This is an edited synthesis of Professor ZHANG Shuguang’s remarks on the Seminar on Labour Contract Law and the Supply-Side Reform, which was held at Unirule Beijing Office on July 23rd, 2016.

 “A critical article in the Labour Contract Law is about open-ended work contracts. This article has different implications for enterprises, depending on their size. Big enterprises are comparatively stable with fixed relations between workers and the market. They are too big to fail, in a sense. To them, this article is important. However, when you look at the small and medium sized enterprises, and when you see how many of them close down every year, the uncertainty and instability is all there. If we adopt the same criteria for both of them, there may be problems,” This statement was made by Professor ZHANG Shuguang at the seminar.

Here are some of the key points made by Professor ZHANG Shuguang at the seminar:

1. It should be a priority to clarify the guidelines for legislation. The labour law should first and foremost protect the interest of the workers. But how should this be done? Should the labour law be partial, or should it strike a balance between all the parties? I think the labour law should not have partiality. The current principles of the labour law failed to do that.

2. Many of our laws have strong principles that do not work in practice. The labour law, on the contrary, is overly explicit in this sense. This has crushed the room for manoeuvres for the market mechanism, where different entities in the market undertake transactions and exchanges, and reach contracts by negotiation and compromises.

3. A unified one-size-for-all law is not acceptable. For example, a critical article in the Labour Law is about open-ended work contracts. This article has different implications for enterprises, depending on their size. Big enterprises are comparatively stable with fixed relations between workers and the market. They are too big to fail, in a sense. To them, this article is important. However, when you look at the small and medium sized enterprises, and when you see how many of them close down every year, the uncertainty and instability is all there. If we adopt the same criteria for both of them, there may be problems.

4. There are some issues that are not targeted by the labour law, but have a lot to do with it. For instance, the current policy of cutting overcapacity and deleveraging aims to eliminate many zombie enterprises. However, there is the issue of managing the layoffs. How are their interests and rights going to be protected? In the first state-owned enterprises reform in the early 1990s, there were millions of layoffs, and they were the ones who paid for that reform. Now we are trying to deal with overcapacity, but how are we going to deal with the layoffs?

Here are Professor ZHANG Shuguang’s remarks:

Good morning, Ladies and Gentlemen! Firstly, allow me to welcome all of you to join us at Unirule for this seminar. Thank you all for coming, despite the hot weather today. The topic of this seminar is labour law, which is a very important law as it balances the interest of the workers and enterprises and further adjusts the labour market. Therefore, it is of key importance to our economic life. The Labour Contract Law was enacted in 2008. There had been debate on it during the legislation and research process. Over the past eight years, many problems have emerged, though the Labour Contract Law has also had some positive effects on the labour market. In the light of the debate, discussion, and controversies over the Labour Contract Law, the authorities have come to recognise the necessity and urgency to modify the Labour Contract Law.

Before that, I think there are a few issues that need to be clarified and discussed. One is the guideline for legislation. The labour law should first and foremost protect the interest of the workers. But how should this be done? Should the labour law be partial, or should it strike a balance between all the parties? I think the labour law should not have partiality. The current principles of the labour law failed to do that. So far, the guideline for drafting the Labour Contract Law is not ideal.

Another issue is that many of our laws have strong principles that do not work in practice. The labour law, on the contrary, is overly explicit in this sense. This has crushed the room for manoeuvres for the market mechanism, where different entities in the market undertake transactions and exchanges, and reach contracts by negotiation and compromises. Therefore, I think a law should be both practical and principle-focused at the same time, so that it can be applied in real life, but also leave room for negotiation. The scope of the market activities should not be compromised by the explicit and strict articles of a law.

Moreover, we should also realise that social life is very complicated and multi-faceted. When it comes to the law, the various situations should be taken into account, instead of getting a one-size-for-all solution. For example, a critical article in the Labour Contract Law is about open-ended work contracts. This article has different implications for enterprises, depending on their size. Big enterprises are comparatively stable with fixed relations between workers and the market. They are too big to fail, in a sense. To them, this article is important. However, when you look at the small and medium sized enterprises, and when you see how many of them close down every year, the uncertainty and instability is all there. If we adopt the same criteria for both of them, there may be problems.

There are some issues that are not targeted by the labour law, but have a lot to do with it. For instance, the current policy of cutting overcapacity and deleveraging aims to eliminate many zombie enterprises. Taking Dongbei Special Steel Group Co., Ltd. for an example, the Liaoning Provincial Government holds 70% of its shares, and it has a staff of over 10,000 with a capacity of 180 trillion ton per year. Such an enterprises is able to get an income of only half of its debt every year. But the government as its largest shareholder does not want it to go bankrupt. The government does more than that: it doesn’t allow the banks to withdraw their loans; neither does it allow banks to push the enterprise for payment. In addition, the government also coerced the stakeholders to utilise one third of the assets to pay back debts, one third of the assets to undertake the debt/equity swap, and another one third for extension of payment time limit. Of course the stakeholders refused to do so. And this enterprise is still faring in troubled waters. In other places in China, there are many coalmines that have been shut down. But the biggest problem there is the settlement of the layoffs. This is a problem faced by all of us. How are their interests and rights going to be protected? In the first state-owned enterprises reform in the early 1990s, there were millions of layoffs, and they were the ones who paid for that reform. Now we are trying to deal with overcapacity, but how are we going to deal with the layoffs?[Page]

In this light, I think today’s seminar is very important for the modification and betterment of the Labour Contract Law. I hope that everyone is free to share his or her opinions at this seminar so that we could possibly find a solution for the current issues of the Labour Contract Law. Thank you!