Friday, March 07, 2008

China says investors must adapt to tougher rules

China said on Tuesday it will not backtrack on a series of recently introduced economic rules, including more rights for workers, even if they have made life more difficult for foreign investors.
The new regulatory landscape makes doing business in China more predictable and companies need to adapt to the changes, Jiang Enzhu, spokesman for China's National People's Congress, or parliament, told a news conference on Tuesday.

China has unveiled export tax rebate cuts, stiffer pollution controls and a new labour law over the past year, trying to move away from the cheap manufacturing that has driven growth but exacted a toll on the environment.

Exporters in China's industrial heartland in the south have warned in recent weeks that higher costs, propelled by both the new rules and the yuan's appreciation, may force thousands of smaller firms to close their doors and move to cheaper locales. "Even if some foreign-invested companies and investors can't get used to China's policy changes, most have shown understanding," Jiang said.

"From a long-term perspective, these rules will increase competitiveness and promote their healthy development," he said.

Companies have complained noisily about a new labour contract law that makes it tougher to fire employees, although independent economists say its impact on costs will be relatively mild.

Jiang conceded that some bosses have skirted the law by getting workers to accept terms verbally with nothing in writing.

"This is because some companies have taken open-ended contracts to mean a lifetime or an iron rice bowl," he said, using the phrase that described guaranteed employment in China's command economy heyday.

Jiang was adamant this was not the case, saying companies could still get rid of poorly performing workers or cut staff to save costs.

Better protection of workers along with efforts to rein in the dirtiest industries are key planks of the "harmonious society"-style of development espoused by President Hu Jintao.

Like most new legislation in China, though, the labour contract and environmental laws merely lay out broad principles. How those principles are implemented in practice differs widely across the country.

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