China’s New Labor Law: Compliance Comes Easy

March 23, 2008 by chinalaw
A Chinese migrant worker carries his belongings as he boards his train to go home for the Mayday holidays, at the railway station in Beijing. China’s rural migrant workforce has just reached 200 million people. (Photo: STR / AFP-Getty Images)
Co-blogger, Steve Dickinson, was in Seattle this week for the holidays. Steve is scheduled to talk at the Beijing Rotary Club on January 8, regarding China’s new labor law and we were discussing why so many foreign companies in China seem paralyzed by the new law.

We came up with two explanations. The first is the persistent belief that the government will not enforce the new labor laws, just as it has done very little to enforce the old labor laws. Our second explanation is that the laws are so complicated and difficult companies are throwing up their hands out of a belief compliance is either too costly or impossible. Both views are way off the mark.

Beijing probably will not enforce the new labor laws any more than it enforces the present labor laws. But, this completely misses the point. The chief risk of failing to comply with the new labor laws lies in the risk of getting sued by your present and/or your former employees, not in governmental enforcement.

Compliance is not all that tough. Basically, all a company with employees (or even one employee) need do to comply with the new laws is have a written agreement with its employees and an employee manual.

One additional note. The employment agreement cannot call for application of foreign law as such contracts do not constitute a written agreement under the new laws. This means that if you have an employee working in China (whether a Chinese national or not) and your agreement with that employee is under the law of your country (other than China) or some other country (other than China), your employee will be able to sue you in China for statutory damages for failure to comply with the written agreement requirement.

Told you it was easy.

How To Learn Chinese Law. Do Try This At Home.

March 23, 2008 by chinalaw

A few weeks ago, I received an email from a Chinese-American, fluent in both English and Chinese, asking how he should go about learning Chinese law and Chinese legal terms so as to be better prepared for securing a paralegal job. In his initial email, this person asked me not to name him on the blog, a request I found pretty strange because I saw absolutely nothing in his request that would be “blog-worthy.”

However, upon receiving co-blogger Steve Dickinson’s response to this person, I instantly realized I had a blog post on my hands. So here goes.

Here is my suggestion on how to get familiar with legal Chinese. It is certainly difficult, but this is the method I suggest.1. You have to select a place to start. It is all difficult, so you should just do your best. What you want is a law or regulation that is in Chinese but also has a very good English language translation. For the area you are interested in, I would suggest the Company Law and then the regulations on foreign invested enterprises. There are three sets of regulations: Wholly Foreign Owned Entities, Equity Joint Ventures and Cooperative Joint Ventures. Both Chinese and English versions of these are available on the internet.

2. Read the Chinese from copies of the laws/regulations you get on the net. First, compare the Chinese with the English and try to develop your vocabulary list from the translation comparison. When you come across Chinese terms you don’t know, try using an online dictionary. You can cut the Chinese and paste it into the online dictionary. This is much faster than looking up the words in a dictionary. I use a dictionary called Yellow Bridge. It works very well.

3. You also need a good legal dictionary. There are many available. None are excellent. You can look in the Foreign Language Bookstore on Fuzhou Road in Shanghai. If you use the technique above, you should not need to do a lot of dictionary work.

4. As you move from law to law, you will find that the reading goes easier. It will be very slow at the start, but do not worry. Other laws to look at are the Constitution, the Basic Principles of Civil Law and the Property Law and the Enterprise Income Tax Law.

Piece of cake.

China Trespassing Law: Welcome Or Not?

March 23, 2008 by chinalaw

Not sure how relevant this is to China business law, but it sure makes for a fascinating read, at least for law geeks. Law Professor Donald Clarke of Chinese Law Prof Blog fame, has been writing some very interesting posts on Chinese law over at the Conglomerate Blog. The one that really caught my fancy, however, is entitled, “No trespassing in Chinese law? ” The post lays out a pretty convincing argument that Chinese law does not prohibit trespassing, which essentially means that if someone wants to stay in your apartment or house even after you have asked them to leave, they are free to do so:

It’s hard to believe – and to the best of my knowledge it’s not true – that in China you can simply waltz into someone’s living room (provided the door is unlocked) and make yourself comfortable provided you act with restraint and are willing to compensate for any damage you cause. But the legal basis for saying you can’t is surprisingly obscure.

Not sure of the legal ramifications of this, but I do suggest you lock your doors and not let anyone in unless you know you have no problem with their staying. And staying.

Rule Of China Law And GDP. Was It The Chicken Or The Egg?

March 23, 2008 by chinalaw
The Economist Magazine has a really cool graph showing a pretty much direct (and not surprising) correlation between GDP and the rule of law (h/t to Experience not Logic). It would be nice to be able to use this correlation to argue for rule of law, but it just is not clear that rule of law leads to wealth, rather than the reverse, which is what I suspect:

The rule of law is generally held to be not only a political good but also a cause of other good things, notably economic ones. Daniel Kaufmann, head of the World Bank’s World Governance Institute, has looked at the results of three separate studies (one he co-wrote) which consider measures of GDP per person and the rule of law. After putting them on a comparable basis, the causal link is clear. The better a government upholds the rule of law, the more likely its people are to be richer: every rich country, with the exception of Italy and Greece, scores well on rule-of-law measures. Most poor countries do not. But a link between the rule of law and growth has been much tougher for economists to establish, as China demonstrates.

What do you think?

China Income Tax: The Video

March 23, 2008 by chinalaw

CLB’s own Steve Dickinson was on CCTV’s Dialogue program the other day discussing China’s income tax. Steve was on with Kevin Ng, Tax Managing Partner for Deloitte in China. To watch the video of the program, go here.

The show was ostensibly about China’s having just raised its individual income tax threshold from 1600 yuan to 2000 yuan, but it ended up delving into “big policy” issues regarding fairness and equity. Since China’s income tax collections rose 30% year on year from 2006 to 2007, such taxes are becoming increasingly relevant and this show was surprisingly interesting and engaging.

Check it out.

China Environmental Law

March 23, 2008 by chinalaw

PrisonThe impact of this blog on environmental policy in China is truly astounding. The ink was barely dry on “. . . and throw away the key” when word reached us that three men were sent to prison in Foshan, Guangdong Province for the illegal disposal of hazardous wastes. The People’s court of the Nanhai district imposed the sentences on March 20 in what was billed as an “historic” ruling.

The court issued a verdict imposing prison terms of one to three years and fines on the defendants convicted of illegally dumping toxic waste from Zhongshan into Danzao Town in Guangdong Province. This is the first major environmental pollution incident in Foshan that has required a judicial settlement. In the past, pollution incidents were dealt with by environmental protection authorities through administrative procedures.

Foshan

Here are the details of the crime:

Early on the morning of April 18, 2007, students and faculty members at Xinnong Primary School in Danzao began to experience adverse effects from an offensive smell in the air. Two students experienced chest pain and began vomiting after inhaling the noxious air. The school closed the day following the incident.

Officials who were sent to the site to investigate found that someone had discharged a dark liquid waste from a nearby village.

Records show that three men surnamed Su, Jiang, and Guo had illegally dumped an oil dreg containing hydroxybenzene inside Danzao six times from January to April 2007. The waste has caused grave pollution in Danzao which has resulted in direct economic losses of about 1.1 million yuan [approx. $155,000].

Su, lacking a permit to dispose toxic waste, reached an oral agreement with Ti[an] Yi Company in Dongfeng Town to dispose of the company’s waste by November 2006. He later employed Jiang and Guo as his drivers, and they later joined him in dumping the waste.

If the facts are as stated, thae the three defendants deserved their fate; indeed, the sentences seem to be on the light side.  Given the stated losses, this would be a case with “especially serious” consequences requiring imposition of sentences of “not less than three years” (Article 338 of China’s Criminal Code).

One is left to speculate as to why Tian Yi officials were not also criminally charged.  The three defendants lacked a permit to dispose of toxic wastes and the contract between them and Tian Yi was an oral one.  If I were a prosecutor I think I could have made a fairly convincing case for liability on the part of Tian Yi.

The defendants were also fined and another article notes that “the court has  suggested the victims sue the three defendants and the company they represented for compensation.” Establishing civil liability on the part of Tian Yi should be a slam dunk. Article 86 of the Solid Waste Law (see sidebar to right) places a heavy proof burden upon civil defendants:

The defendant of a lawsuit for damage compensation due to environmental pollution caused by solid waste shall bear the burden of proof on identification as prescribed by law and no cause between the defendant’s acts and the consequence of damage.

Although SEPA’s translation is a little rough, what this provision provides is that Tian Yi, as defendant, if it wishes to escape liability has the initial burden of proving that the wastes in question were not its wastes and that those wastes did not cause the damage claimed by the plaintiff.

China Sex, Prostitutes, Rule of Law, Lines of Power, Unintended Consequences and Bull Connor: A Picture Is Worth A Thousand Words. Redux

March 23, 2008 by chinalaw

I made a rule for myself many years ago that whenever I was too in love with something I wrote, I needed to run it by someone else. I made this rule because usually when I fall in love with my own writing, it is because I think it is just SO clever. Yet, one person’s clever so easily be another person’s smarminess or cruel biting sarcasm. I would have that same rule for this blog, but since blogging waits for no man (or woman), and since having someone else read my blog posts is not billable, I do not.

But, in doing a post today on crime, I came across an old post I truly love. I think (but what do I know?) it is my best post and, due in large measure to the words “sex” and “prostitutes” it certainly has been one of our most viewed. I have never re-run a post, but in the hope nobody finds it smarmy, and in the hope it is not too late to grab some residual readers still interested in Spitzergate, here goes:

I usually avoid writing on the really big China issues, figuring they get enough coverage elsewhere.  I am veering from this now because there is still more to be said about the recent Shenzhen prostitute “shaming” incident.

When I first saw the pictures of the prostitutes with their heads bowed, I instantly thought of Bull Connor:

One of the most enduring images of the Civil Rights Movement is that of Birmingham firemen and policemen using water hoses and police dogs against African-American demonstrators in 1963 Birmingham. The episode came during the first week of May, following a month of peaceful demonstrations by Birmingham’s African-American community against their city’s segregation ordinances. Civil rights leader Martin Luther King, Jr., who described Birmingham as “the most segregated city in America,” organized the demonstrations with the help of local civil rights leader Fred L. Shuttlesworth and others. “Bull” Connor tried to stop the growing demonstrations, and gained lasting infamy when he resorted to using the water hoses and dogs. Televised reports of police dogs lunging at African-American citizens and people being washed down the streets by water from powerful fire hoses dramatized the plight of African-Americans in segregated areas. The events in Birmingham helped mobilize the administration of President John Kennedy to begin efforts leading to the most far-reaching civil rights legislation in history, the Civil Rights Act of 1964. The name “Bull” Connor thus came to symbolize hard-line Southern racism. Ironically, Connor’s heavy-handed defense of segregation in 1963 Birmingham actually hastened the passage of America’s Civil Rights Act.

Those pictures of Bull Connor and his henchmen spurred America to live up to its laws and its ideals.

The Wall Street Journal talked of China’s views on the shaming incident:

The prostitutes’ parade through Shenzhen was unusual for another aspect: It has touched off a lively public debate. A Shanghai-based lawyer wrote an open letter to the National People’s Congress claiming the march was illegal. Bloggers weighed in in cyberspace. On a Sina.net online survey conducted a few days after the incident, more than 69% of those logged in disapproved of the public condemnation, compared to 25% who supported it.

The majority see the shaming incident for what it was: a feeble attempt by the government to exercise moral authority. The sex trade is one of the blots on modern China, but it will take more than public humiliation to curtail it.

The Pandagon Blog, in its post, entitled, “Panty Sniffing Moral Scolds,” had this to say about the incident:

You’d be hard-pressed to find a better image of prurience that motivates moral scolds. The police of Shenzhen are trying to conduct a vice crackdown, and this is their brilliant idea on how to handle prostitution�march suspected prostitutes and johns into the street and read their names out loud so everyone can get a sick thrill out of shaming them. Regardless of how you feel about prostitution, this is unacceptable. The problem associated with prostitution that should concern people is the way that most women involved are being mistreated and exploited, not the dirty but oh-so-tantalizing sexy sexness of it all. The little stunt is just an extension of the same mistreatment and abuse that prostitutes get on the job, only this time the dogpile of abuse has a stamp of social approval on it.

Feministing, in its post entitled, “Sex Workers Publicly Shamed in China,” noted the uproar the incident is causing:

This is pretty frigging horrifying. But thankfully, it didn’t go unnoticed–it sparked a furor led by Chinese bloggers.

…But the event has prompted an angry nationwide backlash, with many people making common cause with the prostitutes over the violation of their human rights and expressing outrage in one online forum after another.

Sentencing Law and Policy Blog, in its post, entitled, “A Chinese shaming stirs controversy and debate,” also noted the uproar:

Whatever one might think about the specifics of this punishment in China, it is notable that a public shaming sanction has prompted a national and international debate about Chinese crime and punishment.  I doubt that the Chinese (or NY Times) buzz would have been as great if all these defendants were simply locked up or fined.

China Rises, in its post, entitled, “‘Public Shaming’ in Shenzhen, linked the Shenzhen shaming to “rule-of-law issues in China:”

It might seem a stretch to link this event with rule-of-law issues in China. But there is a link. The story didn’t just fade away. A variety of people are seeking legal redress, and Shenzhen is feeling the heat. The South China Morning Post reports this morning that some police who carried out the raid “may face disciplinary punishment” amid an outcry that the vice parade was a human rights violation.

The Washington Post, in its article, entitled, “Public Shaming of Prostitutes Misfires in China,” talked extensively on the public outcry:

But times have changed, the Futian Public Security Bureau discovered. Instead of being praised for cracking down on vice, the Futian police came under a hail of criticism for violating the right to privacy of those who were paraded about in public.

The swift outcry, in newspaper interviews and on the Internet, provided a dramatic illustration of the distance this vast country has traveled since the Cultural Revolution, when many people embraced such tactics and even those who opposed them were afraid to speak up for fear of retribution

This shows that the public has a stronger sense of human rights and privacy protection,” said Kang Xiaoguang, a sociologist with the Rural Development Institute at the People’s University of China.

“Twenty years ago, this kind of parade would have been greeted with unanimous applause,” he said. “But now it gets more criticism than support because more people realize their rights should be protected. And of course, they have more channels to voice their criticism, like the Internet.”

But nobody has seen fit to speculate on its long term impact, so I will.

Something like this has to have an impact, however small.  China’s government is obviously not a democracy, yet it still both wants and needs its people to view it as legitimate.  Its people generally viewed the Shenzhen shaming as illegitimate.  Because of this, the power to parade prostitutes has probably been taken from the government and that means new power lines have been drawn.  Whether this line will extend beyond just this one thing remains to be seen.  But this incident ought to at least give the Chinese government a little more pause before trampling on the rights of its people.

A morally vapid redneck racist helped advance civil rights in the United States and some dumb power-hungry bureaucrats in Shenzhen may very well end up doing the same thing for China.

What do you think?

China And US Agree: Let’s Kill All The Lawyers.

March 23, 2008 by chinalaw

Let’s kill all the lawyers.” William Shakespeare.

Okay, so we lawyers are not the most loved people in the world, though US surveys consistently show that though the overwhelming majority of people dislike lawyers, they overwhelmingly like their own lawyers. Surveys also show everyone likes me.

I do not know how whether Chinese companies dislike lawyers, but my firm’s own experience tells me they are generally unwilling to pay US legal fees. And since right now US legal rates (at least those at my firm) are laughably low as compared to European and Japanese and Korean legal rates (in large part because the US dollar is so weak right now), I think it fair for me to generalize in saying that Chinese companies do not value lawyers very much at all.

Paul Denlinger has a great post on why this might be so. The post is entitled, “Why Many Chinese Entrepreneurs Don’t Like Lawyers,” and I find his analysis sound. The post begins with Paul noting that “Chinese entrepreneurs don’t like to work not just with American lawyers, but lawyers of any nationality” and with positing this question:

So why is it that Chinese entrepreneurs don’t like to use lawyers and legal services, even when using them the right way, and intelligently, will help them to greatly expand their businesses?

Paul’s answer lies in the differing legal structures of China and the United States.

Paul very accurately describes the face of China law for Chinese companies:

For many Chinese, “the law” is whatever the Chinese government says it is. Just because some new kind of business is done in China, does not mean it is legal, it is just tolerated. It usually means that it is so new to the slow-moving bureaucracy that it hasn’t figured out whether it should be legal or illegal, so it’s “tolerated”.Your business may be tolerated, then the government says it is “illegal”, or it may be tolerated, then the government says it is “legal”. Then it might switch from “legal” to “illegal” and told to shutdown almost overnight. This happens, and continues to happen all the time. This is part of the price of doing business in China.

Here’s another example.

The Chinese government says that new businesses in China have to list their “business categories” and the business they are in. Think about it; does this make sense? From a business point of view, it makes little if any sense. Let’s say a consulting business needs to do a marketing survey. They may run afoul of the law because this is not allowed; they registered as a consulting business but need to do a marketing survey for a client who wants to enter the Chinese market. So while it makes perfect business sense to do this, the bureaucrats and regulators prevent it from doing so, because from their POV (the government regulators), categorizing businesses makes more sense.

Among Chinese business people, there is a large degree of frustration at these sudden changes which come out in the morning, and may change before the sun goes down. For Chinese entrepreneurs, this is the face of the law.

So, in order to succeed, they spend a huge amount of their time avoiding the regulators and getting warned, or even shut down. If the regulation comes from Beijing and they are in Hangzhou, they will go talk with Hangzhou city government officials to avoid getting crushed because local Chinese officials have the power to “interpret” the law. Sometimes this means ignoring what Beijing says, without openly confronting Beijing.

For Chinese entrepreneurs then, the law is random and to be avoided. Then when these Chinese entrepreneurs go overseas, their views and actions do not change. They fail to realize that the law can actually help them and so they see no point in using lawyers unless and until they are in big trouble.

Believe me, I have seen this. Many times, Chinese clients have come to us in the US and for a very small fee, we could save them considerable risk, hassle and/or penalties, but they will not pay it. They view US law as something to be ignored or avoided. The idea of confronting it and dealing with it as a means of laying a strong foundation for the future seems almost alien to them. Lawyers are to be used when you are in big trouble, but not before.

Paul also attributes Chinese aversion to lawyers to their aversion to a cost structure different from what they are accustomed to in China:

Moreover, they know that the advantage of Chinese businesses lie in their cost structure, and fear losing it if they go overseas. This means that they act very cheap when they go overseas, and acquire reputations for being cheap and micro-managing their foreign employees, trying to extract every little bit of time and value out of them.In the long-term, this hurts the reputation of Chinese companies as a whole.

In fact, company cost structures evolve and adapt to the market and society they are a part of. No country can have the same cost structure as China, just as no country can have the same values as America does.

Again, Paul is dead on. I have tried getting past this cost hurdle with Chinese companies by telling them about US companies with more than a thousand (1000+) lawyers in their in house legal departments alone (Citicorp and General Electric) and of how my firm has clients who expect to spend around 2% of their gross revenues in legal fees each year. The Chinese companies tend to remain resolute.

But things do change and they will change. Our best corporate clients are those who have been through US litigation and once Chinese companies start getting sued in the United States they will come to realize the importance of preventative lawyering. I have seen this with our Russian clients and I expect it will eventually happen with Chinese companies as well.

They will probably still hate us, but at least they will pay us.

Hello world!

March 23, 2008 by chinalaw

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