Due to the uncertainties about the future development of the economy, there are voices from the top administrative authorities of China proposing to amend the controversial PRC Labour Contract Law in order to lower the labour cost and improve the liquidity of Chinese human resources.

However, as the proposed amendment to the PRC Labour Contract Law has not been included in the legislative agenda in 2017, it is yet to see whether and when such amendment will actually be implemented. In the meantime, The Notice of Interim Reduction of Social Security Contribution jointly promulgated by the Ministry of Finance and the Ministry of Human Resources and Social Security (“Circular 36”) on 14 April 2016 has taken the following steps to reduce the burden of employers in China:

Interim Reduction of Social Insurance Contribution Ratio

(1) Pension Insurance: From 1 May 2016 onwards, for an interim period of 2 years, the pension insurance contribution ratio borne by employers shall be reduced to 20% or, if certain criteria is met, 19%.

(2) Unemployment Insurance: From 1 May 2016 onwards, for an interim period of 2 years, the overall unemployment insurance contribution ratio can be further reduced to 1% - 1.5% where the individual’s contribution ratio shall not exceed 0.5%.

(3) Work Injury Insurance and Maternity Insurance: The average work injury insurance contribution ratio and the maternity insurance contribution ratio shall be reduced by 0.25% and 0.5% respectively.

Merger of Maternity Insurance and Medical Insurance

The maternity insurance and the medical insurance will be merged into one single type of social insurance. In that sense, Chinese social security structure known as “5 social insurances + 1 housing fund” will be fundamentally reformed. Such reform will be carried out after the State Council has issued the relevant implementing rules.

In light of the trend for reforming the labour and employment policy in China, it is advisable to pay attention to the forthcoming development.