Companies in China have to face higher labour costs in future due to a passed law. The new law provides holidays, minimum wages and should ensure better working conditions. The law will increase costs for all kind of companies especially in the textile and toy producing sector.
The new labour law is also applicable for companies with foreign shareholder and foreign multinational companies. The law also includes better dismissal protection for full-time employees, higher gratuities and guaranteed minimum wages. The State Council approved a regulation to a public holiday, which was published on Sunday on the website of the government. Accordingly, there will be eleven days of public paid holidays a year instead of the previous ten for all workers and employees who are in stable employment.
In addition to the eleven national holidays, China guarantees all employees a contractual right to annual holidays. In another new ten-point determination, the State Council decided that employees with less than 20 years of working have the right on 10 days of paid holidays and with more than 20 years 15 days per year. A company has to pay three times of a workers´ salary if the employee isn´t able to take his or her holidays due to business reasons. The State Council determined that these rules are applied also for private and family businesses.
That will mainly effects labour-intensive mass production companies of textiles, toys and for instance shoes. The biggest problems will face companies which export to the U.S. and Europe because of the converting rates which are included in these kinds of transactions. Summarizing, Chinese companies have to pay higher wages and social costs while these companies have higher energy and transportation costs. Therefore the margins get smaller comparing to previous years. The first mass production companies in China went bankrupt based on that fact because they are not longer competitive to multinationals or other companies in low-wages countries.