Chinese Draft Law Would Mandate Formation of a Union in Foreign-Invested Enterprises

January 25, 2019

Our sources indicate that a new foreign investment law being considered in China will mandate foreign-invested businesses to form trade unions and to provide the necessary conditions for the activities of their respective labor unions.

The draft law further states:  “The employees of foreign-invested enterprises are to establish labor union organizations in accordance with law to carry out labor union activities and to protect the employees' lawful rights and interests.

Alan Wild, HR Policy Director of Global Affairs, said:  “This is not an entirely unexpected development.  We have already seen the All-China Federation of Trade Unions (ACFTU) adopt a more aggressive stance on recognition with U.S. companies.  It remains to be seen how forcefully the Chinese government will pursue the regulations if applied.  An indication of that will come when we see the penalties for non-compliance set out.  What companies should do today is dust off their data on where the ACFTU is and is not recognized in China so that the potential employee relations and financial exposures are identified.  With that data in hand, deciding next steps will be clearer.”

This is in line with our recent observations and predictions around the tariff war.

A significant cost issue:  One obvious issue is that trade unions will have to be formed and managed—but probably the larger issue for foreign companies is the two percent of payroll membership levy they will have to pay.