Social Security System

China's social security “safety net” system comprises five insurance benefit programs: medical, maternity, work-related injury, unemployment, and pension. Most employee benefits are mandated by law and are administered by government programs. A new national law on social insurance is now in draft form and is expected to be passed in late 2009. These include social insurance programs, housing funds, labor union funding, and certain leave policies for employees, such as holiday leave, home leave and/or annual leave, and medical leave. Employees may also receive nonmandated benefits that are discretionary or negotiated and included in contracts, such as seniority, merit increases, bonuses, parking, travel, and special allowances, such as for hazardous work.

Mandated social security benefits programs are nationally devised and locally implemented. Medical insurance is available under a unified insurance program in which both employers and employees contribute a certain percentage of payroll and individual income, respectively, into a general fund consisting of a pooled fund and a personal account. Maternity insurance is employer funded and provides financial support for the mother during an authorized time period. Employer-funded occupational (work-related) injury insurance is also provided under local government systems and is funded by employer contributions. The unemployment and pension programs are a massive undertaking still taking shape, but every year additional millions of employees come under their protective umbrella. Both programs are funded by joint contributions of the employer and employee.

Injuries in the Workplace

In 2006, government statistics showed that there were 627,158 workplace injuries at a cost of US$12.5 billion in direct losses and US$25 billion in indirect losses. A 2007 study reported the gruesome finding that about 40,000 fingers are severed every year in the Pearl River Delta Region; about 300 clinics in Kai County, Sichuan Province, specialize in reattaching severed fingers and arms for returning migrants. Another study in the Pearl River Delta Region showed that of 259 injured workers, 210 reported finger injuries, 23 reported hand or wrist injuries, 11 reported arm injuries, and the rest had leg, foot, ankle, or other injuries. Ninety percent of all injuries were of workers' hands or arms, with severity ranging from cuts and burns to severe nerve damage, permanent paralysis, and the loss of entire digits and limbs. The most common injuries reported were broken or severed fingers on the dominant hand. Reports like these have helped bring about labor reforms in the area of work-related injuries.

In 2004, China put in place its Work-Related Injury Insurance Regulations, which cover work-related injuries, disability, or death, as well as occupational diseases. The scope of coverage is broad, including work-related accidents occurring before, after, and during work – even covering motor vehicle accidents that occur coming to and from work. Awards can include a lump sum payment or other subsidies, a pension, or living expenses. Remedies are exclusive, but the law permits a suit in tort for employer safety violations.

Employment Promotion and Labor Market Management

Because of China's huge and growing population, the labor force is expanding faster than jobs can be created. The government has initiated education and training programs to upgrade the skills of workers and has an active plan of employment promotion under the 2008 Employment Promotion Law. This law seeks to protect workers by creating employment opportunities and prohibiting job discrimination. It promotes employment in specified industries and enterprises by providing assistance to employers. It also establishes public employment service organizations to assist workers in securing job opportunities, both in rural and urban areas. However, some view this law as merely a policy statement, as it provides few penalties and enforcement mechanisms.

The Employment Promotion Law (EPL), effective January 1, 2008, puts into place broad “proactive labor policies” to promote employment in the private sector, ease burdens on the unemployed, and promote equal employment in the workplace. It is guided by the “principles of workers selecting their own jobs, the market regulating employment and the government promoting employment, and increasing employment through multiple avenues.” Responsibility is placed on the governments at the county level and above to “create employment conditions and expand employment through development of the economy and through such measures as adjusting the industrial structure, regulating the human resource market, improving employment services, strengthening vocational education and training, providing employment assistance, etc.

Legal Regulation

Traditionally in China, there has been no legally recognized duty of employee loyalty, though to be sure criminal limits existed, such as theft. With China's entry into a market economy came the development of employee mobility and private employers' interests in protecting confidential matters and restricting employees from moving to competitive companies; in response, by the early 1990s legislative protections for the employer began to be implemented. In 1994, the Labor Law authorized labor contract protections for “business secrets,” and more specific provisions followed both at the national and local levels. By 2006, laws clearly prohibited certain employees – “directors and senior management personnel” – from disclosing company secrets. In 2008, the LCL expanded on the Labor Law's protection of business secrets to allow more specific contractual protection of “confidentiality matters” relating to trade secrets and intellectual property and a restriction on competition for those workers who signed a confidentiality agreement.

However, there are limits on which employees and what interests may be legally restricted by contract. The LCL authorizes contract provisions restricting disclosure of confidential matters, such as trade secrets and intellectual property. Article 24 stipulates that competition restrictions may also be agreed to (compensation is required) and are limited to “senior management, senior technicians and other personnel with a confidentiality obligation.” Although this wording appears to limit competition restrictions to senior personnel, the LCL in Article 24 adds “and other personnel with a confidentiality obligation.

The passage of the Labor Contract Law (LCL) in 2007 was preceded by much public comment and hue and cry from foreign employers. Although some employers argued that the law would increase costs, others countered, saying that the law was aimed only at preventing illegal conduct. Before the law took effect on January 1, 2008, some employers tried to avoid its effects by prompting the resignations of employees and then rehiring many of the same employees, thereby avoiding the new law's grant of “open-ended” labor contracts for employees working for an employer for a consecutive period of not fewer than ten years. The Huawei Technologies of Shenzhen offered redundancy packages of $134 million to its employees, 7,000 of whom resigned but were subsequently rehired so as to “restart” the counting of their years of service. However, because of the public outcry and pressure from the press and the ACFTU, Huawei suspended its program. This “loophole” arguably was inapplicable, as many of the employees reportedly never lost a day of work, resigning one day and working the next under a new contract. Employees seem to be embracing the rights provided in the Labor Contract Law, as there are reports of sharp increases in labor dispute cases. The number of labor disputes heard by the courts in 2008 rose 94 percent in 2007, with the number nearly tripling in some coastal cities.

Trade Unions in China

The trade union in China is the All China Federation of Trade Unions (ACFTU), and all unions must be affiliated with it. It is regulated by law, as is the process of negotiating collective contracts. It is a quasi-governmental social organization with multiple functions, one of which is to further government goals. Its policies are designed to promote economic development and enterprise interests as well as labor protections. In recent times, these policies appear to be changing, certainly from its original approaches, to be more aligned with employee interests.

Establishing a local labor union in China is a relatively straightforward process: 25 employees join the union and, with the approval of a higher-level union, initiate its establishment by making a formal request of the employer. The Trade Union Law allows an employee, in some circumstances, to retain union membership even after the original employment relationship has ended.

As it seeks to find a balance between economic development and labor protection, the ACFTU has unionized foreign-owned companies, such as Wal-Mart, McDonald's, and KFC, and it continues to seek expansion of the union's presence, including in the Fortune Global 500 companies. Even American unions are seeking to cooperate with China's union; in addition to meetings of international union delegations from the United States with Chinese unions, the Los Angeles County Federation of Labor, AFL-CIO, on July 5, 2007, signed an agreement with the Shanghai Trade Union Council (an affiliate of ACFTU) to provide mutual assistance, especially in organizing and bargaining with multinational companies in Shanghai.

Minimum wages standards and guidelines are set out in the 2004 Regulations on Minimum Wage (RMW), which follow the 1994 Labor Law. The RMW specifies required wage payments, deductions, and overtime, though some issues occasionally arise regarding exempted categories of workers, such as managers. In addition, variations in coverage and wage levels occur as implementing standards are fixed and administered at local levels. Local governments are also primarily responsible for administration and enforcement, but aggrieved workers must bring their labor dispute to arbitration to recover unpaid wages. Unfortunately, the transition to a market economy has been accompanied by underpayment and nonpayment of wages to many workers, especially to migrant workers. Likewise, studies have shown that minimum wages, originally targeted at 40 to 60 percent of the average monthly wages, often fall below the 40 percent level. For example, in 2006 in Beijing, the level was reported to be at around 20 percent, creating a gap of nearly 600 yuan per month.

Societal Disparities

In the late 1980s, the economic developments following the Four Modernizations of 1979 produced workplaces that were increasingly regulated by labor contracts, replacing the “iron rice bowl” model of earlier years. The transition to a socialist market economy in the 1990s coincided with a growing assumption of managerial control by employers. Because of market forces, employers were forced to maximize profits if they hoped to survive without the government subsidies provided in the former planned economy, and lawmakers responded by allowing greater employer autonomy.

Protected Status and Hiring Practices

In China, there are a number of protected classes against which employment discrimination is prohibited. There also are some statuses that are largely unprotected, such as age and height and some that lack meaningful enforcement provisions, such as disability. Maternity and child labor and sexual harassment have special protections.

In China, hiring procedures often openly discriminate on the basis of gender, social origin, and age. It is not uncommon to see or hear the following solicitation in a recruitment ad: “[S]eeking an office clerk. Female, decent height and appearance. All five facial organs must be in the right place (wu guan duan zheng).” Today in China, job advertisements with those facial requirements are widely seen. Such ads, of course, are but an explicit articulation of what many employers around the world take implicit note of in the employment hiring process. In practice, other factors in considering applicants and employees in China include sex, ethnicity, social origin, health, disability, age, or migrant status, but some of which are prohibited by Chinese labor laws.

The 1994 Labor Law's antidiscrimination provisions covered only employees and not applicants. The EPL extends this coverage to include applicants.

Of course, inequality and discrimination against different categories of employees occur in every society. China is interesting both because of the diversity of workers reportedly facing obstacles to equal employment opportunities and because of the sheer size of its labor force.

Workplace Environment

Safety

Protecting workplace safety and health by laws and labor standards that seek to prevent accidents, deaths, and occupational diseases is an increasing priority as the number of workplace-related deaths and accidents continues to remain unacceptably high. The State Administration of Work Safety (SAWS) reported that there were 88,923 work-related fatalities and 457,000 accidents in the first eleven months of 2007. More than 60 percent of fatal and severe accidents in the chemical industries are reported to be associated with unsafe work practices and the lack of safety awareness.

The government, in further implementing the 1994 Labor Law, passed the Law on Prevention and Treatment of Occupational Disease in 2001, which requires certain preventive medical procedures and replacement of dangerous technology and materials. In 2002 the Work Safety Law was added, which requires worker education and training before beginning a job for which proper protective equipment is provided. Special legislative mandates deal with safety in the mining and construction industries and with the safety and health of female workers who are pregnant, nursing, or menstruating. Employees and the union have a role in their enforcement. In 2008, State Council's Decree No. 516 repealed several administrative laws, a number of which had governed labor and work safety, in order to further clairfy and streamline legal obligations.

China has been called the “world's factory floor,” as its continually expanding economy sends its products throughout the world, securing huge percentages of the world markets and, often, trade surpluses.

Introduction

Workforce Profile

Labor force demographics show dramatic distinctions among workers in China based on many factors, including location (urban/rural and region), occupation and skills, and employers (domestic/foreign/SOEs; see Table 3.1).

Employment Relationships

In China, defining “employer” and “employee” and their employment relationship for the purposes of delineating legal rights and duties has become more important in recent years. The 1994 Labor Law sought inclusive language for “employees/workers,” but workplace realities produced many categories, including “dispatch” workers; independent contractors; managers and supervisors; and migrant, temporary, part-time, and de facto workers. An issue facing China's drafters of new labor laws was how each subsequent labor law would be applied (or not applied) to these categories. Likewise, employer designations under the labor laws produced some uncertainties, as they too came in a variety of forms.

Defining the employment relationship for purposes of coverage under China's legal system often requires a two-step examination of the national and local laws to determine the proper “operating law” at the level of application. This is due to China's decentralized system, in which the central government passes broad, general legislation and leaves to the local governments the responsibility of promulgating “detailed implementing regulations” to apply the national laws. Coverage by the labor laws may also be determined on a geographical basis rather than by the employment relationship. That is, the distinction between urban and rural may be determinative.