A Look at China’s Labor Regulations with Regard to Sino-U.S. Trade Friction

Trade frictions between China and the United States have been the most severe in 2009. When such frictions occur, the Chinese media and so-called experts try to educate the American public on the U.S. government’s wrongdoing by portraying the average American as the biggest victim of these economic disputes.

Their kind advice, however, has not been met with much gratitude. Take President Obama’s recent visit to China. Everything went smoothly during his tour of the Great Wall and the Forbidden City. He and top Chinese officials even agreed that there should be no more trade frictions between the two countries. But right after he left the country on November 24, the U.S. Department of Commerce announced that it would impose an anti-subsidy tariff of 10.36 percent to 15.78 percent on Chinese oil pipes, claiming that the Chinese industry was receiving government subsidies. The case, involving about 2.7 billion U.S. dollars, is by far the largest sanction the U.S. has ever imposed on China. This game is not new. French President Nicolas Sarkozy and German Chancellor Angela Merkel have pulled similar stunts.

Why do we end up being the loser all of the time?

For too long we have bid our hopes on universal justice and on the possibility of others “becoming smart” to such an absurd extent that we have neglected our own people — a matter that deserves our utmost attention in this fight against foreign sanctions. If our people become affluent, with strong enough buying power, would we need to beg other countries to take in our cheap-labored products?

When the reform and opening-up first began, it was acceptable to rely on trade to obtain foreign exchange and enhance national power. Poverty deprived our people of any significant buying power. However, this model of sacrificing cheap labor and natural resources in exchange for low-end products of little if any technological substance is mere expediency. The best and only way to achieve genuine prosperity would be through the combined means of (1) absorbing advanced technological and management methods, and healthy capital to support a batch of globally competent Chinese businesses; and (2) building an economy focused on the domestic market, supplemented by foreign trade, by raising the people’s income and purchasing power.

The reality is that 30 years after the reform and opening-up, wealth polarization has reached absurd levels in Chinese society. Urban residents with high “gray incomes” (any income outside the scope of state supervision and control) boast wealth that is equal to American or European wealth. A portion of their income is derived from working additional jobs, while some of it is obtained in a more questionable manner. But the majority of Chinese people haven’t really benefited from the reform policy. If we fail to expand domestic demands, we will have no choice but to rely on foreign trade to boost our GDP. This submissive position will certainly cost us dearly in dealing with the economic hegemonies of the world.

Most local administrations in the Pearl River Delta region of China take big shares from lucrative land-use contracts with foreign businesses. Studies show that while an average factory worker in Shenzhen has to live on less than 900 yuan a month, an elementary school pupil receives more than 1,500 yuan in pocket money. It’s not surprising that the people here can enjoy high living standards without really having to work. The propaganda about how the Shenzhen people earned their wealth through diligence and innovation is just a lie. Frankly put, Shenzhen locals have merely been exploiting peasant workers to fill their own pockets. (Editor’s note: a majority of factory workers in Shenzhen are peasants from the countryside or from other provinces, rather than local people.)

Officials aren’t specifically interested in protecting the rights of peasant-workers, at times even siding against them. The influx of foreign investment only benefits local administrators and native populations, thereby creating a community of common interest between the government and foreign investors.

Labor legislations that should be shielding workers from injustice aren’t helping much either. For example, in 1999 the average monthly wage of Shenzhen workers was 900 yuan. Ten years later, most workers are now making 1,100 yuan, while a few earn only 600 yuan. If inflation rates are taken into consideration, these workers aren’t making a cent more than what they earned ten years ago. Chinese labor regulations are little more than fancy paperwork set to fool foreign human rights watchdogs rather than protect workers. According to Chinese laws, the lowest monthly wage for workers in the satellite towns outside of the Shenzhen Special Economic Zone is 900 yuan, but from what I’ve seen, the vast majority of factories don’t care about the minimum wage at all, and even when they do, it’s because they are short of labor and have no other choice. Factories that do abide by the law are mostly businesses from democracies like France, America and Japan, which make up less than 10 percent of the total number. The laws don’t have much restricting power on the behavior of businesses, and the government turns a blind eye to these violations.

Let’s look deeper into the above example: If a company strictly obeys the labor regulations, which state that an employee can work no more than 36 overtime hours a month, its workers will make 1,180 yuan a month (base pay 900 yuan and 280 yuan for 36 hours of overtime). If housing and food are subtracted, they will have a mere 500 yuan of net income. Not only are businesses reluctant to obey these regulations, because they won’t be able to attract applicants, but workers themselves are willing to work 100 hours of overtime each month so they could then have 1,000 yuan of net income. There once was a French company, which, influenced by the philosophy of Voltaire and lacking sufficient knowledge of Chinese society, limited its employees to fewer than 36 hours of overtime each month. Naturally, it couldn’t recruit anyone at all, and was forced to violate the law to allow more hours of extra work. As a matter of fact, companies that do place a 36-hour limit on overtime hours are extremely rare if not non-existent in Shenzhen.

The inability to advance one’s rights through legal procedures is another aspect of the worker’s predicament in labor relations. It is extremely difficult for a worker to win what he deserves when he enters a legal face-off with his employer. The Labor law of the People’s Republic of China stipulates a Mediation/Arbitration Court procedure for labor disputes. If a worker appeals, the whole process will take about six months, during which he will normally spend 2,000 yuan a month just to get by without any income. Six months means he’d lose 12,000 yuan, a small fortune. Most already impoverished workers aren’t able to persist any further, so they usually just swallow the loss and move on, while some may attempt to jump off a building, counting on media coverage that could win them some hope. Human rights violations such as random fining and coerced contracting happens on a daily basis in Shenzhen. A considerable number of workers commit suicide each year because of labor disputes, but the government and the media never disclose these incidents.

It may seem that Chinese labor regulations have little if anything to do with Sino-U.S. trade frictions, yet they are indirectly correlated as described above. Only when the Chinese people truly have control over their destinies, when they can use law as a weapon to protect their legal rights, when they can all benefit from the thriving national economy, and when they are capable of buying their own products, will they be shielded from the downsides of Sino-U.S. trade frictions.