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Feature:  New labor law may impact Guangzhou manufacturing in short term
May 15, 2008 -- Guangdong's manufacturers and exporters come under increased pressure as a result of the new labor law as well as changing economics, according to Hong Kong-based investment firm CLSA Asian Markets.

"Guangdong will be most impacted because 90 percent of its GDP comes from exports," Andy Rothman, China macro strategist of CLSA, said in at a conference this week in Shanghai.

The new labor law, issued in first quarter this year, sets higher standards for minimum salaries, benefits, and working conditions.

After the release of new labor law, the number of labor disputes increased by 50 percent in China, and 90 percent in Guangdong.

"That means a great cost increase for lots of manufacturers if they underpaid their workers," said Rothman. "The worst result is the bankruptcies of these bad companies."

The Chinese government has also started to cancel or reduce the export rebates, which most small exporters took advantage of. The government also began to impose extra taxes for high-polluting industries, such as leather manufacturing.

"It's not a disaster for Chinese manufacturers nor potential unemployed workers," said Rothman. But there will be pain during the transition process, he added.

The positive side of the regulatory changes is there will be more profits and opportunities for good employers and the largest enterprises, Rothman said. With the income growth, these companies can buy advanced technology to manufacture higher quality products.