Chinese labour regulations harm economy: FinMin

Beijing, March 7

China’s labour regulations harm workers by reducing job opportunities, finance minister said today as Beijing tries to restructure its economy while avoiding mass layoffs and social unrest.

The labour contract law passed in 2007 restricts companies’ ability to fire workers. Minister Lou Jiwei said it was discriminatory towards people entering the workforce, and so ultimately counter-productive.

His comments on the sidelines of the National People’s Congress (NPC) echo debates around the world on the conflict between job creation and protection of existing employees.

Communist China was once a command economy where many workers could rely on their work unit, or ‘danwei’, for everything from housing to medical care. Three decades ago it embraced market principles — dubbed ‘socialism with Chinese characteristics’ — triggering a huge economic boom. But some sectors remain bloated and inefficient, particularly state-owned enterprises.

Lou said labour law’s ‘original purpose was to protect workers, but in the end it harms interests of some workers, and may lead to a rapid rise in wages’, increasing firms’ costs and leading them to move operations overseas. “Ultimately who is harmed? It’s workers who are harmed,” he said.

He did not propose specific reforms but said the finance ministry ‘must point out problems it sees, because it has an effect on the entire economy’.

Reducing overcapacity in industrial sectors such as steel and coal has become an urgent priority for the world’s second-largest economy as it seeks to transition away from investment-led economic growth towards a consumer-driven model.

But such cuts have raised worries of vast layoffs akin to the wave of 30 million job losses experienced in the 1990s when Beijing shuttered thousands of state-run companies, and the ruling party is always keen to prevent social unrest.

At Saturday’s opening of the NPC, the annual meeting of China’s Communist-controlled parliament, Premier Li Keqiang pledged to kill ‘zombie enterprises’ and cut excess capacity through mergers or liquidations.

On Sunday, the country’s top economic planner reiterated a goal of reducing steel capacity by 100 to 150 million tonnes within five years, but added that such cuts would ‘definitely not’ cause mass unemployment.