Law and Investment in China: The Legal and Business Environments after China's WTO Accession

For decades, Chinese workers in state-owned enterprises were served with an “iron rice bowl, ” that is, they enjoyed virtually lifetime employment, lived in enterprise housing, received medical care at little or no cost, and were provided with pensions and various fringe benefits. However, with the intensification of economic reform and the restructuring of state-owned enterprises, the “iron rice bowl” has been smashed. Nowadays, employment security is no longer guaranteed, a social security system has been introduced to replace the old enterprise-based welfare system, and labor mobility has greatly increased. During the course of labor reform, FIEs have played an important role because labor surpluses from the state and collective sectors have been absorbed considerably by the foreign sector. Moreover, with China's accession to the WTO, further growth of foreign trade and foreign direct investment is expected. Through whatever investment vehicles foreign investors choose to do business in China, they must staff their establishments. As a result, it is imperative for foreign investors to understand the basics of Chinese labor laws.

Since the embarkation of economic reform, the Chinese regulatory scheme for labor and employment can be divided into two periods. In the first period (1980-93), the Chinese regulatory framework was piecemeal because except for the Trade Union Law, ¹ there existed only administrative regulations and a large number of government rules and decrees dealing with sundry labor and employment issues. As regards labor management in FIEs, major legal provisions were contained in a series of administrative regulations and government rules enacted to implement the laws on FIEs, such as the Regulations on Labor Management in Sino-Foreign Equity Joint Ventures, Regulations for the Implementation of the Law on Sino-Foreign Equity Joint Ventures, and Rules on the Right of Autonomy of Foreign Investment Enterprises in the Hiring of Personnel and on Employees' Wages, Insurance and Welfare Expenses. In the second period (1994-Present), however, the passage of the Labor Law ² and the subsequent enactment of a series of implementation rules have rendered the Chinese regulatory framework more systematic. Specifically, the Rules on Labor Management in

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