The Evolution of Labor Policy in Post-Mao China: A Brief Overview

After the Chinese Communist Party (CCP) came to power in 1949, the new government set out to abolish all labor laws and policies implemented by the ousted Nationalist government and to formulate new labor policies in accordance with socialist principles. The key goals of socialist labor policy were to turn wageworkers into the masters of the means of production and to set them free from unemployment and capitalist exploitation. Therefore, a universal lifelong employment policy was adopted in urban China that guaranteed urban workers job security. Comprehensive welfare packages were provided for workers through work units (danwei)Footnote ⁴ in accordance with the Ordinance of Labor Insurance (laodong baoxian tiaoli), which was first enacted in 1951.

Although lifelong employment and an egalitarian remuneration system were regarded as the key to socialism in Mao's era, they led to overstaffing, lack of work incentives, and low productivity in State Owned Enterprises (SOEs). By 1984, the CCP Central Committee believed that the old system had “depleted the autonomy of SOEs, brought about a situation where SOEs eat from the ‘big pot’ of the state and workers eat from the ‘big pot’ of SOEs, therefore, the enthusiasm, activism, and creativity of both SOEs and workers have been stifled.”Footnote ⁵

The initial attempts to change Mao's labor policies originated from the massive unemployment facing the post-Mao Chinese government at the end of the 1970s and the early 1980s. By 1979, there were 5.67 million urban registered unemployed or 5.4% of the country's urban labor force.Footnote ⁶ High unemployment stemmed from population growth, a stagnant economy, and, more importantly, the return of a huge number of young people who were sent to villages during the Cultural Revolution. The post-Mao Chinese government increased capital investment, built new factories, and forced enterprises to accommodate surplus urban laborers beyond their needs. This situation led to the phenomenon of “five people doing the job of three,” and instituted “dingti” (occupational inheritance),Footnote ⁷ under which a retired worker could let his or her child take up his or her job. However, such measures led to overstaffing, a lower-quality enterprise labor force, and the worsening of economic performance.Footnote ⁸

Eventually, the post-Mao leadership decided to reduce the administrative stranglehold of the state over labor allocation and to allow the urban population to create job opportunities themselves. At the National Conference on Labor and Employment in 1980, a new labor policy framework named “three-in-one” (sanjiehe) was introduced. It allowed job placement through the introduction of labor bureaus, through workers' voluntary organizations, and through self-employment.Footnote ⁹ The government now admitted its limited capacity to provide jobs for all of the urban labor force, and the new labor policy framework allowed urban people to engage in self-employed businesses, i.e., private business (getihu). In addition, the government endeavoured to foster the growth of the labor market by setting up job retraining centers, establishing “labor service companies” (laodong fuwu gongsi) and public employment agencies, providing employment information and advice, and offering help to the unemployed to become self-employed by through such measures as providing suitable business venues and tax breaks in the first year of their business operation.Footnote ¹⁰

The reforms of SOEs also fostered the reform of labor policy. Prior to economic reform, the Chinese economy was dominated by SOEs, which accounted for more than seventy percent of industrial output and absorbed eighty percent of the urban labor force. By the mid-1980s, however, many SOEs were losing money and survived on state subsidies. They were facing increasing competition from non-state enterprises, especially from the newly emerging township and village enterprises (TVEs) and foreign-funded enterprises. In order to make SOEs more competitive in a market-orientated economy, the government tried to reform the rigid employment and wage system practiced in SOEs. Bonuses and awards were given to enhance workers' productivity, and wages were linked to performance. The most significant innovation was the experiment of the labor contract system, piloted in a few cities on an experimental basis in 1980 and extended in 1983.Footnote ¹¹

The most significant break with the old employment system was, undoubtedly, the introduction of labor contracts, and this fundamentally changed the relationship between workers and the state. The turning point was 1986, when the State Council issued four sets of provisional regulations on labor and employment reforms,Footnote ¹² which set out to encourage multiple systems of employment, to allow open recruitment of workers, to introduce labor contracts for all new workers entering SOEs, to permit dismissal of recalcitrant workers, and to bring in a system of unemployment insurance.

From 1986 onward, all new SOE recruits had to sign labor contracts with their respective SOEs. Renewal of contracts was subject to the mutual agreement of both parties and was not automatic. In 1988, the Enterprise Insolvency Law (For Trial Implementation) provided that SOEs could be restructured under a reorganization plan that had to be approved by creditors and representatives of SOEs. Alternatively, they could be liquidated. From the early 1990s, reforms aimed to transform SOEs into modern enterprises compatible with the requirements of a market economy. Social welfare programs such as pensions, housing, healthcare, and schooling were gradually separated from the commercial activities of SOEs. In other words, SOEs were no longer to provide generous packages of welfare and benefits to their employees.

Along with the SOE reforms and the development of the market economy, Chinese labor policies changed greatly. First, lifelong employment was replaced by contract-based employment, signalling the end of the “iron rice bowl.” Labor power was recognized as a commodity that belonged to the worker. The restrictions on labor mobility were gradually eliminated. Second, job assignment by the government was replaced by the labor market. More and more people looked for their jobs through the employment agencies, and self-employment became important. Third, remuneration was linked to worker's performance. The state controlled the total amount of wages and salaries and the system of guaranteed minimum wages and salaries, but the employers had the right to determine the levels of wages and salaries. Fourth, labor law began to play an increasing role in regulating labor relations. More and more labor policies took the form of labor legislation. Five, the danwei system practiced in SOEs was dismantled, which meant that workers had to make their own contributions to their welfare and benefits.

Diversification of Labor Relations and the Making of the Labor Law

As mentioned above, one aspect of the changes of labor policy in China in the market transition is the increasing role of labor law in regulating labor relations and other labor-related affairs. Policy and law are the key governing instruments, but their relationship is complicated and blurred, and it is hard to draw a clear line between them in China. For a long time, policies prevailed and almost no law existed in all policy areas in China. In the era of economic reform, more policy decisions have been formulated in the forms of regulation and law. However, policy decisions in some areas, for example, agriculture and social welfare, seldom take the form of law. Meanwhile, many policy documents are considered “laws” and have the force of law. According to the Chinese legislative system, law is a broad concept and has five varieties, which, in descending order of legal effectiveness, are 1) the Constitution of the People's Republic of China, 2) national laws enacted by the National People's Congress and its Standing Committee, 3) administrative regulations issued by the State Council, 4) local decrees issued by Local People's Congresses, and 5) administrative and local rules issued by an administrative agency under the State Council or by a local government.Footnote ¹³ In its purest form, legal documents promulgated by the National People's Congress (NPC) and its Standing Committee, China's legislature, are always treated as law. Normally, policies, which can function as the guidelines for laws, are made by the Party and the government agencies. Logically, policy comes first, then law follows. Policies that have been implemented successfully can be codified into law. A law is used to confirm policy decisions, and a major law usually addresses a broad range of policy issues. To a great extent, law in China is just to codify the existing policies. In lawmaking practice, the drafters tend to exclude the controversial policies.

Since the Chinese government played an active, interventionist role in labor and unilaterally determined almost all aspects of labor relations—especially those in SOEs—through government policies and administrative regulations, under a planned economy, labor law had been virtually nonexistent in China. Before 1994, when the first Labor Law was enacted, China lacked a codified legal framework for its labor policy.

Since the initiation of economic reform in the late 1970s, many labor policies have taken the form of labor regulations in order to meet the need of economic reforms, in particular, to assure foreign investors and to make SOEs more competitive in a market economy. In the 1980s, in order to push labor and employment system reform, more and more labor regulations were issued by the State Council concerning employment, wages, social insurance and welfare, labor protection, work safety and hygiene, special protection for female and juvenile workers, democratic management of workers, and settlement of labor disputes. Between 1979 and 1994 more than 160 labor regulations and rules were issued.Footnote ¹⁴

Though labor regulations issued by the State Council and relevant government agencies are treated as part of labor legislation in the Chinese official legal structure and legal literature, we tend to consider labor regulations as “policy” rather than “law” or “legislation.” The main reasons are as follows. First, most labor regulations were issued as the directives of the Party-State and were of a policy nature rather than of a legal character, and their subject matters were predominately of an “administrative nature.” Second, most of the regulations were full of propagandistic language, and lacked clarity and detailed provisions to guarantee their enforcement. They were basically enforced by governmental agencies and enterprises rather than by the court. Third, though many regulations were issued, it was very difficult to distinguish authoritative regulations from other documents such as administrative orders, decrees, rules, and notices, and it was hard to see any clear hierarchy in legal status among different regulations.Footnote ¹⁵ Fourth, many concerns and measures in labor regulations were later codified into law when the conditions for lawmaking matured.Footnote ¹⁶

In fact, during the whole decade of the 1980s, the Chinese government was reluctant to make a national labor lawFootnote ¹⁷ and preferred labor regulations as the main labor policy instrument. As a result, the labor policy regime in the 1980s was characterized by the prevalence of regulations over law. There were several reasons for this. First, China's labor system was undergoing great transformation in this stage of economic reform, and the rapidly changing situation was not suitable for lawmaking. Second, administrative regulations were more flexible than laws, leaving much room for local governments and other policy actors, especially enterprises, to maneuver. Third, such a policy practice allowed the central government the flexibility to adjust policies quickly in response to quickly changing socioeconomic situations.

Though we treat labor regulations as labor policy rather than labor legislation, the proliferation of labor regulations in the 1980s made Chinese labor policy more rule-governed in terms of coverage, contents, and enforcement to varying degrees,Footnote ¹⁸ which paved the way for labor legislation. However, due to the weak legal effectiveness of administrative regulations, many labor policies were not thoroughly implemented. Many enterprises were reluctant to abide by administrative regulations concerning labor protection and infringed on the legitimate rights and interests of workers. By the 1990s, the increasing diversification and complication of labor relations and the growing labor unrest that resulted from the market-oriented labor reforms made it imperative for the Chinese government to enact labor laws to regulate the increasingly complicated labor relations. It is in this context that many labor policies were legalized and codified.

The early 1990s saw the increasing diversification of labor relations in China with the rapid growth of the non-state economy and the deepening reforms in SOEs. One indication was the decline in the number of workers in SOEs and urban collective-owned enterprises (COEs) along with the rapid increase in the number of workers hired by TVEs and private enterprises. By the end of 1994, while workers in SOEs and urban COEs numbered 141.01 million, workers in TVEs reached 120.18 million, and workers in private enterprises jumped to 6.483 million.Footnote ¹⁹ This development meant more and more Chinese workers were beyond the direct control of the Party-State and under the influence of market forces, which posed a great challenge to the old labor regime which was mainly based on administrative fiats to regulate labor relations.

The early 1990s also witnessed increasing labor disputes, even wildcat strikes, stoppages, and some mass worker protests. Workers' protests usually took the form of demonstrations, sit-ins, petitions to government departments, and “laying siege to party and government offices.” In 1993, 12,358 cases were brought before the labor arbitration tribunals, 51.6 percent more than in 1992 while the number of affected staff was 34,794, 99.8 percent higher than the number in the previous year. The trend was expected to continue.

In the first quarter of 1994, according to data collected from twenty provinces, such cases shot up to 3,104, 66.4 percent higher than the corresponding period in the previous year.Footnote ²⁰ Labor experts privately estimated that hundreds or thousands more disputes may have flared up without reaching arbitration. The state and collective enterprises accounted for more than half of the arbitrated disputes. In summer 1993, a leading official from the Ministry of Labor (MOL) disclosed that, according to the incomplete statistics of seventeen provinces and cities, from January to May 1993, there were 194 strikes and slowdowns in China involving 32,000 workers.Footnote ²¹ In April 1994, an official report disclosed that labor disputes increased by fifty percent from 1992.Footnote ²² In mid-1994, incidents of industrial unrest were said to be occurring once or twice a week in the provinces of Hubei, Hunan, Heilongjiang, and Liaoning. The affected areas were places with depressed industries, such as coal mining and textiles.Footnote ²³

The booming non-state economy, especially the foreign-funded enterprises including joint ventures and completely foreign-owned enterprises, and private firms in the early 1990s also experienced a variety of labor problems. Although both central and local governments issued administrative regulations on the protection of the legal rights of workers in the non-state sectors, many enterprises chose to ignore them. In many cases, the contracts that enterprises signed with their workers stipulated only the factories' restraints on the workers. Many enterprises implemented their own “factory rules” and offered no contract to the workers. Labor abuses were rampant in both foreign-funded enterprises and private enterprises, of which the most common one was long working hours. A survey conducted in Beijing in 1993 showed that twelve percent of hired workers in private enterprises worked ten to twelve hours a day, five percent worked twelve to fourteen hours a day, and another three percent worked more than fourteen hours a day. Other surveys disclosed that more that eighty-five percent of hired workers worked more than eight hours a day, usually twelve hours.Footnote ²⁴ Other problems included delaying or deducting payment of wages, the lack of necessary safety equipment and minimum labor protection, appalling working conditions, and high industrial accident rates. A special labor problem in private enterprises was child labor.

Labor abuses and unrest received extensive press coverage in the early 1990s. Many journalists revealed that laborers in the non-state sector, especially the migrant laborers, were always treated in a humiliating manner, which deprived them of dignity, security, justice, and fair compensation. The unfortunate situation of migrant workers was described as “slave-like.” Violation of labor rights was common in joint ventures: nearly ninety percent of foreign-funded firms violated labor rights one way or another. Both Chinese and overseas observers contended that the totally unregulated laissez-faire capitalist conditions of the early stages of capitalism were prevalent and that “sweatshops” were revived in China.Footnote ²⁵ The plight of laborers was drummed into the national consciousness by media stories.Footnote ²⁶ Labor abuses, especially in the non-state sector, caused increasing militant actions of the workers and invited wide criticism from international human rights groups and labor groups. There was a widespread sense that the country had some serious labor problems that would endanger social stability. Facing these pressures, the state was forced to take some active measures to pacify disgruntled workers, and the Labor Law was seen as an important and urgent issue on the legislative agenda.

The political dynamics behind the Labor Law came from Deng Xiaoping's south tour speech in early 1992 and the 14th National Congress of the Chinese Communist Party in fall 1992, which accepted the market economy system as the ultimate objective of the economic reform. Deng's southern tour speech and the Party's Congress dramatically changed the political conservatism in post-1989 China. The Third Plenary Session of the 14th Central Committee of the CCP held in November 1993 further outlined the basic framework of the socialist market economic structure. In its articulation of the need to create an integrated, open, competitive, and orderly market system, it put forward for the first time the concept of developing a capital market and a labor market. To provide legal norms of conduct for all players in a socialist market economy, the Plenum called on the legislature to map out a well-conceived legislative plan and speed up the law-making process.Footnote ²⁷ This beneficial political atmosphere thus opened a window for more market-oriented policies and legislation, including the Labor Law.Footnote ²⁸ With the active involvement of the Ministry of Labor (MOL) and the All-China Federation of Trade Unions (ACFTU), China's official trade union, the Labor Law was enacted in July 1994.Footnote ²⁹

The Main Contents and Features of the Labor Law

The Labor Law covers such matters as workers' rights, labor contracts, collective contracts, hiring and firing, wages and salaries, working hours and overtime, rest and vacations, the settlement of labor disputes, the role of trade unions, labor administration, and social insurance. In order to “establish and safeguard a labor system suited to the socialist market economy” (Article 1, the Labor Law), the Labor Law legalized the labor contract, collective bargaining and collective contract, social insurance, the minimum wage, labor dispute resolution, and factory inspection. The Law also established the labor standards in China, including the eight-hour workday and forty-four hour workweek (shortened to forty hours in March 1995 by the State Council), limits on overtime work, and occupational safety and workplace hygiene.

More importantly, the Law represented the state's attempt to create a united labor regime across different types of ownership or firms in the context of market transition.Footnote ³⁰ In the past, laborers in enterprises with different ownership had been subject to different labor policies and regulations. Such a differentiated labor policy framework had led to the stratification among Chinese workers. Laborers in SOEs were under better protection by the state compared with those in COEs and non-state sectors. The Labor Law intended to end the existing segmented labor policy regime and treated all workers equally based on the labor contracts, no matter what kind of enterprises they worked in.

In view of the worsening labor relations resulting from the economic reforms, the Law gave priority to labor protectionFootnote ³¹ and paid special attention to the protection of female and juvenile workers. The Law severely restricted employers' power to dismiss workers. Nevertheless, the Labor Law reduced substantially the job security of Chinese workers as it legally abolished the lifelong employment system and allowed employers to dismiss workers for economic reasons. In addition, the Law failed to place effective limits on the use of short-term labor contracts by employment units.

Furthermore, the Law also indicated that the Chinese authorities are trying to follow international labor standards. Based on the relevant international labor conventions and the practices in other countries, the Law, for the first time, stipulated the standard of working hours in China: no more than eight hours a day and no more than forty-four hours a week. Such a standard was, of course, not realistic given the level of economic and social development in China in the 1990s. In fact, profit-seeking employers often ignored it, while the poorly-paid workers were willing to work overtime for more income. (Long working hours had been a notorious labor abuse in China since the implementation of the Labor Law.) Other labor standards, such as the minimum wage, annual leave, and the prohibition of child labor were also codified in the Labor Law.

The Law set up a tripartite framework of labor relations. Although the participants in labor relations (trade unions, employers, and the state) existed in China, they were neither independent of one another nor were the independent participants imagined by labor relations theory. With the emergence of a market economy, the role of trade unions in representing workers' interests began to be highlighted. Although we cannot say the Law gave the participants independence in labor relations, to some extent, the independence of the trade union and employing unit and their equal rights in labor relations were stressed in the Law. They were reflected in the Law through the provisions for collective contract and the arbitration of labor disputes.

The Labor Law represented an entirely new rhetoric by employing such market terms as contract employment, hiring and firing, freedom to choose career, bankruptcy, unemployment, minimum wage, collective contract, and so on. However, “collective bargaining” (jiti tanpan) had to be euphemistically called “collective consultation” (jiti xieshang), and the right to strike was denied, which reflected the policymakers' refusal to recognize conflicting management and worker interests in China. Remnants of the old ideology still existed. For example, the Law intentionally used “employing unit” (yongren danwei, which literally means the organization that hires and makes use of laborers) instead of “employer,” and “laborer” instead of “employee.” This kind of terminology indicated that Chinese lawmakers were reluctant to recognize the wage-labor relationship in China's market transition.Footnote ³²

To sum up, the Labor Law was China's first attempt to establish a relatively sound basis for the development of labor relations suitable for a market economy without democratization. As Josephs pointed out, the Labor Law revealed “a delicate and precarious balance which the government attempts to maintain between preservation of certain features of the older command economy and the market-driven forces.”Footnote ³³

The Implementation of the Labor Law and Its Limitations

The new labor regime, established by the Labor Law and supplementary legislations, is built on three key pillars: the individual labor contract system, collective negotiation, and the labor dispute resolution mechanism.Footnote ³⁴ In accordance with the Labor Law, a worker must sign a written individual labor contract with his or her employer. A written labor contract should include specifics about the length of the contract, job description and work location, salary, working conditions and labor protection, and legal liabilities of violating the contract. The labor contract is binding for both the employer and the employee. The Labor Law allows for collective agreements through collective negotiation between employees (represented by the trade union) and management on matters such as remuneration, hours, rest, holidays, occupational safety and hygiene, and insurance and welfare. In order to resolve contract disputes, labor dispute mediation committees and arbitration committees at both the enterprise and local labor administrative levels should be established. If arbitration fails, the cases may go to local people's court. In designing such a labor regime, the Chinese policymakers sought to use both contract and law to regulate labor relations in the context of market transition. In the view of the labor policymakers, the two-tier contract system constructs an important institutional arrangement for labor and capital to interact automatically in the context of contract and labor laws.

However, the years since the implementation of the Labor Law have demonstrated that the labor regime established by the Labor Law is not readily enforceable and is not being fully implemented. First, the individual labor contract system has not been implemented strictly. Many employers, especially those in non-state sectors, are reluctant to sign labor contracts with their employees. Although more than ninety-nine percent of workers in urban state-owned enterprises, collective enterprises, and foreign-funded firms signed employment contracts,Footnote ³⁵ most migrant workers, who are the bulk of the industrial working class in China today, have not. Sixty percent of the total labor contracts of the nation are for less than three years; only twenty percent are non-fixed term contracts.Footnote ³⁶ In addition, many contract workers are not entitled to social insurance benefits because their employers refuse to pay social insurance premiums. Some workers are even forced to sign a “life and death contact” with employers, which exempts bosses from any liability for industrial accidents that result in injury or death.

As a result, conflicts between labor and capital have been increasing. Official statistics show that the number of labor dispute cases increased from 19,098 in 1994 to 226,000 in 2003, and the number of workers involved increased from 77,794 to 800,000 during the same period.Footnote ³⁷ In 2005 alone, the number of labor dispute cases accepted and heard by labor dispute arbitration committees at all levels of government reached 314,000 and involved 744,000 workers. Among these cases, the number of collective labor dispute cases hit 19,000 and involved 410,000 workers. Most disputes involved labor remuneration, economic compensation, and insurance and benefits.Footnote ³⁸ On top of labor disputes, spontaneous strikes were not uncommon. Though no exact figures on strikes are available, it is well known that sporadic stoppage and strikes occurred widely in the coastal regions where millions of migrant workers live. From early March until May 2002, thousands of displaced workers in Daqing, Heilongjiang Province, and in Liaoyang, Liaoning Province, engaged in large-scale protests over unpaid benefits and the corruption of cadres. The protests spread to a number of cities and constituted probably the largest social protest movement since the 1989 prodemocracy movement.Footnote ³⁹

Why has the labor contract system worked poorly? First, since the supply of labor far exceeds demand, labor is at a very disadvantageous position in relation to capital. If workers ask for the written labor contract, they could lose their jobs. So many workers are employed on the basis of oral agreements, which are not recognized by the Labor Law. When a dispute occurs, it is the obligation of the worker to collect evidence to verify the existence of a labor relation conflict with his or her employer.

Second, the provisions of labor contracts under the Labor Law are vague and lax, thus allowing employers more leverage. For example, the Law fails to stipulate the time limit for an employer to sign a labor contract with the newly recruited employee, and it does not require employers to pay economic compensation (severance payment) for workers who are dismissed on the day when their labor contracts expire. Such a legal loophole encourages employers to sign short-term fixed labor contracts, especially one-year fixed contracts or even three-month fixed contracts. Even “permanent” posts are based on a short-term contract. Such a practice allows employers to make use of workers who are in the prime of their lives and then dismiss them when they get older. As employers are not required to pay severance to workers when their contracts expire, workers' job security is undermined. The Law allows employers to hire workers for a probationary period of up to six months but fails to specify the wages and benefits of probationary employees and fails to impose strict constraints on employers' use of probation. As a result, many employees have been dismissed upon the end of their probation.

Third, factory inspection by the local governments is very weak. By the end of 2001, there were only 40,000 people responsible for labor inspection in China, where the total number of employees had reached 239 million.Footnote ⁴⁰ In Shenzhen, a large city famous for its booming economy, there were only about 200 labor inspectors in 2001.Footnote ⁴¹ Because local governments are obsessed with economic growth, they tend to stand up for capital and oppress labor. As Lambert and Chan put it, the structural relationship between foreign and domestic capital and the local state is the basis for reproducing a despotic production regime where workers have no say over wages and conditions.Footnote ⁴²

Fourth, the Law fails to impose stringent punishment for violations of the labor contract. The main punishment for violations of labor contracts by employers is to require them to compensate laborers for losses. According to the Labor Law (Article 98), the employer who revokes labor contracts or purposely delays the conclusion of labor contracts is only ordered by labor administrative departments to make corrections and pay compensation for any losses that may have been sustained by laborers. Only when the employers force laborers to work against regulations and, as a result, cause major injuries and deaths, will they be held criminally responsible. The lenient provisions plus weak inspection by the government allow employers to ignore the Law.

The operation of the collective contract system is not inspiring either. Most collective contracts signed are at SOEs, where workers' interests and rights are protected relatively well even without collective contracts. For enterprises in the non-state sector, where collective contracts are badly needed, the implementation of the collective contract system has been hindered. In Guangdong, for example, the Provincial Trade Union Federation admitted that it was hard to push the collective contracts in foreign-funded enterprises and TVEsFootnote ⁴³ due to the resistance of employers, the lack of unions in many enterprises, and the reluctance of local governments to get involved in the matter.Footnote ⁴⁴ The collective contract system is basically “hollow” due to the weakness of workers' organizations; it fails to provide both capital and labor with an institutionalized channel for conflict mediation and interest coordination.Footnote ⁴⁵

The system of labor dispute resolution is also problematic. The past decade has witnessed increased labor disputes concerning underage workers as well as workers who have received delayed payment or have been denied pay, been overworked, been denied holidays, been unable to leave the factory site, and been forced to work in noisy and dangerous conditions. The existing procedures of labor dispute resolution established by the Labor Law are woefully ill-equipped to deal with the flood of labor disputes, and the process is prolonged by having three levels on which disputes were dealt: factory mediation, local government arbitration, and litigation. For example, a worker who wants to get back his pay arrears has to go through both arbitration procedures and litigation procedures if his employer refuses to accept the arbitration made by the local labor dispute arbitration committee. The whole process can last from several months to about two years and costs the concerned parties much money and time. Normally, a poorly-paid worker cannot survive such a long and complicated process. Many disgruntled workers have resorted to illegal and even violent means, such as street protest, murdering, kidnapping, and even committing suicide by jumping from a high place to dramatically show their desperation.Footnote ⁴⁶

The most salient limitation of the Labor Law lies in its failure to provide legal protection for the migrant workers from rural China. Migrant workers emerged in China's transition from a planned economy to a market economy, and according to the Survey and Research Report on Migrant Workers in China released by the State Council's Research Office in April 2006, they constituted fifty-eight percent of the labor force in the secondary sector, and fifty-two percent in the tertiary sector in China.Footnote ⁴⁷ They exceeded 100 million in number by 2003. Yet, they have been excluded from the government's labor policy for a long time because of their ambiguous status between workers and peasants: They are workers by occupation but are not recognized as workers; they live in the cities but retain their peasant status. Targeting urban workers and the employing units recruiting them, the Labor Law acknowledges no concept of migrant worker.

Because the existing labor regime fails to provide effective protection for migrant workers, their labor rights are frequently violated. There are frequent media reports on long working hours, physical punishment and insults, occupational injuries, fires and other fatal accidents, unacceptable working conditions, ineffective grassroots trade unions, and local governments favoring investors rather than protecting migrant workers. The above-mentioned research report released by the Research Office of the State Council indicated that the monthly wages of migrant workers were mainly within the 500–800 yuan range, with 3.58 percent of them earning less than 300 yuan, 29.26 percent earning 300–500 yuan, 39.26 percent earning 500–800 yuan, and 27.9 percent earning over 800 yuan.Footnote ⁴⁸ These wages are much lower than those of urban workers. According to the figures released by the Ministry of Labor and Social Security (MLSS) and the State Bureau of Statistics, the average monthly wage for urban workers and staff was 1,750 yuan in 2006; for those working in SOEs, the figure was 1,842 yuan.Footnote ⁴⁹ In addition, many migrant workers were not covered by labor contracts; only 53.7 percent of them had concluded contracts with their employers.Footnote ⁵⁰ Because migrant workers have no ability to change their appalling working and living conditions in cities, many of them have begun to “vote with feet;” that is, they just leave the cities and stay in villages. As a result, a serious shortage of labor has occurred in the Pearl River Delta and other costal regions since 2003.Footnote ⁵¹

New Developments of Labor Policy and Legislation Since 2003

Given the limitations of the existing labor policy regime and the plight of migrant workers, the Chinese government has made new efforts to stabilize labor relations and improve the living and working conditions of migrant workers since 2003. Two main factors have contributed to these efforts.

First, the new leaders Hu Jintao and Wen Jiabao, who took up their positions in 2002 and 2003, respectively, were more concerned with social justice and the plight of the underprivileged. Taking lessons from the SARS crisis in 2003 and the worsening developmental conditions, the new leadership sought to formulate a new set of ideas about Chinese development. Although economic growth is still the paramount objective, a new paradigm of development has been formulated that aims to strike a balance among economic growth, social development, and environmental protection. Under the new development paradigm many new governing principles, such as “putting people first,” and building “a harmonious society,” have been emphasized, bringing the issues of labor interests and rights to the policy agenda of the new leadership.

Second, the shortage of migrant workers in the coastal provinces has become a concern of investors and local governments. The labor shortage mainly occurred in those labor-intensive export-oriented processing factories where workers suffer low salaries, high working intensity, and appalling working conditions.

To address these issues and concerns, the Chinese government is using both labor policy and labor legislation. Under the macropolicy context of promoting economic growth while maintaining social stability, both policy and law are coordinated and complementary in implementing the directives of the Party-State. While stringent labor legislation is an effective answer to the infringement of workers' rights and interests, it may bring harm to investment and, hence, negatively impact economic growth. Given the segmented labor market based on the rural-urban dual society and the underdevelopment of the rule of law in China, labor policies and regulations are still very important and provide flexible instruments to stabilize labor relations, especially where migrant workers are concerned.

To improve the working and living conditions of migrant workers, the Chinese government tends to make use of policies and regulations. In 2003, for instance, the State Council released the “Notice on Doing a Better Job Concerning the Employment Management of and Services for Migrant Workers,” which proposed the policy principles of “fair treatment, rational guidance, satisfactory management, and improvement of services.” Its provisions covered six aspects of policy: a) abolition of the discriminatory policy regulations and irrational fees against migrant workers; b) elimination of the deductions of and delays in wage payment for migrant workers; c) resolution of the problems associated with free education for their children; d) provision of vocational training; e) improvement of living conditions and working environment in the urban areas; and f) strengthening and improvement of administrative controls on migrant workers.Footnote ⁵²

In 2006, the State Council issued the first comprehensive policy document of the central government on migrant workers. The document declared that migrant workers are an important element within the manufacturing labor force and spelled out the central government's broad policy objectives: a) to establish a unified labor market for the urban and rural sectors and an employment system based on fair competition; b) to promote a series of policies to protect migrant workers' legitimate rights; and c) to set up a system of public services in both urban and rural sectors for migrant workers. In terms of concrete policies, the document reveals that the State Council would a) strictly regulate employers' payment of wages to ensure full payment on schedule through the establishment of a monitoring system and a wage guarantee fund and strictly implement the minimum wage system; b) strictly implement the labor contract system through strengthening the guidance and supervision of employers in order to protect the occupational safety and public health rights of migrant workers, especially female and juvenile workers, to prohibit the employment of child labor; c) further abolish various discriminatory regulations and irrational restrictions against migrant workers; d) include migrant workers in the occupational injuries insurance system and provide them medical insurance for chronic illnesses as well as study and find appropriate ways to offer them retirement benefits; e) gradually broaden the coverage of urban public services for migrant workers according to the territorial administration principle in order to ensure their children's right to free education, to improve the family planning administration and services, to improve their living conditions, and to improve their employment services and vocational training; f) protect their legitimate democratic political rights and land rights under the rural household responsibility system as well as strengthen the implementation of the laws protecting these rights; and g) develop township/town enterprises and country economies, raise the capacity of small cities and towns to accumulate industries and absorb population, and expand the capacity of employment transfer at the local level.Footnote ⁵³

On top of the above-mentioned policy principles for the protection of migrant workers, the Chinese government has also introduced some specific policy measures to improve the working and living conditions of migrant workers. Moreover, the policy principles adopted by the central government have set a good example for local governments to follow. In fact, as a response to the central government's policy advocacy, local governments at all levels have also issued some concrete labor policies and regulations concerning the signing of labor contract, wage payment, employment services, vocational training, and education for child migrants.

More importantly, many of the policy principles and measures for improving the situation of workers in general and migrant workers in particular have been eventually codified in the new Labor Contract Law of 2007. The formulation of the Labor Contract Law started in 2004 amid huge complaints about employers' mistreating workers. The MLSS and the ACFTU were the main promoters of the drafting work. Based on wide consultation, the NPC Standing Committee enacted the Labor Contract Law in June 2007 after four sessions of deliberation. The final version of the Law represents a compromise between the interests of both the employees and the employers.Footnote ⁵⁴

The Labor Contract Law, which consists of eight chapters and ninety-eight articles, became effective January 1, 2008, and is considered to be the most significant change in China's labor policy since the implementation of the Labor Law in 1995. It aims to further standardize labor contracts in favor of employees and to facilitate its implementation. Specifically, the Law is intended to establish sound standards for labor contracts, the use of temporary workers, and severance payment. It makes mandatory the use of written contracts and strongly discourages short fixed-term contracts by requiring employers to give non-fixed contracts to workers who have already finished two fixed-term contracts for the same employer. In accordance with the Law, severance payment should be given to the worker if a fixed-term contract expires and the worker is willing to renew the contract. The Law also strengthens the role of workers' organizations, such as unions and workers' congresses in labor relations as it stipulates that employers must submit proposed workplace rules or changes concerning salary, work allotment, hours, insurance, safety, and holidays to the workers' congress for discussion. On the eve of the Law's passage, the Law was edited to stipulate that government officials guilty of abuse of office and dereliction of duty would face administrative penalties or criminal prosecution. This was a direct result of the exposure of forced labor in the brick kilns of North China's Shanxi Province.Footnote ⁵⁵

The Labor Contract Law is expected to more effectively protect workers' interests and rights and regulate labor relations. Compared with the Labor Law, the Labor Contract Law is more specific and operation-oriented in terms of its provisions. Employers who violate the Law are subject to stringent punishment. Officials in charge of labor policies and laws and their enforcement are under greater pressure to perform their duties under the Law. Meanwhile, trade unions are allowed to play a greater role in protecting workers. In addition, under the policy context of “building a harmonious society” and “putting people first,” local governments are under much more pressure from the central government to pacify the disgruntled workers and maintain social stability. The workers themselves have become better educated and more forceful in defense of their interests and rights by using the Labor Contract Law. Under these circumstances, it is reasonable to conclude that the Labor Contract Law will be more enforceable than the Labor Law.

Although the Labor Contract Law was formulated in the spirit of giving migrant workers top priority, it still fails to clearly define the legal status of migrant workers. Like the 1994 Labor Law, the Labor Contract Law does not define who “laborers” are, though its scope of applicability covers all laborers who have established labor relations with enterprises in China (Article 2). As no specific definition of “laborer” is available, whether migrant workers are laborers in the sense of labor law is still not clear. Nevertheless, this does not mean that the Labor Contract Law does not apply migrant workers. Although no special provisions targeting migrant workers have been included in the Law, the Law has not denied migrant workers' status of “laborers” in general. Being one party of labor contracts, migrant workers' rights and interests are under the protection of the Labor Contract Law in general. Therefore, a sound labor law framework and its strict enforcement are beneficial to migrant workers in general. However, migrant workers are not treated the same as urban workers in terms of wages, social security, and other employment-based benefits. In other words, migrant workers are laborers in a legal sense, but they can be treated differently by policies adopted by local governments. This way, the rigidity of law and the flexibility of policy are integrated perfectly to demonstrate the subtle relationship between labor legislation and policy.

This may be “strategic ambiguity” in China's labor legislation and policy in the context of market transition. Given the huge rural-urban divide, regional disparities, and the segmented labor market in China, it is difficult to treat both urban workers and rural workers equally. Labor legislation should take this reality into consideration. Although concrete labor policies can treat urban workers and rural migrant workers differently, it is not appropriate for a national law to legally separate migrant workers from urban workers. Yet, with the help of such ambiguity, governments, especially local governments of the host cities, can make specific policies to treat migrant workers as a special labor group that is different from urban laborers. And employers can compromise the legitimate interests and rights of migrant workers without taking legal risks. As a result, rapid economic growth can be achieved through low-cost labor, a phenomenon that reflects the inconsistencies between labor law and labor policy in China.Footnote ⁵⁶