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As per previous practice, I have the honour of sending you observations concerning compliance by The People’s Republic of China with the following convention:

China has a long established wage fixing system. The regulations concerning minimum wages in enterprises (revised in 2004) cover all workers in all enterprises. Most provinces have also developed sophisticated wage fixing mechanisms. However the national laws allow for provinces and regions to set their own minimum wages. Regulations allow for wages to take account of local conditions and wages; minimum wage rates can be fixed monthly, weekly, daily and hourly; minimum wage rates can be fixed at different rates for various localities within a province and also for different trades within a province. Although this flexibility is to a large extent needed in establishing realistic wages for such a diverse country as China it has also led to big discrepancies within and between regions and industries. Corruption, lack of enforcement and monitoring, local authorities drive for investment and the complicated nature of calculating wages and using piece rates for many workers means that the majority of workers – especially migrants - fail to get the minimum wage unless they work excessive hours of overtime.

Article 3.2.1. “before the machinery is applied in a trade or part of trade, representatives of the employers and workers concerned, including representatives of their respective organisations, if any, shall be consulted as well as any other persons, being specially qualified for the purpose by their trade or functions, whom the competent authority deems it expedient to consult;”

There is no collective bargaining contained in Chinese legislation which instead calls for “collective consultation”. The only government sanctioned union the All China Federation of Trade Unions (ACFTU) is in far too weak (and dualistic) a role as the “worker representative” (and at the same time a part of the government bureaucracy) to be effective in any collective consultation and in many cases the government is also the employer and where it is not the ACFTU is generally absent as well.

All national regulations on minimum wages state that the “principle of democratic consultation” between the representatives of the government, the trade union and the enterprise shall apply in fixing minimum wage rates and that trade unions and enterprise associations should be consulted when wages are fixed. The government has also been keen to promote new rules on tripartite consultation and negotiation as well as promote collective contracts agreed between the employers and the ACFTU. However in reality the ACFTU’s continuing need – as underlined in the trade union law – to help support economic development and, in the event of a work stoppage or dispute, to “assist the enterprise or institution in properly dealing with the matter so as to help restore the normal order of production” means that the ACFTU is not a genuine trade union and cannot negotiate properly and independently with private business and the government. In many cases it has been reported that collective contracts signed by the ACFTU and the employers have to be returned by the Ministry of Labour and Social security because they breach national laws. Many do not refer explicitly to wage rates (although this may be changing to an extent under revised laws and current discussion on collective contracts). Furthermore, there is no evidence that the ACFTU consults its members over minimum wage levels.

Article 4. 1 “Each Member which ratifies this Convention shall take the necessary measures, by way of a system of supervision and sanctions, to ensure that the employers and workers concerned are informed of the minimum rates of wages in force and that wages are not paid at less than these rates in cases where they are applicable.”

Although domestic regulations specify that workers need to be informed of the minimum wage applicable to them, in the majority of cases workers are unaware of the minimum wage and when they may be more knowledgeable they are confused by various piece rate/hourly calculations (often deliberately). A report by Chinese Central Television (CCTV) into migrant workers in Beijing revealed that few migrants knew of the minimum wage regulations and felt that even if they knew the rates, they were sceptical about how to deal with employers who violate these laws. [NOTE 1]

The methods of calculation in setting minimum wages have attracted some criticism from within China. According to the 2004 regulations there are three main ways of calculating the wage. Firstly by proportion of living expenses, secondly using the proportion of food expenses in the total living costs and thirdly the 40 to 60 percent of the average monthly incomes. In practice however minimum wage levels are extremely low throughout the country, far below average regional wage levels. In 2004 in Guangdong province, the minimum wage was only 24 percent of the average wage level for the province and current wage rises are not enough to increase by far this percentage. Figures from the National Statistics Bureau show that only five regions in China had achieved a minimum wage that was between 40 and 60 percent of the average wage level of the local community. Worse still, according to a high ranking official of the Labour Institution at the Ministry of Labour and Social Security, in 2006 not one single province had applied that third standard and reached that level. [NOTE 2]

According to the “Regulations on Minimum Wages in Enterprises”, implemented in 2004, when the government adjusts the minimum wage level it should take into consideration the payments made by employees to their pension insurance, medical insurance, unemployment insurance and housing funds. [NOTE 3] Many provincial regulations on minimum wages have also been revised to include social security, but the picture is confused. Although the revised regulations of 2004 were designed to help enforce minimum wage policies, only 18 of China's 31 provinces, autonomous regions and municipalities included workers' social security payments when considering the minimum wage level in their local areas. The inclusion of insurance expenses is designed to ensure that enterprises do not shirk responsibility to add insurance costs onto the basic wages but in reality the workers have sometimes found that their actual wages have not increased and that insurance costs are deducted from the basic wage without any explanation of how the money is being spent and sometimes in the case of illness such benefits are still refused. Many find it increasingly difficult to calculate exactly what the basic wage is.

Many factories fail to pay legal minimum wages for regular working hours. According to a 2005 Survey by the ACFTU, which interviewed some 10,000 workers in 10 provinces, 12.7 percent of those interviewed received wages lower than the minimum wage level in their areas. Auditors hired by foreign brands often find that factory managers falsify time cards and payroll records to avoid paying the legal minimums. Some auditors estimate that managers at more than half the factories they visit in China alter at least some of their payroll records. Of the 142 factories audited by international social auditing firm Verité in 2002 and 2003, auditors reported that the regular wages of 45 percent of the workers audited were illegally low. Generally it was piece-rate workers (especially new and relatively-unskilled piece-rate workers) whose pay fell below legal minimum wages – the majority of workers in the private manufacturing sectors in the south and eastern parts of China are piece-rate workers. [NOTE 4]

In practice, even those workers who are nominally paid above the minimum wage may find their pay reduced to below minimum levels due to non-payment, or underpayment (problems that affect those paid below the minimum wage as well).

Many enterprises continue to withhold wages for periods of several months, while many, especially in the private manufacturing sector, continue to impose fines and deductions on workers which reduce – in some cases drastically – their monthly take home wage. Such fines or deductions include things like food and living expenses but also fines for taking too long a toilet break, being late, failing to meet a quota etc – in some cases basic health and safety protection (such as face masks) are also deducted from the workers wages. The illegal practice of “deposits” for a new job is also common and many workers have to work essentially for free for the first one or three months in order to then start earning money.

The National People's Congress reported that cases of non-payment of wages and unlawful wage deductions accounted for as much as 41 per cent of all cases investigated by provincial labour departments around the country in 2004. In the 16 months before October 2005, in one coastal city alone, there were 156 such cases in which the employers concerned went into hiding to avoid investigators. As many as 76 per cent of migrant workers from the countryside receive no overtime pay for working on public holidays, or on rest and vacation days, according to a recent research report issued by the State Council. The All-China Federation of Trade Unions found this year that around 70 per cent of the country's 100 million or so migrant workers had experience of being paid either late or not at all. Indeed, the problem is getting rapidly worse. In 2004, Beijing's court system dealt with 12,462 cases where migrant workers had been paid either late or not at all, involving a total of 330 million Yuan compared to a total of 25,987 cases in 2005 involving 619 million Yuan. [NOTE 5]

Many workers are not covered by minimum wage regulations. Official statistics reported in 2004 stated that some 145 million workers worked without fixed hours, wages or other conditions in 2003. The revised 2004 regulations were aimed at covering workers who have not previously benefited from past policies on the minimum wage. However, the extremely high proportion of workers without formal contracts means that the great majority of those 145 million still do not benefit from minimum wage regulations, as only 10 percent had employment contracts. [NOTE 6]

The flexibility built into the system of wage fixing and the overall lack of implementation of any or most of China’s labour laws means that even the most favourable policies on paper can have little practical application. The tension between national government regulations and local authority’s autonomy to attract foreign investment means that even the best of laws does not get translated into standardised practice and many local authorities are only too willing to give enterprises special tax breaks or exemptions from local regulations.

As the ILO has stated, if minimum wage policies are to have a positive effect on workers, three basic conditions need to be met: that workers do not lose jobs because of the policy, that it covers most workers, that employers comply with the minimum wage policy, that employers have been consulted, that the policy has a well functioning mechanism to inspect compliance and that there is no increase in prices following a rise in the minimum wages. In China while on paper much of these conditions have been met, in reality the fact is that many employers simply do not conform to the policies and the inspection of enterprises is inadequate (poorly funded, corrupt and lacking in power to enforce penalties).

State secrets in China cover a wide range of issues and areas of control. Chinese citizens have no power to challenge the classification of a state secret and once charged with a state secrets offence, their trial is generally held in-camera and certain restrictions limit the right of the defendant to adequately defend him/her. The penalty for divulging state secrets is also an elastic one and can command the death penalty in especially serious cases.

Statistics are one of the areas most tightly controlled under the legislation and those regarding labour-related topics are very much included in the regulations. Wage policies and plans (along with other labour related areas such as protests, strikes and structural reform[NOTE7] ) are the subject of two main regulations issued jointly by the State Secrets Protection Bureau. The first was issued in 2000 by the State Secrets Bureau and the Ministry of Ministry of Labour and Social Security (MOLSS), and the other by the All-China Federation of Trade Unions (ACFTU) and the State Secrets Bureau in 1996. [NOTE 8] This material was made public in October 2004. [NOTE 9]

There are three main areas of state secrets; “top secret” (juemi), “highly secret” (jimi), “secret” (mimi). Finally there is “internal” (neibu) which, although it is not strictly a state secret, constitutes internal material which should not be disclosed without approval” of the relevant organ. The two regulations dealing with labour related-state secrets include highly secret, secret and internal classification.

“Revised wage policies and plans concerning enterprises at the national level” are considered highly secret under the state secrets law while the “investigative materials and statistical data which reflect the macroscopic situation of wage distribution in enterprises nationwide” are considered secret .

In addition, general policymaking is also governed by state secrets legislation when it concerns matters deemed “sensitive.” And relations with the International Labour Organization are also covered by the legislation – making it difficult for the ILO itself to receive and transmit uncensored any transparent information: “plans and countermeasures for participating in meetings of the International Labour Organization and other important international meetings” are classified as “highly secret” by the MLSS, while “work plans and countermeasures concerning participation in the International Labour Organization and bilateral and multilateral communications with trade union organizations of other nations” are ranked as “secret” by the ACFTU.

These regulations make it difficult to assess wage calculations and their implementation. The secrecy surrounding unemployment, “hardship’ faced by workers and social security do not help a proper analysis of the minimum wage as a living wage. Reliable and open data is essential for governments. China has the additional problem of a lack of civil society and this, coupled with the lack of freedom of association and independent trade unions means that there is little monitoring of the problems surrounding the minimum wage (such as overwork, underpayment, law rates etc) except by the few government resources put into effect. The state secrets laws add to the pervasive paradigm of secrecy within the central, provincial and local authorities and the fact that many authorities are used to under- or over-reporting to fulfil quotas or to ensure praise and not reprisals and make it almost impossible to fully collate relevant information and monitor progress or compliance with Convention 26.

The ICFTU would suggest that in order for ILO programmes to have maximum effect and sufficient feedback, the Chinese government should reduce its reliance on draconian and expansive state secrets laws. Instead the ICFTU suggests encouraging the free flow of information to help bolster wage policies at the same time as providing the ILO and other bodies to which China has reporting duties, with the ability to obtain clear, accurate and transparent statistics.

Article 4.2 “A worker to whom the minimum rates are applicable and who has been paid wages at less than these rates shall be entitled to recover, by judicial or other legalised proceedings, the amount by which he has been underpaid, subject to such limitation of time as may be determined by national laws or regulations.”

As stated above, the reason that some workers do not receive the minimum wage is the non-payment of wages. Unpaid wages remains one of the major causes of industrial protests, with the majority of protests being work stoppages and demonstrations by worker who have exhausted the few avenues available to them – labour bureaus, arbitration, and petitions. Increasingly workers are using the courts to claim back missing or unpaid wages but this is a lengthy and costly process and while many court decisions are eventually found in favour of the workers such judgments are often ignored and the missing wages and fines never paid.

One new initiative designed to better implement national labour regulations is the new Rules on Labour and Social Security Inspection, effective from December 2004. These new regulations set up a formal inspection and administrative penalty and fine system. The Rules are extremely comprehensive and establish a detailed procedure for inspections of enterprises and factories. The inspections are to be carried out by the local labour and social security bureaus and overseen national by the Ministry of Labour and Social Security.

Where an employer withholds or owes wages of an employee without valid reason; pays wages below the local minimum wage standard; or terminates a labour contract without making economic compensation to the employee in accordance with the law, the labour and social security department may order the employer to pay the employee within a certain time wages or the difference between the employees’ wages and the local minimum wage standards, or economic damages for terminating a labour contract. Where an employer fails to make such payment in time, the department may order the violator to pay an extra penalty equivalent to 50 percent to 100 percent of the original payment amount. If an employer makes misleading disclosures about the total amount of wages or total number of employees in reporting the amount due for the social security premium, the labour and social security department may order it to take corrective measures and impose a penalty equivalent to 100 to 300 percent of the amount of wages the employer failed to disclose. Penalties are also given for inspectors who abuse their power or take bribes and the role of the ACFTU in helping to monitor compliance (at least in theory) is also formalised.

Provincial authorities are also issuing various regulations in an attempt to stem abuses of the wage system. In addition to the Shenzhen SEZ increasing fines from 5,000 to 50,000, Shaanxi province has also issued “Regulations on Minimum Wage in Shaanxi Province” (effective 1 July 2006). The regulations state that if employers (both private and state owned) have not paid their workers wages within the set time limits they may be ordered to pay an additional 50 percent to 100 percent on top of the unpaid wages. In addition the Shaanxi minimum wage level should be adjusted at least once every two years. The minimum wage level in Shaanxi is currently in four regional categories – the highest being 490 Yuan per month, while the lowest was 400 Yuan a month. The new regulations also required employers to pay minimum wages to non full-time workers (their minimum wage level is also set out in four regional categories – 6 Yuan per hour being the highest, while 4.8 Yuan per hour being the lowest) and employers are also required to help non full-time workers buy pension, medical and industrial injuries insurance. [NOTE 10]

In March 2006, the possibility of adding the crime of “withholding labour remuneration” to the Chinese criminal law was discussed at a legal seminar as an added deterrent to the ever increasing cases of employers withholding wages. However even with the new regulations on penalties for non payment, the campaign to collect unpaid wages for migrants (especially in the construction sector) and the possible criminalization of such behaviour, there is still not enough monitoring of firms to deter the widespread use of this technique as a means of reducing overheads. The lack of collective bargaining and freedom of association adds to the problems in labour law enforcement and means that workers have few avenues of redress and little power in the workplace to enforce compliance.

A recent legal case concerning China’s minimum wage laws was reported in Legal Daily in an article about two workers (migrants) from KFC in Beijing. The two workers had recently had a suit against KFC accepted by the local labour disputes arbitration committee. The two are asking that Beijing KFC acknowledge that they had been employed by the company and that the company pays their basic living expenses as required by law. This is the second time in recent months that the Beijing KFC has been sued for similar practices and according to the local migrants Aid centre more than 20 other KFC staff have also sought help. The couple in question accepted jobs as a delivery worker and a cleaner and were given assurances of working 168 and 200 hours of work every month, at an hourly wage of 6.50 Yuan. But after the first month of employment (January) the shifts were reduced and in March the couple made a total of 60 Yuan net income. [NPTE 11]

According to the Regulations on Adjusting the Minimum Wage Level and Basic Living Expenses in Beijing the employer must pay the employee's basic living expenses if the employer does not provide regular work for its employee due to no fault of the employee. However even though the couple have worked with KFC for almost 12 months they have not signed a contract as the company required them to sign a labour contract with a separate employment agency who would "issue the monthly salaries and pay the insurance premiums on behalf" of Beijing KFC. A legal Aid staff member reported that KFC employees who came to them for help were told to sign with the agency or leave their jobs. This means that in the event of any problems – such as non payment of wages – the workers had to resort to the agency and not KFC. "This kind of fake employment arrangement is in fact a way for KFC to avoid taking any responsibilities for the employees," he added.

Another employee at Beijing KFC said that apart from managers, shop managers and assistants who receive a fixed monthly income, other workers are basically paid by the hour, so if they are not assigned shifts, they do not receive money. When they were assigned more shifts, they could work more than 10 hours every day, whereas on other days, they worked less than one hour in 10 or so days. Some busy days they worked more than 8 hours of overtime a day, but because they were not considered full time workers, they did not receive any overtime pay. Part-time workers should have been paid at a rate of 7.90 Yuan per hour, but they found that their average rate was only 6.50 Yuan.

Another report focused on the story, all too common, of a migrant worker in the construction industry who was attempting to recover unpaid wages on behalf of himself and the small team of concrete workers he was leading. The project was aborted after four months and a total of 139 workers lost their jobs. The team in question was owed some 80,000 Yuan in unpaid wages but the contractor refused to pay, claiming he had not received payment from the subcontractor. [NOTE12] Under new laws in Beijing construction workers have the ability to now sue the owner/project contractor even if the actual work contract was made with a sub contractor. However in this case the local labour bureau agreed to pay the workers a sum of 545 Yuan a month calling this the minimum wage. The team leader however could find no references to this sum in the local regulations and sought further legal advice in collecting the wages through the court system. [NOTE 13]

Migrant workers in the cities face a myriad of additional problems predominantly stemming form their status as non urban residents. In order to work in the cities they need to obtain temporary work/living permits for the cities. Many work without such permits and thus without legal contracts. In cases of disputes, accidents or unpaid wages they have no legal status to claim compensation. Most are forced to work for lower wages than urban residents and do not receive benefits such as education for their children, medical and other insurance policies except through their employer. They are largely dependant on the employer’s largess and compliance in applying labour laws and standards. The majority work in private enterprises untouched by branches of the All China Federation of Trade Unions (ACFTU) who until 2003 refused them entry.

Kindly forward this document to the Committee of Experts for examination during its forthcoming session.

NOTE 1: China Daily 2 April 2004

NOTE 2: China.org.cn, 14 May 2006

NOTE 3: China Labour Bulletin 25 May 2006 (China Women's Daily, 14 March 2006)

NOTE 4: Excessive Overtime in Chinese Supplier Factories Causes, Impacts, and Recommendations for Action
Verité Research Paper, September 2004

NOTE 5: China Labour Bulletin I South China Morning Post, 26 July 2006

NOTE 6: China Daily 2 April 2004

NOTE 7: In addition information on industrial accidents and occupational illnesses, unemployment rates and related social security matters, child labour, embezzlement of social insurance funds, labour unrest and worker protests are also covered.

NOTE 8: General Office of the Ministry of Labour and Social Security and the State Secrets Bureau, Regulations on the Specific Scope of State Secrets and other Secret Matters in Labour and Social Security Work, January 27, 2000 and All-China Federation of Trade Unions (ACFTU) and the State Secrets Bureau, Regulations on the Specific Scope of State Secrets and other Secret Matters in Trade Union Work, May 27, 1996. Translation taken from “Human Rights in China” (HRIC), China Rights Forum, No.3, 2004

NOTE 9: Human Rights in China and China labour Bulletin: Labour and State Secrets, China Rights Forum, No.3, 2004

NOTE 10: China labour Bulletin 13 June 2006:8 June 2006 (Legal Daily), 8 June 2006 (Xi'an Evening News)

NOTE 11: China labour Bulletin: Legal Daily 27 July 2006

NOTE 12: Another positive note is that under new laws migrant workers claiming unpaid wages will not have to pay legal costs and will not have to get signed approval for claiming legal assistance from their employer which made it almost impossible for the workers in question to claim successfully for legal help.

NOTE 13: South China Morning Post 8 February 2005

International Solidarity (ICFTU, Union Statements)

ICFTU Observations to the ILO Committee of Experts on the Application of Conventions and Recommendations on Convention No.26 on Minimum Wage-Fixing Machinery