Layoffs and downsizing in China can be tricky for any business or worker. If you’re wondering what the rules are, what you need to do, or how to avoid problems, you’re in the right place.

In China, mass layoffs mean letting go of 20 or more employees at once or cutting at least 10% of the total staff. You can only carry out mass layoffs in specific situations, such as when the company needs to restructure because of financial difficulties.

This guide gives you quick answers about legal steps, employee rights, and what to watch out for. Layoffs and downsizing don’t have to be confusing or scary.

In just a few minutes, you’ll know the main things to keep your company or job safe. Want to avoid mistakes and handle layoffs the right way? Read on to get all the details you need!

Overview of Layoffs and Downsizing in China

Layoffs and downsizing are becoming more common in China as companies adjust to slower economic growth and new market pressures.

Many businesses, from tech giants in Shanghai to manufacturers across the country, are rethinking their workforce to match changing demands.

What They Mean and Why Companies Do It

Downsizing in China usually means reducing staff to cut costs and increase efficiency. Layoffs are often seen in sectors like manufacturing, technology, and real estate, especially during periods of economic slowdown.

Common Reasons:

• Falling sales or profits
• Corporate restructuring
• New technology replacing old jobs
• Shifts in the market or industry

When you manage operations in China, understanding why companies downsize is important.

It helps you adapt your business to local laws and market changes, which can affect both your bottom line and employee morale. The process is guided by labor laws that set rules for terminations, severance, and employee rights.

Legal Requirements for Layoffs and Downsizing

China’s labor laws set strict rules for downsizing, including steps you must follow and rights that protect employees. Failure to comply can lead to legal disputes, penalties, and extra costs.

Chinese Labor Laws and Employee Rights

China’s Labor Contract Law outlines the conditions for layoffs and downsizing.

You can only lay off employees under certain circumstances, including major economic reasons, restructuring, or if the company is facing serious difficulties.

You need to provide a valid reason for the layoff. Discrimination or retaliation are not valid and are not allowed by law.

Mass layoffs, defined as terminating 20 or more employees or more than 10% of the workforce, require extra steps.

You must draft a mass layoff plan and report to the local labor authority. You also need to inform and consult with your company’s labor union if one exists.

Certain employees have extra protections. Pregnant employees, employees on medical leave, and those close to retirement can rarely be laid off.

Notice Periods, Documentation, and Severance Pay

A written layoff notice is required. In most cases, you need to give employees at least 30 days’ notice, or pay them one month’s salary in place of notice.

Your documentation must clearly show the reasons for layoffs, the number of workers affected, and how you will handle compensation.

Report this paperwork to the local labor bureau. Severance pay is required by law. The standard formula is one month’s salary for each year of service, with some limits set for long-term employees.

Detailed records and compliance with notice and severance rules can help protect you from employee claims or government penalties. Failure to follow these steps can make a layoff invalid and costly.

For a deeper dive into how to legally end contracts, check out our article, China Employment Law: Guide to Employee Termination.

Step-by-Step Process for Layoffs and Downsizing

A proper layoff or downsizing process in China protects your business from legal risks and keeps operations as smooth as possible. Careful planning and strict reporting requirements play a key role before, during, and after any job cuts.

1. Planning, Employee Selection, and Communication

Start by evaluating your workforce needs and business goals. Identify which roles or departments may be affected by restructuring or operational changes.

Use clear and fair criteria when selecting employees for job cuts—common criteria include work performance, length of service, or business necessity.

Prepare a list of affected employees, making sure your selection process follows Chinese labor laws and any agreements you have with staff.

Develop a clear communication plan with honest reasons for the downsizing, expected timelines, and support options such as severance pay or job placement help.

Hold one-on-one meetings with impacted employees. Give them written notice as required by Chinese law (usually at least 30 days in advance). Provide them with all needed information in a straightforward and respectful manner.

Learn how restructuring affects your business by reading our article, Corporate Restructuring Legal Issues China: A Detailed Guide.

2. Notifying Labor Unions and Authorities

If your company has a labor union, you need to notify them about your plan for layoffs. You also must submit a detailed layoff plan to the union in writing and allow them to offer feedback or suggestions.

Report your layoff or downsizing plan to local labor authorities. You should provide documents like a list of affected employees, reasons for the workforce reduction, and an explanation of your restructuring steps.

In cases of large-scale layoffs, you may also need to make a public announcement and go through a specific claim period for your creditors.

Delays in communication with labor authorities or failing to follow these steps can lead to legal consequences, fines, or delays in shutting down or reducing your operations. Always keep records of all notifications and feedback for compliance checks.

Mass Layoffs and Special Considerations

China has strict rules for mass layoffs, including clear procedures and extra steps employers must follow.

If your company has foreign employees, you also need to consider work permit and visa regulations.

Legal Thresholds and Extra Compliance

Chinese law defines a mass layoff as terminating 20 or more employees, or 10% of your total workforce, within 30 days.

Layoffs must be based on legal grounds, such as business restructuring, financial loss, or technology changes.

You must report your plan to the local labor bureau and consult with the employee union or all staff. The law requires a minimum 30-day notice to employees.

Severance pay is mandatory and is usually based on years of service.

Extra steps include the following:

• Clear written notice to employees
• Documented communication records
• Detailed layoff plan submitted to authorities

You cannot use mass layoffs to remove protected groups, such as pregnant workers or employees on medical leave.

Foreign Employees and Visa Issues

Foreign employees face unique challenges during layoffs. If their job is terminated, their work permit and residence visa become invalid quickly, usually within a few weeks.

You are responsible for notifying both the local labor bureau and immigration office about the layoff. This helps avoid legal issues for both you and the worker.

Give the employee enough time and information to arrange their departure or transition to a new visa status.

Failure to properly manage a foreign employee’s visa status can lead to fines and future hiring problems. Make sure all steps are documented and follow local requirements strictly.

See how labor laws support employees in Workers Rights in China: An Overview of Labor Law.

Common Mistakes and How to Avoid Legal Risks

One common mistake is not following the legal process for layoffs. In China, you must provide clear notice and meet legal requirements.

Skipping steps can lead to lawsuits or government penalties. If you do not involve the employee union in layoff decisions, this can cause problems. The union should review your layoff plan and help make the process fair.

Ignoring proper documentation is risky. You need to keep records of meetings, notices, and payments. This helps protect you if there is a dispute.

Not following the rules on severance pay can also lead to problems. Make sure you calculate severance correctly according to Chinese law. Review all employment contracts. Each contract may have special terms you need to follow during a layoff.

Tip: Take a careful, step-by-step approach. If you are unsure, ask for legal advice to avoid legal risks.

Alternatives to Layoffs in China

Companies in China can use several methods to avoid or reduce layoffs when facing financial problems or changing business needs. These methods help keep talent, maintain stability, and can be supported by technology or new ways of working.

Salary Cuts, Reduced Hours, and Redeployment

Salary cuts can lower company costs quickly.

You may consider a temporary reduction in pay across all or part of your workforce, making sure to follow Chinese labor laws and get employee agreement. This approach spreads the impact while avoiding job losses.

Reducing work hours, such as switching to a four-day workweek or cutting overtime, also saves costs.

Employees keep their jobs, and you can easily ramp up again if business improves. These options are easier to manage with cloud-based scheduling and HR systems.

Redeployment means moving employees to different roles or departments that need more support.

For example, workers from a low-demand area might shift to a department focused on e-commerce or digital services. Using technology and worker training can make redeployment smoother and more successful.

Conclusion

Layoffs and downsizing in China come with strict rules and important steps you must follow. Knowing the laws, treating employees fairly, and keeping good records can help you avoid costly mistakes. Always plan ahead and communicate clearly with your team.

Whether you’re a business owner or an employee, understanding your rights and duties is key. Use this guide to make smarter choices and keep things running smoothly.

For more tips and updates, check back often! If you need expert advice or face a tricky situation, don’t hesitate to contact China Legal Experts for professional guidance.

Frequently Asked Questions

Is there a job shortage in China?

China's job market has faced pressure from slower economic growth. Some sectors, like technology and real estate, have reported more layoffs and fewer new jobs.

Young people and recent college graduates often find it harder to get hired than in the past.

Is downsizing the same as layoffs?

Downsizing means a company cuts its workforce to reduce costs or adjust to changing business needs. Layoffs are the process where employees lose their jobs as a result.

In China, both terms often refer to terminating staff, but downsizing covers a broader set of actions beyond just layoffs.

Is severance pay mandatory in China?

Yes, Chinese law requires companies to give severance pay to most employees who are laid off. The standard calculation is based on one month of wage for each year of service.

There may be caps and exceptions, depending on contracts and local rules.

What is the zero layoff policy?

The "zero layoff policy" is a general government guideline encouraging companies to avoid layoffs whenever possible.

It is not a strict law but more of an encouragement for employers to protect jobs, especially during tough economic times.

How many days off work in China?

Employees in China are entitled to official public holidays each year. Most also have paid annual leave, which can range from 5 to 15 days depending on their years of service.

The exact number of days off can differ by company and local policy.

What steps should employees take if they are facing a layoff in China?

You should review your employment contract and the company’s layoff notice for details about compensation and final pay. Confirm your severance pay calculation.

If you feel your rights are not being respected, you can seek help from local labor authorities or legal counsel.