Despite concern, resistance and even lobbying from the business community, China's new labor contract law, effective since Jan. 1, has quietly changed the way many companies operate in China.
Allen Luo, vice president of privately owned Lisi Group Co. Ltd. of Ningbo, said the labor regulation is yet another punch from the government since the cut in the export value-added-tax rebate last summer. His firm is one's of China's largest housewares exporters.
The direct impact of the updated labor law system is for firms to pay more and hire more, Luo said in a recent interview in Shanghai.
Pay more, because the new rule requires 1.5 times the hourly rate for overtime work during weekdays and double for weekends, and triple for observed national holidays.
Hire more, because the new law prohibits both employer-forced overtime and more than 36 hours of overtime per week.
The new law also mandates contracts for all employees; open-ended contracts - basically lifetime tenure - for long-term employees; and health insurance and benefits. But Luo argues that some positions simply can't be permanent. Lisi is updating its hiring policies and employee manual.
But the most important impact of the new law, Luo said, is the resurgence of workers' awareness of their rights. ``Labor relations are no longer something the employer can decide single-handedly. Employees have more bargaining power now,'' he said.
Being in a labor-intensive business, Luo said Lisi's margin is razor-thin already. ``We might just break even in 2009,'' he said.
Recycler and wood-plastic processor T&T Group Inc. of Humble, Texas, also has realized that the abundant, cheap labor at the company's Dongguan production base is disappearing.
``Labor cost for us has increased about 35 percent,'' said President Toland Lam. The firm recently added automation for recycling industrial scrap to allay its dependence on manual work.
If automation were the cure-all, robotics suppliers would have seen a surge of orders. But Alfa Automation Machinery Co. Ltd. of Taipei, Taiwan, has not seen much increase of demand solely because of the new labor law.
``Some customers are closing, and there's also more competition in the automation industry in anticipation of the labor law,'' General Manager James Huang said in an interview at Chinaplas, held April 17-20 in Shanghai.
``I'm not saying business is not good,'' Huang added.
The firm sold 10,000 units of automation equipment in 2007, up 70 percent from a year ago. Huang said January and February sales were flat, as customers were deciding whether to invest or give up. He expects sales to pick up in the second quarter.
Taiwanese investors are taking the lead to transfer manufacturing from mainland China to Vietnam. But Huang said Vietnam is not perfect, either.
``Companies of similar businesses cluster together, and workers of these factories take turns to strike. Owners have no choice but raise the pay, at least twice a year,'' he said.
Vietnam's workers are less skilled but are more proactive in compensation negotiation.
``I bet their pay will catch up with China's level in just a few years,'' Huang said.
Alfa launched its new full-positioning robot with a 2.2-second cycle at Chinaplas. ``If anything, we see demand for higher-end automation is going up,'' he said.
Some believe the small, labor-intensive, low-end exporters will switch to tackle the domestic market. But Huang was skeptical.
``It's a totally different world of business. Most likely they will just go out of business,'' he said.
Liuzhou Jingye Machinery Co. Ltd., a blow molding equipment maker in Liuzhou, has had to expand its workforce.
``The compensation package, including benefits, has upgraded a lot,'' said Vice General Manager Li Hui, ``so the employees are not motivated to work overtime, no matter how much extra we pay.''
But adding head count can be a headache. Alfa has 900 workers on the mainland, mostly living in company dorms with free board. ``We simply can't all of a sudden accommodate many more workers with the existing facilities,'' Huang said.
That being said, Huang supports the new labor law wholeheartedly.
``Chinese laborers' wages have increased very little in the past decade. As the [gross domestic product] and inflation rate are going double-digit, that's simply not right,'' he said.
A bigger staff also demands better management, which many firms are not ready to offer, Li added.
So far the impact of the labor law seems to be more significant at smaller, Chinese businesses, rather than multinational firms.
Andreas Nydegger, general manager of Netstal China Ltd., put it this way: ``If the new labor law is an issue, the company is already on the wrong side.'' Nydegger noted the labor law will trigger consolidation and benefit the industry as a whole. ``That'll be good for us,'' he said, ``Processors will need better machines and be more likely to invest in the longer term.''
Jay Woerner, Milacron Inc.'s vice president of manufacturing and sourcing said the labor law is designed to provide more uniformity in the treatment of workers.
``It's actually moving China closer to the developed nations' labor laws today. So to an American or a Western European company, it's not extreme or it's not different. To people who operate in China and the Chinese companies, it is very significant,'' he said.