plants in the US are striking examples.

This move to permit unionisation stems from China’s recent economic boom and the government is keen to rectify some of the maladies like vast income disparities and labour exploitation that has been highlighted by leading western labour activists.

Many large American corporations such as Wal-Mart, McDonald’s, Yum Brands, Kentucky Fried Chicken and Pizza Hut who own and run their establishments in China, have yielded to employees setting up unions, while those like Microsft and PricewaterhouseCoopers are resisting on the grounds that they do not operate manufacturing units.

In 2006 nearly Wal-Mart employees at 108 stores have opted to have a trade union although Wal-Mart’s dislike for trade unions is well known in the US and other countries where it operates.

Companies that have set up manufacturing units in China will be the hardest hit due to soaring raw material and labour costs. Despite adhering to Chinese labour laws, they fear allowing unions would force them to have to pay substantial overtime wages, as many factories maintain a six-day work week.

Labour activists worldwide have targeted Chinese manufacturing enterprises, which employ child labour, with reports in the western media of children being forced to put in working hours of nearly 100 hours a week without any overtime and often in violation of safety regulations.

Some of the contractors for big renowned brands such as Wal-Mart, Adidas and Disney were fired for hiring and exploiting child labour.

Analysts say that allowing unions in Chinese companies would give absolute power to the the only union allowed by the government, the All China Federation of Trade Unions, in terms of bargaining and force foreign companies to consult with the unions on every issue, a thing foreign companies never had to do in the past.

The question of agitating for their legal rights and the ability to bargain collectively is still a question mark as unions are a relatively new concept in China.

According to the All China Federation of Trade Unions, by the end of September about 80 per cent of the top 500 global corporations operating in China would have unions.

China: Hiring buoyant despite turnover

International hiring expectations have fallen across Asia from the previous quarter, but in China they are rising, the latest report from human resources firm Hudson said.

About 55 percent of respondents planned to increase their headcount in the third quarter, compared with 52 percent in the previous quarter, the report said.

But on a yearly basis the rate has dropped. In China, 60 percent of employers wanted to boost their headcount in the third quarter last year.

Employers in China still face the highest salary inflation in Asia, with only 8 percent of respondents saying they can negotiate lower wages for new managerial hires in the current economic climate.

The Asian edition of Hudson’s quarterly report was launched in 1998. Its premise is that employer expectations of staffing levels reflect the general industry outlook.

Over 2,600 key employment decision makers from multinationals of all sizes in all major industry sectors were surveyed for the report, with 708 of the executives based in China.

Buoyant market

“China is the only market surveyed in Asia where employment expectations are rising this quarter, reflecting that the market is still buoyant, so employers have little scope to negotiate lower new-hire salaries, and few are experiencing any reduction in staff turnover rates,” Angie Eagan, general manager of Hudson Shanghai, said.

The banking and financial services sector had the highest expectations: headcount growth forecast at 64 percent, compared with 57 percent in the March-June period.

Hiring is picking up after a period of consolidation, when banks were evaluating the impact of the subprime crisis and absorbing new regulatory measures. Much of that increased recruitment is in consumer and private banking.

But the biggest increase in hiring expectations was in the consumer sector, which went from a 45 percent forecast for headcount growth in the last quarter to 60 percent this quarter.

The third quarter is traditionally the peak season for the consumer sector, and August’s Olympic Games boosted the retail and hospitality sectors. Expansion in tourism, retail and hospitality is also driving growth.

Wage pressure

Salary inflation is still a major issue for employers in China. Only 8 percent of survey respondents across all sectors said they had negotiated lower salaries for new managerial hires. Companies in the manufacturing sector were the most confident about paying less to new hires.

That’s partly due to a trend for expatriate and Chinese returnee candidates to be offered local remuneration packages, the report said.

The media, public relations and advertising sectors had the lowest proportion of respondents who said they could negotiate on wages. There is a skills and experience shortage in this area and candidates are more likely to receive multiple job offers.

Of the employers able to negotiate lower starting salaries for new managerial hires, 35 percent said they had cut wages by 1 to 5 percent, while 52 percent had offered 6 to 10 percent less.

That suggests scope for lower starting salaries is limited in the current climate and that skilled staff are still in high demand in most sectors, according to the report.

“This is still a talent-short market, and the ongoing competition for strong candidates means that employers are not able to effectively combat the increases in asking salaries for new hires,” Eagan said.

Staff turnover

Employers in China still face high turnover rates, with 71 percent of respondents saying there has been no reduction in the past year – the highest figure for all Asian markets surveyed, including Hong Kong.

Eagan said the market is still buoyant and there are many opportunities for skilled candidates. Consequently, staff turnover and retention are still major issues for employers in China.

The banking and financial services sector reported the highest retention rates, with 33 percent saying their staff turnover rates had decreased from a year ago. Many employers in the sector, particularly international banks, have developed human resources strategies to retain employees.

The information technology industry, in contrast, had the highest turnover rate with only 15 percent reporting lower staff turnover in the past year. Many in the industry tend to swap jobs regularly, to work with new products or systems.

Performance-linked bonuses and training and development programs are the most effective ways for companies to retain talented staff, the survey respondents said.

Across all sectors, 30 percent of the respondents said they offer performance bonuses, while 26 percent use training programs to encourage staff to stay.

Substantial pay increases are the third most popular way to keep staff, offered by 24 percent of the survey respondents.

China will face tighter job market

The domestic job market will face growing pressures over the next few months as global economic problems cut employment in a number of sectors, a top labor official said yesterday.

“Employment remains a major difficulty in terms of overall social development, and it faces huge pressures,” Hu Xiaoyi, Vice-Minister of Human Resources and Social Security Hu Xiaoyi told a news conference at the Beijing International Media Center.

About 20 million people join the workforce every year in China, which continues to have a labor surplus, he said.

Growing global economic uncertainties in the first half of this year and the pressure brought by a rising yuan on foreign trade have led to job cuts in a number of sectors, Hu said.

Adding to the seriousness of the situation is the large number of laid-off workers from State-owned enterprises (SOEs) as 2008 marks the last year for the central government to shut down bankrupt SOEs, Wang Yadong, a deputy division chief at the ministry said earlier.

Zhou Tianyong, professor of the Party School of the CPC Central Committee, said that the possible economic slowdown during the next six months will put pressures on China’s employment market.

“China’s employment has been generally driven by investment. With the scale of investment shrinking, it is time to rethink this employment growth model,” Zhou told Xiaokang magazine in July.

To tackle these problems, Hu said the government will continue to focus on creating employment for families in which no member has a job, people below the poverty line and the more than 5 million people graduating from universities every year.

The government is also encouraging people to set up their own businesses, Hu said.

China’s registered urban and township unemployment rate stood at 4 percent in the first half, generally the same as in the same period last year, he said.

A total of 8.35 million people were registered unemployed across the country’s urban areas and townships in the first half of the year, the ministry said.

However, the figure did not take into account the huge number of people made jobless by the May 12 earthquake, Hu said.

Some self-employed people in the quake zone are still running businesses, and those made temporarily jobless will soon resume their employment as soon as reconstruction begins, he said.

According to estimates, more than 700,000 people in Sichuan are believed to have lost their jobs as a result of the quake.

Vice-Minister of Civil Affairs Jiang Li told the same conference of Friday that people who lost their arms or legs in the quake will get life long care and treatment from the government and charitable bodies.

China’s efforts for labour balance

CHINA’S monetary policy will not shift substantially in response to the global downturn. But employers in China should increase wages by 10 per cent in order to attract workers as the labour surplus disappears.

These are among the rare insights opened, through China’s leading business publication, Caijing magazine, into the economic advice the country’s leaders are being given as they face multiple challenges.

Cai Fang, director of the Institute of Population and Labour Economics at the prestigious Chinese Academy of Social Sciences, has spoken to the magazine about his message to Premier Wen Jiabao and the State Council, China’s cabinet, during a closed-door meeting with eight leading economists.

He said: “We talked about whether economic growth will slow, how to contain inflation and stimulate growth, and whether China should maintain its tight monetary policy.”

China’s economists, he said, “are split on the two major macro tasks: fighting inflation and stimulating growth. However, we generally agreed that monetary policy should remain as it is. We should neither loosen it nor tighten it further.”

Cai said officials at the State Council were especially concerned about the extent to which the slowdown of gross domestic product growth — from 11.9 per cent in 2007 to 10.4 per cent in the first half of 2008 — will hurt employment. “Should we retain the growth momentum to ensure high employment rates?” This, he said, was his main focus. “The growth rate is flattening out, while unemployment is climbing.”

In the last quarter, ending June 30, registered urban unemployment reached 4.1 per cent. Clearly it was rising, he said. Before this year, it was declining.

“A few years ago, China’s registered unemployment rate didn’t reflect the real situation because it excluded laid-off workers. But the number of laid-off workers has largely been reduced in recent years due to the Government’s re-employment efforts. Now the registered rate is close to what it is in reality.”

But in China, he said, “economic growth and employment are not closely related. One reason is that Chinese policy favours large size companies. The preference became even more obvious when the Government adjusted its macro-economic policies recently.”

Companies receiving government backing, he said, “are usually enterprises with high profits, low emissions, low rates of pollution and less reliance on resources. In reality, they are big companies, especially state-controlled ones, equipped with better technologies.”

His institute surveyed 17 industries and found that capital-intensive companies, most of which are large firms, contribute substantially to GDP growth but are not so impressive in terms of creating new jobs.

Last year, the control of credit was tightened in both quantity and quality. Better risk controls and higher earnings were required for lending, and that situation diverted loans toward larger companies and away from small ones because, he said, “lending to them became even riskier”.

Most unemployment, he said, is structural rather than cyclical. Coupled with the low employment rate of college graduates, the rate even shows signs of rising.

Cai said private companies, most of them small and medium-sized, had played an important part in absorbing labour displaced by massive lay-offs from state-owned factories.

But “the current economic slowdown, however, has hit them hard. And statistics tend to miss unemployment in these sectors”, with migrant workers not being registered at all.

Tight monetary policy was not good news for such businesses, he said. “Historically, it’s hard for these companies to borrow from banks, and they turn to the market for financing.” With the central bank issuing the commercial banks with firm instructions to tighten lending, the SMEs tend to borrow privately from “grey” sources, which “leads to skyrocketing interest rates”.

Tax revenues rose rapidly in the first half of 2008, he said, so, in compensation for the adjustments required from vulnerable businesses, “it’s widely agreed among scholars that we can cut tax rates a bit.

“There are needs for more government spending — natural disasters hit China one after another, and we just hosted the Olympics. And it might want to set aside some money for a rainy day.”

However, “nobody is speaking on behalf of SOEs and advocating low taxes”.

China has no nationwide social security system, he says. Some provinces don’t even have a province-wide social security net. “That leads to many migrant workers withdrawing from the social security system. Why? For instance, in the pension system, workers pay 8 per cent of their salary and companies match it.”

In seasonal, labour-intensive industries, workers finish their terms and leave the job for good. But their social security benefits can’t go with them. So they have to withdraw from the system, taking back their own contributions, while the company’s contribution stays within the system.

“So there is no upside for workers to join the pension system, and for companies it creates a financial burden,” he said.

“Officials from inland provinces complain that coastal provinces have seen a fast increase of social security funds because they not only siphoned labourers from inland but social security funds as well.”

Cai said that migrant workers’ insurance provisions should be portable and nationwide. When workers retired, they should be able to receive both their own contributions and those from their employers. “China’s development has reached a stage where labour shortages are occurring, and the labor supply-demand equation is changing. That requires a rise in salary and other benefits.”

He backed the new Labour Law that came into effect on January 1, and which has come under attack from some employers, saying wages should rise by some 10 per cent.

“I think we should stick with the new law,” he said. “There are problems with enforcing it, which were not created by the law itself but by a lack of support measures.

“Companies feel overburdened, partly because of the inadequate social security system. This is not the fault of the Labour Law. If a company can’t bear a modest rise, it is not competitive except as a sweatshop. We should let such companies die, if they have to.”

In developing countries, he said, sometimes when laws are made to protect workers the result is higher unemployment. “The unlimited supply of labour in developing countries is to blame.

“India is one good example. Research shows that economic development levels in different parts of India are directly related to their labour policies, and those which have tight labour regulations often lag in economic development.”

The reason that Cai backs the Labour Law is that labour in China is moving from a surplus to a relative balance. “There must be some kind of incentive to spur labour supply and attract workers,” he said.

China’s fourth-quarter job outlook weaker-Manpower

BEIJING, Sept 9 (Reuters) – China’s employment outlook is dimming for the rest of 2008, but post-quake reconstruction will increase jobs in the west of the country, Manpower Inc (MAN.N: Quote, Profile, Research, Stock Buzz) said in a survey released on Tuesday.

A poll of 4,014 employers in nine major cities showed China’s net employment outlook — the difference between firms adding jobs and those cutting them — was a positive 12 percent for the fourth quarter, the employment services provider said.

But the reading, which is seasonally adjusted, was down 3 percentage points from the third quarter and 1 percentage point from a year earlier.

Lucille Wu, managing director of Manpower Greater China, said job seekers in the services sector were most likely to feel the pinch as companies cut temporary workers after the Olympic Games, although the overall impact would be limited.

The survey’s reading for the services sector was unchanged from the third quarter but was down 2 percentage points from a year earlier.

Wu said a slew of government measures, including more bank loans and tax breaks, to help the local economy recover from May’s devastating earthquake in Sichuan would encourage hiring in western cities such as Chengdu and Xi’an.

Optimism among employers in Chengdu was at a record high, the survey showed.

Elsewhere, hiring prospects weakened across the Asia-Pacific, according to Manpower, while the U.S. jobs outlook fell to its lowest level since 2003 as growth slowed due to the still unfolding financial crisis. Please click on [ID:nN08468275] for a related story. (Reporting by Langi Chiang; Editing by Alan Wheatley and Ken Wills)