Recruiting in China

Rising unemployment rather than economic slowdown appears to be the biggest challenge for the Chinese economy this year, according to economists.

According to a report by China Economic Monitoring and Analysis Center, over 90 percent of the 100 economists surveyed expressed the view that the growing number of jobless is the top challenge for the economy, followed by economic slowdown and social instability.

The survey, conducted in December, also revealed that economists' confidence in the economy has dropped to its lowest since 2004, when it was first introduced.

"The survey results show that government policies should be directed at addressing unemployment," said Lin Yixiang, chairman and CEO of TX Investment Consulting Co, which helped to conduct the survey.

The rising concern over unemployment also underscores the gloomy prospects of the nation's job market. Over the past few months, more than 20 million migrant workers, or a sixth of the total, have lost their jobs due to the economic slowdown.

Policymakers also forecast the registered urban unemployment rate, which excludes migrant workers, will hit 4.6 percent in 2009, up from 4.2 percent in the fourth quarter of 2008.

China's economic growth dropped to 9 percent in 2008, compared with 13 percent of 2007. The International Monetary Fund has predicted that the nation's growth would further decline to 6.7 percent this year, far below the long-time 8 percent target of the Chinese government.

As a response to the economic slowdown, the government announced a 4 trillion yuan stimulus package last November to prop up the weakening economy. Meanwhile, it's also drafting a plan to bolster the development of 10 key industries. Policymakers later said in January that they plan to spend 850 billion yuan by 2011 to provide accessible and affordable healthcare to the country's 1.3 billion people.

A total of 86 percent of the economists said the government's fiscal policy should focus on social spending, including education, medical care and improving the social security system. Economists also want the government to reduce direct investment in infrastructure projects, due to concerns about misallocation of resources and corruption.

More than 70 percent of the economists surveyed believed that the Chinese economy would continue to lose steam this year with the lowest point likely to occur in the second quarter. Three-fifths of the economists said the global economy would only start to recover in 2010.

BEIJING (Reuters) - The Chinese government will help train 1 million unemployed university graduates over the next three years and will give loans to companies who hire them, state media said on Sunday, as the economic crisis starts to bite.

Premier Wen Jiabao warned earlier this month that college graduates face a "grim" job market as a global slowdown seizes the economy.

Now the State Council, or Cabinet, is offering training and loans to help graduates, the official Xinhua news agency said.

Students loans will be waived either partially or in full for graduates willing to work in rural areas or join the armed forced, the report said.

The government will also offer loans of up to 2 million yuan ($292,400) to labor-intensive companies who recruit graduates, it added.

And loans of 50,000 yuan each will be given to graduates who want to set up their own business, Xinhua said.

China has more than economic reasons to fear surging graduate unemployment. It is also a potential political time bomb.

This year will mark the 20th anniversary of the crackdown on pro-democracy protests led by radicalized students. Unsettling discontent could spread again as millions of graduates, whose families have paid steeply for their education, look for work.

The government has encouraged more students to go to university as a way to boost skills and consumer spending, but at the end of 2008 about 1 million of that year's graduates had not found work.

With some 6.1 million students leaving colleges and universities in 2009 -- about half a million more than last year -- labor authorities have repeatedly warned them not to be fussy.

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."

By Irwin Greenstein

New labor laws in China have forced the manufacturing sector into an ever-tightening vice, giving investors further pause for any significant rebound in the world’s fastest growing economy.

In January 2008, Beijing introduced new workplace legislation called the Labor Contract Law. Its objective was to ensure job security by making cursory dismissals more difficult. The Labor Contract Law comes in on the heels of anti-discrimination labor laws instituted last year, which streamlined the process for workers to file grievances against their employers. As a result, labor disputes have surged by approximately 119% since last year as workers exercise their new rights.

While the global recession throws a monkey wrench into China’s manufacturing engine, the Labor Contract law could compound the crisis by making labor in China more expensive. In fact, there is evidence that factories are already moving to Cambodia, Vietnam and Bangladesh, which promote owner-friendly labor laws.

If in fact this migration turns into a stampede, China’s entire economy could suffer longer term damage than anticipated.

The higher salaries kicked in at a time when China’s manufacturing sector contracted for the fifth consecutive month in December, according to the CLSA China Purchasing Managers Index. In the first 10 months of 2008, 15,661 enterprises in Guangdong, the manufacturing-heavy southern province, shut down. China’s manufacturing shrank for a third month in December as export demand fell, suggesting a long-drawn-out economic slump.

Manufacturing comprises about 40% of China’s economic output. It comes as no surprise, therefore, that the World Bank forecast in November of last year China’s economic growth may slow down to 7.5% in 2009, the lowest since 1990.

While many of the closures are certainly tied to lower exports, factory owners are simply padlocking their doors rather than conforming to the more restrictive and expensive labor laws – often absconding with the employees’ back pay.

The labor laws also sanction the once-unthinkable notion of labor unions in China. All employees are now eligible to join the China Federation of Trade Unions [ACFTU], which is controlled by the Communist Party and has around 170 million members. The ACFTU is legally entitled to negotiate salaries, working hours, holidays, and benefits (although they are now allowed to strike). By the end of 2006, about 50,000 foreign companies in China entered into collective contracts and the ACFTU has said its goal is to unionize nearly all foreign companies in the coming years.

While unionization and labor laws are long overdue for workers, they also create a new investment climate in China that could reduce windfall profits across the entire economy.

Intel is going to cease the operation of its factory in Pudong, Shanghai and transfer the production capacity to Chengdu or Dalian. Over 2000 employees may be moved to new positions. But Intel claimed that Shanghai office’s role in R&D and investment would be reinforced.

Intel will adjust its plan of production and operation in China, including three factories in Shanghai, Chengdu and Dalian. In the following 12 months, the company hopes to integrate the production capacity of Shanghai factory into the factory in Chengdu.

Intel explained that it did not intend to close the factory, but to optimize its manufacturing resources in China. The company’s production capacity will remain in China. And employees will not be dismissed, but will be offered to transfer to new positions instead.

But an Intel engineer who having worked in Intel’s Shanghai factory for more than three years said this was just same as dismissal, as it would be very inconvenient for many employees to move since they have been working in Shanghai for years and settled their families there. He himself has just got married and bought an apartment in Shanghai last year, and can’t move to other cities. He hopes the company to offer reasonable compensation according to the labor law. But Intel has not revealed how it is going to deal with this matter.

Even accepting job transfer, 2000 employees won’t be able to settle down immediately. Intel’s Dalian factory will be put into production in 2010 the earliest. One of the company’s equipment suppliers disclosed that the production of factory might be delayed by half year. As for the Chengdu factory, due to the global financial crisis, the capacity efficiency hasn’t increased much so that the demand for production expansion is also limited.

The Shanghai factory has been in operation for over 12 years, with a total investment of $539 million, including initial investment and additional investments. The company’s management has emphasized for many times that it would further increase its investment, and that the Shanghai factory is established in line with China’s strategy to develop Pudong.

Intel dismantled its channel platform department in Shanghai last December, and over 200 employees were affected. This department, previously one of Intel’s five global departments, was moved to Shanghai in August 2005, marking the first time Intel setting its global department overseas in the company’s more than 40 years’ history.

Shanghai, Dalian, and Chengdu have long been competing for Intel’s investment in China. This adjustment offended the Shanghai government. ??

Intel said the adjustment was made due to the “influence of the current economic situation”. Before the Chinese New Year the company decided to close five factories globally, including those in Malaysia, Philippines, Oregon, and Santa Clara, California, and about 6, 000 employees were affected. Founded in 1968, the factory in Santa Clara is Intel’s last factory left in Silicon Valley.

Paul Otellini, the president of Intel, said at an internal meeting that the company could not rule out the possibility of making a loss during the first fiscal quarter of 2009. Net loss has never occurred in the company since 1986. Some signs shown in its financial statement for the fourth quarter of 2008 indicated a 23% and 90% year-on-year decline in revenues and net profits respectively.

However, Intel also announced three investment plans, including $110 million additional investment into the registered capital of Intel China Ltd, a Shanghai based investment company, seemingly in order to offset the negative influence of the adjustment. Intel will keep its original plan for other business in China, including factories in Chengdu and Dalian, Intel China Research Center, and Intel Capital China Technology Fund Phase II.

"Shanghai will still be Intel’s most important R&D center and headquarters in China." Intel emphasized.

SHENZHEN, China -- The global economic downturn is testing China's efforts to improve labor laws, pitting the need to give basic legal protections to 700 million workers against the need to keep businesses afloat.

The country's economic emergence boosted incomes, but also led to complaints that workers' rights were being trampled. In response, the central government in January 2008 introduced workplace-protection legislation, known as the Labor Contract Law. The law sought to tighten job security, to make dismissing workers more difficult, and to guarantee severance pay of one month's salary for each year of employment. Last year, China added new job-discrimination laws and made it easier to file complaints against employers.

But as the global financial crisis hits the heart of the world's factory floor, labor activists say officials are turning a blind eye to the new requirements. Local governments deny they are becoming lax, yet complaints against employers languish in huge backlogs as many are simply shuttering their factories.

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Migrant workers who returned home from China's Guangdong Province after losing their jobs look for work at a labor market in Chengdu. One worker advertises that he will take any job.
"The enforcement of the Labor Contract Law is facing new problems," Hua Jianmin, chairman of the National People's Congress Standing Committee, China's top legislative body, said last month at a meeting on the law.

One problem is that China's manufacturing sector contracted for the fifth consecutive month in December, according to the CLSA China Purchasing Managers Index.

"Pressures from the labor law may encourage factories to close rather than pay what they owe to workers under the law," says Liu Kaiming, executive direct at the Institute of Contemporary Observation, a Shenzhen-based labor group.

Even before the downturn hit, business groups protested that the new law would be costly and burdensome. Now, workers say companies avoid paying claims by liquidating or by just disappearing without properly settling their business.

In the first 10 months of 2008, say authorities, 15,661 enterprises in Guangdong, the manufacturing-heavy southern province, shut their doors. Over half of those -- about 8,500 -- ceased doing business in October.

To aid businesses, Beijing has permitted local authorities to freeze minimum-wage levels and to reduce or suspend employers' social-insurance contributions.

The vice mayor of Dongguan, in Guangdong, says many employers hope the central government will suspend the Labor Contract Law, and his office has sent that request to Beijing. "We can't ourselves halt the implementation of a national law," says Jiang Ling.

Giving business such leeway could ultimately undermine trust in the still-developing rule of law, says Andreas Lauffs, a partner at the law firm of Baker & McKenzie who focuses on Chinese labor issues.

The situation keeps workers in limbo at a time when the plight of those unemployed by mass layoffs or illegal factory closings has drawn wide attention. The Chinese media have reported numerous recent incidents of labor unrest, from taxi strikes to protests by factory workers over unpaid wages.

After their factory closed last month, workers from the Shatangbu Yifa Rubber & Hardware Factory in Shenzhen filed for the back pay and severance promised under a contract required by the new law.

The Hong Kong-based owner disappeared, according to Shenzhen officials. That left many migrant workers stranded without enough money to return to their hometowns hundreds of miles away. About a third of the factory's 300 workers went to the Shenzhen government to request a speedy resolution of their case.

"We are aware of our rights, but we don't have enough time to go to court. We just want to get paid and go home before the holiday," said one worker, referring to the Lunar New Year celebration this month.

The former owner couldn't be located to comment.

Local officials later gave the employees 500 yuan ($73) in back pay from a special fund, but said other claims would have to go through a bankruptcy court.

The state media's heavy promotion of the new law has resulted in a big jump in labor disputes. In the city of Guangzhou, the local arbitration office received more than 60,000 cases from January through November, about as many as it handled over the previous two years combined. The fast-rising caseload has overwhelmed the system.

"Before, we would try to mediate more disputes before going to arbitration, but now that workers have the right to go to arbitration, they choose to do that right away," said Huang Huiping, deputy director of the labor bureau in Dongguan. "Right now, the number of labor arbitrators is not sufficient."

On Jan. 1, central labor authorities introduced new rules to allow arbitrators to give priority to claims filed by more than 10 workers.