Does crisis provide an opportunity and impetus for reform, or instead encourage reactionary tendencies to preserve security and the status quo? This obviously depends on the particulars – but there’s growing evidence that the financial crisis is stifling efforts to implement land and labor contract reform in China.

With regards to the latter, this Southern Weekly article (劳动合同法期待完善 ”Hopes for Perfecting Labor Contract Law”) describes how loopholes in China’s Labor Contract Law (implemented  Jan 1, 2008) are being exploited by “dispatch companies” (派遣公司 – essentially a large temp agency). These institutions can skirt many of the provisions of the new law, since (by the terms of the law) there exists no direct relationship between dispatch company employees and the main employer. If the problems get out of hand, the dispatch company can simply shut-down, and the original employer seek another such entity to provide labor.

The Labor Contract Law allows workers to seek legal redress for grievances against their employers, which had previously been much more difficult. This is most commonly pursued for delay or non-payment of salary, but also addresses numerous other worker rights issues. Chinalawblog has an excellent overview here and here. 

Prior to implementation, it was widely regarded that the new laws would increase labor costs, potentially making low-skill industries more expensive than other export dependent countries. This fit well with China’s long-term strategy: move up the value chain, a la Singapore. There was at the time, however, no acknowledgment of the financial crisis, and (especially in China) its potential effects on the “real” economy. From the Southern Weekly article: 

As of October 2008, upon being impacted by the international financial crisis, the woes of domestic enterprises continued to increase. Cases of employers delaying salary payments were even higher, as well as an increase in cases where employers failed to meet their contributions to social security payments. In some areas, there have even been instances of enterprises shutting down, and their bosses [illegally] fleeing elsewhere. Instances of labor disputes have increased rapidly.

Perfection of [the problematic] legal clauses is imminent, but this economic winter has caused policy makers to be filled with misgivings [about further reforms].

2008年10月份以来，受国际金融危机影响，国内企业经营困难加剧，企业欠薪情况增多，企业足额缴纳社会保险费的难度加大，有的地方还发生企业主欠薪逃匿事件，劳动争议案件大幅上升。

法律条款的完善迫在眉睫，但这个经济冬天的现实却让决策者畏首畏尾。

Simultaneous with efforts to close such loopholes, there are unofficial reports that officials are telling employers to ignore the more stringent aspects of the law (from Peter Ford, writer for the Christian Science Monitor in a Q&A at Danweivia Chinalawblog):

I have heard, though not been able to confirm, that provincial governments have been quietly telling employers for several months that if they do not abide by the provisions of the Labor Contract Law they need not worry, and this seems perfectly plausible.

A lot of employers have been complaining for a year or so that the labor law, along with the rising value of the RMB until last July, was a major factor in making them uncompetitive.

There is certainly a recursive relationship between reality and codification of the world that we might like – but the best laws are simply those that formalize informal relationships and agreements. Legislating the unenforceable leads directly to de facto non-compliance and exploitation of loopholes amid reform for rhetorical effect alone.