China Law Blog

I am not so sure this is a fair and balanced view. The new labor contract law has some changes from the prior regulations which do make it harder to terminate employees or increase the cost of doing so. That major difference is requiring the employer to pay severance for prior service even if the contract expires. Fair or unfair?
Frankly there should not be a big increase in day to day operating costs if companies were already following existing regulations. If a company were not - e.g. not paying overtime, not paying social insurance contributions, not paying fair wages, etc. as they should have been...well the jig is up. These types of companies are not necessarily what China now wants in its economy...and are practics which some countries / individual refer to as labor exploitation....Textiles have moved from Japan to Taiwan to Korea to China..and on to Sri Lanka, Thailand, India...following a lower cost model. Infrastructure and logstics also play a key role...China is big and there is still plenty of labor "out west"....cost of land, shipping, etc. also play part in these company's plans to move. Easy to blame the new labor contract law...currency has devalued 18% since a few years ago, while VAT refunds (11% previously) are now non-existent. Those changes result in a bigger impact than the labor contract law in my humble opinion.....

I am not so sure this aticle is really fair and balanced. If the writer had a full understanding over time, the article might take a different view. Yes, the new labor contract law includes a few changes from the prior labor law and related regulations. The changes do make it harder to terminate employees or increase the cost of doing so. For example, the major difference (and cost increase) is that employers are now required to pay severance for prior years' service even if the labor contract expires. But is this unfair?

This is just one example but the key difference I see is that China, by promulgating the new Labor Contract Law, has become more serious about enforcing and linking policies that were already in effect.

Frankly there should not be a big increase in day to day operating costs if companies were already following existing regulations.

If a company were not - e.g. not paying overtime, not paying social insurance contributions, not paying fair wages, etc. as they should have been...well the jig is up. These types of companies are not necessarily what China now wants in its economy...and are practics which some countries / individual refer to as labor exploitation....

Southern China is a now a global textile center...but textiles have moved from Japan to Taiwan to Korea to China... and now on to Sri Lanka, Thailand, India pursuing a lower cost model.

What has increased the costs of doign business here? Infrastructure and logstics play a key role. China is big and there is still plenty of less expensive labor "out west". However, the cost of faciliies, shipping, taxes, etc. play a big part in these company's plans to move.

It is aasy to blame the new labor contract law but the exchange rate has dropped from 1 USD / 8.2 RMB to under 7 rmb (18% more or less) in the past couple years. That is enough to wipe out any profits. VAT refunds (11% previously) are now non-existent. These changes result in a bigger impact than the labor contract law in my humble opinion.....