China Employment Law Update - March 2016

1. Premier Li Keqiang delivers Report on the Work of the Government (2016).
2. Possible amendments to PRC Labour Contract Law attract wide public interest.
3. Provincial governments reduce the economic cost of enterprises.

Premier Li Keqiang delivers the Report on the Work of the Government (2016)

On 5 March 2016, Chinese Premier Li Keqiang delivered the Government's work report during the opening meeting of the fourth session of China's 12th National People's Congress (NPC). First taking a look back at developments over the past 12 months, the key employment-related points were:

• China's economy operated within an appropriate range. GDP reached 67.7 trillion yuan, representing an increase of 6.9% over the previous year.
• The employment situation overall remained stable, with 13.12 million new urban jobs created over the year, surpassing the target and becoming an economic highlight.
• Subsistence allowances, benefits for entitled groups, and basic pension benefits for enterprise retirees have been increased.
• Reform of the pension system for employees of the Communist Party of China and Government offices and public institutions has been implemented, and their wage system improved.

This year sees the beginning of the 13^th Five-Year Plan.  The main employment-related targets for 2016 to 2020 are:

• The average number of years of schooling received by the working-age population is to increase from 10.23 to 10.8 years.
• 50 million plus new urban jobs will be created.
• The income gap will be narrowed, and the proportion of those on middle-incomes as a percentage of the whole population will be increased.

Looking ahead, Li Keqiang noted the following goals and objectives for 2016:

• To create at least ten million new urban jobs.
• To keep the registered urban unemployment rate at or under 4.5%.
• To deepen reform of the enterprise personnel management system and explore the possibility of establishing remuneration systems for senior ranking personnel and corporate executives that are more compatible with competitive selection and recruitment.
• To pursue a more proactive employment policy and encourage business startups to create employment. This year, there will be up to 7.65 million college graduates, so creating employment is a key aim.
• To continue to increase basic pension benefits for retirees.

Probable amendment to the PRC Labor Contract Law

On 19 February 2016, Mr. Lou Jiwei, the Minister of Finance, delivered a speech on labour market flexibility and the advancement of Total Factor Productivity (TFP) to the 2016 Chinese Economy 50 Forum. His speech has attracted broad social attention to the amendment of the PRC Labor Contract Law (the "Law"), triggering wide discussion among scholars, enterprises, the legal profession and the public at large.

According to Lou, given China's "New Normal" economic situation of slower growth, the Law is not completely fit for purpose. The Law places restrictions on corporations both in the field of legislation and law enforcement, and this has significantly lowered the flexibility of our labour market and TFP, ultimately resulting in low labour productivity.

Lou pointed out several key problems. First and foremost, the current system of recruitment has become detached from labour productivity, leading to an inflexible system of pay which is not dependent on productivity. Second, corporations have to enter into long-term contracts with their employees, which inhibits their ability to hire and fire more flexibly to cater for peaks and troughs in production. Third, the decline in new entrants to the labour market has weakened its overall quality, harming PRC's low-skilled labour force. Finally, the cost of training new recruits is high, whilst high attrition rates mean that businesses lack the motivation to invest in such training.

The Law, Lou said, is insufficiently protective of business and too protective of employees, given the current economic conditions. To address this, Lou called for the Law to be amended,  so as to remove overly rigid and employee-friendly provisions and increase the flexibility of the labour market.  The aim is to redress the balance between corporations and employees as a matter of priority.

Provincial Governments lessen the economic cost of enterprises

The Chinese Government is committed to reducing the economic cost of enterprises.  In line with this, several provinces have introduced new policies of their own.

The government of Guangdong province, has introduced a policy to reduce the overall payment rate of unemployment insurance benefits from 2% to 1%, from 1 March 2016.  One of the key aims of this policy is to lower corporate costs.  The policy provides for a reduction in the payment rate for companies from 1.5% to 0.8% and the individual payment rate from 0.5% to 0.2%.

Recently, the government of Jiangsu province also introduced a similar plan to allow a reduction of 0.5% in the overall payment rate of unemployment insurance benefits from 2016 to 2018.  There will also be some preferential policies for enterprises, including:

• (i) troubled businesses that are temporarily unable to bear the burden of social insurance charges will be given a moratorium of up to 6 months as long as they can provide effective guarantees;
• (ii) an adjustment will made to the local minimum wage rates; 
• (iii) allowances will be paid to troubled businesses to minimise layoffs; and
• (iv) special funds will be established to support the provision of training to employees by businesses.