China’s ruling communist party has already seen its economic miracle knocked off course by the downturn in global trade and now the government is faltering on another cornerstone of its plans to modernize the country by developing the rule of law.
Amid mounting job losses and factory closures, Beijing has made dealing with the immediate economic crisis priority number one and that means some longer-term plans such as improving labour laws have been sidetracked.
“China’s leadership is clearly wavering on what they want to do,” said Andreas Lauffs, a Chinese labour law expert at Baker & McKenzie in Hong Kong. “Is it rule of law or is it ad hoc policies?”
Last year, Beijing enacted a new Labour Contract Law that was seen by many as a landmark designed to protect workers and clarify the rights of employers too. The new laws were also seen as part of a wider trend toward a more modern system of commercial laws that included improving patent laws and rules on mergers and acquisitions.
But those developments could be in jeopardy as the government diverts its attention to righting the country’s wavering economy that has slowed to its weakest growth in years, largely because of the sharp decline in global trade.
Faced with massive unemployment — latest official estimates released Sunday indicate 20-million migrant workers have been laid off since the downturn began late last year — Chinese authorities are apparently showing flexibility and inconsistency on the enforcement of the new laws.
For instance, provisions on mass layoffs were recently rewritten so that firms looking to lose 20 people or 10% of their workforce must get approval from local authorities. “Effectively they are saying collective dismissals are not encouraged,” Mr. Lauffs said. “They are asking employers to reduce payroll, change working hours, do whatever they can to avoid collective dismissals. The government doesn’t want large numbers of people unemployed, they don’t want labour disputes, they don’t want people marching in the streets.”
Meanwhile, some provincial authorities have introduced measures that undermine the prosecution of wrongdoing by influential business owners. In January, officials in Guangdong province — home to a third of China’s export sector — declared that company owners suspected of breaking the law should be “handled prudently” so as to avoid disrupting business activity wherever possible, according to state media.
The Guangdong guidelines were mimicked by other local governments in areas hit by the downturn in the economy. But the local authorities also drew fire from official news agency, Xinhua News, which said in a op-ed piece last week that the policy is “inadvertently creating loopholes to allow crooked magnates to hide evidence of their wrongdoing.”
The Xinhua report continued: “Keeping jobs, and thus social stability, is a valid concern during hard times. But is equality before the law to be the price for this stability?”
Beijing also faces some embarrassment over a World Trade Organization ruling last week that backed the United States in a case related to China’s efforts to protect and enforce international copyrights and trademarks. Washington had said China failed to provide proper patent protection for imported products and challenged what it called shortcomings in Chinese copyright laws. The Chinese government, which has made strides to improve patent and copyright laws in recent years, said it regretted the WTO decision and pledged to work toward improving healthy global trade relations.
Observers of China’s commercial laws are also eagerly watching how authorities treat a bid by Coca-Cola Co to buy Chinese drinks company Huiyuan Juice Group Limited, which is being scrutinized under a new anti-monopoly law introduced last August. The US$2.4-billion deal is seen as a test for the new law, and whether authorities in Beijing are prepared to let a prized domestic brand fall into the hands of a foreign owner.
Zhao Yun, an associate professor in the faculty of law at Hong Kong University, said China has made “remarkable progress in constructing a solid commercial law framework,” since admission to the WTO in 2001. New guidelines on labour arbitration have improved workers rights and established a process for dispute resolutions, and there have been positive developments on property and tax law, as well as on data protection law, for instance.
Nevertheless, Mr. Zhao acknowledged “there are still problems in the enforcement of the new [labour] law. For example there is no independent workers’ union to represent the interests of the workers, so this will affect the functioning of arbitration and mediation.”