Eight company executives in Shenzhen, south China's Guangdong Province, have been jailed for up to one month for failing to pay suppliers and workers.
It is the first time on the Chinese mainland that defaulters have been subject to criminal prosecutions.
In the absence of any specific laws, the local public security bureau charged them with fraud and related economic offences.
Ma Hongbing, an official from the Ministry of Labor and Social Security, said the practice could be followed in the rest of the country to better protect laborers' rights, according to a report by the Southern Metropolis News.
The National People's Congress, the country's supreme legislature, is studying whether to list the crime of payment defaults as an offence in the country's Criminal Law, Ma was quoted as saying.
The eight executives, including two people from Hong Kong, were convicted at an open trial on Thursday.
According to the Shenzhen Public Security Bureau, the accused withheld many details from investigators and frequently changed company names to try to avoid detection.
In total, they failed to pay more than 41 million yuan (US$5.06 million) to at least 350 suppliers, and more than 7 million yuan (US$863.131) to 1,200 workers.
Another 30 companies were named and received public condemnation during the same hearing. Bosses were requested to go to the local labor departments to resolve the problems within 30 days, or face civil prosecution.
"The event rang alarm bells for all bosses who default on wages, and it has shown the local government will deal a heavy blow to them," Jin Yongquan, a senior lawyer at Jin & Partners, told China Daily.
However, without clear legal stipulations for default, the workers' benefits can hardly be protected to the full, he added.
Wage defaulting is increasing ahead of the Chinese Lunar New Year which falls on January 29 with large groups of migrant laborers trying to get their wages before heading home for family reunions.
In Shenzhen, about 1,300 companies were fined a total of 47.6 million yuan (US$5.87 million) for defaulting wages last year, according to local labor department figures. Workers got back 290 million yuan (US$35.8 million) with help from labor departments.
(China Daily January 14, 2006)