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China Moving Out of `Cheap Labor' Era

Jan. 3, 2008 (EIRNS)—China introduced a new labor contract law on New Year's Day, which will strongly increase workers' rights, and which is another big step in the government's overall strategy to bring the cheap-labor, cheap-export era to an end.

China Daily today quoted Auret van Heerden of the Geneva-based head of the Fair Labor Association, which monitors 60 nations, saying: "The government that is making the most concerted effort to protect workers rights is China." The new law will increase job security, which puts more pressure on the "processing trade" in China. The cheap exports generated by the processing trade do not benefit the real Chinese economy, and have sent its trade surplus soaring.

The law guarantees that workers who have worked two fixed terms — overall, 10 years — at the same place, get "open-ended" contracts, meaning they cannot be fired without cause. Also, the law limits overtime, sets minimum wages, and guarantees one month's pay for each year worked for workers who are fired. This is the first time that China's National People's Congress Standing Committee has ruled on open-ended work contracts and severance pay for fired workers. This will make it harder for companies to hire temporary workers, used by exporters as the cheapest way to deal with fluctuations in orders. Due to the increased labor costs, some labor-intensive companies will either have to raise prices, or even leave China seeking cheaper labor. Already, Olympus Corp., the world's No. 4 digital camera maker, and Yue Yuen Industrial (Holdings) Ltd, the biggest maker of shoes for brands such as Nike, Inc., are moving to Vietnam for cheaper workers.