By  on July 3, 2007

BEIJING — China's newly approved national labor law may improve conditions for millions of workers, experts agree, but it's as yet unclear what impact it might have on rising wages and other costs for international businesses operating here.

After a decade of drafting, months of late-stage negotiations and some 190,000 public comments, the Chinese legislature last week approved the first update to the country's national labor contract law in nearly two decades. The new law, which takes effect Jan. 1, will standardize previously gray areas in the country's employer-employee relations.

Among other provisions, the law prohibits the use of rolling temporary contracts, which businesses used to hire long-term workers on probationary terms with little or no benefits. It also beefs up working standards for China's 200-million-strong domestic migrant workforce and mandates documentation of proper employee compensation and benefits.

The law also includes a provision specifically banning and proscribing punishment for forced labor, which was added following a recent scandal where workers were found toiling under slave conditions in brick kilns in Shanxi Province.

On the employee side, the law mandates that workers protect the intellectual property rights of their companies, and says they must abide by contract terms to get their benefits. If no contract is signed, the national labor contract takes over.

Business groups reacted with guarded optimism. The American Chamber of Commerce in China said it hoped the law would help workers and businesses alike by setting forth legal terms for employment.

"We look forward to further dialogue with the government on this and other laws, and hope to see the law applied consistently to both foreign-invested and local companies," said James Zimmerman, chairman of the business group.

The chamber's Shanghai branch last year got into hot water over a lengthy series of written comments it submitted to the Chinese government about the law, saying some of its provisions were too strict and too costly. Labor unions in both the United States and China said the Shanghai group was out of line for arguing against better working conditions in China. In its latest white paper, the Shanghai office softened its stance, but said it "remains concerned" about the law's lack of distinction between different categories of workers and about widespread attempts by Chinese labor unions to unionize large foreign firms.The European Union also objected to parts of the law, and in its commentary expressed the fear that strict labor standards would force international business to move elsewhere. In a statement after the new law's passage, the EU changed its tune and said it hoped the Chinese government would enforce the law.

"There is no doubt that the passing of the law and its strict implementation will drastically improve the working conditions in China," the statement said.

The EU added that it does not believe businesses will leave China if labor costs increase because of the new law.

Guo Jun, legal director for the All-China Federation of Trade Unions, who helped write the new law, said the concerns of multinational companies were included and he doesn't believe the labor law should be made into a political flash point.

"We shouldn't think of this as a political issue or foresee some economic crisis," Guo said in an interview.

Guo said he believes foreign companies upset over the law should realize that without Chinese laborers they'd have no operation here. The country is developing quickly, costs are rising, he said, and workers need to keep pace with rising living standards.

Additionally, he said, the Chinese unions and government believe a standardized law about contracts will remove vast uncertainty on both sides by codifying and clarifying areas that were previously unregulated.

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