1997 Country Reports
On Economic Policy and Trade Practices

Department of State report submitted to the Senate Committees on Foreign Relations and on Finance and to the House Committees on Foreign Affairs and on Ways and Means, January 1998.

PEOPLE'S REPUBLIC OF CHINA

Key Economic Indicators
(Billions of U.S. dollars unless otherwise indicated)

Sources: State Statistical Bureau Yearbook, People's Bank of China Quarterly Statistical Bulletin, and U.S. Department of Commerce Trade Data.

1/ Estimated from third quarter and end August 1997 data.
2/ Growth rate based on constant renminbi (RMB) prices using 1978 weights. All other income and production figures are converted into dollars at the exchange rate.
3/ Production and net exports are calculated using different accounting methods and do not tally to total GDP. Agriculture includes forestry and fishing; manufacturing includes mining.
4/ "Official" urban unemployment rate; agricultural laborers are assumed to be totally employed in China's official labor data.
5/ Source: U.S. Department of Commerce (U.S.¡¦hina bilateral trade data) for U.S. trade; PRC Customs (Chinese global trade data and 1997 estimates).

1. General Policy Framework

The Chinese economy has grown at an average rate of nine percent per year since the 1979 economic reforms, with growth rates of 13 percent in 1992¡¦993, according to official data. The 1997 growth rate may exceed 9 percent, according to official projections. (Though China's official GDP figures tend to overstate growth, official data, in general, reflect significant economic trends.) China appears to have achieved a "soft landing" of single-digit inflation and stable growth in 1996 and 1997. Retail price inflation, which exceeded 20 percent in 1994, stood at only 3.4 percent in September 1997 compared to the year-earlier period. Price increases for services have been running somewhat higher, however. China continues to attract large inflows of foreign direct investment based on tax incentives, policies generally focused on the use of market forces to sustain growth, and the economic dynamism of the rapidly growing private sector. China's direct investment inflows are expected to be about $42 billion in 1997, about the same as in 1996.

The Five¡¦ear Plan for 1996¡¦000 reaffirmed the importance of China's economic expansion and, by implication, its private sector, by calling for 8 percent annual GDP growth through 2000 and a further doubling of GDP during 2000¡¦010. Economic reform and China's opening to the outside world are central to China's development formula. However, the Five¡¦ear Plan also reconfirmed the role of state¡¦wned enterprises, which still directly account for 40 percent of total industrial output. About one-half of China's state-owned enterprises were reporting losses in 1997. The central government loudly endorsed further reform of the state-owned sector at the 15th Congress of the Chinese Communist Party (held in September 1997) but remains cautious about the effects of reform on social stability and unemployment. Underemployment (estimated at some 23 million persons in the state sector workforce) is not reflected in the official estimate of an urban unemployment rate of 3.1 percent. "Triangular debt" incurred by state-owned enterprises, their banks, and their suppliers remains large and inhibits economic and banking reform; many of these debts are unlikely to be paid with cash or goods.

As China deepens its reforms, new challenges will include the establishment of legal and political structures to sustain high levels of foreign as well as private domestic investment. China must also develop capital markets and financial institutions to allocate more efficiently the large amounts of savings in the economy.

A key national priority of the 1996¡¦000 Five¡¦ear Plan is to deal with growing regional income disparities. This requires strengthening the government's fiscal capacity and its ability to redistribute wealth equitably. Tax reform has led to a more simplified code and has reduced the gap in tax ratesbetween state¡¦wned and other enterprises. Tax reforms and the new tax system began to reverse the declining share of revenues as a percent of GDP in mid-1996. (This does not take into account "policy lending" through the banking system, which ideally should be included in any analysis of the government's fiscal position.)

China made significant and numerous adjustments to its import tariff schedule on April 1, 1996 and again on October 1, 1997. China's simple average import tariff had decreased from greater than 40 percent in 1995 to 17 percent in late 1997. However, nominal tariff rates on items which are frequently smuggled into China, with attendant revenue losses and rule of law problems, remain very high; such goods include but are not limited to automobiles, wine and spirits. Import tariffs on some items of great export interest to the United States and others of China's trading partners remain high; these include the aforementioned goods, capital equipment, and some vegetable oils and fresh fruits, for example. As of late 1997, China was preparing to reinstitute capital equipment tariff waivers for some types of equipment, in part to help attract new inflows of foreign direct investment. China's import tariff revenues climbed following the 1996 tariff reductions but import growth remained anemic through late 1997.

China's undeveloped financial system remains small in comparison to China's economic ambitions and inhibits the efficient allocation of capital. However, China is moving forward with the legal framework needed to improve the banking sector. In 1995, new banking laws were adopted to facilitate the entry of foreign banks to China, although the operation of these laws are still not fully tested. China now has 135 foreign bank branches, including 11 U.S. bank branches, concentrated in coastal areas and large inland cities, including Beijing and Chengdu. The entry of these banks reinforces China's efforts to carry out financial sector liberalization. Their presence in the market is an important channel for technology and know¡¦ow to drive further reform. Despite attempts to commercialize the banking sector, the overhang of previous debt in the form of policy loans to the state sector complicates attempts to segregate and to manage policy loans still on the books. China's large state banks are grappling with this problem, but liquidating state enterprise assets would further raise unemployment in the near term.

2. Exchange Rate Policies

Foreign¡¦nvested enterprises and authorized Chinese firms generally have liberal access to foreign exchange in China for authorized trade-related transactions. China maintains favorable rules for foreign invested enterprises (FIEs), which can have foreign currency deposits and keep their foreign exchange earnings. In 1997, the central bank (Peoples Bank of China) began implementing a new policy to allow Chinese enterprises earning more than more than 10 million dollars a year in foreign exchange receipts to keep up to 15 percent of such receipts.

Previously, all Chinese firms were required to sell their foreign exchange earnings to Chinese banks. One effect of this continuing policy that mandates surrender of foreign exchange is an artificially high level of foreign exchange reserves held at the People's Bank of China, China's central bank.

The People's Bank of China introduced full convertability of the currency for current account (trade) transactions on December 1, 1996. The move marked an important step forward on currency convertibility, though China still restricts convertibility on its capital account. Current account liberalization clearly removes foreign exchange balancing from the agenda of China's financial authorities and places it squarely on its trade agencies and the State Planning Commission. In the past, balancing requirements placed on most foreign investors in China have been "justified" by China's perceived need to accumulate greater amounts of foreign exchange reserves. The new policy should obviate any need to impose new or audit old foreign exchange balancing requirements. Whether Chinese authorities will invalidate existing foreign exchange balancing requirements required in earlier approvals (and which remain as specific provisions in individual approval documents) is still uncertain.

Chinese authorities describe the current exchange rate as a "managed float." Since January 1996, the RMB exchange rate has appreciated slightly against the U.S. dollar to just under 8.3:1. The exchange rate is permitted to fluctuate in a narrow band around central rates announced by the People's Bank of China. China uses the RMB/dollar exchange rate as the basic rate, and RMB rates against other currencies are calculated by referring to international market rates of the previous day. This system is not particularly suited to exchange rate fluctuations; the gap, when present, between cross rates and international market rates provides arbitrage opportunities to dealers while rendering the central bank cross rates inoperative because no transactions occur at the central bank rate. China still lacks a foreign exchange market where foreign exchange dealers interact directly with international markets. China lacks market interest rates.

3. Structural Policies

Chinese officials claim that prices have been freed for about 95 percent of consumer goods and 85 percent of industrial inputs. As part of its effort to control inflation, however, the Chinese government has intervened in pricing for daily necessities, basic urban services, and key commodities. China continues to maintain discriminatory pricing practices with respect to some services and inputs offered to foreign investors in China. At the same time, foreign¡¦nvested enterprises often may use incentives, tax holidays, and grace periods to pay less than the 33 percent corporate income tax rate to which they would otherwise be subject. Chinese firms pay a corporate income tax of 30 percent.

In 1994, China issued a "Framework Industrial Policy for the 1990s" which announced plans to issue policies for the automotive, telecommunications and transportation, machinery and electronics, and construction sectors. The automotive industrial policy, issued in July 1994, contains import controls, local content and other performance requirements for foreign investors, and temporary price controls for sedans. Sectoral industrial policies for the chemicals and petrochemicals and machinery industries were reportedly issued by the State Planning Commission in 1997 but have not been published.

In 1996 and 1997, the State Tax Administration implemented further reductions in the value¡¦dded tax rebate on exports begun in 1995 (currently 9 percent of the total 17-percent tax). Progress in paying off past-due value-added rebates to many exporters may have contributed to the surge in exports in 1997.

4. Debt Management Policies

At the end of 1996, China's external debt stood at about $116 billion, or 77 percent of exports, according to official Chinese data. In the context of China's strong export performance and high foreign exchange reserve levels, its current external debt burden is medium-term and long-term and remains within acceptable limits. China's 1996 debt service ratio was 6.7 percent (ratio of repayment of principal and interest on foreign debt to foreign exchange receipts of exports plus services), down from 7.3 percent in 1995, according to Chinese data. China's ratio of foreign debt to GDP declined from 15 percent in 1995 to 14 percent in 1996. The Asian Development Bank, the World Bank, and Japan are China's major creditors, providing approximately 60 percent of all China's governmental and commercial loans.

In 1995, China began drafting a law to govern management of government debt to replace the 1992 "Treasury Bond Regulations," which are deemed narrow¡¦auged and not sufficiently international in scope. Though there is no clear timetable, the enactment of the new law would formalize the legislative process of approving debt ceilings and more clearly regulate the activities of intermediaries and investors in the government bond market. The Fifth Party Plenum called for the Finance Ministry to unify the management of the government's internal and external debt. These objectives reflect official recognition of the need to upgrade further China's capital markets and improve debt management.

China's government bond market is still in its infancy. China established a system of primary dealers in 1994 and there are officially about 50 dealers. The Ministry of Finance authorizes them to underwrite bonds on a contract basis for domestic customers. In July 1995, China "auctioned" bonds on a very small scale, but financial experts do not regard these transactions as standard competitive bidding because priority was assigned not according to interest rates but to dealers who most quickly turned in their funds. Domestic interest rates on government bonds are fixed at about one percentage point above bank savings rates, which are "policy," not market, rates. In the last several years, China has introduced a wider variety of maturities and instruments to manage its renminbi debt, but the trend is generally towards more short¡¦and medium¡¦erm maturities (six months and 1¡¦ years). Some experts have observed that the continued sharp rise in government borrowing in 1995 and 1996 (about RMB 150 billion and RMB 213 billion, respectively) reflects the decision of the Third Plenum of the 14th Communist Party Congress that fiscal deficits should be covered by bonds and not indiscriminate "policy loans."

5. Aid

The United States has provided occasional disaster-relief assistance to the People's Republic of China to help flood-relief and other humanitarian efforts in recent years. These have taken the forms of occasional grants of no more than dollars 25,000 or donations of goods. In addition, the United States operates a Peace Corps-affiliated English-language training program in southwestern China's Sichuan Province. China is a major recipient of other nations' assistance programs and of multilateral assistance. Multilateral assistance includes but is not limited to programs operated by the World Bank; the World Food Program, United Nations Development Program, and other United Nations-affiliated agencies and programs; the Asian Development Bank; and other international financial institutions.

6. Significant Barriers to U.S. Exports

China continues to impose barriers to U.S. exports, although reforms are liberalizing China's trade regime. Liberalization of China's import regime has not kept pace with liberalization of its export regime. In addition to prohibitively high tariffs which discourage many imports, China maintains several hundred formal nontariff measures (NTMs) to restrict imports, such as import licensing requirements; import quotas, restrictions, and controls; tendering requirements; and standards and certification requirements. China's restrictive system of trading rights, which severely limit domestic and foreign¡¦nvested enterprises' ability to directly import and export, raises the cost of imported goods in China by funneling imports through fee¡¦ollecting Chinese foreign trade companies. In most transactions, U.S. suppliers are unable to sell directly to their ultimate customer. Lack of regulatory transparency remains a problem, although China has made progress in publishing trade¡¦elated rules. Use of unscientific sanitary and phytosanitary measures is a barrier to exports of some U.S. agricultural goods, including meat, citrus and Pacific Northwest wheat. Nevertheless, industry has not noted significant improvement.

On October 10, 1992, the United States and China signed a Memorandum of Understanding (MOU) on Market Access that commits China to dismantle most of these barriers and gradually open its markets to U.S. exports. The actions China has committed to take are consistent with World Trade Organization (WTO) Agreements, including the General Agreement on Tariffs and Trade (GATT).

In implementing the 1992 Market Access MOU, China has published numerous previously "confidential" trade laws and regulations, both at the central and subnational levels. Publication of trade¡¦elated laws and regulations does not always precede implementation.

Information on China's import quotas, crucial for foreign and domestic traders, has yet to be published on an itemized basis.

As a direct result of the Market Access MOU, China has removed over 1,000 quotas and licenses on a wide range of key U.S. exports such as telecommunications digital switching equipment, computers, many agricultural products, and medical equipment. As of late 1997, China currently retains NTMs on 385 tariff-line items, according to Chinese trade officials. The final NTM eliminations required under the MOU are scheduled to occur no later than January 1, 1998.

Despite the removal of these quotas and licenses, there have been indications that China is erecting new barriers to restrict imports. Examples include new procedures regarding purchases of large¡¦ize medical equipment, registration requirements for imported (but not domestically manufactured) chemicals, and new industrial policies in such areas as automobiles and electronics. In addition, continuing restrictions on trading rights can act as a barrier for imports after quotas have been removed, as in the case of crude oil imports. In the context of China's World Trade Organization accession negotiations, China has committed to significantly expand trading rights within three years of its accession. U.S. and other foreign businesses have continuing concerns about their abilities in China to amend business licenses to broaden their scopes of permitted businesses and their abilities to engage in distribution and after-sales service activities, activities necessary to make China's promised trading rights liberalization commercially meaningful.

High and unpredictable tariffs make importing into the Chinese market difficult. Tariffs on imports can run as high as 100 percent on goods such as automobiles. China announced plans in early 1996 to begin phasing out import tariff waivers on capital equipment previously available to foreign investors in China. Elimination of those waivers could mean multimillion-dollar investment project cost increases for foreign investors, and not surprisingly, contracted foreign investment in China in the first three quarters of 1997 had decreased 35 percent from the year-earlier period. China is preparing to reinstitute some form of import tariff reduction or waiver for foreign investors in 1998, with high-technology equipment (yet to be defined by China) a likely beneficiary of those tariff changes. Under commitments in the 1992 Market Access MOU, China lowered tariffs on several thousand items of interest to U.S. exporters. As part of China's effort to accede to the World Trade Organization Agreement, the United States is negotiating with China on the further reduction of tariffs of concern to U.S. companies. China had reduced its simple average import tariff rate from more than 40 percent in 1995 to 17 percent in October 1997.

China announced in early 1996 that effective April 1, 1996, tariff-rate quotas would apply to imports of wheat, corn, rice, soybeans, and vegetable oils. As of late 1997, China had not announced tariff-rate quota administration rules nor quota volumes. Out-of-quota tariff rates range as high as 121.6 percent. This unfortunate lack of clarity and information complicates trade in these goods.

Under the Market Access MOU, China agreed to base standards for the import of agricultural products and livestock genetics on sound science. Since 1992, the United States has signed a number of protocols with China that have opened the door to U.S. exports of such products as apples (from Washington, Oregon, and Idaho), cherries (from Washington), grapes, live cattle, bovine embryos, bull semen, ostriches, poultry and birds, swine, rabbits, and horses. On some key agricultural products, however, China continues to use unscientific sanitary and phytosanitary measures to block U.S. exports, especially of meat, citrus fruit and Pacific Northwest wheat.

For manufactured goods, China has required quality licenses before granting import approval, with testing based on standards and specifications often unknown or unavailable to foreigners and not applied equally to domestic products. In the Market Access MOU, China committed to applying the same standards and testing requirements to both foreign and domestic nonagricultural products.

In the Market Access MOU, China agreed to eliminate the use of import substitution policies and measures, and promised that it would not subject any imported products to such measures in the future, nor deny approval for imports because an equivalent product is produced in China. Nonetheless, the Chinese Government has continued to place local content requirements on foreign investment in China, such as in the automotive industrial policy announced in 1994.

China has made important reforms to its trade regime in recent years. In addition to the above¡¦entioned actions to improve transparency, lower tariffs, and remove nontariff measures, China has adopted legislation or issued regulations on unfair competition, foreign trade, labor, protection of intellectual property rights, import quotas, commodities subject to inspection, and other trade¡¦elated issues. Implementing regulations often have not been published.

China has only recently begun to reform and open its services sector, and in most areas severely restricts or prohibits access to the market. China has initiated limited experiments in such areas as insurance, retailing, legal services, and tourist resorts. In insurance, Guangzhou was added to Shanghai in 1995 as a second city with limited (one company) foreign participation. In retailing, joint venture department stores approved at the central level (with full trading rights) remain limited to 22 stores in 11 cities and special economic zones. China offered to increase that number to a total of 26 stores in WTO accession negotiations in late 1997, but the offer fails to encompass an estimated more than 200 joint-venture department stores approved at the provincial or municipal level. Access in two key areas of interest to U.S. companies, telecommunications and financial services, remains severely restricted. Concerns about decreasing foreign investment in China is expected to prompt revision of foreign investment guidelines in early 1998, which may result in greater allowed foreign participation in some of China's services sectors.

Many joint ventures are highly dependent on China's state¡¦wned enterprises for downstream services. Some investors have been permitted to set up their own marketing and service organizations, but many have no choice but to rely on Chinese channels for support. Imports of audio and video recordings continue to be hampered by unofficial quotas and lax enforcement of intellectual property laws. China does not permit foreign membership on its stock exchanges, although foreigners may hold certain stock with restricted privileges. Representative offices of foreign companies must hire their local employees through a labor services company.

Significant barriers to investment in China warrant further reform. Multiple, time¡¦onsuming approval procedures adversely affect establishment of investments. Depending on the locality, investments above dollars 30 million require national as well as local approval. Export requirements, local content requirements, and foreign exchange balancing requirements detract from China's investment climate. The foreign exchange balancing requirements have become less of a doing-business issue as China's foreign exchange reserves have rapidly grown in the 1995-97 period, but such restrictions on existing investors have not been eliminated. China also encourages the development of favored domestic industries through tax incentives and tariff exemptions. China permits repatriation of profits when a joint venture has earned sufficient foreign exchange to cover the remitted amount. China published investment guidelines in June 1995 cataloguing those sectors in which foreign investment is encouraged, allowed, restricted, or prohibited. China does not provide national treatment to foreign investors on establishment or operation of investments. In some key areas, such as input costs, foreign investors are often treated less favorably than Chinese firms. Foreign investors may not own land in China, though long¡¦erm land use deals may be approved. In at least one case, a U.S. company has thus far been unable to have an international arbitration award enforced in China.

Although open competitive bidding procedures are increasingly used for both domestic and foreign¡¦nvested projects, the great majority of government procurement contracts in China are handled through domestic tenders or direct negotiations with selected suppliers. Projects in certain fields require government approvals, usually from several different organizations and levels. Procedures can be opaque and foreign suppliers are routinely discriminated against in areas where domestic suppliers exist.

Customs procedures are not applied uniformly throughout China. The same product may be dutied at different rates in different Chinese ports of entry. Some products are subject to different inspection or registration procedures than domestic products. For instance, China's chemical registration regulations are applied only to foreign¡¦ade chemicals.

7. Export Subsidies Policies

China abolished direct subsidies for exports on January 1, 1991. Nonetheless, many of China's manufactured exports receive indirect subsidies through guaranteed provision of energy, raw materials or labor supplies. Other indirect subsidies are also available such as bank loans that need not be repaid or enjoy lengthy or preferential terms. Tax rebates are available for exporters as are duty exemptions on imported inputs for export production. China reduced the level of its value¡¦dded tax rebates to exporters in 1995 and 1996 and fell billions of dollars behind in making payments on the rebates. China appears to have made progress in 1997 in reducing its value-added tax rebate arrears.

In its on¡¦oing negotiations to accede to the World Trade Organization (WTO), China announced in 1997 that it would not re¡¦ntroduce export subsidies for agricultural goods following its accession. The Chinese National People's Congress at its March 1997 meeting released little public information about the central government's budget revenue and expenditures, making it difficult to verify that export subsidies are not still in place.

8. Protection of U.S. Intellectual Property

Since the signing of the U.S.-bilateral agreement on the protection of intellectual property rights (IPR) in February 1995 and the agreement in June 1996 on procedures for ensuring its effective implementation, China has made significant progress in implementing IPR regulations, education, and enforcement. China was taken off the "Special 301 Watch List" in 1996. However, its practices continue to be monitored under Section "306".

Since 1995, China claims to have closed a total of 58 unauthorized compact disc (CD) production lines, primarily in the southern provinces of Guangdong and Fujian, and to have largely eliminated unauthorized CD production in China. China claims that unauthorized CDs still sold in China are imported from elsewhere, primarily Hong Kong and Macau. China has instituted verification procedures, including foils and other markings to identify authorized products and CD production equipment now requires an official import license to be brought into the PRC. China has offered cash rewards of up to some $35,000 for information leading to closure of unauthorized CD production lines and has revised its laws to provide criminal penalties for IPR violations.

The U.S. remains concerned that penalties imposed by PRC courts are insufficient to act as a deterrent. Industry sources point out that unauthorized CDs are still being sold in China. The U.S. has reiterated requests for more detailed information, as per the terms of the 1996 Agreement, regarding closed CD factories and specific penalties imposed on IPR violators.

End-user piracy of computer software remains a serious problem in China, especially the sensitive issue of piracy within PRC government ministries. The lack of agents in China authorized to accept trademark applications from foreign companies makes it difficult for foreigners to get trademarks registered. The lack of clarity on procedures to protect well-known trademarks makes it overly difficult to oppose or seek cancellation of marks registered by someone else. The Ministry of Public Health has granted Chinese companies the right to manufacture a pharmaceutical product while an American company was awaiting action on its application for administrative protection on that product. Regulations on the use of copyright agents by foreign companies have not yet been finalized, effectively preventing the use of copyright agents in obtaining copyrights for transactions by foreign companies. The manufacture of counterfit goods remains a serious, possibly growing problem.

U.S. industry estimates of intellectual property losses in China due to counterfeiting, piracy, and exports to third countries have exceeded dollars 2 billion.

9. Worker Rights

a. The Right of Association: China's 1982 Constitution provides for "freedom of association," but this right is subject to the interest of the state and the leadership of the Chinese Communist Party. China's sole officially recognized workers' organization, the All¡¦hina Federation of Trade Unions (ACFTU), is controlled by the Communist Party. Independent trade unions are illegal. The 1993 revised Trade Union Law required that the establishment of unions at any level be submitted to a higher level trade level organization. The ACFTU, the highest level trade organization, has not approved the establishment of independent unions. Workers in companies with foreign investors are guaranteed the right to form unions, which then must affiliate with the ACFTU.

b. The Right to Organize and Bargain Collectively: China's National Labor Law, which entered into force on January 1, 1995, permits workers in all types of enterprises in China to bargain collectively. The law supersedes a 1988 law that allowed collective bargaining only by workers in private enterprises. The National Labor Law provides for workers and employers at all types of enterprises to sign individual as well as collective contracts. Collective contracts should be worked out between ACFTU or worker representatives and management and specify such matters as working conditions, wage distribution, and hours of work. Individual contracts should then be drawn up in line with the terms of the collective contract. Collective contracts must be submitted to local government authorities for approval within 15 days. Through the early autumn of 1997, Chinese union and labor officials reported an increasing number of experiments in collective bargaining particularly at foreign¡¦nvested enterprises where capital interests are clearly delineated.

c. Prohibition of Forced or Compulsory Labor: In addition to prisons and reform through labor facilities, which contain inmates sentenced through judicial procedures, China also maintains a network of "reeducation through labor" camps, to which inmates are sentenced through nonjudicial procedures. Inmates of reeducation through labor facilities are generally required to work. Reports from international human rights organizations and foreign press indicate that at least some persons in pretrial detention are also required to work. Chinese justice officials have stated that in reeducation through labor facilities there is a much heavier emphasis on education than on labor. Most reports conclude that work conditions in the penal system's light manufacturing factories are similar to those in ordinary factories, but conditions on farms and in mines can be harsh.

d. Minimum Age for Employment of Children: China's National Labor Law forbids employers to hire workers under 16 years of age and specifies administrative review, fines and revocation of business licenses of those businesses that hire minors. The Chinese Constitution establishes the basic right of children to receive nine years of compulsory education and to receive their subsistence from parents and guardians. Laborers between the ages 16 and 18 are referred to as "juvenile workers" and are prohibited from engaging in certain forms of physical work including labor in mines. In poorer isolated areas, child labor in agriculture is widespread. China's vast reserve of surplus adult labor minimizes incentives to employ children, and China's urban child labor problem is relatively minor. No specific Chinese industry is identifiable as a significant violator of child labor regulations.

e. Acceptabele Conditions of Work: The National Labor Law codified many of the general principles of China's labor reform, setting out provisions on employment, labor contracts, working hours, wages, skill development and training, social insurance, dispute resolution, legal responsibility, supervision and inspection. The law does not set a national minimum wage, but allows local governments to determine their own standards on minimum wages. On May 1, 1995, China reduced the national standard workweek from 44 hours to 40 hours excluding overtime. The National Labor Law mandates a 24¡¦our rest period per week and does not allow overtime work in excess of three hours a day or 36 hours a month. The law also sets forth a required scale of overtime compensation. While unemployment insurance schemes cover a majority of urban workers (primarily state sector workers), it is impossible to determine how many laid-off workers in fact receive any compensation.

Every work unit must designate a health and safety officer, and the International Labor Organization has established a training program for these officers. Moreover, while the right to strike is not provided for in the 1982 Constitution, the Trade Union Law explicitly recognizes the right of unions to "suggest that staff and workers withdraw from sites of danger" and to participate in accident investigations. According to Ministry of Labor statistics, released in November 1997, during the first eight months of 1997 there were 10,251 work-related accidents which claimed 10,434 lives. This represents a drop of approximately 10 percent when compared with the same 1996 time frame. The Ministry of Labor cites failure to enforce and implement government safety regulations as the primary cause for the high rate of accidents.

f. Rights in Sectors with U.S. Investment: Worker rights practices do not appear to vary substantially among sectors, but safety standards are higher in U.S.¡¦nvested companies in general.

Extent of U.S. Investment in Selected Industries
U.S. Direct Investment Position Abroad on an Historical Cost Basis
1996

(Millions of U.S. dollars)

(1) Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis

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