New Labor Laws in China Could Hinder Investors' Profit Potential

[Omaha Steve]

http://seekingalpha.com/article/115438-new-labor-laws-in-china-could-hinder-investors-profit-potential

January 20, 2009 | about stocks: CHN / FXI / PGJ

By Irwin Greenstein

New labor laws in China have forced the manufacturing sector into an ever-tightening vice, giving investors further pause for any significant rebound in the world’s fastest growing economy.

In January 2008, Beijing introduced new workplace legislation called the Labor Contract Law. Its objective was to ensure job security by making cursory dismissals more difficult. The Labor Contract Law comes in on the heels of anti-discrimination labor laws instituted last year, which streamlined the process for workers to file grievances against their employers. As a result, labor disputes have surged by approximately 119% since last year as workers exercise their new rights.

While the global recession throws a monkey wrench into China’s manufacturing engine, the Labor Contract law could compound the crisis by making labor in China more expensive. In fact, there is evidence that factories are already moving to Cambodia, Vietnam and Bangladesh, which promote owner-friendly labor laws.

If in fact this migration turns into a stampede, China’s entire economy could suffer longer term damage than anticipated.

The higher salaries kicked in at a time when China’s manufacturing sector contracted for the fifth consecutive month in December, according to the CLSA China Purchasing Managers Index. In the first 10 months of 2008, 15,661 enterprises in Guangdong, the manufacturing-heavy southern province, shut down. China’s manufacturing shrank for a third month in December as export demand fell, suggesting a long-drawn-out economic slump.

FULL story at link.