In the last few weeks the media has been chronicling a swelling anxiety among Taiwanese firms in China that a new Chinese labor law is going to make it extremely difficult for Taiwan firms to do business there. Taiwan Journal recently offered a piece on the issue:Many Taiwanese businesses in the Pearl River Delta area of China may soon shut up shop, in order to dodge surging labor costs brought on by China's new Employment Contract Law. The new law is widely believed to contain the world's most complete regulations governing labor-related issues, and is scheduled to take effect on Jan. 1, 2008.
"The situation will be miserable," predicted a Taiwanese businessman on condition of anonymity. "Big firms will take the lead in calling it quits, followed by their suppliers of raw materials and other supporting factories," he added Dec. 20.
An unofficial survey shows that one third of the Taiwanese firms in the area either have halted their operations or plan to do so in the near future. The area of the Pearl River Delta includes such regions as Dongguan, Shenzhen, Guangzhou and Zhuhai.
With the implementation of the new law on the horizon, businesses in the area are worried about the impact on their bottom lines. Taiwanese firms already have to bear various welfare costs, including pension allocation and medical insurance.
Industry insiders estimate the new law will boost manufacturers' labor costs by an extra 20 percent. In addition, the new law stipulates that employers must offer open-ended labor contracts to employees with over 10 years of service. Employers must also provide severance pay in case of mass layoffs.
The article is also one of several recently to claim that Taiwan firms in China may be returning to the island. According to the article, there has been an increase in demand for land in Taiwan's industrial districts. The Financial Express had a more detailed report earlier this month:
“To be frank, in the processing trade here, the biggest advantage was cheap labour. But now that’s going to change,” said Hsieh Ching-yuan, vice-president of the Taiwan Businessmen’s Association in Dongguan, an industrial hub in the Pearl River Delta in southern China. Calvin Chang, general manager of Jinghua China Investment Consulting in Shenzhen, said the law could increase labour costs by 8% next year. He expects many firms to shift to inland provinces like Jiangxi and Hunan or countries such as Vietnam. “Hundreds of small-sized Taiwan-invested firms in Dongguan and Shenzhen will be dead next year due to the new law,” he said.
The results have been predictable:
Companies from IT equipment makers to liquor producers have been playing a “fire and hire” game, rushing to terminate existing contracts and rehire staff on new contracts to start the clock ticking anew on their length of service.
Huawei Technologies Co Ltd made headlines by requiring some 7,000 employees with more than eight years’ service to “voluntarily resign” and reapply for their jobs.
According to reporters, the purpose of the new law is to force companies to upgrade production technology, and stimulate domestic demand by putting more money in workers' pockets, as well as give labor a greater share of the disproportion of returns that are currently going to capital. Given the status of "law" in China, I'm skeptical that the new law will be widely applied. More likely that a few chickens will be executed to scare the monkeys, and it will business as usual for most firms.
[Taiwan] [China]
8 comments:
What the article doesn't say is that manufacturing has been declining and labor costs rising for some time.
while is might affect companies that have set up shop in China, for companies that buy from China-owned suppliers, this shouldn't have much of an impact.
I don't think this will affect Taiwan's bottom line at all. I agree with Calvin Chang: if the PRC authorities even enforce this law, then it will end up being a boon to the China's interior. That's where the Taiwanese companies will go rather than back to Taiwan or Vietnam. If fact, spurring econ development in interior areas may be what's behind the whole thing.
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What?! No more slave labour and a pesky thing called "human rights"? What will Taiwanese businessmen do?!!
It really is sickening that this kind of exploitation exists (which also hurts Taiwan in the long-run).
I agree with you Michael. This is more than likely lip-service from a government who has no intention of creating a middle-class that will cause serious problems for the status-quo.
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Good point, PR. What's your sense of the enforcement of laws like this at the local level?
Michael
Wasn't it Taiwanese owned businesses in Guangdong Province that were using child labor to make items for the 2008 Olympics?
Prince Roy, there may be lower labor costs in the interior regions of China, but transportation costs are much higher, it's very much undeveloped at moment, and there's much less of a cluster effect. Locating in coastal regions is very, very nice--not only are transportation costs low, but the turnaround is fast, fast, fast.
The interior is no where near being a direct substitute for the coastal regions.
China is only doing a predictable practice that occurs in every emerging labor market. We have seen this happen before even in Taiwan. When it gets insufferable to manufacturers then another country will become more desirable for a cheaper labor market.
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