China

102
Country starter pack
Business practicalities in China
• Limits on the use of fixed-term contracts
• Specific processes for consulting with employees
over company rules and regulations
• Wider protection for employees hired through job
agencies.
China’s labour laws and regulations are enhanced often
by regulations applying in different local jurisdictions.
Provinces, big cities and original special economic zones
(such as Shenzhen in Guangdong Province) impose
their own employment contract rules. But Australian
businesses entering China need to be alert to a host of
other laws, such as the Employment Promotion Law and
Labour Union Law, as well as laws pertaining to Mediation
and Arbitration of Employment Disputes and Entry and
Exit Control (Immigration Law).
Hukou: When hiring in China, Australian businesses
should consider a potential employee’s hukou. Hukou,
a system of family and population registration that has
its origins in ancient China, was appropriated by China’s
authorities following the 1949 revolution as a means of
preventing rural citizens from flooding heavily populated
cities. Codified in 1958, the law identifies each individual
as either an agricultural or non-agricultural worker, while
specifying their local authority of residence. This system
of categorisation works effectively as a form of domestic
visa, indicating where a Chinese citizen may live, be
schooled and work. This can only rarely be changed, and
the process for gaining permission difficult. Subsequently,
it is estimated that as many as 150 million migrants could
be living in China’s cities illegally. Most of the people
forming this class tend to be working in manufacturing
and other labour-intensive industries.
The Chinese government has heralded reform of this
unique system to more easily match labour market
demand and supply, with citizens expected to soon be
given permission to move freely to towns and smaller
cities. Hukou restrictions placed on medium-sized
cities are also expected to be gradually lifted. However,
migration to China’s teeming metropolises will remain
strictly regulated. The system of hukou will also affect an
employee’s access to government services and the rate of
their social insurance contributions, and in particular their
children’s access to education and medical benefits.
Representative offices: A foreign entity’s representative
office cannot hire staff directly. Rather, domestic staff
must be drawn from an agency that will substitute as
the official employer, as a representative office is not a
capitalised entity in China. This is partly in recognition
of the fact that local employees have the right to make
a claim against an employer. Foreigners working for a
representative office in China are assumed to have an
employment relationship with the parent company and
that any disputes would be adjudicated according to the
laws of the country in which that corporation is based.