Will China's new labor contract law mean a better image and a move up the industrial ladder? Or will it push up wages and erode the country's competitive advantage? And among these possible outcomes, which matters more? It depends on who you ask.

Zhao Yumin, an expert with the Chinese Academy of International Trade and Economic Cooperation, which is under the Ministry of Commerce, told Xinhua that China should shed its sweatshop image. "We will develop the economy with the purpose of promoting people's welfare and the new law aims to ensure that workers' rights are protected," in line with world trends.

The Labor Contract Law, due to take effect on January 1, 2008, entitles employees of at least 10 years' standing to sign contracts that protect them from dismissed without cause. The law also requires employers to contribute to employees' social security accounts and sets wage standards for employees on probation and working overtime.

Many small local companies complained that the law would send up their costs and worsen their situation, which they said was already being made difficult by a stronger currency and the scrapping of export tax rebates.

However, Chen Xinmin, a human resources expert with South China Normal University, said that "some companies reacted too strongly because they are so spoiled that they mistakenly equate advanced personnel management with the right to fire people at will."

Statistics indicate that about 40 percent of private-sector employees lack labor contracts, and critics have charged that unpaid wages, forced labor and other abuses have accompanied China's economic boom.

The outcry culminated in June when a slave-labor scandal came to light in which hundreds of farmers, teenagers and even children had been forced to work in brickyards, enduring beatings and confinement.

"Companies should regard the law as an opportunity to improve their management, capital-labor relations and productivity," said Bao Yujun, president of the China Society of Private Economy Research.