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Cablegate: China Labor Experts Fear Downturn Could Delay

VZCZCXRO8906
RR RUEHHM RUEHJO RUEHPOD
DE RUEHGZ #0692/01 3300852
ZNR UUUUU ZZH
R 250852Z NOV 08
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 0021
INFO RUEHGZ/CHINA POSTS COLLECTIVE 0008
RUEHXI/LABOR COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC 0006
RUEHC/DEPT OF LABOR WASHINGTON DC
RUEAIIA/CIA WASHDC 0008
RUEKJCS/DIA WASHDC 0008
RHEHAAA/NSC WASHDC

UNCLAS SECTION 01 OF 02 GUANGZHOU 000692

SENSITIVE
SIPDIS

STATE FOR EAP/CM, DRL, INR/EAP

E.O. 12958: DECL: N/A
TAGS: ELAB PGOV CH
SUBJECT: China Labor Experts Fear Downturn could Delay
Labor Enforcement

1. (SBU) SUMMARY: Doubts about the government's willingness
to enforce labor regulations and mixed messages from senior
Party leaders on assistance to failing business have left
many enterprises in the Pearl River Delta reluctant to
conform to the Labor Contract Law and related regulations.
Years of complacency and a dearth of investment in research
and development have limited the ability of many small and
medium enterprises to adapt to current economic conditions.
Unable to issue municipal bonds, cities like Dongguan have
few options to raise capital to help businesses and shore
up the local economy. END SUMMARY.

Betting on Lax Enforcement
--------------------------

2. (SBU) Doubts about the government's willingness to
enforce regulations potentially detrimental to business
have emboldened some enterprises to refuse to purchase
social security insurance for workers, according to Sun
Yat-Sen University Department of Public Finance and
Taxation Dean Lin Jiang. Lin, who is also an advisor to
the Dongguan municipal government, said that the
postponement of new minimum wage legislation has led some
enterprises to conclude that enforcement of worker rights,
too, could be postponed in an effort to aid vulnerable SMEs
in the export sector. East China University of Political
Science and Law Professor Dong Baohua, who serves as vice
chairman of the China Labor Law Research Association and
who helped pen China's Labor Contract Law (LCL), claimed
that any decision to postpone implementation of the LCL
would come from "senior-level leaders" in Beijing, causing
provincial and municipal leaders to watch the capital
closely.

Lack of Consensus at the Top
-----------------------------

3. (SBU) Lin said that mixed signals from senior Party
leadership highlight a lack of consensus on how to deal
with current conditions. He juxtaposed statements by
Guangdong Party Secretary Wang Yang that the PRD
enterprises that have closed down are mostly SMEs
representing "backward productivity" -- whose closure is a
good thing for the economy -- with Premier Wen Jiabao's
comments that government should lend a helping hand to SMEs
in order to maintain social stability. Dong characterized
the choice for leaders as either "disrupting the economic
order" by continuing to enforce labor standards or
"disrupting the social order" by ignoring or permitting
violations of the law. Lin disagreed that the LCL itself
was a major contributing factor to the current economic
situation, speculating instead that enterprises see an
opportunity to use the fear of a worsening economy to force
the law's repeal or postponement.

Complacency, and Missed Opportunities
-------------------------------------

4. (SBU) Municipal authorities in Dongguan and other
manufacturing bases in the PRD are concerned about their
ability to remunerate workers subject to surprise layoffs
or firm bankruptcies, according to Lin, who said that in
practice such funds might not be made available to "all
firms," especially in the case of poorer cities likely to
run out of money. Due to an inability to issue bonds, Lin
said that cities like Dongguan have only limited options to
raise capital for a financial rescue operation.

5. (SBU) Shortsightedness on the part of businesses, too,
will continue to be costly. Lin accused many of Dongguan's
enterprises of complacency, saying that a history of
comfortable profits supplied little incentive to invest in
research and development. Now, the opportunity to do so
was past. Lin said that "not all" of Dongguan's townships
were "interested" in examining their existing policies
toward business, implying that such areas could be hit
especially hard by the new economic reality.

6. (SBU) Dongguan's entire infrastructure development --
especially its road network and its ports -- are export
oriented, thus magnifying the current economic
difficulties, said Lin. The Yangze River Delta is better

GUANGZHOU 00000692 002 OF 002


positioned than the Pearl River Delta to serve the domestic
market, according Lin, who added that a number of PRD-based
companies had already relocated to the YRD, with others
likely to follow suit.

JACOBSEN

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