At times, eye-catching subjects that trigger ardent debate have in fact strayed far from the essence of the issues involved. Such deviant discussions are worth our attention as they may result in certain policies being implemented erroneously. One example is from a recent forum in which the withdrawal of Hong Kong investors from China was attributed to the enactment of the Employment Contract Law (ECL). The forum has attempted to obscure two major contributing factors which are at the source of the investors pull-out: the implementation of the 'Foreign Enterprise Income Tax Law' (FEITL) and recent damage to the credibility of Chinese made products.
The FEITL was put into effect on January 1st, 2008, the same day as the 'Employment Contract Law.' The essence of the FEITL is to minimize the difference in the tax bracket between foreign business and domestic business, attempting to equalize them. Not only does the FEITL increase taxation of foreign business, it also changes the qualifications for preferential tax breaks from geographical location to industry type. With the implementation of the FEITL, the major industries in Guangdong Province that are heavily supported by Hong Kong investment are now excluded from preferential tax breaks. Before the FEITL was enacted, the discussion about the integration of individual and corporate income tax had been ongoing for several years. During those years, many multinational corporations and local government officials tried to exert their influence to delay the implementation of the law. The Ministry of Business, the department that governs foreign investment publicly voiced their position to leave the decisions on tax reform for a later date. However, the law was still enacted.
The fate of Hong Kong investment in Guangdong Province was actually before the FEITL was passed. The new law raises the rate of income tax for foreign businesses from 15 percent to 25-30 percent. Before this tax hike, tax breaks for foreign investment have been the major source of profit for most foreign enterprises supported by Hong Kong capital. Think about this: how many industries in the world today can still secure a 10 percent profit margin? Knowing that they were unable to salvage this desperate situation, the Guangdong Provincial Government only proclaimed, "The FEITL will expedite the improvement of Guangdong's industrial structure" and "Guangdong Province will 'reserve water to raise bigger fish.'" The Provincial Governments' statements indicate that it had anticipated an unavoidable loss of investment from small and medium Hong Kong based enterprise, and instead focused its efforts on attracting wealthier foreign capital (the 'bigger fish') to Guangdong.
However, when the forum was hosted to discuss the reasons which caused the withdraw of Hong Kong investors, very few media mentioned how the FEITL would impact the survival of Hong Kong enterprise. Instead, the media carried a flood of reports about how the FEITL would supposedly benefit them. It seems officials had set the tone that the state run media propaganda was to carry. The issue of investors withdrawing is not so simple and is also directly related to the nation's financial resources.
Another factor, one that neither officials nor business owners want to talk about is the loss of desirability of 'Made-in-China' products to the global market during 2007. These products are mostly manufactured by companies that are owned by Hong Kong and Taiwanese investors. In the past, such 'Made-in-China' products attracted customers in with their low cost, but in recent times, in European and American markets alike, 'Made-in-China' has become a label synonymous with poor quality. Since the credibility of Chinese enterprise is on the verge of collapse, orders will naturally decrease or disappear altogether. While such a painful outcome is a trouble that companies brought on themselves, it is also related to China's reputation at large.
Furthermore, with the 2008 Beijing Olympics around the corner, the Beijing regime is attempting to soothe the international community's concerns regarding China's food safety standards. This is why the regime jailed reporter Zi Beijia after they reported the 'Steamed buns stuffed with shredded cardboard.' story. The regime has made up its mind to curb any criticism of Chinese product quality, while its propaganda machine paints the decline in sales caused by poor quality as so-called 'trade barriers' supposedly set up by western countries. Under these circumstances, what media would dare to discuss the real facts about the boycott of 'Made-in-China' products by the international market?
As such, only the ECL left some room for free discussion. Before the bill became law, Mainland media boasted it as a 'guardian' of laborers while businesses regarded it as a 'dreadful monster,' as the ECL was poised to increase operational costs. Business owners began taking preemptive measures in October 2007, as such, major companies such as Shenzhen Huawei and Wal-Mart issued massive layoffs. For Shenzhen Huawei alone, 7,000 employees who had been with the company for more than eight years were forced to 'resign' and compete again for re-employment with the company. This was an effort to evade the articles set forth in the ECL which actually defend workers rights. For example, when an employee "has been working for the employer for a consecutive period of not less than ten years" or "has completed two consecutive fixed-term employment contracts," the employee can ask for an 'open-ended employment contract' and become a permanent employee of the company. What deserves special attention is that workers do not view the new law as a true 'guardian' of their rights. Instead, the ECL has triggered waves of employees refusing to sign contracts. For example, in December 2007, more than 1,000 employees in a large company in Shunde City refused to sign employment contracts because of discrepancies in calculations for factors such as time of employment and transfer of social security benefits.
There is no doubt that the ECL needs to be flawless, but the protection of labor rights should never be delayed or held back. In fact, market penetration and occupation from 'Made-in-China' products at the expense of workers' lives and welfare can no longer be sustained. As the Chinese communist regime has never admitted any fault, the regime has not only continued to fail to take precautions after suffering losses, but also fails to take preemptive measures when threats are looming. When the world market brought forth criteria for quality control of 'made-in-China' products last year, the move should have forced both the regime and Chinese enterprise to reflect on their own issues. However, the reflection has instead evolved into a frenzied mentality that the ECL provides higher wages and better welfare benefits to the employees, and, as a result, has forced Hong Kong investors to withdraw. Following such short sighted reasoning, the regime will most likely use 'capital protection' as an excuse and abandon its initiatives to uphold labor rights.
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