China Dragon Bites Back

05/03/2009 05:12 am ET | Updated May 25, 2011

With the pre G-20 announcement from the White House, it is an excellent sign that President Obama will meet with Premier Hu and work jointly to solve the financial crisis. Our countries are interconnected more than ever. I am in Shanghai and learned just how bad the manufacturing situation is here from businessmen and women that work in this city and have US multinational company clients in the manufacturing business in China. Two years ago, a new labor law in the PRC was passed and often ignored by US companies. That was not a problem when times were good. However, when business conditions sour, difficulties arise. We see the China dragon bite back.

Americans don't like the labor law as it requires all employees, even expatriates, to have a contract. You can not fire Chinese employees or anyone with a contract without paying severance. In addition, many unpaid work hours will come due as employees have started to show they have been tracking time worked and not paid. The Chinese dragon is strong and can force you to pay one month severance for every year the employee worked in addition to other fees and penalties. Most whistle-blowers are Chinese employees who have been fired. It is no longer a nudge, nudge, wink, wink, environment where the Chinese government ignores bad practices. The Chinese government leaders' sole goal is to stay in power. To do that, they must have Chinese workers employed. Manufacturing represents 40% of the Chinese GDP. The PMI statistics for China show that for the last 3 months manufacturing has been contracting. Riots have occurred in the south. If 300 factories closed according to local news, you know that many more have actually closed. The employees are learning their rights and becoming feisty.

My message is for those of us who want prosperity for many nations, including for workers facing a difficult and changing US manufacturing situation. China is no longer as easy a place to do business as in the past. Talk to your lawyers to find out the risks and hidden costs of moving manufacturing jobs to China. It may be more expensive than you think. The image of a dragon biting the hand that feeds it (U.S. companies) has never been so visible. Let's hope wise heads prevail when both countries' leaders meet to keep the economy flowing and avoid any destructive laws that have a protectionist effect.