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R 030855Z APR 07
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 5950
INFO RUEHOO/CHINA POSTS COLLECTIVE
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RHHMUNA/HQ USPACOM HONOLULU HI

UNCLAS SECTION 01 OF 02 GUANGZHOU 000421 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
USPACOM FOR FPA 
 
E.O. 12958: N/A 
TAGS: ELAB ECON PGOV CH
SUBJECT: McDonald's, KFC, and Pizza Hut Under Fire for Wage 
Violations 
 
 
(U) This message is sensitive but unclassified.  Please handle 
accordingly. 
 
¶1. (SBU) SUMMARY: McDonald's, KFC, and Pizza Hut deny that they are 
violating any Chinese regulations with regard to payment to their 
employees, however they are consulting with local authorities to 
assure they are in compliance.  The allegations of under payment, 
made in a recent article by a Guangzhou newspaper, come in the 
context of a campaign by Guangdong authorities to target companies 
violating wage laws.  There has been virtually no discussion of the 
labor practices of Chinese-owned businesses or the inconsistency and 
lack of transparency in Chinese labor regulations in local press 
accounts of this story.  Chinese newspapers have run a number of 
other stories in recent months accusing foreign companies of 
committing labor and safety violations. END SUMMARY 
 
A Newspaper Story Leads to an Investigation 
------------------------------------------- 
 
¶2. (U) The Guangzhou daily New Express published an investigative 
story on March 28 accusing McDonald's, KFC, and Pizza Hut 
restaurants in Guangzhou of violating labor laws by underpaying some 
of its part-time employees by up to 40 percent.  The article states 
that the employees, who are part-time student workers, should be 
paid Guangzhou's minimum wage of RMB 7.5 (USD 0.97) per hour. 
Reporters allegedly found that that McDonald's, KFC, and Pizza Hut 
pay the workers between RMB 4 (USD 0.52) and RMB 5 (USD 0.65) per 
hour.  The article also accuses the restaurants of forcing workers 
to work more hours than permitted for part-time employees. 
 
¶3. (U) The director of the Guangdong Labor and Social Security 
(LSS)'s labor supervision division told the press that city 
officials are investigating the matter and would fine the companies 
if they are in violation.  A representative of China's official 
All-China Federation of Trade Unions was quoted as saying that "no 
company should enjoy special privileges in China."  He also 
threatened legal action against the fast-food chains, if 
appropriate. 
 
Companies Say the Labor Law is Unclear 
-------------------------------------- 
 
¶4. (SBU) Publicly and privately, representatives for Yum! Brands 
(which owns KFC and Pizza Hut) and McDonald's have insisted that 
their companies are in compliance with Guangzhou labor laws.  Peter 
Kao, Guangdong General Manager for Yum! Brands, told Congenoff that 
China's labor law and relevant local regulations are ambiguous on 
wage issues.  He said the primary issue in this case is whether 
part-time student workers must be paid the same minimum wage as 
other employees.  McDonald's Government Relations Officer Greg 
Gilligan told Embassy Laboff that China's labor rules vary from 
location-to-location and are often vague, for example, how to define 
part-time work, and whether or not meal allowances are included in 
wages.  Both Kao and Gilligan said they are cooperating with 
Guangzhou labor officials and will comply with the labor laws once 
they are clarified. 
 
¶5. (U) According to an April 3 Wall Street Journal article, the 
Guangzhou LSS issued a new regulation on April 1 - after the story 
first broke in the New Express - stating that student workers should 
receive the minimum wage.  The article also says that Shanghai labor 
authorities do not apply minimum wage laws to part-time student 
workers and noted that Chinese fast-food chain Yonghe King does not 
pay its student workers the minimum wage. 
 
High-Profile Targets in a Government Campaign 
--------------------------------------------- 
 
¶6. (SBU) This story comes in the early stages of a well-publicized 
campaign by LSS offices in the Pearl River Delta to crack down on 
enterprises, domestic and foreign, that violate wage laws.  Liu 
Kaiming, who heads a prominent labor rights NGO in Shenzhen, told 
Congenoff that McDonald's, KFC, and Pizza Hut may have been targeted 
because they are "big balloons to shoot."  Both Yum! Brand's Kao and 
McDonald's Gilligan said they believe their companies are being used 
as high-profile targets.  Gilligan said that McDonald's has been a 
target for acts of "economic nationalism" carried out by local 
governments in several jurisdictions in the last 18 months. 
 
Media Spotlights Foreign Companies 
---------------------------------- 
 
 
GUANGZHOU 00000421  002 OF 002 
 
 
¶7. (SBU) This story is the latest in a string of stories by Chinese 
newspapers highlighting reported unlawful conduct by foreign 
companies.  PRD factories producing goods for McDonald's, Apple, and 
Disney made news in 2006 when media and labor groups reported poor 
working conditions.  Chinese media has also targeted foreign 
companies for violating safety standards - including Proctor & 
Gamble (beauty products that reportedly caused skin irritation), 
Advanced Medical Optics (contact lenses that allegedly caused eye 
damage), Dell (batteries that were reportedly a fire hazard), and 
Mead Johnson Nutritionals (baby formula that allegedly caused 
respiratory problems).  In the flurry of Chinese press reports and 
commentaries since March 28, there has been virtually no discussion 
of the labor practices of Chinese-owned businesses or the 
inconsistency and lack of transparency in Chinese labor 
regulations. 
 
Comment: Easy Targets 
--------------------- 
 
¶8. (SBU) At this stage it is unclear whether McDonald's, KFC, and 
Pizza Hut have violated China's labor law.  However, it is highly 
unlikely that they would be the only restaurants in Guangzhou paying 
their employees at these wage levels.  With local newspapers looking 
for a big story and government officials more than willing to 
highlight abuses by foreign companies, U.S. companies will probably 
be dealing with more of these types of situations in the future. 
 
¶9. (U) This cable was coordinated with Embassy Beijing. 
 
GOLDBERG