Header graphic for print
China Law Blog China Law for Business

China’s Slowdown And YOUR Employees

By Dan Harris on Posted in China Business

Spoke last week with a long-term client. I asked him how things were going for his company in China these days and his response was “good and bad.” This is a company that makes product in China strictly for US sales. Product sales are good, he told me, and on that front not much has changed.

On the labor/employment front, however, is where things are “getting interesting.” He told me that in the last few months he has been able to bring in better employees for less than he would have expected and this is because “so many Chinese companies” are either laying off employees, cutting their hours, or cutting their pay and he is “getting the sense that it is becoming prestigious again to work for an American company, even a small one.”  That’s the good news.

The bad news is that the amount he is having to pay his terminated employees to get them to sign an agreement never to sue the company has gone up. According to our client, terminated employees are no longer of the view that they will be able to get new work, no problem, in a month or so and they are demanding more in the way of severance to get them through unemployment.

All of this makes sense as China continues to slow.

I plan to start asking more questions regarding what our clients are seeing in China due to the slowdown and I will be reporting back with answers.

What are you seeing out there?

  • http://www.citylawtutors.co.uk/ Dennis The Law Guy

    Dan, what I’m curious about is Apple’s factory (I believe the company is called Foxcon or something?). You see, there have been stories about suicide nets around those factories to prevent employees from you know… and I wonder what the current situation is over there in terms of “work-related deaths” and whether their wages have gone up to keep them motivated. Any word on that?
    Plus, won’t the slowing down of China, eventually, lead to lower wages because those that still have a job will be so desperate to keep it they’ll work for next to nothing?

  • Twofish

    To Dennis:
    Privately the factory owners I know get really annoyed by these sorts of stories. They point out that these factories have thousands (and sometimes tens of thousands of workers) living in plant dormitories, and that they think it’s really silly and unfair that when someone commits suicide over some private issue that it’s assumed that the workers are being worked to death. While suicide is tragic, they point out that the suicide rate among plant workers is no higher than any random sample of people that age.
    Also, one thing that happens that never gets reported is that even in good times, workers strike at the drop of the hat. The other thing is that workers are very, very assertive about following the contract terms. If the contract says that they will work X hours, they won’t work one minute over that.
    The other thing is that the younger generation is more interested in lifestyle than money (i.e. guaranteed time off), and privately the factory owners grumble that the younger generation is just too soft and undisciplined. One factory worker that I know has gotten into the habit of hiring retirees, because he says that they have better work habits.
    One other point is that the slowdown is happening in manufacturing. It’s not happening in other sectors, particularly services. If you are looking for workers in export manufacturing, yes that’s getting hit and hit hard. If you are looking for workers in IT outsourcing or services, it’s a completely different story. So part of this is not only the global slowdown, but that the government has decided to use the global slowdown to move out of low-end manufacturing.

  • Chris

    Business remains quite good (selling into the China domestic market) and staff numbers continue to grow. Continued upwards pressure on salaries for IT and mid to senior level management staff.

  • http://www.thailawforum.com/blog/ Thai Law Forum

    Dennis, if Thailand’s workforce is any indication, your speculation that workers will be willing to accept lower wages in exchange for jobs is at least partially right. There’s a lot of upheaval in Thailand right now regarding the Prime Minister’s new 300-baht-payement- per-day legislation. Certainly, a lot of workers are excited about the legislation, but a decent number are protesting it. Refusing higher wages might seem counter-intuitive, but a lot of these workers know that higher wages will mean that their emloyers will have to downsize or go out of business.
    With China slowing down, and Thailand struggling with a higher minimum wage (and under water to boot), the clock is ticking for foreign companies to start pouring into Vietnam and Indonesia…

  • ceh

    Dennis: The definition of “next to nothing” is shifting due to the fast pace of inflation, so wages will probably still go up–just not as fast as inflation.

  • http://blog.frontierstrategygroup.com Frontier Strategy Group

    While corporations still have high expectations for growth in emerging markets in 2012, Frontier Strategy Group has observed two potential red flags that emerging markets executives should be aware of when they plan for 2012: (1) expectations are aggressive, but strategies are conservative, in the sense that growth is the priority but should be achieved through conservative expansion methods; (2) strategies may be undermined by the tactics used to implement them.

  • Volker Müller

    “than he would have expected and this is because “so many Chinese companies” are either laying off employees, cutting their hours, or cutting their pay and he is “getting the sense that it is becoming prestigious again to work for an American company, even a small one.” That’s the good news. ”
    Do you really think this is GOOD news?

  • Libin

    Twofish :I agree with your statement on the current situation in China. It is a true story of Chinese industrial relations. Some of my domestic clients in China also are concerned about the potential effects of China’s slowdown.
    In addition, one trend should be mentioned here. It is that more employees have started to take advantage of collective bargaining to increase wage/salary or other benefits for themselves, just like what happened to NBA in USA one month ago.
    In particular, those multinational companies should be aware of this trend, and well prepare for it.