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R 131016Z APR 07
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 5979
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEAWJL/DEPTJUSTICE WASHDC
RUEHC/DEPT OF LABOR WASHDC
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UNCLAS SECTION 01 OF 02 GUANGZHOU 000462 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
USPACOM FOR FPA 
 
E.O. 12958: N/A 
TAGS: ELAB ECON PGOV CH
SUBJECT: McDonald's, KFC, and Pizza Hut Cleared by Labor Bureau, but 
Face Union Pressures 
 
REFERENCE: A) Guangzhou 421; B) 06 Beijing 22277 
 
(U) This message is sensitive but unclassified.  Please handle 
accordingly. 
 
¶1. (SBU) SUMMARY: McDonald's and Yum! Brands are pleased that the 
Guangdong Labor and Social Security Bureau (LSS) investigation has 
cleared them of charges that they underpaid student part-time 
workers.  The companies acted in accordance with regulations that 
exempt certain part-time student workers from the minimum wage. 
Chinese labor advocates have since called for a revision to such 
regulations.  Both companies continue to talk with the All-China 
Federation of Trade Unions (ACFTU), which is using the controversy 
to promote itself in a good light and advance its campaign to 
organize more unions in foreign-invested enterprises.  The companies 
have not reached any new agreements with ACFTU as a result of this 
controversy.  END SUMMARY. 
 
The Labor Bureau Clears Companies of Labor Violations 
----------------------- ----------------------------- 
 
¶2. (SBU) The Guangdong LSS released a statement to the media on 
April 10 saying that McDonald's and Yum! (which owns KFC and Pizza 
Hut) did not violate labor laws by paying student part-time workers 
at levels below the minimum wage.  According to the statement, such 
workers are not considered full-fledged employees under China's 
labor regulations and are not covered under minimum wage guidelines. 
 In a separate investigation in Shanghai, the Shanghai LSSB also 
cleared the companies of underpaying workers.  However, the 
Guangdong LSSB in its statement cited other "problems" (without 
using the term "violations") in some of the companies' restaurants, 
including employees who worked more hours than allowed under law and 
others who did not have employment contracts. 
 
¶3. (SBU) Following the announcement, the Guangzhou daily New Express 
(which broke the story on March 28) ran an article quoting lawyers 
and labor experts who said that China should revise the country's 
labor regulations to give student part-time workers the same rights 
as other workers.  The lawyers and experts said the regulation 
(Article 12 of the Opinions on Enforcing the Labor Law) could lead 
to social instability and called for the draft Labor Law, which is 
expected to be issued in 2007, to give student workers more rights. 
 
 
The Union Steps into the Spotlight 
---------------------------------- 
 
¶4. (SBU) Guangdong ACFTU representatives have criticized McDonald's 
and Yum! Brands repeatedly in the press, accusing the companies of 
violating labor regulations; however, the government made no such 
finding in this case.  Several days before the Guangdong LSS 
released its findings, the Guangdong ACFTU stated that part-time 
student workers are indeed entitled to minimum wage.  A Guangdong 
ACFTU representative said the case presented an opportunity "to 
continue to push foreign companies to set up trade unions."  ACFTU 
launched an initiative in July 2006 to unionize foreign companies 
and has a stated goal of establishing itself in 70 percent of 
foreign companies by the end of 2007 (ref B).  Wal-Mart, Kodak, and 
Foxconn (which makes Apple products) all opened ACFTU branches in 
¶2006. 
 
The Companies on the Investigation and Unions 
--------------------------------------------- 
 
¶5. (SBU) McDonald's and Yum! representatives told Congenoff and 
Embassy Laboff that they are pleased with the results of the 
Guangdong and Shanghai LSS investigations and with media stories 
affirming that they did not violate the law.  They said the 
Guangdong LSS acted fairly and professionally throughout the case. 
Peter Kao, Yum! General Manager for Guangdong, said China's labor 
laws consider college students who work to be gaining professional 
experience and thus not subject to general labor laws.  Both Kao and 
Greg Gilligan, McDonald's Government Relations Officer, insisted 
that the "problems" found by the Guangdong LSS relating to overtime 
and lack of contracts are minor, isolated cases. 
 
¶6. (SBU) Regarding the ACFTU, both Kao and Gilligan said 
unionization was already taking place before the Guangzhou story 
broke and further expansion is inevitable.  Both companies continue 
to have an open dialogue with the ACFTU but said no new agreements 
were reached as a result of the story.  Both Kao and Gilligan said 
 
GUANGZHOU 00000462  002 OF 002 
 
 
ACFTU took advantage of the media attention in this case to promote 
itself.  Gilligan added that ACFTU continues to distort the issues 
and misrepresent the regulations in question in order to cast 
McDonald's in a negative light. 
 
Comment 
------- 
 
¶7. (SBU) Though the Guangdong and Shanghai LSS investigations both 
clear the companies of violating China's labor law, the Guangdong 
report seems to bow to local political pressures by citing other 
"problems."  Nevertheless, the Guangdong LSS acted in a professional 
manner over the past two weeks, refusing to condemn the companies 
before completing the investigation and distancing itself from the 
ACFTU findings.  The ACFTU clearly used this story to its advantage 
and will continue to press U.S. companies in its effort to expand 
its presence in foreign companies. 
 
¶8. (U) This cable was coordinated with Embassy Beijing. 
 
GOLDBERG