The social insurance opportunity: Building resilient and ethical supply chains in China

For international companies committed to sustainable sourcing, ensuring worker protection and wellbeing in global supply chains is paramount. China's new legal interpretation regarding social insurance contributions represents a significant shift, directly impacting factory worker protection and offering a clear opportunity to strengthen sustainable sourcing practices.

New legal ruling reshapes worker protection in China

China’s statutory social insurance (SI) system, which includes coverage for pensions, medical care, maternity, unemployment, and work-related injuries, is a crucial social safety net for workers. However, non-compliance with these schemes has been a persistent issue, leading to frequent labour disputes and challenges for international companies.

Although the system is designed to provide broad coverage, many employers are under-reporting employee wages or limiting coverage to lower their costs. Factory workers, often lacking a full understanding of the benefits, agree to these arrangements for more immediate cash, not realising the long-term impact this will have on their future.

This social insurance topic has recently gained public attention due to a new Supreme People’s Court interpretation of China’s labour laws. The new interpretation will take effect on September 1, 2025, aiming to provide a clearer legal framework and more effectively protect workers’ rights. According to the interpretation:

• Any agreement - whether written or oral - that aims to waive or reduce statutory social-insurance contributions is now considered legally invalid.
• Employees who resign can now claim backdated compensation for unpaid or underpaid contributions. Employers are permitted to recover any portion of the arrears paid on the employee’s behalf only after the full shortfall has been remitted to the social insurance bureau.

Companies that continue to underpay or waive social insurance contributions risk late-payment penalties and being blocked on the National Credit Information Platform, especially as more employees become empowered to report non-compliance.

Seizing the social insurance opportunity in China

This legal clarification is expected to remove some of the ambiguities that have long contributed to non-compliance, particularly among mid-to-small sized factories. It is a pivotal step toward improving worker protection and an opportunity for brands to proactively engage with their factory partners.

Empowering factories to improve compliance and helping factory workers understand their rights and the long-term value of social insurance is a strategic investment that reduces reputational risk and builds a more resilient supply chain.

Since 2016, our Shanghai office has been a key partner in the Promising Future programme, an awareness initiative originally launched by ten international brands to help factory workers understand their rights and the long-term benefits of the social insurance system and secure their future well-being. We translate China’s complex social insurance schemes and latest policies into clear, interactive training materials for factories, addressing practical challenges for workers, such as transferring their schemes between rural hometowns and the cities where they work, and allowing family members to share the individual medical insurance benefits. Our analysis shows that, to date, over 100,000 Chinese workers have benefited from this initiative.

The Promising Future programme is just one example of how we support our international clients in building resilient and ethical supply chains. We partner with multinational companies across various sectors - including fashion, retail, pharmaceutical, renewables and automotive - to improve the social outcomes of their sourcing practices. Our approach includes identifying hotspots, mapping supply chains, leveraging local teams with deep supply chain experience, building capabilities through workshops and online engagement events, and providing factory-level solutions for risk mitigation.

[For more information, see page 40 of Primark’s Sustainability and Ethics Progress Report 2022/23 noting that Carnstone is now SLR.]