industrial relations in china-ball of confusion
TRANSCRIPT
Electronic copy available at: http://ssrn.com/abstract=1669316Electronic copy available at: http://ssrn.com/abstract=1669316
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Industrial Relations in China – Ball of Confusion1
Dunlop, Slichter, Commons and other IR theorists have been referred to as focusing on
the “old labour economics” identifying unions as having the economic goals of wealth
redistribution, aggrandisement, and protection; and the political function of constitutional
government in industry (Kaufmann, 2005). Dunlop rejected the classical economist argument
that unions disrupt the wage market because he believed that no such perfect market exists
(Kaufmann, 2002). He identified a system that includes external forces influencing three key
actors – labour, management, and the government. The key to Dunlop’s IR model, and what
distinguishes it from economics, is that labour is not quantified as a commodity; rather the
employment relationship is characterized as a complex social and economic interaction.
Slichter (1935) observed that trade unions introduce civil rights into the workplace and
fix wages. He saw trade unions as a positive force because collective bargaining contributes to
the development of professional management by requiring planning efficiency and related skills
demanded in a bargaining relationship (Slichter et. al., 1960).
IR theory must be reconciled with the decline of organized labor across developed
nations. Some reasons posited for the decline include government and employer hostility to
unions, lack of interest by current generations and knowledge workers, outsourcing, the rise of
free trade agreements, and the rise of human resource management as a substitution for
employee representation. This sea change in environmental forces necessitates a reconsideration
1 The author benefitted from the review of earlier drafts and the insights of Sean Cooney, Associate Professor of Law at the University of Melbourne Law School, Manfred Elfstrom, Program Officer, International Labor Rights Fund, and K. Lesli Ligorner, Partner and Chair of the Paul, Hastings, Janofsky & Walker LLP Mainland China Employment Law Department.
Electronic copy available at: http://ssrn.com/abstract=1669316Electronic copy available at: http://ssrn.com/abstract=1669316
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of traditional IR theory. Thus, Lord Wedderburn (2008) identifies the rise of “New Capitalism”
evidenced by:
globalisation and the new information technology, capital inherently mobile, more complex, with massive accumulation, and power greater than Keynes or Marx could have imagined.
The decline of organised labour is coupled with a worldwide trend toward the traditional
mainland European model wherein the national government plays a major role in setting
workplace standards (Jensen et. al. 1999). A unique aspect of the mainland European IR model
is cooperative labour-management efforts via legislated Workers’ Councils. However, this
collaborative model has not saved the European workforce from the same fundamental shift in
labour-capital power relationships and the quality of jobs (Blainplain, 2009).
A related rise in national and local protective labour legislation increases the role of
individual employment litigation. For example, in the U.S. unfair terminations are now
recharacterised as unlawful discrimination based on a protected classification (religion, gender,
pregnancy, age, race, disability, etc.), violation of other statutes (family and medical leave,
workers’ compensation etc.) or retaliation/whistleblower lawsuits (for insisting on a legal right or
exposing illegal employer conduct). One sees similar trends in the U.K. and elsewhere, with
even the German IR system, with its co-determination culture, experiencing a rise in individual
employment litigation. With this status quo foundation, this chapter will describe and contrast
the newly developing employment relations system in one of the world’s fastest growing
economies, China.
The Chinese IR System
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The word for China, “zhongguo”, means middle country or kingdom. Thus, the Chinese
are often described as viewing a world centered on their Han Chinese culture. China is a nation
of nationalistic, sometimes xenophobic attitudes (Guang, 2005). This is consistent with the
Confucian value of love of country (“ai guo”) and the belief in cultural superiority (“wenhua
youyuegan”).
While the Chinese will complain about the dominant role of the Communist Party
(“Party”), it is credited for China’s economic prowess today. The Party uses Chinese patriotism
to assist it in maintaining its power and is reported to sometimes influence anti-western fervor,
including via the Internet, to serve its interests (Drake et. al. 2000). Many mistakenly believe
that there is rigid Party control at the national level resulting in consistent standards and controls
across the nation. In fact, China is a very large and diverse nation with inconsistent application
of law and the molding of national law to local interests who appear more detached from central
authority based on their distance from Beijing. The Chinese maxim “The mountains are high
and the emperor is far away” is true today.
Chinese harbor an ambivalent attitude to the west. While they admire the western
development of wealth and material goods, their history includes domination and humiliation
suffered at the hands of western powers. The Chinese psyche is that they will no longer be
pushed around by the west and will return to their rightful historical place as the dominant Asian
power.
Given this nationalist orientation, resentment for past western treatment, and power of
local officials, any foreign business operating in China cannot expect that the Chinese will yield
to external pressure unless the Chinese perceive that this will serve their self-interest. National
self-interest is primarily focused inward on China’s needs and in maintaining social stability,
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which is believed to be a real threat to the nation. One must never underestimate this overriding
desire for social stability to ensure Party hegemony. Russell Leigh Moses, a Beijing-based
political analyst comments “The argument in policy-making circles where reform is concerned is
‘how much more authoritarian should we be?’ not ‘how do we embark on Western-style
democracy’” (The Economist, 2010). The phrase “harmonious society” is used continuously by
the Party, emphasized in the Five Year Plan, and found in major government communications
and policies (Fan, 2006). Local or national government can impose its demands on an enterprise
should it elect to do so. While the Chinese government gave major business incentives to
foreign enterprises in earlier days, they are in a different bargaining position today and will avoid
any public perception that they are being dictated to by western interests (Shambaugh, 2008).
The Chinese Economic Miracle
As China “crossed the river while feeling the stones” it considered other industrial
relations models to find the best “fit” (Maurer-Fazio, 1995). In the past, China’s IR system
operated under the Leninist model (Guthrie, 1998). Trade unions in a post-revolutionary state
were transmission belts for communication to the workers. State Owned Enterprises (SOE’s) did
not engage in a market based decision making process, maintained bloated payrolls and engaged
in other conduct to serve the predominant interests of the Party (Ngok, 2008). Workers were not
viewed as a commodity but rather as a political constituency, as represented by their dedicated
star on the Chinese flag. Management sought to placate the workers as opposed to maintaining
efficient production standards and costs. Management and workers were aligned more closely
than one sees in capitalist models (Cooney et. al., 2007).
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The work unit (“danwei”) provided all sustenance for the employee. This included
housing, food markets, medical care, education, leisure activities, retiree care, social support and
almost all other benefits. This model is known as the “iron rice bowl”.
Beginning in 1979, the reforms initiated by Deng Xiaoping led to the unwinding of the
inefficient SOE model. This included introduction of the individual labour contract. At first
blush the guaranteeing of employment for a fixed duration and under terms that limit dismissal
would appear a benefit for workers; however this began the eradication of the broader danwei
rights. The worker was no longer afforded any protection beyond that provided for the term of
engagement. Guthrie (2003) notes that “Many of these changes in labor practices were not
originally adopted with workers' rights in mind, but the unintended consequence of the changes
has been the construction of a regime of labor relations that emphasizes the rights of workers”.
Like most change since the death of Mao, this change was gradual due to the interest
groups within the Party who arguably have yet to form a consensus concerning the pace and
extent of the opening up of the Chinese economy (Huang, 2000). A simplistic description of
Party politics identifies one group in this internal debate as those who are descendents of the
early Chinese leaders, a privileged class in China often derogatively described as “princelings”.
This faction favors continuing economic growth, foreign direct investment, and the continuing
growth of the developed east coast over the less developed west. The other faction is the
Communist Youth League - a populist voice fighting for more equitable income distribution,
agrarian rights, and worker rights.
An early exception to declining labour conditions was the powerful political class of
urban SOE workers who were the primary beneficiaries of the iron rice bowl; many continued to
be protected from the harshness of the market into the 1990’s (Solinger, 2009). In contrast, the
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less politically influential workers outside of the SOE lived a “distinctly inferior existence” (Id.
at p. 28). By 1997, the continuing losses of the SOE’s combined with the Asian financial crisis
caused mass layoffs in this heretofore protected class (Id. at p. 80-81).
The successes of this socialist market economy have rapidly advanced the economic
status of China, the nationalist pride of the Chinese people, and China’s return to its rightful
place in the world order.
Individual and Collective Labour Contracts Under the Chinese Labour Contract Law
Early labour contract laws were experimental and localized. They were followed by
provisional regulations in the 1980’s and then the first national law in 1994 (PRC Labor Contract
Law, 2002). Wholesale violation of this new law was common. Particularly egregious issues
included the failure to pay accrued wages to workers (“wage default”), failure to make social
security payments, “under the table” employment, and the use of labour dispatch agencies
(employment agencies) to avoid mandatory labour contract wage and social security obligations
(Cooney et. al., 2007). This abuse occurred in the context of rising income gaps and continuing
social protest over layoffs and wage defaults.
Proposed changes to address these abuses were sent out for public comment and heavily
debated. This debate was considered unprecedented. The U.S. Chamber of Commerce and the
European Union Chamber of Commerce opposed provisions of the law that gave workers
additional protection; they particularly opposed provisions that contemplated giving Chinese
workers employment stability and the right to participative decision making (Feffer, 2006).
In the midst of this national dialogue a news story broke concerning the enslavement of
farmers, teenagers and child labourers in brick oven works in Shanxi province (Zhi, 2008; Ngok,
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2008). This abuse, combined with abuse of migrant workers, provided the final political impetus
for the current Labour Contract Law (LCL) which became effective on January 1, 2008.
The expressed intent of the drafters of the LCL was to encourage longer term
employment relationships, increase the presence and significance of trade unions in the
workplace, and reduce the amount of discretion that employers may exercise in the workplace
(Ligorner, 2006). These rights are opposite to the trends in the world’s external IR environment,
indicating the unique internal issues of China. Chinese leaders appeared serious about the
changes sought, noting that China sought to shed its “sweatshop” image by developing the law
and protecting workers’ rights (Zhi, 2008). According to Bao Yujun, President of the China
Society of Private Economy Research, “Companies should regard the law as an opportunity to
improve their management, capital-labour relations, and productivity.” (Id.) Zhang Yansheng,
head of the International Economic Research Institute under the National Development and
Reform Commission stated “China must upgrade its industries. The world’s factory should not
be a packaging plant or a composing room with low-quality labourers.” (Id.)
The LCL is also consistent with China’s Eleventh Five Year Plan, which calls for
“scientific development”, a term encompassing consideration of employment and related social
issues as well as economic growth; this is in accordance with the current Hu Jintao
administration’s commitment to “putting people first” (yiren weiben) (Fan 2006).
The details of the LCL changes are beyond the scope of this article. They are a major
legal shift on paper in favor of the worker. The changes make it difficult for an employer to
avoid entering into a labour contract to keep workers off of the social security rolls or incur
other legal obligations, creates essentially lifetime employment after ten years of existing service
or after two labour contract renewals, attempts to end abuse by dispatch (employment) agencies,
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and mandates a greater role for collective consultation/bargaining in the workplace. There are
other changes that favor employees and unions and a few that favor management, such as the
right to enforce covenants not to compete. Overall workers gain significant rights under the
LCL. This ignoring of the world trends undermining the power of workers in favor of
empowering workers underscores China’s separate path under its socialist market economy,
internal Party conflict, the recognized threats to social stability caused by the current IR system
and related income gaps, and the government’s overall inward focus.
Today’s Chinese worker is protected by a mandatory individual labour contract, a
workplace collective consultation requirement, and often a collective labour agreement. The
realities will be discussed later.
The Actors
Trade Union - ACFTU
The Trade Union Law of the People’s Republic of China (TUL) regulates union-
management relations (PRC TUL, 2001). Provincial and local law may add to but cannot
conflict with this national law. The All China Federation of Trade Unions (ACFTU) is the
exclusive peak trade union permitted by law. ACFTU is a “quasi governmental social
organization” which seeks to further government objectives, promote economic development,
and enterprise interests (Brown, 2010). The ACFTU Constitution’s “General Principles” states
that the ACTFU unions “serve as a bridge and link between the Party and workers and an
important social pillar of the state power and represent the interests of the trade union members
and workers.” (PRC TUL, 2001)
The ACFTU is charged with ensuring the development of the skills and character of their
members and with the arguably contradictory duties of protecting the overall interests of the
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Chinese people while simultaneously advocating for the legitimate rights of workers and staff
members (PRC TUL at Article 6, 7). Article 20 contemplates collective contracts. Where a
labour dispute cannot be resolved the union may take the dispute to the Labour Arbitration
Committee (LAC) with appeal rights to the People’s Court. The trade union’s role in a work
stoppage is not to lead such activities but rather to partner with the management to resolve such
work stoppages when they arise so as to ensure “the normal order of production and other work
as soon as possible.” (PRC TUL at Article 27) Trade unions are required to participate in the
conciliation of labour disputes (PRC TUL at Article 28).
The trade union is also charged with the obligation to give a worker “support and
assistance” if he has an individual LCL dispute that is taken to the LAC or People’s Court (PRC
TUL at Article 21).
There exists a dual supervisory arrangement; ACFTU regional officials report to the
ACFTU headquarters but have their performance evaluated by, and their dues income collected
by, local government officials (Wang, 2008). Thus, regional government officials have great
power over the unions. To the extent that a region is emphasizing economic growth through low
cost disciplined labour there arises a conflict between the role of the regional ACFTU and its
supervisory authority. An open issue is whether this structure will lead to liberalization through
a transition to a corporatist model or is “disorganized despotism” (Wang, 2008).
The ACFTU website advises the reader that it is engaged in a wide range of activities in
furtherance of its statutory mandate (ACFTU website, 2010). The Chinese government refers to
the IR model as “tripartite” (PRC Labor and Social Security in China, 2002). In fact, ACFTU
weaknesses are well documented. Workers’ interests are often excluded from the tripartite
system (Wang, 2008).
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Recent research on the arbitration of LCL disputes in the city of Dalian, found no union
assistance to the employee at any point in the dispute prior to arbitration or in the presentation of
the case at arbitration (McDermott et. al. forthcoming). Rather, the sole union role was as a party
on the tripartite LAC arbitration tribunal. This union failure to represent workers in
contradiction of the legal mandate strongly suggests that the existence of labor law on paper does
not comport with the reality of the workplace.
In Shanghai, this author met with a union “representative” for a western company who
also served as the Chinese plant manager (the first level of Chinese management). He appeared
to be more of a Chinese management intermediary between non-Chinese speaking management
and the workers than the representative of the proletariat. He explained his job as union leader
was to ensure that Shanghai ACFTU directives were communicated. Thus, he showed a copy of
a recent circular outlining safety measures to ensure workers do not get overheated in the
Shanghai summer. He did not have any bargaining role, grievance adjustment role or engage in
other activities one would associate with a union representative.
It is not uncommon for the representative in the workplace to be the HR Director or other
management agent. Moreover, they are often paid by the employer for their union service, an
apparent conflict of interest.
There is much speculation as to whether this old leopard can change its spots and become
an effective voice for Chinese workers (Wang, 2008; Brown, 2010 at p. 44). The U.S. “Change
to Win” coalition of trade unions, lead by the Service Employees International Union (SEIU),
and the Brussels based International Trade Union Confederation (ITUC) have separately
engaged in dialogue with the ACFTU to develop some influence in China.
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The ACFTU has made highly publicized efforts to represent workers in high profile U.S.
and European companies. These companies are generally treating their workers better than
comparable Chinese employers, primarily by observing existing labour and employment laws as
opposed to the Chinese employer model of honoring them in the breach. Western corporate
attorneys and businesspersons in China complain that the Chinese enforce laws against
foreigners while ignoring Chinese employers. Evidence of this is the government’s effort to
force collective labour contracts on major foreign employers such as Wal-Mart, McDonald’s,
and Yum Brands (KFC and Pizza Hut) (Brown, 2010). Some U.S. companies are now in the
position of denying their U.S. based workers union representation while acceding to collective
bargaining in communist China. In reality, labor relations in China is not comparable as the
ACFTU is far from aggressive. In their first contract negotiations with Wal-Mart in the city of
Shenyang, the ACFTU negotiated a weak labor agreement that Wal-Mart and ACFTU then
sought to impose on all Chinese Wal-Mart stores without local bargaining. This failure to
advocate for workers’ interests caused a well-respected Wal-Mart Chinese labor leader, Gai
Haitao, to resign (China Labor News Translations, 2010).
There are some reports that industry wide bargaining patterns are developing under the
new LCL. (China Labor News Translations, October 2009) These patterns appear to be more
attractive under the new LCL though they continue to be top down models driven by the
government, employers, and the ACFTU and not by the employees.
The ACFTU fails the traditional IR theory of the trade union as a political institution that
advances the interests of the working class and challenges the existing political regime over
wealth distribution and equality. Because of ACFTU’s docility, it does not bring new ideas to
the bargaining table or challenge management to plan better. There is little evidence that the
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ACFTU has mobilized due to the new grant of powers in the LCL. There is no institutional
voice for the working class of China, save the stock claim of every national government that it
has the interests of workers at heart. In theory, there exist the seeds of evolution. At the same
time, one hears anecdotal accounts of regional or local trade unions seeking to improve their
services. This appears to be the hope of the SEIU and ITUC. A central challenge is whether
grass roots successes can be used to build a labour movement that advocates for the working
class within a zone of safety permitted by the Party.
The ACFTU as a Government Actor
The ACFTU is subordinate to the Party. At the local level, the ACFTU leaders may also
hold other posts such as chair of the local economic development authority or other government
office. The union official may be a key member of management in a local government owned
enterprise or private business. This is the Chinese equivalent of the interlocking directorate and
not the tripartism found in most noncommunist IR models.
The Government as Actor - Determination of Remuneration and Working Conditions
National and local governments set the wages, benefits, and other working conditions for
much of the working class. National standards can also be adjusted at the provincial level to
provide higher compensation in more expensive areas such as Shanghai.
The government at the local level also plays a key role in setting terms and conditions of
employment by deciding whether or not to enforce laws. Protective labor legislation can be
compromised by 1) turning a blind eye to wage, safety, and other violations 2) permitting local
authorities to relax hours of work and other legal standards to draw foreign enterprises into
economic development zones by either exempting local law or by indifference and 3) corruption.
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In Shanghai and Beijing, employers in 2008 were required to contribute local housing
allowances of 7% to 10% due to the cost of housing. Price controls are also used. The
government will also step in and issue price controls for certain items, particularly certain foods
around holidays. These examples skim the surface of how national and local law sets many terms
and conditions of employment and the Chinese workers’ standard of living.
The New Actor - NGO’s
The ILO “on the Ground”
The ILO describes itself as a “tripartite UN agency that brings together governments,
employers and workers of its member states in common action to promote decent work
throughout the world” (ILO website, 2010). It sidesteps the issues of a free labour movement
and free collective bargaining in favor of engaging the Chinese government. The ILO
disseminates labor standards and identifies nations’ compliance with these standards (ILO
“Report of the Committee of Experts”, 2010). The Memorandum of Understanding between the
ILO and China indicates that the ILO and China have the mutually agreed objectives and
priorities of improving the key areas such as social security, labour contract law enforcement,
and enterprise bargaining. The ILO has sidestepped the issue of the docility of the ACFTU in
favor of engagement. This author observed that the ILO in Beijing possessed talented staff
cognizant of the unique development of IR systems in Asia and elsewhere; thus deference was
afforded to the Chinese IR development - tripartite model or not.
More Aggressive NGO’s
Other NGO’s tend to be more critical of current conditions in China. Thus, China Labour
Watch, China Labour Bulletin, Students and Scholars Against Corporate Misbehavior,
International Labor Rights Forum and National Labor Committee, inter alia, provide information
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on what is occurring on the shop floor, legal system, and streets. They are also involved in
various strategies that outreach to present Chinese labour activists filling a void left by the ILO
and other more established NGO’s.
NGO’s have been a source of pressure forcing companies to adopt corporate codes of
conduct to address supply chain abuse; they also serve as monitors (Locke, 2007). Other NGO’s
engage the Chinese State, academe, SOEs and other cadre in a cooperative process, using
cultural exchanges and training of mediators, arbitrators, SOE management and trade union
officials. There is significant grass roots activity. Because China is still navigating its way with
this socialist market IR system, and because of the tension within the Party as to the pace of
economic development at the expense of workers, these exchanges are seen by NGOs as
potentially productive opportunities to influence the development of labour conditions.
NGO supported labour activists are visible. Some have been sponsored in visits to
conferences abroad so that they can observe western labor movement strategies and develop
relationships. These activists operate in a gray area alongside or outside of the role of the
ACFTU. For example, some migrant workers’ bureaus have been shut down by the Chinese
government only to reappear as new entities.
IR System and Culture
The enforcement of law can be placed under Dunlop’s concept of an IR system’s culture
and rules. This is a key problem area for China and is not limited to IR. Some of this flows from
the destruction of the legal system during the Great Proletariat Cultural Revolution and also due
to the structure of the Communist legal model.
LCL Enforcement by the Labour Administration Department
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The Chinese labor security supervision system was organized in 1993 (PRC “Labor and
Social Security in China”, 2002). The Chinese government reports that it is increasing its
enforcement of labour laws. By the end of 2007, there were 3,271 labour inspection agencies
nationwide, employing over 22,000 full-time labour inspectors. There were over 1.6 million
inspections; 409,000 complaints were processed. Inspection agencies issued orders to compel
payment of back wages for over 7.91 million workers and closed down over 7,346 unregistered
dispatch (staffing) agencies in 2007.
Individual Litigation
Vindication of LCL rights is done by filing a complaint with the local LAC. Like the LCL
legal tradition, this is also a relatively new institution supporting LCL rights. A dispute can be
mediated but if not resolved it is arbitrated before a tripartite panel. There is evidence that
workers view arbitration as an effective tool for the resolution of individual employment
disputes; Chinese workers are willing to engage in litigation to protect their rights. There is
mixed research on the effectiveness of the LAC. (cf. Cooney, 2007, Halegua, 2008, McDermott,
forthcoming, and Zhang, 2005).
Collective Agreements
Collective agreements within SOEs are usually pro forma and not the product of collective
bargaining as that term is used outside of China. Clarke (2004) suggests this is in part due to a
lack of experienced IR and HR. These mandated IR practices are legislated down from Beijing
but there is a human capital gap (Clarke 2004 at 253-254). Thus, there is a lack of enterprise
level bargaining custom as one would define bargaining in an adversarial IR model where the
separate interests of capital and labor are recognized. As with the LCL and LAC, any critique of
the current Chinese IR system must recognize its short history dating from the 1980’s.
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Continuing Social Unrest in the Chinese IR Model
There is increasing social unrest attributed to the large income distribution gap (Wang 2008,
Fan 2006). Large protests, defined as 100 people or more, occur on a regular basis. Labor issues
are a common reason (Wedeman, 2010). This unrest is manifested in the filing of complaints at
the LAC, wildcat strikes and street protests. Unrest is pervasive among migrant workers and
extends to social conditions. For example, a dispute over registration for a temporary residency
card by a migrant worker in Zhejiang province lead to a two day migrant worker attack on the
local police station resulting in 23 arrests, destruction of six police motorcycles and injury to
three officers (Shanghai Daily, July 15, 2008).
According to People’s Daily (August 19, 2009) “Beijing's migrant workers, like those in
other metropolitan cities, live in the lowest level of the society. Vulnerable to social injustice,
they often have inadequate access to effective means to protect themselves.” Workers also face
wrongful detention and physical abuse from the police for failure to produce documentation that
they are legally permitted in a particular area of China (Shanghai Daily, March 4, 2008). Labour
dispute cases continue to increase. Statistics show 1.72 million labour dispute cases involving
5.32 million employees from 1987 to the end of 2005, with a growth rate of 27.3 percent
annually (People’s Daily Online, August 27, 2007).
In Guangzhou, the largest city in Guangdong province (the “world’s factory floor”), LACs
and courts are overwhelmed by labour disputes. The Arbitration Office of the Guangzhou
Municipal Labour and Social Security Bureau said that the city currently has a backlog of more
than 9,600 cases, some of which might not be settled until next September (Feng, 2009). A year
after the enactment of the LCL enforcement was reported to be a continuing challenge (Beijing
Review, December 26, 2008).
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In 2009 over 50% of the Guangzhou civil docket involved labour contract or related disputes
(People’s Daily Online, September 15, 2009). Civil lawsuits involving labour contract law
disputes rose from 2,070 in 2007 to 3,300 in 2008. More than 2,800 trials concerning the labour
contract law were held in the first half of 2009 causing judges to work overtime to handle labour
disputes. The Beijing Review reports much higher figures for Guangdong. Ling Qiman, Vice
President of Guangdong Provincial Higher People's Court, stated that cases have “soared”. The
court received nearly 40,000 new labour dispute cases in the first six months, up 158 percent
from the same period in 2007 (Feng, 2009). Two other delta river regions, Shenzhen and Foshan
have established specialized labour courts. The Beijing local government reported 52,000 labour
disputes as of the fall of 2009, nearly twice as many as the prior year (People’s Daily Online,
August 12, 2009). This trend continues. The number of cases handled by China’s courts
increased another 10% in 2009, after nearly doubling the year before (China Labour Bulletin,
March 11, 2010). These labour disputes threaten the social stability of the nation (Feng, 2009).
All of these problems are fueled by a large income gap that has surpassed that found in the
U.S.; 10% of Chinese owning 40% of the nation’s wealth (Fan, 2006). The gap is multifaceted
with large regional inequality and a dualized labor market that includes a laborer wage hierarchy
with lower wages paid to labor dispatch agency workers (usually migrants) versus local
residents, often for the same jobs (Wang, 2008). For example, many of the Chinese automobile
manufacturers use temporary workers from dispatch agencies as their core production workers
(Zhang, 2008).
Migrant workers also receive lesser benefits, are ostracized by local residents, unions refuse
to represent them, employers force them to sign labour contracts with harsh fines and other
punishments, and their wages are often not paid.
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The income gap is often discussed in the Chinese press as a potentially explosive issue
(China Daily, March 2, 2010). In March of 2010 the National Bureau of Statistics reported that
the rural-urban income gap was the largest since Deng Xiao Ping’s 1978 opening up policy, with
urban per capita net income of 17,175 yuan ($2,525) compared to 5,153 yuan in the countryside;
this is an urban-to-rural income ratio of 3.33:1 (Id.). Similar to the West, this gap has been
attributed to the low wages of the workers and the growing profits for management of SOE’s,
real estate companies, and private companies (Id.). This ever increasing gap has been troubling
China’s leadership and people for years. (Shanghai Daily, December 27, 2007; PRC China’s
Employment Situation and Policies”, 2004). A People’s Daily editorial argued that these
income gaps hinder economic development and undermine societal harmony; it noted that
President Hu Jintao called for an increase of income for low income workers, enlarging of the
middle class, regulation and restriction of high income by taxation, a crackdown on illegal
income (bribes etc.) to “maintain social justice”, and guaranteed cost of living allowances for the
impoverished (reprinted in Shanghai Daily, October 26, 2007).
Social Security
As the Chinese government stripped workers of job security, it found that there was no
existing social security system in place for what previously was provided in the SOE danwei
model (PRC “Labor and Social Security in China”, 2002). Social security includes the pension
rights of the laid off SOE employees and others forced to retire. By the late 1990’s improved
social security was necessary to avoid massive unrest among those who now found themselves
unemployed (Solinger, 2009). Payroll taxes for social security benefits are high. The amount of
the employer’s contributions is about 35% of the employee’s monthly salary and capped at three
times the local average monthly salary; the employee’s contributions is about 11% with the same
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cap. This cost encourages employers to circumvent the LCL in favor of under the table
employment. While the LCL tightening on labor contract coverage addresses the government’s
need to tax hidden employment income for social security needs, social security issues contribute
to the existing unrest in the Chinese IR system.
PUTTING THE PIECES TOGETHER
To sum up, we should arouse the initiative of our people. As long as we put to use the wisdom and intelligence of the people, China has high hopes. Deng Xiaoping Interview, November 26, 1979
IR System Similarities
There are similarities between the external IR models and those in China. While trade
unions have always been weak in China, developed nations appear to be retrogressing to a
workplace where workers are losing or have lost their enterprise level collective power.
These IR systems and China increasingly rely on a marginalized element of the
workforce that does not enjoy the terms and conditions of employment of the mainstream
citizens. Dispatch/Staffing agencies around the world are serving as intermediaries to enable
dualized labor markets and casualization.
Additional similarities include workers’ reliance on government legislation to establish
and protect terms and conditions of employment; individual litigation is increasingly becoming
the forum into which workplace injustice is channeled.
In both China and in external IR systems, business views labor as a commodity. This
classical economic view severely undermines the future of trade unionism in its current form.
Thus, the IR systems theories of Dunlop, Commons, Slichter, and others are arguably less
relevant or just not operative. A new view of IR may require incorporation of this commodity
status. Under this new system, NGO advocacy and world trade pressures/disputes from mature
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IR systems with traditional labor unions may be key influencers advocating for the rights of low
wage laborers, primarily in manufacturing and related production in developing nations. Yet as
China and other developing nations seek to develop a middle class the middle class is declining
in mature IR systems. One questions how continuing commoditization will support these goals
and whether there will be a “convergence”, equipoise, or need to redefine the concept of middle
class across the world.
IR System Differences
There are also IR system differences. First, the Party controls the IR system. Labour law
and unions are subordinated to the Party at the national and local government levels. Courts
must consult with the Party before making any major legal decisions that are inconsistent with
the Party’s determination of the status quo. Chinese unions cannot advocate for income
redistribution, political power, and equity outside of the Party’s definition of these concepts.
Second, China is increasing the individual and collective rights of its workers while
seeking to expand its middle class. There is the trend toward stronger legal protect of the
individual worker through mandatory LCL provisions.
The Contradictions
One can seize on any one aspect to argue that China is either bucking the external global
IR system by enhancing the rights of workers or is at the heart of the problems with the
commoditization of labour. To those who believe China is part of the problem one can point to
unacceptable labour standards, massive wage default and fraud in the payment of workers’
wages, social security, wage and other discrimination against migrant workers; ineffective trade
unions dominated by Party and employer interests, and the general sacrifice of the environment
and workers’ rights at the altar of economic development.
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On the other hand, China’s IR model and the development of rule of law are works in
progress. China has rejected bullying from external corporate interests in the development and
implementation of its LCL.i Collective consultation/bargaining law is strong on paper and there
are some reports of local trade unions and workers starting to engage in more effective collective
consultations with employers and of industry wide bargaining. Employers are required to
consult with the union or a bargaining committee of workers where no union is present. LACs
and government labour inspectorates are improving their enforcement of LCL rights, steadily
moving toward rule of law in the IR system.
Thus, in theory, workplace democracy is being institutionalized by law in China and
deinstitutionalized de facto in developed nations, particularly the U.S. Thus one is presented
with confusing views. The Chinese IR system is continuing to unfold, along with its unique
socialist market economy and its own unique model of rule of law. This developing Chinese
style IR model includes the yin and yang of cooperation emphasizing harmonious relationships
and violence where workers see no other choice.
Scenarios of Future Direction of the Chinese IR Model
Taylor et. al. (2003) discussed various possible outcomes for the Chinese IR system.
They rejected the common Western “convergence” prediction whereby East Asian developed
economies are comparators. They aptly noted the many differences in China including the role of
the Party, regional complexity and related inequalities. Predictive scenarios included
development into a pure capitalist model, revolutionary socialism, Singapore style authoritarian
capitalism, Russian collapse, fulfillment of Deng’s vision of a hybrid socialist economy,
authoritarian capitalism with subordination of labor, liberal capitalism within a Dunlop style IR
model, a Hong Kong style liberal capitalist model, Russian style crony capitalism, or complete
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collapse. A key point was that the direction of this future change will be a function of the
interaction between the Party and the workers. The Party seeks economic growth to maintain
power and the workers who are squeezed by this growth seek better terms and conditions of
employment; this is occurring in the context of a rapidly aging society. Thus, institutionalized
conflict resolution arrangements will be needed to perpetuate the current model. It could be
argued that the new LCL rights and the channeling of labor disputes to the LAC are two such
changes that confirm Taylor et. al.’s prediction of institutionalized conflict resolution.
Here are some other possible future scenarios:
Gradualism interrupted by social protest due to declining growth - The Chinese IR system will
continue to mature along with rule of law. Enterprise bargaining and the enforcement of the
labour contract will improve. However, when the economy slows down and does not deliver the
necessary 8% annual growth, social protest may accelerate an aggressive implementation and
interpretation of the existing labour law to increase worker power in the workplace. This
scenario would occur with the ACFTU watching from the outside. This internalized conflict
resolution arrangement sees the Party as flexible and adaptive, similar to the historical view of
the development of capitalism.
Gradualism interrupted by social protest alongside economic growth - This same scenario could
occur if the economy continues to expand at 8% or more; however the income gap and related
inflationary issues becomes so unmanageable that social protest leads to acceleration of the
bargaining power of workers. Both scenarios assume the government is willing to cede some
wage and benefit setting authority to the bargaining process. One commenter to this scenario, a
western business person in Shanghai, noted that absent inflation it is not clear that the Chinese
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working class consciousness abhors those with wealth as those on the bottom seek to reach this
level – a “Horatio Alger” predisposition.
Chinese Socialist Market Economy Style Tripartism - The Chinese IR system will continue to
mature and will naturally grow into a mature IR system with tripartite aspects within a Party
system. The Party will cede significant central power to this decentralized wage setting process.
There will be a market setting of wages by workplace collective bargaining in a Party system.
Here rule of law in IR grows as does union skills with collective consultation. On the employer
side, a cadre of HR and IR professionals will develop. This will occur consistent with the
continuing reduction in the number of SOE’s and the increasing growth of private entities. This
direction assumes the continuing vitality of a Dunlop tripartite model as modified by Party
hegemony.
IR Protectionism - A dual system will continue where the Chinese government will insist on the
application of labour laws to foreign entities while looking the other way for Chinese. This is
consistent with the view of a nationalist, discriminatory, mercantilist like, global competitor.
U.S. employers, for example, will find themselves engaging in collective consultation or
bargaining with their Chinese employees while continuing to avoid such obligations at home. At
some point this will cause a political backlash in the U.S. European business which is more
comfortable with this cooperative, consultative process will have little inconvenience with such a
model from a process perspective as long as at the end of the day they control the workplace.
Large foreign employers with protected franchises will feel less pressure under such
discrimination but smaller enterprises who must compete with Chinese enterprises will suffer
from dual labor standards. The wild card is the enforcement of intellectual property law and
covenants not to compete under the LCL and other law. Should this discrimination continue, the
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costs of doing business in China will increase significantly. This in turn will lead to protectionist
pressures from developed nations.
The cynical view - China will continue to pass laws as window dressing with no underlying
commitment to their enforcement. Those focusing on Chinese written laws and not the realities
of the workplace will miss the continuing commoditization of Chinese labor, dualized labor
markets with migrant worker abuse and the overall subordination of the rights of the Chinese
working class to capital. This IR model serves the interests of “crony socialist marketers” who
command an IR model that provides for the development of China at the expense of its working
class. Under this scenario the Party is unwilling to recognize the need for meaningful
institutionalized conflict resolution but rather uses a series of sops to manage but not change the
income distribution gap and related social unrest. Alongside of this social injustice the
environment of China will continue to be destroyed.
The holistic change - Many have a sanguine view of China’s future (Fallows, 2009). China will
embrace progressive HR and IR practices with newly trained cadre. China’s leaders will
recognize that its current management culture of top down control with little tolerance for shared
workplace decision making cannot nurture the knowledge worker and ensure the creativity
needed to compete in the global marketplace. The era of serving as the world’s factory floor will
transition to a more knowledge based economy. This will reduce the Chinese provision of
economic rents to MNEs through the abuse of its environment and workers. These changes will
ensure the realization of Deng Xiaoping’s dream of arousing the initiative of the Chinese people.
The existing Chinese IR system’s existing collaborative structure will be engaged.
“Topping Out” or Japan Redux - While most experts concur that China’s growth will be fueled
for years to come by its domestic consumption, developing middle class and other growth
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factors, a contrarian view argues that China is in a similar position to 1970’s Japan, then
commonly referred to as “Japan Inc.” A 1970 U.S. Central Intelligence agency report on Japan
provides many observations that apply to today’s China. Japan, then the “world’s most dynamic
economy” had impressive economic growth over a prior 15 year period because the economy
was “catching up” to the rest of the world (Central Intelligence Agency 1970). As with China
today, the Japanese perception of “national power” was linked with “economic strength”.
Similar national characteristics include the future decline of labor rate advantages alongside a
more educated workforce seeking higher quality employment, government control of the banks
for the benefit of close business allies, government support for business by price fixing,
manipulation of mergers, production and market sharing; pork barrel spending and other conduct
where “individual business ambitions are adjusted to serve the greater good” (Id.). Increasing
wealth exposed inadequacies in social infrastructure causing political ramifications. In the Japan
of 1970 and in today’s China, new urban middle classes who have left their traditional values
back in the village contribute to an erosion of paternalistic traditions; this is in the context of a
transition from a rural-agricultural to an urban-industrial nation. Prolonged world recession and
trade wars were envisioned as major threats to maintain this impressive Japanese growth.
Today’s China possesses a potpourri of similar complex challenges including
regionalism, income distribution, regional power and income imbalances, the impact of the one-
child policy including but not limited to a rapidly aging population; there is a lack of
transparency in banking, government, law, and business that makes Japan Inc. of 1970 seem
transparent.
Will China “top out” in economic growth or can it maintain exponential growth? What
challenges, including industrial relations, lie in this transition to an urban nation with modern
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values? Can Party technocrats in Beijing centrally managing China’s growth succeed where
Japan’s Ministry of International Trade and Industry (MITI) stumbled?
IR System Intersection With Education - The wild card in any of these scenarios is education.
Technology, globalization, and wealth in today’s China place the Maoist era as a historical blip
in China’s modern struggle to be free from outside domination. A new, independent China is
here. For any of the positive outcomes above that grow China in a stable manner while
increasing worker voice and initiative, a key factor is the Chinese education system. At present
it does not support the development of critical thinking or other tools necessary for the
developing knowledge worker; this prejudices productive workplace consultation and problem
solving. This flaw, combined with the present workplace culture that stifles constructive
disagreement and rewards avoidance of responsibility in favor of conformity, presents a major
challenge to the necessary foundation for Deng Xiaoping’s vision of a socialist market economy.
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