COMPANIES investing in China could face increases in labour costs after Beijing unveiled plans to tighten employment laws, improve their enforcement and make foreign investors recognise the official trade union.

Officials say the Communist Party leadership agreed last week to strengthen workers’ rights and guarantee collective bargaining as part of President Hu Jintao’s vision of a “harmonious society”.

The plans include restrictions on short-term contracts, protection against arbitrary dismissal, and the institution of collective bargaining to resolve issues from rest breaks to holidays and redundancy terms.

Some foreign businesses, with American manufacturers to the fore, have lobbied against the changes, complaining that they will push up production costs.

But Wal-Mart, the US retail giant, has already accepted the presence of the official All-China Federation of Trade Unions in its outlets.

To put labour costs in perspective, the manufacturing province of Guangdong has just raised minimum wage levels in its most expensive city, Shenzhen, by 18% to about £53 a month.

Marc Faber, an analyst of Asian markets, said: “Labour costs could double in China, but those manufacturing jobs are never going to migrate back to Europe or America.”

A British buyer of plastics from China, who asked not to be named for reasons of commercial confidentiality, said: “The fact is that unit labour costs amount to about 12% of the cost price for us at the factory gate.”

The Chinese leadership is beset by social unrest which led to 74,000 protests last year. It faces vocal complaints from its own left wing and from the public about soaring inequalities.

Its next step is to refine a new text of the labour law, which has excited such public interest that the Xinhua news agency says 190,000 comments on the draft have been lodged with the authorities.

Professor Alan Neal of Warwick University said: “It is essential that companies operating in China understand the regulatory environment in terms of labour.” oIt is not just in China that companies are facing the pressure of rising production costs. Late last week, Wal-Mart was ordered by a US jury to pay at least $78m for breaching Pennsylvania employment laws by forcing staff to work through rest breaks. Lawyers for staff are seeking a further $62m in damages.

Wal-Mart is facing 70 similar claims in the US. Last year a California jury awarded $172m to staff who had been forced to work through meal breaks.

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