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China: Labour Regulation

Regulatory Environment

China has a huge population, abundant labour resources and a relatively low level of wages. The Chinese work force is of a relatively high quality. Generally speaking, overseas-funded enterprises set up in China are satisfied with the quality of Chinese workers and technicians.

Representative Offices can employ foreign staff, who will require employment visas and residence permits. They will be subject to tax on China-source income (unless they are in the country for less than 90 days a year, or 183 days if a tax treaty applies), and after five years will be taxed on their world-wide income.

Local staff can also be employed, but not directly. They have to be provided by a 'labour service organization' licensed by the Ministry of Labour and Social Security. The RO is responsible however for paying taxes due in respect of Chinese employees.

'Wholly Foreign Owned Enterprises' (WFOE) and 'Foreign Invested Commercial Enterprises' (FICE) on the other hand can employ Chinese staff directly if they choose to. Individual labour contracts are required and must be submitted for approval to the local labour bureau.

The contract, which needless to say must be in Chinese, must include at least a minimum seven clauses as prescribed by Article 19 of the Labour Act, and must follow a format prescribed by the local labour administration. The contract must be signed within one month of the commencement of employment; an employer who does not sign such a contract within one month is liable to pay double wages to the employee concerned. Legal employment begins on the day that work begins, not on the day a contract is signed.

PRC labour law permits the termination of a direct employment on 30 days' notice, but if there is no demonstrable cause, there is a definite possibility of legal action. For this reason it may be better in some circumstances to recruit Chinese workers through an official 'labour service' office since there is no direct legal relationship with the employees.

Management of a Chinese work-force needs to take account of conflicts that may exist between the ethos and culture of Western companies and the collective, communist-inspired mind-set of staff members. This is not to say that Western managers must adopt communist principles, but just to show that a long, careful process of education and training will be required during which staff can come to learn the principles of free markets and the rule of law, while some acceptance of collective principles and some dilution of the highly individualistic attitudes of Western managers may be advisable if staff morale is not to be damaged.



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