Labour Contract Law is undergoing an amendment

In early 2016, the ministers from the Ministry of Finance and Ministry of Human Resource and Social Security (“MoHRSS”) openly criticised the Labour Contract Law (“LCL”). The main criticisms aimed at the LCL were that: (1) the labour market is not flexible enough, and (2) the labour costs are relatively high. The ministers’ speeches suggested that the Chinese government has decided to amend the LCL in response to the current economic recession in China. Later, it was confirmed that MoHRSS had begun to solicit experts’ and scholars’ comments on the amendment.

Supply-side reform and reduction of financial burden for employers

Many provinces and cities have issued local policies in response to the supply-side reforms prompted by the national government. The supply-side reform includes, amongst other things, reductions of production capability in sunset industries and lowering of the labour costs for employers. As a result, many state-owned enterprises that are in poor financial position have declared redundancy, early retirement, or other employee settlement plans, targeting a reduction in the workforce. Hundreds of thousands of employees will be affected.

In addition, most local authorities have announced a reduction to the social insurance contribution rates aimed at lowering the employer’s contribution. Local authorities have promised that employee benefits will not be adversely affected.

Pilot program for a new work card application system for foreign nationals

Since 1 November 2016, a pilot program aimed at overhauling the work permit system for foreign employees has been rolled out in nine major cities and provinces, including Beijing, Tianjin, Shanghai, and Guangdong. The existing parallel systems for expert certificates and work permits will be replaced by work permit cards, which will be applied for through a single online process. Under the new system, senior foreign employees or those with talents that are in high demand will receive work permits much faster than under the older system. For such employees, the restrictions on age and work experience will also be loosened.


Official roll-out of the new work card application system for foreign nationals nationwide

The new system for work permit cards discussed in 2016 is expected to be rolled out nationwide on 1 April 2017. Once the new system is implemented, foreign nationals working in China will be divided into three categories:

  • Category A – Leading Foreign Experts. Individuals falling into this category will likely be at the top of their fields and have extraordinary skills and abilities, and as such will be welcomed and encouraged to come to work in China;
  • Category B – Foreign Professionals. This category should include teachers, educators, accountants, engineers, and general company staff. It is expected that most foreign nationals approved to work in China will fall into Category B; and
  • Category C – Restricted Foreign Nationals. This will include temporary, seasonal, non-technical, and domestic workers. These employees will be subject to annual quotas. Quotas for 2017 have not yet been announced.

Amendment to Labour Contract Law

The draft amendment of the Labour Contract Law proposed in 2016 is expected to be released in 2017, mainly focusing on increasing the flexibility of the labour market, especially for small-and medium-sized enterprises. Due to the controversial nature of any amendment on employment law, it is difficult to foresee when the amendment will be officially passed by the Congress.

With thanks to Gordon Feng of Jun He LLP for his invaluable collaboration on this update.