Identifier
Created
Classification
Origin
06BEIJING18534
2006-09-01 08:57:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Beijing
Cable title:  

CHINA LABOR ISSUES OVERVIEW

Tags:  ELAB PGOV PREL CH 
pdf how-to read a cable
VZCZCXRO2482
PP RUEHCN RUEHGH
DE RUEHBJ #8534/01 2440857
ZNR UUUUU ZZH
P 010857Z SEP 06
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC PRIORITY 5827
RUEHC/DEPT OF LABOR WASHDC PRIORITY
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUEHSH/AMCONSUL SHENYANG 6795
RUEHGH/AMCONSUL SHANGHAI 5695
RUEHCN/AMCONSUL CHENGDU 7038
RUEHGZ/AMCONSUL GUANGZHOU 1346
RUEHIN/AIT TAIPEI 5911
RUEHHK/AMCONSUL HONG KONG 8068
RUEHGV/USMISSION GENEVA 1305
UNCLAS SECTION 01 OF 12 BEIJING 018534 

SIPDIS

SIPDIS
SENSITIVE

DEPT FOR EAP/CM AND DRL/ILCSR
DEPT PASS USTR FOR KARESH, A. ROSENBERG, MCCARTIN
LABOR FOR ILAB - CARTER, OWENS, HELM, ZHAO, SCHOEPFLE
TREAS FOR OASIA/ISA-CUSHMAN
USDOC FOR 4420/ITA/MAC/MCQUEEN
GENEVA FOR CHAMBERLIN

E.O. 12958: N/A
TAGS: ELAB PGOV PREL CH
SUBJECT: CHINA LABOR ISSUES OVERVIEW

(U) SENSITIVE BUT UNCLASSIFIED: NOT FOR INTERNET
DISTRIBUTION.

UNCLAS SECTION 01 OF 12 BEIJING 018534

SIPDIS

SIPDIS
SENSITIVE

DEPT FOR EAP/CM AND DRL/ILCSR
DEPT PASS USTR FOR KARESH, A. ROSENBERG, MCCARTIN
LABOR FOR ILAB - CARTER, OWENS, HELM, ZHAO, SCHOEPFLE
TREAS FOR OASIA/ISA-CUSHMAN
USDOC FOR 4420/ITA/MAC/MCQUEEN
GENEVA FOR CHAMBERLIN

E.O. 12958: N/A
TAGS: ELAB PGOV PREL CH
SUBJECT: CHINA LABOR ISSUES OVERVIEW

(U) SENSITIVE BUT UNCLASSIFIED: NOT FOR INTERNET
DISTRIBUTION.


1. (U) This message provides background to assist
with the planning of Labor Secretary Chao's September
13 meetings with Chinese Minister of Labor and Social
Security Tian Chengping. The cable includes a section
on current political and economic context (paras 4-
19),a review of developments in China's labor
situation since Secretary Chao's 2004 visit (paras 20-
44),and a brief biography of Minister Tian (paras.
45-47). Post is happy to provide one-page briefing
summaries for easy reference.


2. (U) Tian's visit will offer an opportunity to
discuss our productive bilateral cooperation on labor
issues under three active USDOL programs in Labor Rule
of Law, Coal Mine Safety, and HIV/AIDS Workplace
Education. The U.S. is also providing assistance for
the development of Corporate Social Responsibility
programs as well as Labor Law education, through
programs funded by the State Department's Bureau of
Democracy, Rights and Labor. The State Department's
Bureau of International Law Enforcement Affairs has
also funded ILO work to assist China in preparing to
ratify ILO Conventions 29 (Forced Labor) and 105
(Abolition of Forced Labor). In 2004, DOL and the
Ministry of Labor and Social Security (MOLSS) signed
four letters of understanding on cooperation on Wage
and Working Hour Law Administration, Pension Programs,
Workplace Safety and Health, and Mine Safety and
Health, but no programs have been initiated yet. Tian
may wish to discuss the possibility of increasing
bilateral cooperation.


3. (SBU) The meeting with Tian will also provide an
opportunity to encourage the Chinese Government to
improve governance in the labor area. Although China
is making progress in legislation and regulation,
implementation is far from international standards.
Numerous labor disputes that should be resolved
through existing mechanisms end up festering because
these mechanisms are ineffective, time-consuming and

expensive, or because local labor bureaus do not
enforce the rules. In many cases, workers who attempt
to resove disputes through proper channels come to
believe that extra-legal means (e.g., strikes,
demonstrations) are the only way to get satisfaction.
It is important to remind Tian that U.S. interest in
labor cooperation includes human rights concerns, but
extends beyond them; Congress and the general public
take an active interest in our open market policies
and look to us to demonstrate that our bilateral
engagement is effective in enhancing workers rights.
A more rational labor market with effective dispute
resolution mechanisms in China will also help attract
and keep high-quality U.S. investment.

THE POLITICAL AND ECONOMIC CONTEXT
--------------

View from Beijing
--------------


4. (SBU) The Chinese leadership views the outside
world through the prism of China's own domestic
challenges and developments and the leadership's
determination to increase China's global influence.
The leaders of a one-Party state faced with profound
development and security challenges are focused on
stability and on preventing any perceived challenges
to the power and primacy of the Communist Party. The
regime's success, and hence its legitimacy, depends in
good part on its continuing to deliver breathtaking
economic growth (approximately 9 percent per year for

BEIJING 00018534 002 OF 012


the past 27 years) and commensurate increases in
living standards for over 1.3 billion Chinese people.
Job creation is a paramount concern. To achieve the
goal of continued rapid economic growth, the
leadership believes it requires domestic stability and
stable relations with the U.S. and neighboring
countries. China's increasingly active diplomacy
stems largely from these imperatives, from the
conviction of Chinese leaders that a stable, peaceful
international situation benefits China, and to a
growing extent from China's global quest to secure
resources. The Chinese realize that the relationship
with the U.S. is of paramount importance to their
continued economic growth, to global stability and
security, and to China's ability to continue what some
Chinese call its "peaceful rise."

President Hu consolidates power; Politicking; Taiwan;
Military Build-up
-------------- --------------


5. (SBU) President Hu has consolidated his authority
within China's cumbersome collective leadership
structure, although maneuvering in the run-up to the
fall 2007 Communist Party Congress is intensifying.
Changes in personnel at lower levels of the Party and
Government are preparing the way for leadership
changes to be ushered in at the Congress and will
likely preoccupy China's leadership over the coming
year. Some Vice Premiers are nearing retirement age
or facing grave illness and a number of Ministers and
Provincial Governors may be moved up and/or to the
center. Although President Hu has reiterated the need
for China to continue reforms following heated debates
on the issue, he has shown caution in areas that touch
on domestic stability and has supported retrenchment
in the areas of free speech and media. Internal
discussions about China's place in the world show
increasing signs of economic nationalism, with concern
by some that Chinese companies face unfair
competition. Hu appears to favor an incremental
approach to "reform" that would improve governance,
reduce corruption, increase democracy within the Party
and enhance Party legitimacy but not alter the Party's
basic monopoly on power. Taiwan remains a top concern
for Chinese officials. China appreciates U.S.
statements on our one-China policy and our efforts to
preserve the cross-Strait status quo. The U.S. and
others are concerned over the unclear purpose of
China's large increases in defense spending and the
military buildup and modernization. We continue to
seek to understand how China's buildup is consistent
with its oft-stated assertions of a defensive military
doctrine. The U.S. and China coordinate efforts on
many issues, such as counterterrorism, the Six-Party
Talks, unanimous UNSC resolutions on Iran and North
Korea, and combating infectious diseases. We
continue, however, to look to China to contribute more
to resolving these issues.

Rapid Economic Growth and its Challenges
--------------


6. (SBU) China's economy continues to grow at a
brisk pace. The Chinese official figure for the first
half of 2006 was 10.9 percent, although some believe
the true figure may have been even higher. The latest
GDP figures indicate that China has now overtaken the
UK and France to become the world's fourth largest
economy (based on size of GDP). However, in per
capita terms, China ranked one hundred tenth in the
world in 2005 (IMF data). At the end of 2005, China
revised its GDP upward by 16.8 percent. According to
the revised statistics, the contribution from services
now amounts to between 30 and 40 percent of China's

BEIJING 00018534 003 OF 012


overall GDP. Many Chinese economic policy officials
are increasingly concerned about both the pace and
composition of China's growth. The Central Government
seeks to rein in what it perceives to be irrationally
high growth in some provinces, yet local officials are
often promoted for their ability to increase
investment, GDP and jobs. Despite the Government's
stated goal of promoting consumption-led growth, the
economy of late has been increasingly driven by
investment and net exports. Chinese officials feel
the need to maintain high growth to create non-
agricultural jobs for the large, globally
uncompetitive and still poor rural sector. Slowing
economic growth, or worse yet, a sudden contraction,
could pose social stability challenges for the Chinese
Government.


7. (SBU) China faces enormous long-term development
challenges, including the need to invest more in
public health, environmental protection and education,
and securing adequate, reliable access to resources
and energy. China's large current account surplus is
due to an extraordinarily high savings rate of 51.8
percent (2005 gross national savings rate; EIU data),
which exceeds an extraordinarily high investment rate
of 44.5 percent (2005 grows investment as a share of
GDP, EIU data). High household precautionary savings
are necessary because Chinese lack both private and
public insurance and social safety nets to manage
rising health costs, finance education and provide for
a secure retirement. Corporate savings have risen
with profits, further pushing up the savings rate.
Due to weak corporate governance, neither public nor
private companies pay significant dividends.
Developing the financial sector, social safety nets
and corporate governance will all have a far bigger
impact on China's trade surplus than exchange rate
changes or reductions in trade barriers, but such
structural changes will take time.


8. (SBU) Big threats loom, including widespread
continuing drought and water shortages, air and water
pollution and the new threat of avian influenza. For
all its growth, the Chinese economy is also energy-
inefficient. China's energy consumption per unit of
gross domestic product is almost two and one-half
times greater than the world average and energy
intensity is still rising, a reflection of ongoing
high rates of investment in fixed assets. In the
early 1990s, China was still a net energy exporter,
but early this decade, overtook Japan as the world's
second largest importer of crude oil. Westinghouse,
still with much U.S. content though now owned by
Japan's Toshiba, is a finalist for new Chinese nuclear
power plant contracts and approved for USG advocacy;
those nuclear power plants are part of China's plans
to diversify its energy supplies, which the U.S.
supports.


9. (SBU) Political support for inefficient state-
owned industries has led to overcapacity, falling
prices, and profitability, and burgeoning bad debts
that by some estimates could exceed half of China's
annual gross domestic product. Overcapacity is
particularly evident in such areas as steel, aluminum,
cement, real estate and construction. Economic growth
and its concomitant urbanization have lead to a
growing gap in living standards between China's
urbanites and rural residents. The transfer of
population from rural to urban areas that accompany
industrialization in all societies continues apace in
China. Remaining price controls (including on
energy,) administrative measures that interfere with
market operations, Communist Party selection of
banking leaders and government selection of preferred

BEIJING 00018534 004 OF 012


industries tend to perpetuate inefficient capital
allocation in China.

China's Foreign Trade Performance
--------------


10. (SBU) China's foreign trade growth also
continues to be impressive. Total trade for 2005
exceeded USD 1.4 trillion (USD 756 billion through the
first half of 2006),with export growth for 2005 at
28.4 percent and import growth at 17.6 percent. The
PRC's overall trade surplus was USD 102 billion in
2005 (USD 61.5 billion through the first half of
2006),over three times the surplus in 2004. The U.S.
is China's largest export market, taking more than
one-fifth of all Chinese exports. In 2005, China also
attracted USD 60 billion in foreign direct investment
(marginally down to USD 28.4 billion through the first
half of 2006). Foreign invested enterprises (FIEs)
have accounted for about half of China's exports in
recent years, employ about 11 percent of China's urban
workforce, and pay roughly 20 percent of total tax
revenues. As a result of strong inward capital flows,
China's foreign exchange reserves now exceed USD 940
billion, the largest total in the world, and are
expected to exceed USD one trillion before year's end.


11. (SBU) U.S. exports to China grew for the sixth
consecutive year, up 18.2 percent in 2005 after a 22
percent increase in 2004, a continuation of a trend
that began with China's accession to the World Trade
Organization in 2001. In the first quarter of 2006,
U.S. export growth to China exceeded 29 percent.
Despite this good nws, PRC exports to the U.S. grew
even faster. As a result, China's trade surplus with
the U.S. rose from USD 162 billion in 2004 to over USD
201.7 billion in 2005. Many of the underlying reasons
for this unprecedented surplus are structural, in the
form of China's low wages and low overhead and capital
costs. Nonetheless, China too often uses industrial
policy tools to promote and protect favored industries
and sectors. Its ineffective enforcement of
intellectual property rights is a major problem for
American exporters.

Currency Issues
--------------


12. (SBU) China's currency regime poses increased
risks to the Chinese and global economies. While
China increased the value of the renminbi (RMB) last
year by 2.1 percent, and has allowed it to rise by
another 1.7 percent against the U.S. dollar through
late August, it remains effectively pegged to the U.S.
dollar. The peg is contributing to growing
macroeconomic imbalances in the Chinese economy and is
constraining the Central Bank's ability to maintain
financial stability. To avoid the risk of repeating a
cycle of credit-fueled boom-busts, China needs to
tighten its monetary policy. But its inability to
raise interest rates is constrained by the peg,
because absent appreciation of the currency, higher
interest rates would just induce more speculative
inflows. Some Chinese officials are concerned about
the potential adverse impact of exchange rate
flexibility on the export sector, particularly about
the vulnerability of low value added assembly
operations that are most likely to transfer to Vietnam
or other low wage countries, and which support
hundreds of millions of migrant workers whose
remittances help the rural economy. Fortunately,
there appears to be increased understanding among the
political elite of the linkage between China's peg,
its large balance of payments surplus, and excessive
credit and investment growth. In mid-August, the

BEIJING 00018534 005 OF 012


authorities allowed RMB volatility to increase
notably. Most analysts expect the RMB's rate of
appreciation to increase slightly.

Health and the Environment
--------------


13. (SBU) China's rapid economic growth is
stretching its natural resources and increasing
concerns about pollution and environmental damage.
Water issues are a major concern for urban areas and
on the farm, especially in northern China. Water
shortages have been chronic in some parts of China due
to long-term price controls that discourage
conservation. Poor water quality exacerbates
shortages and has become a hot political issue,
especially since the major toxic spill in the Songhua
River in northeastern China last winter. The Chinese
Government values its partnerships with EPA, the
Department of Energy and other U.S. agencies in
addressing these issues. U.S. NGOs are assisting
China in everything from working to protect
biodiversity to developing better environmental laws
and ensuring community participation.


14. (SBU) Public health is of increasing national
concern, especially since the 2003 SARS epidemic.
Beijing has taken more serious measures to control
HIV/AIDS and is working harder to stem the spread of
avian influenza. The U.S. and China are collaborating
on a robust Emerging Infections program to combat
disease, with both the National Institute of Health
and the Centers for Disease Control active in China.
The U.S. Department of Agriculture and USAID are also
supporting bilateral animal health programs. However,
China's reporting of animal outbreaks of avian
influenza is not as strong as the reporting on the
human health side, and we continue to urge greater
openness with both information and samples.

Intellectual Property Rights (IPR)
--------------


15. (SBU) China's poor record on protecting
intellectual property rights has been one of the most
pressing difficulties facing our relationship. From
pirated CDs and DVDs to theft of entire product lines
from unknowing American manufacturers, IPR problems in
China harm U.S. companies around the world, and
threaten China's ability to be seen as a responsible
participant in the international trading system.
While China has made significant and valuable progress
in some areas related to IPR, the scope of the problem
is increasing faster than Chinese enforcement efforts.

"National Economic Security" and Shifting Bureaucratic
Strongholds
-------------- --------------


16. (SBU) Pursuant to the Eleventh Five-Year Plan
(2006-2010),the Central Government announced a focus
on rural development, addressing rising income
inequality and moving China up the value chain. We
are observing a shift in China's trade policy center
of gravity from the Ministry of Commerce (MOFCOM) and
WTO implementation issues towards the National
Development and Reform Commission (NDRC) and
implementation of more ambitious industrial policies.
As NDRC fleshes out its policy mandate, we expect to
see increased experimentation with policy measures
that will test, and perhaps breach, WTO norms.
Examples include the mandatory application of domestic
standards (WAPI),rules designed to increase the
percentage and technological sophistication of local
content (autos),and support for development of

BEIJING 00018534 006 OF 012


advanced manufacturing and high technology programs.


17. (SBU) China's policy for these emerging
industries appears to be to nurture them by carving
out of market share via government procurement policy
(software),restricted expansion of FIE market share
growth in undefined "sensitive" sectors and may have
particularly problematic results in services
(insurance, banking, telecommunications and direct
sales.) China erects technical and sanitary standards
to delay the entrance of competing products
(pharmaceuticals, medical devices and agricultural
products).

Beijing Summer Olympics
--------------


18. (SBU) The Summer Olympics will take place in
Beijing August 8-24, 2008. The city will also host
the Paralympic Games that September. The Games will
attract some 10,500 athletes, 180,000 accredited
staff, 22,000 media and 230 VIPs, and perhaps up to 60
heads of state. Organizers indicate these will be the
biggest, most expensive and most watched Olympic Games
in history. Beijing will be the primary site with 285
of 302 total events; Qingdao in Shandong Province will
host sailing events, and Hong Kong will host
equestrian events. Preliminary Olympic Games soccer
matches will be played in a number of other mainland
cities. The Chinese Government will reportedly spend
between USD 30 and 40 billion on the Games. The
Beijing Organizing Committee for the Olympic Games
(BOCOG) is the public coordinator for the Olympics,
although the Communist Party remains the final
Arbiter, as it is for all major policy questions.


19. (U) The venue centerpieces in Beijing will be the
91,000-seat Olympic Stadium, nicknamed the Bird's
Nest, and the nearby Aquatic Center. The estimated
cost of the complex is about USD 400 million. Beijing
is in the process of major upgrades to its public
transportation and highway systems. In addition, the
U.S. Environmental Protection Agency and Department of
Energy are cooperating with Chinese counterparts to
improve the environment and energy efficiency in
Beijing in connection with the Games.

CHINA LABOR DEVELOPMENTS SINCE 2004
--------------

Role of Ministry
--------------


20. (U) The Ministry of Labor and Social Security
(MOLSS) is responsible for crafting policies to
improve and implement China's labor laws and
regulations, and various social welfare insurance
programs, including pension, unemployment, workplace
injury and maternity benefit insurance programs.
Enforcement of the laws and regulations is the
responsibility of provincial or sub-provincial labor
bureaus. MOLSS has no formal authority over
provincial bureaus, but the bureaus look to the
Ministry for policy direction. MOLSS is not
responsible for workplace safety and health issues.
These fall under the jurisdiction of the cabinet-level
State Administration for Work Safety (SAWS) and the
State Administration for Coal Mine Safety (SACMS).
Health insurance is under the jurisdiction of the
Ministry of Health.

The Labor Market
--------------


21. (U) China's official figures show a labor force

BEIJING 00018534 007 OF 012


of approximately 750 million, including 200-250
million urban workers, 100-150 million migrant
workers, and roughly 400 million farmers (many of whom
engage in other occupations as well). While Chinese
official statistics report unemployment of about 4.2
percent, this refers only to urban residents who have
registered as unemployed. MOLSS surveys estimate a
real unemployment rate closer to 7 or 8 percent, and
anecdotal estimates in some areas are much higher.
Rapid economic growth in and around China's cities
continues to create jobs and attract labor from rural
areas; unemployment, underemployment and rising
expectations in rural areas is also driving labor
migration. Urban workers who are registered urban
residents earn an average of RMB 73.3 (USD 9) per day,
and enjoy some social welfare benefits. Migrant
workers earn about half as much, with no social
welfare benefits, but this is still more than they
would earn back in their villages.


22. (U) Official statistics indicate that on
average, wages rose 14.9 percent in 2005. Some
heavily industrialized areas of China, e.g., the Pearl
River Delta, are beginning to experience shortages of
unskilled labor and wage increases for both skilled
and unskilled labor. These shortages may be partially
the result of rural tax cuts and other Central
Government policies meant to increase living standards
in rural areas, which have reduced the push to
migrate.


23. (U) Unemployment is currently significant for
recent university graduates. China?s rapid increase
in post-secondary students since 1999 has produced a
large pool of educated persons with high expectations.
The public sector cannot absorb all of these
graduates, and private sector employers complain that
the quality of graduates is too low. A recent survey
suggests that only 10 percent of post-secondary
graduates have the skills necessary to assume
professional or management positions in the private
sector.

The Social Safety Net
--------------


24. (U) The 1995 Labor Law shifted responsibility
for pensions, health insurance, unemployment
insurance, workplace injury insurance and maternity
benefits from the old "work units" of the command
economy to various levels of government. In the past
two years, the Central Government has devoted much
attention to reforming and improving the social
welfare insurance, experimenting, in different
locations, with a variety of models. So far, however,
no comprehensive pension, health care, unemployment or
workplace injury insurance system is in place. A
December 2005 report by an investigative committee of
the National People's Congress (the NPC is China's
national legislature) observed that "coverage of the
social welfare insurance system is too narrow, the
levels of government responsible for maintaining
insurance funds are too low, and there is a serious
problem of arrears to insurance funds."


25. (U) PENSIONS: China modified its pension rules
in January 2006. Current rules mandate a three-tiered
system to be administered by local governments. The
three tiers include a pay-as-you go "social pool"
funded by employer contributions (20 percent of
wages),personal accounts funded by mandated employee
contributions deducted from wages (8 percent),and
voluntary, employer-funded supplementary accounts.
There are some provincial pilot programs which vary
from the national standards. Pension accounts are

BEIJING 00018534 008 OF 012


managed by local governments. Participation (in the
first two tiers) is mandatory, but non-compliance is
widespread. The NPC noted that the bulk of
participants in current pension programs were
employees of China's remaining state-owned and
cooperative enterprises. Private sector urban workers
and migrant workers are largely uncovered. MOLSS
reports that the pension system covered 178.8 million
workers as of June 2006.


26. (U) Because the first tier of the pension system
is a defined benefits program, mandated contributions
are high (20 percent of wages),and the system is
still deeply in deficit. The People's Bank of China
estimated that the system was RMB 6 trillion (USD 760
billion) as of the end of 2004. In many cases, local
governments raid personal accounts of contributing
workers to fund their current liabilities to retirees.
The Deputy Minister of MOLSS reportedly said that the
total amount owned to "empty" individual accounts at
the end of 2004 was RMB 740 billion (USD 94 billion)
and growing by RMB 100 billion (USD 13 billion) per
year.


27. (U) In addition, China has yet to establish a
nationwide pension system for rural residents.
Although pilot pension programs for rural residents
and migrant workers exist, they are neither common nor
popular. The NPC report attributed this to the fact
that most pension benefits are not easily transferable
from one jurisdiction to another.


28. (U) UNEMPLOYMENT INSURANCE: Local labor bureaus
maintain a system of social pools funded jointly by
employer (2 percent of wages) and employees (1 percent
of wages). Benefits are based an employee's seniority
and set at a percentage of the local monthly minimum
wage. As with pensions, participation is mandatory,
but non-compliance is widespread. MOLSS reports that
the unemployment insurance system covered 145.3
million workers as of June 2006.


29. (U) WORKPLACE INJURY/DISABILITY INSURANCE:
Employers pay injury/disability insurance based on the
risk level attributed to their industry by the local
labor bureau. Disabled workers receive 100 percent
reimbursement of medical expenses from the insurance
fund, and 100 percent of total wages for up to 18
months. MOLSS reports that the workplace
injury/disability insurance system covered 89.54
million workers as of June 2006.


30. (U) MATERNITY BENEFITS: Benefits cover full
salaries for the required period of maternity leave,
paid for through a social pool funded by employees
alone. Many localities in China have not yet set up
maternity benefit systems. MOLSS reports that the
maternity benefit system covered 59.6 million workers
as of June 2006.


31. (SBU) The inadequate social safety net
profoundly affects the personal welfare of the average
Chinese citizen. Rural residents have virtually no
publicly-funded safety net, and only a portion of the
urban population is covered. Private sector insurance
is highly underdeveloped. The lack of safety nets
compels many Chinese to save to manage rising health
costs, finance education and provide for their own
retirement. China's savings rate in 2005 was an
extraordinary 51.8 percent of GDP. This high level of
savings contributes to China's current account
surplus, and thus to China's trade surplus. A
meaningful reform of the social safety net could
reduce precautionary savings, and reduce macroeconomic
imbalances that exacerbate China's trade surplus with

BEIJING 00018534 009 OF 012


the United States.

Workers Rights and Working Conditions
--------------


32. (SBU) China's economy appears to be creating
jobs for most of the roughly 7 million new workers who
enter the labor force and 10 million rural workers who
migrate to the cities each year. Wages appear to be
rising in some parts of the country. Nevertheless,
incidents of worker discontent are frequent, whether
measured by the roughly 300,000 labor disputes
reported by the All China Federation of Trade Unions
in 2005, or by the large (but unknown) number of
(often unreported) strikes and protests. Workers lack
legitimate channels through which to seek timely
resolution of grievances. In the vast majority of
labor disputes workers seek nothing more than what
they are minimally entitled to under the law or their
labor contracts. As indicated by the NPC report, the
Chinese Government is well aware of the problems. It
has been slow to address them, however, because doing
so requires tackling governance/rule-of-law issues
fundamental to China's decentralized, single-Party
system.


33. (SBU) FREEDOM OF ASSOCIATION: China does not
recognize freedom of association, despite having
ratified the 1998 ILO Convention on Fundamental Rights
at Work. The ACFTU, a "mass movement" arm of the
Communist Party is the only union recognized in China.
Workers who attempt to form independent unions or
associations, or who simply demonstrate against
legitimate grievances risk imprisonment. The ACFTU
has significant power under the Labor Law, but is seen
by most observers as, at best, a social organization,
and, at worst, an advocate for employer interests.
In a handful of exceptional cases, ACFTU unions have
freely elected their own leaders in individual
enterprises. Chinese academics are working with the
ACFTU to explore ways the union can modestly increase
its role in protecting workers' rights, e.g., by
representing workers in court.


34. (SBU) COLLECTIVE BARGAINING: True collective
bargaining does not take place in China. Although not
prohibited by the Labor Law, there is, in practice, no
mechanism for workers to negotiate with employers as a
unit, except through the ACFTU. Collective bargaining
in China generally consists of an employer and a pro-
employer ACFTU union signing an off-the-shelf model
collective contract. Such contracts rarely cover more
than wage provisions. Although the Government has
called for increased use of collective contracts,
there is no indication that either the Chinese
Government or the ACFTU seeks to move toward setting
wages and other terms of employment through actual
negotiation. The subject of whether wages in China
are freely set via collective bargaining has been
discussed in the U.S.-China Joint Committee on
Commerce and Trade (JCCT) in connection with China's
request to be treated under USG trade regulations as a
market economy.


35. (SBU) FORCED LABOR: Chinese law prohibits forced
labor, and authorities have arrested employers for
trapping workers at labor sites. However, forced
labor is part of the Chinese administrative detention
system. The Public Security Bureau (police) can
sentence certain offenders to periods of "reeducation
through labor" without judicial review. The ILO, with
USG funding, is working with China on legislative
changes necessary to ratify the forced labor ILO
Conventions 29 and 105. Since late 2004, the ILO's
Special Action Program to Combat Forced Labor has also

BEIJING 00018534 010 OF 012


been working with MOLSS to address detection and
prosecution of human trafficking cases. In2005,
China cooperated with the U.S. Prison Labor Task Force
to resolve several allegations of prison labor
products being exported to the United States. In each
case, visits to Chinese prisons uncovered no evidence
that the goods in question were produced there.


36. (U) CHILD LABOR: Despite reports from some
outside observers that child labor is on the rise in
China, there is no publicly available data on which to
judge. The Labor Law prohibits employment of workers
under 16, and provides special protections for workers
between 16 and 18. The ILO reports that the
percentage of working children is low in China, but
that reports of child labor are relatively prevalent
in the garment, footwear, toy, firecracker and food
processing industries, as well in catering and
"entertainment" services. Isolated labor shortages in
industrialized regions potentially increase demand for
child labor. The Chinese Government has intensified
efforts to combat child labor.


37. (U) One problem which has received much
publicity in the past two years is the recruitment of
underage students to work in factories on "work-study"
programs. A recent case involved an alleged
arrangement between a teacher, a labor contractor, and
a factory manager to supply 10-14 year old students to
peel grapes in a cannery in Ningbo, Zhejiang Province,
during summer vacation. The teacher and labor
contractor allegedly kept a portion of the children's
wages, and are currently under investigation.


38. (U) A May 2006 report on Child Labor issued by
"China Labor Bulletin" (a Hong Kong NGO) noted that
Chinese Government efforts to combat child labor focus
on the demand side (by prosecuting employers),but do
not adequately address the supply side. Many poor
families willfully encourage their teenage children to
leave school to work at age 14 or 15 because they do
not have the money to pay for continued schooling, or
because they see no benefit in completing a high
school curriculum which is geared toward preparation
for college entrance exams.


39. (SBU) DISCRIMINATION IN EMPLOYMENT: The most
severe form of discrimination in employment continues
to be the household registration (hukou) system, which
effectively brands Chinese citizens at birth as rural
or urban residents, based on their mother's status.
Although most regulations restricting internal
migration have been abolished, Chinese citizens cannot
change their hukou place of residence without (rarely
granted) government approval. As a result, hundreds
of millions of Chinese rural residents working in
urban areas face obstacles gaining access to social
welfare insurance, care in public clinics and
hospitals, or public education for their children.
The ILO estimates that there are some 22 million
children of migrant workers left behind in rural
areas. Local regulations in some jurisdictions
restrict also employers to hiring only people with
local hukous.


40. (SBU) The hukou system creates significant
hardship for employees and employers alike,
effectively breaking China into numerous separate
labor markets, while at the same time making migrant
workers of all skill levels and easily exploited
second class of citizens in the towns and cities where
they work. Under instructions from the Central
Government, provincial and sub-provincial governments
are experimenting with various means to de-link hukou
status from access to benefits, but the Central

BEIJING 00018534 011 OF 012


Government remains committed to maintaining the
system, as it prevents uncontrolled rural-urban
migration. Chinese labor experts believe serious
reform of the hukou system will not take place until
after the Government has established a unified social
welfare insurance system that covers both urban and
rural residents, and an anti-discrimination law that
addresses discrimination against rural people.


41. (U) Chinese laws prohibit discrimination in
employment and occupation against women and ethnic
minorities. Some complaints of discrimination,
including institutionalized discrimination, are well-
founded, such as local governments' preference for
using Han Chinese contractors for construction
projects in ethnic minority areas. Numerous studies
by Chinese academics also highlight various forms of
discrimination that are not illegal. These include
widespread use of height or physical appearance
criteria in hiring.


42. (SBU) China ratified ILO convention 111 on
Discrimination in Employment and Occupation on January
12, 2006. MOLSS officials said the Ministry hopes to
use the ratification to force legislative and
regulatory action to better combat discrimination in
employment. Establishing a definition of
"discrimination" will be the first step. This
presents an opportunity for Chinese academics and
public interest groups to press for further relaxation
of the hukou system.


43. (SBU) ACCEPTABLE CONDITIONS OF WORK: Although
wages appear to be rising in China, there has been
little improvement in working conditions in the past
two years. The AFL-CIO, the ICFTU, the Congressional-
Executive Committee and China and other observers have
commented on this lack of progress in great detail
(and with varying degrees of spin). Perhaps the most
credible testament to the lack of progress, however,
is the NPC's well-researched "Report on Implementation
of the PRC Labor Law." The report included the
following findings (Embassy can provide a more
detailed unofficial translation of the report):

-- The ratio of workers with signed labor contracts is
low, duration of labor contracts is short, and the
contents of labor contracts do not conform to
standards.

-- The minimum wage guarantee system is not fully
implemented, wage arrears continue to occur, and there
is no regular mechanism for increasing wages.

-- Excessive overtime is common and working conditions
are substandard.

-- Most workers in private enterprises and sole-
proprietorships do not participate (in social welfare
insurance programs) and the vast majority of migrant
workers have trouble participating in the systems in
their present form.

-- Labor inspection agencies do not have adequate
resources, their methods are weak and their
investigations of, and sanctions for illegal behavior
lack force.

Legislative developments
--------------


44. (U) There has been no new labor legislation
since 2004, but MOLSS it would place priority on four
pieces of draft legislation in 2006. The NPC
published a draft Labor Contract Law in March 2006 for

BEIJING 00018534 012 OF 012


public comment. There was a large response, including
from the American business community. Discussion of
controversial issues continues, including the role of
labor in business decisions and tightened restrictions
on labor contracting. A draft Employment Law will
debut for public discussion in late August. A draft
Labor Dispute Law and Social Insurance Law have not
yet been published. A Bankruptcy Law passed on
August 27, 2006, that makes wage and social insurance
contribution arrears senior to other debts of bankrupt
enterprises. This provision is considered a victory
for the ACFTU, whose influence overcame resistance
from the People's Bank of China, which noted that the
bankruptcy laws of other countries emphasize debts to
banks and other creditors.

BIOGRAPHY OF TIAN CHENGPING
--------------


45. (SBU) Tian Chengping was appointed Minister of
Labor and Social Security on July 1, 2005. He has
actively promoted labor market and social insurance
reforms, and welcomes international dialogue. Tian
was a university classmate of Chinese President Hu
Jintao. He is a member of the Chinese Communist Party
(CCP) Central Committee.

46. (U) Tian's previous positions were: Chairman of
the Shanxi Provincial Legislature Standing Committee
(2003-2006),Secretary of the Shanxi Province CCP
Provincial Committee (1999-2003),Chairman of the
Qinghai Province Provincial Legislature Standing
Committee (1997-1999),Acting Governor, then Governor
of Qinghai Province (1992-1997),Secretary of the
Beijing Xicheng District CCP Committee (1984-1992),
Deputy Party Secretary at the Qianjin Chemical
Workings, Beijing, (1974-1983),and Secretary of the
Communist Youth League of the Beijing General
Petrochemical Works (1973-1974).

47. (U) Tian is a native of Daming, Hebei Province,
and was born in 1945. He joined the Communist Party
of China (CPC) in 1964 and graduated from the
Department of Civil Architecture of Qinghua University
in 1968.

SEDNEY