Doing Business with China

The Ministry of Labour and Social Security (the Ministry) formed in 1998 when the PRC Labour and Social Securities Ministries were merged. The Ministry is responsible for formulating national labour and social security policies. The labour and social security bureaus, which sit beneath the Ministry, are responsible for administering the national and local regulations.

Legislation

The PRC Labour Law (the Labour Law), effective from 1 January 1995, and the PRC Trade Union Law , promulgated on 28 June 1950 and revised on 3 April 1992 and 17 October 2001, are the principal Chinese labour laws. The laws, which apply to all enterprises and economic organizations, address most employment issues including recruitment, contracts, wages , work conditions, occupational health and safety, women in the workforce and dispute resolution.

Under the Labour Law all employers and employees must execute labour contracts that define the parties' rights and obligations and include the term , nature of the job, safety and working conditions, remuneration, discipline, and conditions for termination and breach of contract. Supplementary laws have also been issued for particular aspects of employment, including:

• The Regulations on Labour Management in Foreign Investment Enterprises (the Labour Management Regulations), adopted in 1994;

• The Regulations of the State Council Governing Working Hours for Workers, adopted in 1995; and

• The Provisional Administrative Measures on Wage Incomes of FIEs, adopted in 1997.

Labour practices also vary between regions as provincial and local labour departments have fairly wide discretion in handling local labour matters.

Recruitment

FIEs may recruit Chinese employees directly or through local employment service centres . Foreign nationals, however, require approval from the local labour bureau and the employer must demonstrate why local employees cannot fill the position or do not otherwise qualify.

Wages

The Labour Law provides a minimum wage requirement, which is determined at a provincial level. The 1993 Regulations on Minimum Wages in Enterprises (amended in October 1994) require all provinces , autonomous regions, and directly administered municipalities to set minimum wage standards and report them to the Ministry. Employers that fail to meet these standards may be ordered to compensate employees for the difference, pay other compensation, or both. Employers must also deduct and withhold employee individual income tax, social security and related payments.

Subsidies

Employers must pay living subsidies and provide medical treatment allowances for all PRC employees. Employers and employees must also participate in the PRC social insurance system for unemployment, old age pension, medical treatment, work-related injuries, and maternity care. In addition to these mandatory subsidies, employers may also introduce incentive schemes such as bonuses or allowances. These schemes must be paid out of an employee bonus and welfare fund which is created from the employer's after-tax profits.

Employment terms

The standard workweek is five, eight- hour days. Enterprises requiring different standards may, with approval from the local labour administration, adopt flexible work systems.

Overtime Restrictions apply to overtime work. Overtime may not exceed one hour a day and 36 hours a month, although, under special circumstances and subject to agreement with trade unions and employees, this may be longer. Standard overtime wages are:

• 150 per cent of regular wage for overtime;

• 200 per cent of regular wage for work on rest days where alternative rest days cannot be found; and

• 300 per cent of regular wage for work on statutory holidays.

Annual leave Employees are only entitled to annual leave after one year's service with the same employer. The amount of annual leave varies according to work obligations, qualifications, and other factors, but normally does not exceed two weeks a year. Employees are also entitled to home leave if they are required to live away from their spouse or parents. Employees visiting their spouse are entitled to 30 days home leave per year. Home leave to visit parents is either 20 days per year or 20 days per four years , depending on whether the employee is married.

Other restrictions Special laws protect various aspects of female employees such as maternity benefits. 'Minor' employees between the ages of 16 and 18 years are also protected under special occupational health and safety measures, including special procedures for hiring minors. Hiring children less than 16 years of age is strictly prohibited . Employers must also implement occupational health and safety programmes in the workplace, and conduct regular physical examinations for employees in hazardous occupations.

Termination

Employment termination is complicated in the PRC and employers should exercise caution when sacking employees.

Termination by the employer Employers may dismiss employees without notice only when the employee:

• is dismissed during the statutory probation period;

• has seriously violated workplace rules;

• causes great losses to the employer due to serious dereliction of duty, embezzlement or another criminal offence; or

• is being investigated for a criminal offence.

Employers may otherwise dismiss employees, by first giving 30 days' notice only when the employee:

• is unable to take up his original or any new work upon returning from non-work- related medical treatment for illness or injury ;

• is unqualified for his job and remains unqualified even after receiving training or an adjustment to another work post; and

• is unable to agree with the employer, after mutual consultation, to modify his labour contract when the purpose for which he was originally hired has significantly changed or no longer exists.

Employers may not dismiss employees when they:

• suffer from a work-related sickness or injury that has been medically confirmed as having completely or partially caused the employee to lose the ability to work;

• suffer from an illness or injury for which medical treatment within a specified period is allowed; or

• are pregnant, on maternity leave or within the specified period for nursing.

The Provisions Concerning Economic Redundancy in Enterprises (effective 1 January 1995) allow employees to be laid-off or dismissed for economic reasons, such as when the employer:

• faces bankruptcy,

• undergoes statutory reorganization Court order, or

• falls into 'serious operational difficulty' as defined by the local government.

Employers, however, must give priority to laid-off employees if they recruit again within six months after a layoff .

Termination by the employee Employees generally may resign at will, but generally must give at least 30 days' notice. No notice is required if an employee resigns:

• where the employer has 'coerced' workers with violence, threats or illegal restrictions on personal freedom;

• where the employer fails to pay wages or provide working conditions as agreed to in the labour contract; or

• at any time during his/her probation period.

Labour disputes

The PRC Regulations Concerning the Handling of Labour Disputes in Enterprises and the Provisional Regulations on Handling of Personnel Disputes establish the procedures for handling labour disputes. Under the dispute regulations, parties are encouraged to settle labour disputes by negotiation or mediation. If neither of these works, the parties must resort to compulsory arbitration before they may initiate legal proceedings .

Foreign employees Foreign nationals may work in the PRC only after obtaining Employment Permits and Residence Certificates except where they:

• are a professional technician or management personnel employed directly by the Chinese Government;

• hold a Foreign Expert Certificate issued by the Foreign Expert Bureau and are employed by state authorities or public institutions;

• have specialized skills working in offshore petroleum operations without the need to go ashore and hold a Work Permit for Foreign Personnel Engaged in Offshore Petroleum Operations in the PRC; or

• engage in commercial activities with the approval of the Ministry of Culture and hold a permit to conduct temporary commercial activities.

Legislation The Administrative Regulations on the Employment of Foreign Nationals in the PRC (the Provisions), promulgated on 22 January 1996, govern the employment of foreign nationals in the PRC (holders of Hong Kong, Taiwan and Macao travel documents are governed by separate regulations). The Provisions require that an employer must prove that a 'special need' (defined as where there are requirements for a position for which there is a temporary shortage of suitable local candidates) exists before employing a foreign national.

Foreigners without residency rights seeking employment in the PRC must:

• be at least 18 years of age and be in good health;

• have no criminal record;

• have a confirmed prospective employer;

• hold a valid passport or other international travel document; and

• be qualified for the position for which a 'special need' exists.

Representative offices Registered representative offices are subject to different regulations. All Chinese staff hired by representative offices must be employed from Chinese organizations authorized by the State to provide services to foreign enterprises. Direct private hiring is prohibited.