By issuing the regulation, it was made clearly that labour contracts with no fixed termination dates do not amount to unbreakable “iron rice bowls” that may severely hurt enterprises’ vitality.

Chinese employers will not slow their pace of rising labour costs although they are breathing a sigh of relief.

The new Labor Contract Law, which came into effect on Jan 1, was hailed as a landmark step in protecting employees’ rights. Among a number of stipulations to emphasize workers’ welfare, one clause entitles employees of at least 10 years’ standing to sign contracts without specific time limits, thus protecting them from dismissal without cause.

The law has indeed been effective in rising ordinary workers’ welfare. Statistics indicated that as of June, the percentage of employees by region that had signed labor contracts was between 90 and 96 percent, up 3 to 8 percentage points from the end of last year. And the amount of collected social security funds — pensions, unemployment, medical, work injury and maternity insurance — also jumped 31 percent year-on-year in the first half of 2008.

Undoubtedly, this increase in workers’ welfare will add to the mounting cost pressures on Chinese enterprises already caught between soaring commodity prices and weakening overseas demand. The case is even more serious for labor-intensive enterprises

It is obviously that the domestic enterprises’ complaints of the new law inflating operational costs have got policymakers’ ear. Then a draft of the implementation regulation was issued in May to solicit public opinion.

The State Council has now issued an implementation regulation for the Labour Contract Law to protect enterprises, including 14 conditions under which an employer can terminate an open-ended labour contract. These conditions include employees’ incompetence, serious violations of regulations and dereliction of duty, as well as a company’s restructuring or severe operational difficulties. Such a regulation can make the law more effective.

Enterprises no longer need not to worry too much about that the “no fixed-term contract” stipulation will reduce flexibility in the domestic labour market and undermine their competitive advantages. But a gradual and steady rise in labour’s cost in inevitable. Both the country’s demographic change and the government’s determination to raise workers’ lot will make it wise for domestic enterprises to adapt themselves to higher labor cost as soon as possible.

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