6. PEOPLE'S REPUBLIC OF CHINA Export Subsidies Policies Many of China's manufactured exports are directly subsidized by the central government. Provincial and local governments also heavily subsidize goods produced within their jurisdiction. Estimates of China's total subsidy bill in 1989 range as high as $10 billion. China's total exports in 1989 were $52 billion. In addition to direct cash subsidies from the Ministry of Finance, indirect subsidies such as bank loans that are not repaid are also used. Import/export companies also cross-subsidize unprofitable exports with earnings from more lucrative products. Other export incentives that may be regarded as subsidies include tax rebates for exporters and duty exemptions on imported inputs for export production. China's swap markets constitute a de facto alternative exchange rate system where exporters can exchange earned foreign exchange for domestic currency at a rate 10 to 15 percent higher than the official rate. Exporters also have the right to convert their foreign exchange earnings into renminbi at rates higher than the official rate depending on product exported. 7. Protection of U.S. Intellectual Property The PRC is a member of the World Intellectual Property Organization and is a signatory to the Paris Convention for the Protection of Industrial Property. The PRC remains on the U.S. Trade Representative's Special 301 "priority watch list" under the provisions of the 1988 Omnibus Trade and Competitiveness Act. In September 1990 the Standing Committee of the National People's Congress promulgated a new Copyright Law, effective June 1, 1991. The law will not provide protection to foreign works not first published in China, however, unless there is a bilateral agreement between China and the author's country or China joins the Berne or Universal Copyright Conventions. Chinese officials believe it may take several years for China to join the Conventions. Proposed amendments to the 1984 Patent Law have been submitted to the State Council, but Chinese officials say they may not be passed by the National People's Congress until 1992. The revisions reportedly will increase the term of patent protection from 15 to 20 years from filing, and increase patent protection for some chemical products. Chinese Patent and Copyright officials and universities are working to increase IPR education, particularly for authors, publishers and performers. Many longstanding problems remain. China's current Patent Law does not adequately protect chemical or pharmaceutical products. Article 25 of the Patent law excludes patent rights to substances obtained by means of a chemical process, pharmaceuticals, and "methods for the diagnosis or treatment of diseases." The only protection extended to chemical and biological technologies is process of manufacture and method of use. The only protection available to pharmaceutical technologies is process of manufacture. addition, a Chinese process patent is not infringed by the importation of a compound made by the same process outside China. U.S. firms have reported that some fertilizers In PEOPLE'S REPUBLIC OF CHINA patented in the U.S. have been produced in China without license for both the domestic and export market. Moreover, the formulae have sometimes been copied incorrectly, causing serious damage to end-users and damaging the reputation of the genuine product. Some of these problems may be resolved when the patent law is revised. China's trademark regime is generally consistent with international practice. However, pirating is still widespread and actions taken against infringers generally must be instigated by the injured company. Pirating of books, tapes and computer software in China remains widespread. Prosecution of infringers, as with the trademark law, will generally need to be instigated by the injured company, even after the copyright law becomes effective. The new copyright law addresses copyright protection for computer software. Implementing regulations defining the scope and method of protection are still being drafted, however. Chinese officials are optimistic that the regulations will be passed by the State Council before the law becomes effective in June 1991. In the meantime, U.S. software companies are reluctant to sell or license their products in China because of extensive software pirating. Software pirating may also significantly affect computer hardware sales, as some Chinese manufacturers appear to be undercutting U.S. manufacturers by offering computer packages utilizing pirated U.S. software. There are reportedly cases of computer hardware counterfeiting for domestic and export sales, but little data exists on how widespread the problem is. Inadequate protection of pharmaceutical and chemical products could cost U.S. manufacturers millions of dollars in lost sales in 1990 and inferior copies may harm the reputation of the genuine product, affecting future sales. U.S. book publishers estimate annual losses of $100 million because of book pirating in China. We estimate that the Chinese have made illegal copies of software with an annual U.S. market value of $150 million. In addition, pirating of U.S. software has resulted in very little market penetration by U.S. firms in a potentially lucrative market. Finally, lost hardware sales caused by counterfeit production and the low package prices offered for Chinese-made computers which include pirated software could be in the tens of millions of dollars. The PRC's 1982 Constitution guarantees "freedom of association," but the guarantee is heavily qualified by references to the interest of the state and the leadership of the Communist Party. Although union membership is voluntary for individual employees, it is compulsory for each enterprise (with the exception of some private and individual enterprises) to have a union. The All China Federation of Unions (ACFTU), nominally an independent organization, is closely controlled by the Communist Party. There are no independent trade unions in the PRC. Virtually all state PEOPLE'S REPUBLIC OF CHINA sector workers and nearly 90 percent of all urban workers belong to ACFTU chapters. If a worker is unemployed he is not considered a union member. b. Right to Organize and Bargain Collectively The government does not permit collective bargaining. Without legal status as a collective bargaining body, the ACFTU's role has been restricted to a consultative one in the decision making process over wages and wage reforms. Trade Unions have limited themselves to channelling workers' complaints to the management of individual enterprises or municipal labor bureaus. There is a three-tiered dispute settlement procedure in which an aggrieved worker may appeal to an enterprise arbitration committee, then a local arbitration committee, and finally the court system. Worker Congresses, organized in most Chinese enterprises, technically have the authority to remove incompetent managers and approve major decisions affecting the enterprise (notably bonus/wage distribution systems). Worker Congresses generally meet only once a year, however, and appear to act primarily as rubber stamps on agreements worked out between factory managers, party secretaries and union representatives. c. Prohibition of Forced or Compulsory Labor China's longstanding practice is that "reform through labor" (prison) and "reeducation through labor" entail compulsory labor. Chinese officials claim that China's 1-2 million prisoners produce goods worth $1 billion, primarily for use within the prison system. Chinese officials state that export of prison labor products is not authorized but reliable reports indicate that some such products are sold on the international market. d. Minimum Age for Employment of Children Regulations promulgated in 1987 prohibit the employment of school-age children who have not completed the compulsory 9 years of education. In September 1988 the Ministry of Labor issued a circular designed to curb pervasive child labor problems. It imposes severe fines, withdrawal of business licenses, or jail for employers who hire child laborers under 16 years old. However, enforcement of the provisions of the circular is spotty and the employment of child labor is still fairly common, particularly in rural agriculture and industry. China does not have a labor code. The terms and conditions of employment, including wages, are unilaterally determined through administrative regulation. These regulations set a basic "living wage" which the government required enterprises to guarantee to temporarily laid off workers during the production stoppages in the first half of 1990. Technically speaking, however, there is no minimum wage law. A large proportion of workers' incomes comes from bonuses or subsidies. The maximum and normal work week is 48 hours. Safety conditions are generally very poor and the absence of a national labor code makes enforcement of safety regulations extremely difficult. PEOPLE'S REPUBLIC OF CHINA f. Rights in Sectors with U.S. Investment Worker Rights practices do not appear to vary substantially from sector to sector. In general, safety standards are higher in U.S. invested companies. Foreign invested joint ventures are required by law to have a union and to pay the salary of a full time union representative. Some municipal trade union regulations, such as those in Shenyang and Shanghai, give the unions substantial clout in the dismissal process. One issue of concern to many U.S. businesses in China is the fact that the Ministry of Labor recently issued a regulation which stipulates that wages paid to workers in foreign-invested joint ventures may not exceed 20 percent more than the wages paid to workers in state run enterprises. If profits are high, joint ventures may pay up to 50 percent more than State-run enterprises, but higher salaries must be approved by the local labor bureaus. Note, however, that Chinese officials appear to interpret the regulation differently and we have no reports of attempts to enforce the regulations. In addition, there are an increasing number of reports of joint venture managers being pressured to appoint Communist Party members to management positions. There are no confirmed reports of child labor in the Special Economic Zones or foreign-invested sectors. (D)-Suppressed to avoid disclosing data of individual companies Source: U.S. Department of Commerce (unpublished) * Section 8 is an abridged version of Section 6 of the People's Republic of China country report included in the Department of State's Country Reports on Human Rights Practices for 1990, submitted to the Congress January 31, 1991. For a comprehensive discussion of worker rights, please refer to that report. 1/ Includes wholesale, retail, import/export trades, restaurants, hotels, transport, storage and communications. 2/ Includes banking, insurance, real estate and business services. 3/ Quarterly average; seasonally adjusted. 4/ Prime lending rate. 5/ Three-month time deposit rate. 6/ October 1984-September 1985; CPI (a) covers urban households with monthly expenditure of HKD 2,000-6,499 (approximately 50 percent of households. 7/ End of March. 8/ The foreign exchange holdings of the Hong Kong Government Exchange Fund are confidential. |