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CHINA: "Yes, China’s the Largest, but Let’s Put Things in Perspective" Exec Summary

CHINA: "Yes, China’s the Largest, but Let’s Put Things in Perspective" Exec Summary. 6-page China Automotive Monthly Executive Summary by J.D. Power AsiaPacific.

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backCHINAtalk June, 2012

China – New Government Policy Goal: More Collective Bargaining in the Private Sector

At the start of the new year, the Shenzhen Human Resources and Social Security Bureau, Shenzhen All-China Federation of Trade Unions ("ACFTU") and Shenzhen Enterprises Co-Federation jointly announced that in 2010 they will pick 120 companies from the Global Fortune 500 and China Fortune 500 that have operations in Shenzhen, and push for collective bargaining within these companies. The focus will be on setting minimum wage standards and guaranteed wage increases within the companies.

This announcement follows the recent news that the Shenzhen subsidiary of the electronics manufacturing giant, Foxconn Technology Group, which is one of the largest manufacturing facilities in the world, entered into its first collective bargaining agreement (referred to in Chinese as a jiti hetong or "collective contract") with the company labor union. On December 26, 2009, a collective contract was reportedly entered into by Foxconn with its labor union, and according to Chinese media reports, the contract covered around 410,000 employees. The contract addressed issues such as working hours, rest and holidays, insurance and benefits, but the most significant provision was one guaranteeing a minimum 3% wage increase in 2010 for all employees who have worked for Foxconn for more than one year and meet certain performance requirements. The contract also states that collective bargaining on wages will be held annually each December.

By way of background, the recent developments in Shenzhen are part of a nationwide campaign led by the national government and the Chinese Communist Party-controlled ACFTU to push for more collective bargaining the private sector. In 2008, the Ministry of Human Resources and Social Security issued the Rainbow Plan, which set a goal of establishing collective bargaining systems in companies all over eastern and central China by the end of 2010 and expanding the system to all of China by 2012.

In a report submitted to the National People's Congress of China in October 2009, officials who compiled the report recommended that the government continue its efforts to push for a collective bargaining system in all companies, as well as encourage the establishment of employee representative councils in private companies (currently these are generally only found in state-owned enterprises). In January 2010, the ACFTU also announced that they will strengthen the implementation of the Rainbow Plan in 2010 and improve the quality of collective bargaining, meaning that the bargaining will reflect the real interests and demands of employees rather than be a pro-forma procedure that is controlled by the company.

Although many local governments claim that they have made great strides in expanding coverage of the collective bargaining system in their jurisdictions, in practice many collective contracts just repeat the statutory minimum labor standards and lack substantive terms to protect employees' interests. In addition, the current legal framework lacks an effective mechanism to resolve impasses in collective bargaining, and this in turn leads to a lack of effective collective bargaining.

The Shenzhen government is reportedly taking steps to remedy these weaknesses in the collective bargaining system. On January 18, a draft set of collective bargaining regulations was submitted to the Shenzhen People's Congress for review. These draft regulations provide that: (i) if an impasse occurs in the collective bargaining process and cannot be resolved by the parties amicably, either party may apply for binding labor arbitration on the issues causing the impasse and the arbitration panel must decide on the issue within 15 days of receiving the application; (ii) companies with more than 300 employees must sign collective contracts with employees, and matters such as labor discipline must be included in the contract, and (iii) a collective contract normally may not use the statutory minimum wage as its company wage standard.

Because Shenzhen is often at the forefront of legislative developments in China, if the draft regulations are passed in their current form, it is likely that local governments in other major cities and provinces may follow Shenzhen's lead and adopt similar measures.

Source: Baker & McKenzie - GAI

For more information or to contact Baker & McKenzie, please click here.

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