The new labor contract law, enacted by the Standing Committee of the National People's Congress, requires employers to provide written contracts to their workers, restricts the use of temporary laborers and makes it harder to lay off employees.
The law, which is to take effect in 2008, also enhances the role of the Communist Party's monopoly union and allows collective bargaining for wages and benefits. It softens some provisions that foreign companies said would hurt China's competitiveness, but retained others that American multinationals had lobbied vigorously to exclude.
The law is the latest step by President Hu Jintao to increase worker protections in a society that, despite its nominal socialist ideology, has emphasized rapid, capitalist-style economic growth over enforcing labor laws or ensuring an equitable distribution of wealth.
But it may fall short of improving working conditions for the tens of millions of low-wage workers who need the most help unless it is enforced more rigorously than existing laws, which already offer protections that on paper are similar to those in developed economies.
Abuses of migrant laborers have been endemic in boom-time China, where millions of temporary workers have faced unsafe working conditions, collusion between factory owners and local officials and unpaid wages. Party-run courts often fail to enforce their legal rights.
Senior leaders in Beijing have grown concerned about the issue because migrant workers have contributed to a surge in social unrest and violent crime.
While the new law will do little to eliminate violations of existing laws, it does require that employers treat migrant workers as they do other employees. All employees will have to have written employment contracts that comply with minimum wage and safety regulations.
It also moves China closer to European-style labor regulations that emphasize fixed- and open-term employment contracts enforceable by law. It requires that employees with short-term contracts become full-time employees with lifetime benefits after a short-term contract is renewed twice.
Perhaps most significantly, it gives the state-run union and other employee representative groups the power to bargain with employers.
"This is the biggest change in Chinese labor law in the reform and opening period," said Qiu Jie, a labor law expert at People's University in Beijing. "It gives legal protection to the vast majority of workers who had no way to protect their rights under the old system."
Many multinational corporations had lobbied against provisions in an earlier draft of the labor law. The early draft, circulated widely in business and legal circles, more sharply limited the use of temporary workers and required obtaining approval from the state-controlled union for layoffs.
Companies argued that the rules would substantially increase labor costs and reduce flexibility, and some foreign businesses warned that they would have little choice but to move their operations out of China if the provisions were enacted unchanged.
International labor experts said that several of the most delicate clauses had been watered down. But lawyers representing some big global companies doing business here complained Friday that the new law still imposes a heavy burden.
"It will be more difficult to run a company here," said Andreas Lauffs, a lawyer at Baker & McKenzie, which represents many of America's biggest corporations in China.
The National People's Congress released only a summary of the new legislation, not the full text, and officials did not detail how they had changed the final version from multiple drafts that had circulated earlier.
The summary said companies must "consult" the state-backed union if its plans workforce reductions, suggesting a softening from earlier drafts that gave unions the right to approve or reject layoffs before they could take place.
But the summary retained language that limits "probationary contracts" that many employers use to deny employees full-time status. It also states that severance pay will be required for many workers, and tightens the conditions under which an employee can be fired.
The Communist Party's monopoly union, known as the All-China Federation of Trade Unions, is a legacy of China's socialist planned economy. It is an official state organization charged with overseeing workers that in practice has tended either to play no role whatsoever or to help managers monitor and control workers.
Workers are not allowed to form independent unions. The state union rarely if ever presses for higher wages or enhanced benefits. It does not permit strikes.