(May 12, 2008) — China's far-reaching new labor law is getting a lot of attention these days, as it should. It expands worker protection and raises costs for companies, and is frequently mentioned as one of the reasons some factories in China are looking for even cheaper spots, such as Vietnam.
The head of one prominent American business group in China, however, thinks that misses the point, and believes China's tougher stance on labor abuses could actually be good for U.S. businesses.
That's because the new labor rules will hurt the most for sweatshops and dirt-cheap manufacturers that have skirted rules and abused workers, said Harley Seyedin, president of the American Chamber of Commerce in South China, in Guangzhou.
The idea that tougher regulations will be good for higher-end businesses because the rules will eliminate the lowest-cost competition, the worst companies, is one I've heard echoed in the Chinese plastics recycling industry, where tighter environmental rules could benefit larger, bettercapitalized firms.
Some media reports have suggested that thousands of lower-end factories making things like shoes, textiles and toys could go out of business in the Pearl River Delta, South China's manufacturing corridor from Hong Kong to Guangzhou, as a result of rising costs and tougher laws.
“It's going to give our companies a chance to produce their products on an even playing field,” Seyedin said. “We're paying proper salaries, and housing, and welfare. That costs money, so our costs have typically been higher.
“You have these other guys … who are now going out of business, that were undercutting us every time,” he said. “What you see leaving are sweatshops, and they shouldn't have been existing anyway. What you are going to see instead are going to be leaner, meaner, more automated, cleaner, less-energy-intensive factories.”
Seyedin said he believes a small number of U.S. firms will also relocate as a result of the new Chinese government policies, but just as many will benefit.
While overall the law is a good one, he said, his group is getting ready to recommend some changes, such as flexibility for overtime and for handling different types of workers, rather than a one-size-fits-all approach.
Seyedin, interviewed April 14 in his Guangzhou office, ran through the challenges facing firms in China, from rising Chinese currency to changes in value-
added-tax rebates and processing trade tax policies. Inflation, though, is the biggest worry for U.S. firms, he said, citing an early April survey of 420 of the group's 1,200 members. That survey, an annual look at business conditions in South China, found that in general business remains good. Three-fourths of the AmCham companies in South China said they are profitable there, and AmCham said its members plan to increase investment in China 30 percent this year, to $4.3 billion.
Those claims could be read a couple of ways. Some might see a growing market in China that U.S. firms need to be in, while others might see it as evidence that outsourcing is filling corporate coffers. Seyedin said he's got no such political point in mind.
“The reason we do this is not political. We're not trying to make a statement to the world or take sides,” he said. “What we as a chamber find is that we need to gather facts so that our businesses can make decisions.”
Toloken is Plastics News´ Guangzhou, China-based Asia bureau chief.