China's labor law a last straw for
Taiwanese By Ting-I
Tsai
TAIPEI - The Tien Mu Blue Bird Café is
a 30-outlet Taiwanese food chain that has operated
coffee shops, bakeries and Taiwanese restaurants
in the Pearl River Delta of southern China's
Guangdong province since 2000. The chain, which
has previously catered primarily to foreigners and
Taiwanese, shifted its target market to local
customers this year when its traditional clientele
left the area after their factories shut down.
Faced with shortages of land, electricity,
water, labor and raw materials, Taiwan-backed
manufacturers in the Pearl River Delta have been
confronted with unprecedented challenges in recent
years.
Now, with the Law of the People’s Republic of
China on Employment Contracts scheduled to take
effect on January 1, their situation may become
even more untenable. The legislation has many
Taiwanese businessmen in the area thinking
seriously of shuttering their businesses and
relocating outside of China.
''About 10%
to 20% of Taiwan-invested manufacturers in the
Delta will close down next year,'' estimated Shih
Fang-ming, chief executive officer of Hamber
Consulting Service Inc, who noted that many
Taiwanese entrepreneurs had been rushing into
classrooms to learn how to economize their
operations after enactment of the new law.
Other businessmen based in the Pearl River
Delta are no less pessimistic. Huang Ming-ze,
chairman of the Shenzhen-based Taiwan Chamber of
Commerce, estimated that about 400 Taiwanese
manufacturers in the Shenzhen area would shut down
by the end of 2007. And Andrew Yeh, chairman of
the Taiwanese Businesses Association in Dongguan,
predicted that some 700 factories would close by
year's end.
China’s National People’s
Congress passed the Law of Employment Contracts on
June 29, 2007. It formalizes workers’ rights
concerning overtime hours, pensions, layoffs,
employment contracts and the role of trade unions.
Considered one of the strictest in the world, it
is stirring apprehensions most in the ranks of
Taiwan’s China-based small and medium enterprises
- operations that are usually too small to support
a professional human resource management
framework.
Among other mandates, the law
requires employers to sign written contracts with
every employee. Also, after two contract renewals,
workers automatically earn the right to work for
the employer indefinitely. Employees can only be
let go for clear cause and would still receive a
pension. In the expanded role for trade unions,
employers will be required to consult with them
before making rules and regulations, concluding
employment contracts or implementing economic
dismissals.
The bill was the first major
national law in China circulated in adance to
gauge public reaction. As a result more than
191,800 separate comments were received via the
Internet, newspapers, periodicals, and letters
soon after the Standing Committee of the National
People’s Congress launched the plan.
Hsiao
Hsin-yung, a human resource consultant
specializing in China’s labor regulations,
suggested that complying with the law could
increase the operating costs of Taiwanese
manufacturers by some 30%, creating a heavy burden
for already struggling enterprises.
''This
law simply leans too heavily toward laborers,''
Hsiao said. ''But it is the nature of the
Communist Party to protect workers.''
According to statistics from Taiwan’s
Investment Commission under the Ministry of
Economic Affairs, Taiwan has invested a total of
US$61.75 billion in China as of the end of
September since investment was first permitted in
1991, accounting for 54% of the island’s total
external investment. Among China’s main provinces,
31.9% of total investment - covering 5,514
investments - was applied in the Yangtze River
Delta area of Jiangsu province. About 26% of the
total - covering 11,773 investments - went to
Guangdong province. Investment in the once-popular
Fujian province, directly across the Taiwan Strait
from the island, accounted for only 7.7% of the
total, with 5,170 investment contracts at the end
of July.
Based on a study by Chen Tain-jy,
an economist at National Taiwan University,
Taiwanese export manufacturers contributed
significantly to China’s economic reforms from
1979 to 2001, helping the mainland gain access to
international markets and create some 200 million
jobs. The relationship changed with China’s
accession to the World Trade Organization in 2001.
Beijing quickly shifted its focus to cultivating
its own home-grown enterprises, and Taiwanese
manufacturers began to be viewed as ''hindrances''
to China’s economic reform.
''The factors
tolerated [environmental pollution, high energy
consumption, and relatively poor labor practices]
to attract Taiwanese manufacturers in past decades
have gradually become unacceptable [to Chinese
authorities],'' Chen noted in his review of the
20th anniversary of cross-Strait economic
interaction.
With China introducing new
income tax regulations and terminating
preferential policies, Taiwanese entrepreneurs are
considering new investment destinations, including
a return home. According to a survey conducted
by Hong Tsai-long, research fellow at the Taiwan
Institute of Economic Research, 37% of China-based
Taiwanese enterprises viewed China’s new policies
- including the end of preferential treatment and
increases in pensions - as disadvantages to
continuing their operations in China. Also, 30% of
the interviewees said increasing labor costs,
China’s currency revaluation and intense
competition in the mainland’s domestic market were
their major concerns. In this environment, 8% of
the companies interviewed said they would prefer
to completely withdraw from China and 31% said
they would prefer to add a base outside of China,
with Vietnam and Taiwan as the top destinations.
Only 36% still considered China to be the best
location for their investment.
Another
survey released last summer also reflected
Taiwanese businessmen’s interest in diversifying
their investment targets. According to the 2007
annual survey conducted by the Taiwan Electrical
and Electronic Manufacturers’ Association, based
on interviews with 2,565 China-based Taiwanese
businesses, Vietnam became the preferred
investment destination in companies’ future plans
for the first time in the survey’s eight years.
Carlos Cheng, deputy director of the
Taipei Economic and Cultural Office in Vietnam,
said Taiwanese investment delegations from Taiwan
and China are visiting Vietnam in record numbers.
Some delegations, he said, have as many as 100
members. Many Taiwanese businesses have already
taken the plunge, with 1,750 investments formally
approved in Vietnam so far.
Those business
that have returned to Taiwan made 91 investments
worth some $271 million (NT$8.8 billion) in the
island from November 2005 to October 2007.
Back in Guangdong, Tien Mu Blue Bird Café
now plans to open five to six outlets each year to
serve its Chinese customers. But not all
China-based Taiwanese businessmen have been as
lucky as the chain’s owner.
With China
eager to develop its inland regions, officials in
Beijing have tried to encourage Taiwanese
manufacturers in such areas as the Pearl River
Delta to move west. None of the Taiwanese
consultants contacted for this report said they
would advise their clients to follow Beijing’s
advice. They believe it's only a matter of time
before Taiwanese businesses will face the same
problems inland that they are facing now in
southern Guangdong.
Ting-I Tsai
is a freelance journalist based in Taipei.
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