“Time is Money, Efficiency is Life”
—Slogan posted in a rural collective factory, Hebei
IN THE ABSENCE OF LARGE-SCALE PRIVATIZATION and with the continued existence of large public and collective sectors, China’s transition, although still incomplete in many ways, has resulted in the transformation of labor relations and the widespread adoption of capitalist labor practices by firms of all ownership types.1 The distinction between public and private firms in labor practices has blurred in tandem with continuous economic deregulation, increased competition within the domestic economy, and China’s continued economic integration with the global economy. Public ownership as a core characteristic of socialism is increasingly irrelevant for the determination of labor relations. To paraphrase Richard Nixon, “We are all capitalists now.” China’s slow and piecemeal movement toward privatization has not impeded the transformation of labor relations. In many ways changes in labor practices have preceded more radical changes in property rights and in the absence of political change.
Earlier research did find significant variation between firms based on ownership. For example, Jonathan Unger and Anita Chan wrote in 1996: “The economic reforms have led to a bifurcation of Chinese industry: (i) a non-state sector of private Chinese firms, foreign-managed enterprises, and the so-called collective firms that come under very local control; and (ii) the state-owned and large collective enterprises. Depending on the sector they participate in, Chinese industrial workers enter into very different kinds of relationships with their respective management, work under quite different conditions, and enjoy different benefits and levels of job security.”2 Dorothy Solinger found a similar bifurcation in the workforce between migrants and the regular employees of the state and collective sectors. However, her analysis of the sustainability of this bifurcation is quite prescient as it concludes with a prediction that the then current conditions of migrants in China’s nonstate sectors signaled the future for workers in the public sectors.3 It is highly possible, following the argument laid out here, that the divergence noted in earlier research was simply capturing the lag between reform’s effects in the nonstate sector and the then more protected public sectors.
The question of possible divergence from capitalist labor practices in China is important not only to our understanding of China’s reform process, which unlike other postsocialist countries has maintained communist rule, but also to the general literature on contemporary global capitalism. The literature on national divergence and “varieties of capitalism” has overwhelmingly focused on the advanced industrialized world, in particular the continuing differences between Anglo-American liberal capitalism and the more regulated and state-dominated patterns seen in much of Western Europe and Japan.4 Variation in labor and social welfare policies has been central to this ongoing debate. Globalization theorists argue that increased economic globalization, especially the globalization of production with increasing capital mobility, has weakened the bargaining power of labor. Not only is labor constrained by its relative lack of mobility; different countries are in competition for the jobs that investment brings, and the impulse to protect labor rights and job security has declined accordingly.5 Thus national divergences will wane over time as labor policies are adjusted in favor of mobile capital. This literature with its focus on comparisons between advanced industrialized states, however, should also be extended to examining trends in the countries to which capital is increasingly flowing. Production in many industries is not shifting between Germany and the U.S. or the United States and Japan but rather from these countries to the developing world, including China, Southeast Asia, Latin American, and Central Europe. How these countries respond to the pressures of globalization, in particular competition for the flows of foreign investment, also informs us about the ability of particular places to diverge from common free-market practices or even to choose from the varieties of capitalism practiced in the advanced industrialized world.
I argue here that Chinese labor practices have shifted overwhelmingly toward favoring firm autonomy, flexibility, and managerial control of worker organizations. Attempts by the state to retain some aspects of socialism, including greater employment stability, longer-term employment relations, and active worker organizations, have not met with much success.6 As detailed in chapter 3, the effects of globalization have been magnified by the way in which liberalization and openness occurred, as a gradual process of uneven application and selective regional benefits.7 This process spawned competition and change in labor practices, including marked increases in managerial autonomy and labor flexibility. The “segmented” nature of this process, however, reduced its political threat to the ruling Communist Party leadership.8 Competition for investment in China was regional as well as a part of a larger global phenomenon. China and India compete for FDI but so do Shanghai and Tianjin.9 The transformation to capitalist labor practices at the firm level has been achieved with the help of globalization and “opening up” as local firms and local governments have struggled to meet the demands of foreign investors and global markets. The much-needed antidotes to this shift to capitalism, however, a state regulatory and legal regime that is capable of mitigating its excesses and effective organizations to represent labor, are not yet well established.
This chapter examines the firm-level consequences of this lopsided achievement of China’s move to the market; capitalist labor practices have spread but two modes of labor’s protection—a legal regime of labor rights and an effective mode of collective organization—have failed in implementation. Rather, the basic characteristics of contemporary labor relations include substantial managerial control and autonomy, the atomization and fragmentation of the workforce through the individual contract system, and management domination or suppression of worker organizations.
The wide range of practices that are employed in Chinese firms, from the infamous sweatshops of the south to the highly evolved human resource regimes of multinationals in Shanghai, are themselves indications of one crucial characteristic of labor relations in China today: the overwhelming power of management to determine a firm’s internal labor practices. Due to a lack of capacity on the part of the official trade union and a significant lack of will on the part of developmentalist local governments, firm management or owners overwhelmingly determine labor practices, which is why a researcher can find glaring differences between firms even in the same development zone.10 Second, there is substantial employer flexibility due to the uneven implementation of new labor laws and regulations. Labor relations between workers and employers are increasingly based on the notion of contract, which entails a mutual agreement between individual workers and managers. These agreements can be legally binding official documents or simple oral agreements; the labor contract’s crucial characteristic is its individual nature and its impermanency. Labor contracts in China are short-term and are also amenable to early termination. The notion of contract as the foundation of labor relations fundamentally shapes interactions between workers and managers. By its individualized nature, reliance on contract places workers at a great disadvantage and in a very weak bargaining position. Initiatives by the central government and central trade union to improve labor relations and equalize the labor relationship by implementing mitigating laws and regulations, including those that require unionization and collective bargaining, have mostly failed. Finally, management domination of worker organizations, especially the trade union, further accentuates these characteristics of managerial control and autonomy and worker fragmentation and atomization through individualized labor relations. Despite the organizational presence of the All-China Federation of Trade Unions (ACFTU) in many firms and recent efforts to unionize workers in the new nonstate sectors, managerial domination or outright suppression of worker organizations is the overwhelming norm.
Given the many varieties of capitalism and the great regional diversity of China, is it possible to generalize about the emerging picture of labor relations there? The focus here on the decline in importance of ownership and the rise of capitalist practices in both public and private firms does not conclude that there is one single version of capitalism that is emerging in China. Differences of industrial sector, region, and nationality still matter in determining the particular characteristics of firms. Moreover, the research on which this book is based was conducted in China’s urban industrial coastal cities, mainly Tianjin, Tangshan in Hebei Province, and Shanghai and its surrounding areas. The processes detailed here, especially as the result of large inflows of foreign investment and a rapid development of a domestic private sector, may have different consequences in areas where state sector employment still dominates and alternative sources of investment and connections to global markets are sorely lacking. As much research on the northeast and central China have shown, these regions have experienced reform largely as a process of being left behind rather than the process described here of greater integration and convergence with global labor practices.
How did the regional liberalization of investment policy, the expansion of ownership types, and the increasing occurrence of ownership “recombination” detailed in chapter 3 transform labor practices? For newly created firms, including township-village enterprises (TVEs), WFOEs, and domestic private firms, labor practices were from the beginning less affected by the legacies of socialism than by the pressure of global production. Foreign investment came mostly from other East Asian economies that were looking for cheaper manufacturing of labor-intensive products. Many of these firms felt the pressures of rising wages and democratization in other Asian economies, making manufacturing in China more attractive. Similarly, TVEs, although rising out of the ashes of the commune system, operated with harder budget constraints and the pressures of subcontracting for SOEs and foreign manufacturers.11 Suppressing the cost of labor is critical to these types of firms as is labor flexibility. It is the combination of these economic pressures of firms with the developmentalist orientation of local governments under regional decentralization that produces an environment conducive to labor exploitation with a concomitant lack of emphasis on labor conditions and workers’ rights. The incentives, both political and economic, of attracting investment and export markets on the part of local governments has led to an overwhelming emphasis on firm autonomy and flexibility at the expense of workers’ safety, health, and rights.
Changes in the core public sectors, especially SOEs, came more slowly as reform on the margins did not immediately threaten socialist labor practices, including the “iron rice bowl” and secure employment. Even changes in SOE wage policies to improve productivity and material incentives were often implemented in traditional egalitarian fashion and were not linked directly to improvements in productivity.12 Legal and regulatory reforms, including the labor contract system, were implemented slowly and in a piecemeal fashion from 1986 to 1997.13 The use of labor contracts was often just a formality and not a real threat to employment until SOE reform was accelerated in the mid-to-late 1990s. One SOE manager reported that although his firm signed contracts in 1993 with all employees, management held off the invocation of contracts (for termination) because of the fear that it would make workers’ thinking “unstable.”14 Ten years later, however, this SOE was laying people off through the expiration and early termination of their labor contracts.15
Fundamental changes in SOE labor practices came gradually as competition and influence from the growing nonstate sector discussed above expanded and began to seriously threaten the existence of a viable public sector. It was the relative performance of SOEs vis-à-vis the new nonstate sector that led to a more widespread adoption of capitalist labor practices and calls from state managers for a level playing field with other firms. In practice, these calls meant an expansion of managerial autonomy, especially the right to fire, as well as reductions in the welfare burden. The rate of change was also dynamic as ownership recombination (the merging of state firms to nonstate firms, both foreign and private) was a major facet of the privatization measures following the fifteenth Party Congress in 1997.
How did Chinese firms behave under the socialist system? And how did the reforms affect their behavior and performance? Despite much learning from and adaptation to the Soviet system of enterprise management, Chinese firms differed in significant ways from firms in other socialist countries.16 First, the Chinese system of work-unit (danwei) socialism was a complex form of social organization that went beyond typical employee-employer ties, even compared to the relatively stable bond of employment in pre-1989 Eastern Europe and Russia. The danwei evolved out of the chaos and poverty of the Sino-Japanese War and the Chinese Civil War.17 It was a system of control and organization of China’s urban citizenry that bound workers to their enterprise, often for life. Under heavy state guidance, workers were assigned to a work-unit upon leaving school. In this work-unit he would receive employment at a low wage but with extensive welfare benefits furnished directly by the enterprise, including housing, medical care, and a pension. Benefits and wages did vary across different types of firms; high-level state firms offered the most extensive benefits, while lower-level firms offered less; and state-owned firms supplied better benefits than locally owned, collective firms.18 Generally speaking, however, wages were low across the board, creating an urban society that valued egalitarianism. Society was “atomized” in the sense that the work-unit’s overwhelming influence on an individual’s life tended to isolate each unit, making them worlds unto themselves. Ironically, this had a homogenizing effect on urban society, creating similar life experiences and social expectations across the urban landscape.19
The flip side of the work-unit’s role as a supplier of welfare benefits was its role as the basic unit of state control and surveillance over urban residents. The work-unit system ensured that labor mobility remained virtually nonexistent, in contrast to many other communist societies in Europe. The work-unit not only was the sole source of crucial life necessities, making it impossible for a worker to survive without his work-unit, but it also recorded and monitored for the state an individual’s political attitude and behavior, both on and off the job. The work-unit controlled the life chances of each worker through control of the dossier (dang’an). Moreover, job transfers were impossible until the former work-unit released the dossier to the hiring work-unit. These cell-like structures of state penetration and domination over society narrowed the distance between the ordinary citizens and high officialdom by creating a grass-roots level organization in which the state provided welfare in exchange for power over people’s lives.
The notion of neotraditionalism depicts this system well, and analysis using the framework of neotraditionalism penetrates deeply into the day-to-day machinations within the firm.20 Research into the inner workings of firms revealed that political control was realized individually through party cadres’ ties with activist workers. This led to the bifurcation and division between politically active workers and nonactivists with vertical ties of clientelism running up and down the factory. The firm was a political institution as much as an economic institution, and it was a very intimate institution at that, with power wielded as a personal tool.
Under socialism then, Chinese firms were highly stable and workers were almost completely dependent on the firm and its management not only for their wages but also for their benefits, subsidies, and housing. Yet this “organized dependence” of workers on the firm was matched by the management’s own dependence on workers due to the fact that workers enjoyed permanent job security. The importance of this mutuality of dependence was recognized in the critiques of neotraditionalism and in Walder’s own amendments in his later work.21 The Chinese labor force was rigid not only because workers found it hard to leave their welfare benefits supplied by the firm but also because it was politically unacceptable (and not economically rational under the soft budget constraint) for managers to trim their workforce.
The importance placed on political attitude and behavior (and by extension the quality of personal ties to management and the party) made the factory very good at fomenting political campaigns and workers’ mobilization at times when the external environment demanded them. But it made the factory less adept at normal productive work. Managers and technicians in charge of overseeing production were relegated to secondary positions, while CCP officials called the shots. In fact, the entire history of the period from postliberation to the end of the Cultural Revolution in the 1970s shows an almost continuous decline of managerial power (the experts) and a continued rise in the power of the Party (the reds). The dominance of the party at the enterprise level politicized the Chinese workplace, divided the workforce, and relegated economic considerations like productivity, efficiency, and material incentives to the eerie netherworld of political incorrectness. Workers could be activated to participate in political campaigns or mad dashes to meet state plan requirements, but there was little ability in and less attention to normal, stable production and regular increases in efficiency and quality. Managers did not have the power to insist on such improvements. Workers had little or no incentive to do so. Material perquisites were realized through one’s political connections and activist credentials, not through emphasis on bonuses and wage increases, which were criticized as economistic and unsocialist.
As noted above, the organizational structure of Chinese firms was bifurcated between management and CCP officials. This structure was the result of attempts in the 1950s to revive factory production after the Chinese Civil War (1946–49). Communist leaders decided to allow managers from the Republican Era to continue into the transition period but under the direction of the newly established CCP branches. This “Party Command System” later was seen as a rebuke to the Stalinist system of oneman management, which many leaders believed violated the principles of democratic centralism. The CCP was further strengthened in the political struggles with the trade union in the later 1950s. This debate swirled around the issue of the union’s dual responsibilities to workers and the CCP, under whose aegis the union existed. Mao Zedong finally decided this issue in favor of CCP dominance as he also condemned union activities that supported narrow worker interests at the purported expense of the CCP and national unity. Unwilling to devolve authority to either management or the trade union, the CCP continually strengthened its position within the enterprise.22
CCP dominance of the enterprise had important consequences for the other organizational structures within the enterprise and for the general configuration of authority relations. Management was weak and ineffectual unless it worked in tandem with CCP directives and mandates. This was generally meant to place political objectives above economic ones. Managerial autonomy was suspect, and as long as the CCP controlled career opportunities for managers, managers were tied to the system of party command. CCP dominance had even greater deleterious effects for the trade union organization. The trade union’s mandate was unclear and contradictory from the beginning of the CCP’s rule in China. It was to protect the rights of workers, but from whom? The Party? But the CCP ruled in the name of the Chinese proletariat, how could it also exploit or injure workers? From management? But here the union was trumped by CCP power. If the workers had a conflict with management, they went to the CCP, not the union, because the CCP’s position was much stronger and more dominant. In general this weakening of the union left it as a mere transmission belt of CCP propaganda and as an administrative appendage of the CCP until the central union’s dissolution and breakdown during the Cultural Revolution.23
In brief, the Chinese firm’s most marked characteristics were its striking lack of labor mobility, even in comparison to firms in other socialist systems; a related work-unit-based distribution of welfare and benefits that bound workers closely to their firm, usually for life; and finally, a politicized atmosphere with the party in command and management in a secondary and weaker position. As might be expected, the reform period brought great changes to this rarified institution, but it was change that came in fits and starts, accompanied by many unanticipated consequences. Labor relations under the partial reform period can be summed up by three characteristics: the breakdown of mutual dependence, a changing and unstable relationship between the CCP and management within firms, and a rapidly changing external environment.
Throughout the 1980s and early 1990s, management gained greater power and autonomy within firms at the direct expense of CCP leadership in firms.24 This statement however requires two qualifications. First, it is more precise to say that management positions gained greater decision-making power and autonomy, while party positions (as party positions) suffered a decline in their authority and influence.25 Yet rather than reflecting a clear decline in CCP power, this change reflects the melding of party and management goals and the melding of party and management positions. Second, this change is most fundamentally a reflection of internal CCP change and signals the end of a war of attrition between reformers and conservatives. Managers didn’t beat out the party; the party joined with management in pursuit of common, largely economic goals. This is most often reflected in Chinese firms when the general manager serves simultaneously as the party secretary.
The party’s decline in firms began with the early attempts to root out the remnants of Cultural Revolution institutions from factories and to reestablish other institutions that had been suspended during the Cultural Revolution, most notably the revival of trade union branches. These early changes diluted the concentration of power in party hands, giving some power back to both management and mass organizations. But the CCP remained the “core” of the enterprise organization, and party interference into management decisions continued with little real change. Management’s hand was finally strengthened through the passage of the Enterprise Law in 1988, which stated clearly that the management superseded CCP authority in every aspect of factory life, not only production.26 The Enterprise Law heralded the passing of the era of the “Party in command” and the rise of the “Director Responsibility System.” This new emphasis on legal recognition and the “legal representative” of the enterprise granted the manager more autonomy and power as well as powerful recourse to the idea of a “legal obligation” to stable production and economic performance.27 As You Ji notes of the Enterprise Law, “it also indicated the extent to which the party center came to grips with the changed nature of a state firm, which, it concluded, was an economic body.”28
The enterprise’s identity as an economic institution was solidified with the practice of encouraging CCP secretaries to serve concurrently in a production or management-related job. Managers who have joined the party after reaching management levels often cast the decision to join as a career decision. Promotions to lead larger or more important factories are easier if one is a CCP member.29 Up until 1992 there were some restrictions on this policy of “one shoulder, two posts”; for example, enterprises with more than one hundred workers were not to implement this policy, ensuring that the party position was full-time. However, in the post-1992 era these restrictions rapidly fell by the wayside. At the firm level, party officials were increasingly, first and foremost, enterprise managers.30 Party officials that did not concurrently hold management positions found themselves out in the cold, with their political ties to workers severely attenuated. As one party official reported, the attitude of workers toward the party is “wage and bonuses aren’t determined by you; for housing and welfare, I don’t go to you; when I have a problem and go to you, you don’t resolve it, so I mock you.”31
The trade union in particular complained bitterly about this new policy because it robbed them of a dual authority structure and severely hampered their bargaining power. Previously the party secretary would resolve disputes between management and the union, granting the union some degree of independence from management. This is no longer the case. As one trade union advocate stated, this “new leadership pattern leaves unions in a very awkward position. Traditionally, both the manager and the union president would turn to the party secretary for arbitration in case of disputes. Now the manager is also the party secretary! . . . This one-man-with-two-posts leadership pattern is indeed very unfavorable to trade unions.”32
The victory of management is related to the political unrest of the late 1980s, a period of intellectual ferment and an overheated economy. The explosion of urban unrest in 1989, the year after the passage of the Enterprise Law, had a somewhat ironic effect on later enterprise reforms: it ensured the ascendancy of management over other factory organizations. Although the events of 1989 did lead to a period of retrenchment and renewed emphasis on politics and ideology, it was short-lived and shallow. Conservative retrenchment policies never effectively challenged the fact that enterprises were now economic bodies, pursuing investment and growth. The significance of 1989 is that it closed down attempts at political reform while economic reform continued nearly apace. Management autonomy continued to increase, because it was perceived to be a necessary part of economic reform. Organizations designed to balance management power, like the union, weakened because union reform was political and possibly threatening to the CCP’s hold on power, a point that was made all the more obvious by the establishment of independent unions during the Prodemocracy Movement of spring 1989. Evolutionary economic changes continued, however, and sped up after Deng Xiaoping’s visit to southern China in 1992, where he encouraged reforms to go faster and deeper. The evolutionary nature of the reform and the reticence of the central government to deal explicitly with political issues, such as the role of the union, allowed management to “win” by default.33
During the early and middle reform period, from 1978 until 1992, reforms in the state-sector firms occurred in relative isolation. That is, structural reform of the state sector and the simultaneous development of a foreign-invested and domestic private sector proceeded on parallel tracks. Separate laws were promulgated for the foreign sector, most foreign plants were set up in “greenfield” development zones away from traditional state industry, the foreign acquisition of state firms was forbidden, and the explosive growth of township-village enterprises was largely a rural phenomenon. Learning or informal borrowing of foreign practices certainly did occur, although it is often hard to document, but in general the state sector was treated as an isolated patient in a separate ward. The characteristics of the “partially reformed” Chinese firm reflect this division and relative isolation. The external environment was changing quickly but the internal one was not. Gradually the external environment began to impede into the state sector, and this melding of intentional, internal reforms and external encroachment on state sector firms further complicated the SOE environment.34
The reforms began the slow, gradual breakdown of organized dependence, a type of dependence that had been stable and long-term: virtually impossible for workers to break.35 Workers are, of course, almost everywhere dependent to varying degrees on their employer for compensation. But in a market economy, workers have greater autonomy and agency at the expense of stability. Organized dependence established a lifetime tie between worker and enterprise, severely limiting the courses of action possible for individual workers. This began to change under reform, but workers benefited from the increasing mobility before state managers did. This initial gap in mobility (workers were able to exploit nonstate employment opportunities but managers were not permitted to fire) had important effects on the decay of organized dependence.36
The rise of nonstate employment opportunities did not mean that workers left state firms in large numbers. Survey research from the early 1990s did show rapid increases in mobility, particularly to FIEs and particularly by skilled workers, but these increases were from a very low starting point.37 Most were unable to, in fact, because losing a state-sector job also meant the loss of state-sector benefits, most importantly, housing and medical care. The breakdown of organized dependence first meant the rise of several different kinds of informal agreements between firm and worker that allowed workers to leave their job but to keep their benefits. In this way, state firms began to hemorrhage their best and most skilled workers while continuing to provide them with extensive benefits.
Moonlighting was the most common informal practice and certainly the earliest to appear. Moonlighting, working in the private sector or simply plying your trade as an individual entrepreneur, was first and foremost a way to make more money while retaining the benefits and perquisites of a state-sector job. In the early years of reform, firms tolerated moonlighting and at times even encouraged factorywide collective moonlighting.38 Resistance to moonlighting increased over time, however, as state managers complained that they lost their best workers but had to continue to pay them.
As the pressure to shed excess workers mounted, the state began to encourage practices more akin to partial unemployment. “Stop salary, keep post” (tingxin liuzhi) allowed workers to keep their benefits and the labor relationship with their enterprise, but they were no longer required to go to work and could pursue second jobs or entrepreneurial activity. This change in practice reflects state goals to speed up reform but control large-scale unemployment. Allowing workers to keep their benefits but not their salary relieved some of this burden. Through this system SOE workers were gradually acclimated to the concept of a labor market and given some time to find their bearings in this new environment. A somewhat similar practice was the taking of long-term vacations or sick leave in which the worker retains benefits but not all of his salary (changqi fangjia).39 Many state firms encouraged older workers to take “internal retirement” (neibu tuixiu), which reduced their monthly payment but guaranteed the continuation of crucial benefits like housing and medical care.40
Fear of social instability made it difficult for the state to match greater job mobility among workers with an equal gift to managers: the right to fire and lay off. The loosening of employment ties between worker and enterprise favored the best workers, often the youngest and the highly skilled, while “grandfathering” the workers least likely to succeed in this new environment. The status of older workers as permanent workers (guding zhigong) continued. In 1986 the labor contract system was introduced but applied only to new employees. Even when the labor contract system was applied more widely in the years following, workers with ten years or more of employment were permitted to sign long-term contracts with no set date of expiration. This “two-tier” system of employment in state firms not only created divisions in the workforce, it also left the management unable to fire the least productive workers and to retain the younger, more technically skilled workers. The right to permanent employment continued within the contract system, but as Warner found, this right was reserved “for those who look” while “those who work” could go elsewhere.41 Managers could now lose their best employees, faced competition with the nonstate sector in hiring new employees, and still were unable to lay off or fire many of their own employees. With underemployment rates in SOEs estimated at 30–50 percent of the workforce, SOEs were in an increasingly disadvantageous position.42 As seen below, new pressures to enhance employee welfare and increase wages exacerbated this one-sided decay of mutual dependence.
Enterprise reform designed to rationalize state firms and increase efficiency led to unexpected changes in the traditional “organized dependent” relationship between workers and managers. Namely, the tendency for managers to resort to legal and illegal measures to boost employee wages, bonuses, and benefits was a result of the more autonomous enterprise environment under reform. But why would managers, with newly enhanced abilities to respond to market forces, squander their resources on employee bonuses and expanded benefits? Upon closer examination it is clear that these changes are related to the permanent employment status of most state workers.
As state firms were pressured to begin to respond to market signals, managers quickly raised workers’ wages. Wage and bonus increases were justified by the long period of wage stagnation under Maoist policies that emphasized moral over material incentives. However, these increases continued unchecked and with little connection to comparable gains in productivity. This tendency to appease workers’ demands for higher wages is related to the lack of labor mobility and the increased need for managers to garner employee compliance: “While in the past I have tended to stress the dependence of China’s workers on the enterprise and management, China’s reforms have highlighted the dependence of managers upon their permanent labour force. The absence of a labour market gives the current labour force a monopoly on the supply of labour.”43
The tendency to appease workers is also linked to the way in which managers were evaluated. It became apparent that the performance of partially reformed firms was extremely difficult to measure, so instead managers were held accountable for the basic conditions of their employees. Due to the inherent problems of a semiplanned economy (bottlenecks, supply problems, quality of inputs, among others), it was almost always possible for a manager to find an external reason for problems with his firm’s performance. Employee welfare served as one of the few ways that state officials could objectively measure the performance and management of the enterprise. It was more difficult to excuse problems or concerns of the workforce, since this was one of the few areas that the manager could now control and show improvement in. There is also an ideological component. In the early reform period, blatantly capitalist goals such as maximization of profits and reduction of input costs were simply not acceptable as the be-all and end-all of SOE production. Under socialism, if profits and efficiency were to be emphasized, it was a reasonable and just expectation for workers to expect egalitarian distribution of the increased profits.
The flip side of this new dependence of managers on their workforce was the expansion of nonstate employment opportunities. New entrants into the workforce were gaining greater autonomy in choosing their employment. Workers were beginning to move from the state sector to the rapidly growing collective, foreign, and private sectors. While SOE managers did have a problem of underemployment, they also faced a severe shortage of skilled, educated workers.44 This problem of attracting and retaining desirable workers was greatly exacerbated by the growth of the nonstate sector and contributed to the emphasis that managers placed on extensive welfare benefits—perquisites that usually did not exist in the nonstate sector.
In sum, partial reform benefited the nonstate sector at the expense of the state sector as the long-term economic viability of the state sector worsened during this period. Partial reform relaxed the degree of workers’ dependence on the firm while managers remained unable to fire or lay off workers. Managers’ dependence on their immobile workforce also led to large wage and benefit increases with little comparable increase in productivity or profits. At the same time, organizational reforms benefited management at the expense of the CCP, with CCP and management goals and positions showing convergence over this period of reform. Thus the increased dependence of management on workers was balanced by their more long-lasting victory over party control.45 Managers were increasingly in a position to press for more far-reaching changes, most importantly, a reduction in their welfare burden and the right to cut staff. As the external environment changed rapidly in the early-to-mid 1990s, the pressure to cut staff and relieve the welfare burden increased dramatically. Not only had SOE reform failed to turn these enterprises around; they now faced new competition from the nonstate sector.46 As the reforms deepened in 1992, the historic divide between state and nonstate owned firms began to erode.
The wide range of practices that are employed in Chinese firms, from the infamous sweatshops of the south to the highly evolved human resource regimes of multinationals in Shanghai, are themselves indications of one crucial characteristic of labor relations in China today: the overwhelming power of management to determine a firm’s internal labor practices. Due to a lack of capacity on the part of the official trade union and a significant lack of will on the part of developmentalist local governments, firm management or owners overwhelmingly determine labor practices. There is substantial employer flexibility due to the uneven implementation of new labor laws and regulations. If firm autonomy and choice is now paramount for setting labor practices, how can we accurately analyze the overall condition of labor relations in China today? Most importantly, we should consider the firm-level realization of management choice and autonomy as one of the key characteristics of the general condition. Variation and diversity at the firm level is one result of a more general situation in which regional liberalization and economic decentralization have sharpened competition for investment inflows.
Labor relations in China have been in a state of flux and transformation since the 1980s as the nonstate sectors developed and the core public sectors gradually felt the quickening of reform. By the mid-to-late 1990s a clearer picture of the Chinese state’s conception of labor relations began to emerge as key labor legislation was promulgated and the Communist Party began to move on deep restructuring of the core public sectors with the measures implemented in the wake of the Fifteeenth Party Congress. The official conception of labor relations in a “socialist market economy” includes a heavy dose of state regulation and oversight through laws and regulations with a relatively large degree of freedom of individual choice, for both employer and employee, in employment. Collective worker organization is legally mandated at all firms with twenty-five or more employees through the establishment of a grass-roots branch of the ACFTU. The trade union has the legal right to sit in on management meetings that may affect employee welfare, to be notified of any employee termination, and to negotiate collective contracts with management on behalf of the workforce. These two protective institutions—legal labor rights and collective organization—are in theory designed to mitigate the negative consequences of labor markets and to prevent full commodification. Laws and regulations mark the boundaries of the freedom of contract by providing basic minimum requirements—for example limits on hours worked, vacation time granted, and mandatory provision of social in-surance. Collective organization of workers provides a framework for collective bargaining and interest representation of workers at the workplace.
This framework for labor relations is heavily reliant on an effective rule of law and state capacity to implement and enforce the law. In practice institutions designed to protect workers are instead used against them. Freedom of choice (workers choose their jobs and employers choose their workers) has developed and been institutionalized rapidly since 1997. This freedom has benefited employers and skilled employees, freeing them from the strictures of the work-unit system of employment. For most other employees, this newfound freedom comes mainly in the guise of extreme employment insecurity. For employers freedom of choice has been achieved through the implementation of the individual labor contract system and the newfound ability that it grants not only to hire more freely but also to let workers go as needed or desired. The employment relationship is based on the individual labor contract, which is an agreement between the employer and the individual worker.
The protective institution designed to mitigate this emphasis on choice and flexibility—state oversight, supervision, and constraint on the freedom of contract through the rule of law—has largely failed to materialize. China has made important strides in its development of labor and employment law but implementation and enforcement of these codes have lagged far behind their legislation. Local enforcement of the labor law and other regulations is extremely weak and compromised by the need to attract and retain investment and grow the local economy. Supervision and oversight of the labor law is spotty; local bureaus responsible are understaffed and underfunded. Implementation of China’s legal framework for labor has mainly succeeded in fulfilling the needs of enterprise managers—by shortening and attenuating the employment relationship, rather than increasing the rights of workers. Moreover, several important national laws that might clarify difficult issues and grant workers greater rights and entitlements have been held up at the drafting stage due to bureaucratic and ministerial infighting.47
The widespread use of rural migrant labor from other regions or provinces is a further disincentive to pursue local enterprises aggressively for infractions and violations. Many local officials do not seem to consider these workers as their responsibility and often pass local regulations that deny migrant workers basic rights.48 Finally, cozy government–business relations and deep-seated corruption further weaken the state’s capacity to supply legal institutions and a regulatory framework that can adequately protect the weaker signatory of the labor contract: individual workers.
This current atomization of workers through the individual contract system is from an already weak collective position. The ACFTU, the officially sanctioned union organization, has historically been a weak and subordinate mass organization. Since 1949 the trade union has had to balance representation of workers’ interests with its subordinate role to the CCP and the party’s pursuit of broader collective goals, most recently articulated as rapid economic growth and development. Trade union activists that championed workers’ interests met resistance from the CCP early on and were suppressed or deposed.49 As Walder has argued, authority relations in Chinese factories under socialism were clientelistic, with vertical relationships fragmenting and dividing the workforce. Employment security and benefits were protected through the work-unit (danwei) system, which guaranteed lifetime jobs and benefits, and not through any collective organizational power of workers. The switch to labor contracts and the weakening of the danwei system of employment has exacerbated the already weak and dependent position of Chinese workers vis-à-vis management. Despite the implementation of the labor contract as one part of a “rule of law” project led by the state, workers have been left with little protection or power to challenge or change the employment relationship.
There are, of course, important differences in how contracts have been implemented in different sectors. Many public sector firms have switched from lifetime employment to short-term contracts, while many nonstate firms have been encouraged by the government to implement short-term contracts as an improvement from at-will employment and extreme employment insecurity. Despite these different starting points, there are several trends that cut across sectors and point to an increasingly insecure employment environment for China’s industrial workforce.
First, despite initial attempts by the Ministry of Labor to encourage long-term or open-ended contracts as well as to implement laws that require written contracts signed by both parties, the labor contract regime in China is increasingly short-term and informal. Among all the firms visited by this author, contracts ranged from one to two years for production level workers and were used to enhance labor flexibility and managerial power. One SOE switched to the labor contract system in 1993 and since then has slowly expanded the system to include all workers with short, one-to-two-year contracts for all workers, except for those closest to retirement.50 Workers with a bad work attitude (biaoxian buhao), who are not hardworking or who cannot fulfill production goals sign one-year contracts. Workers who have received some form of administrative punishment or internal CCP warning also sign one-year contracts. Using one-year contracts as a probationary period for politically suspect workers allows the company to threaten the job security of troublesome or activist workers. Temporary workers outside of the production plan and registered workers within the plan also sign one-year contracts. One-year contracts for temporary workers extend the flexibility that the FIE sector has long enjoyed without adding to the SOE’s welfare burden. Workers who are waiting for employment (daiye) also sign one-year contracts.51 The use of one-year contracts for redundant workers or workers with no regular work assignment also indicates that SOEs are increasingly able to dismiss surplus workers, albeit in a gradual manner that allows the worker one year to find new employment while still drawing a salary.
Foreign-invested firms also resort almost exclusively to short-term employment contracts. Although the government had tried to pressure firms to sign longer contracts, by 1999, most labor contracts for FIE workers were one-year contracts, with renewal contingent upon the agreement of both sides. Some Japanese companies used a combination of a long apprenticeship period, a one-year contract, and then a possible extension to a two-year contract. This practice grants the company a long period of reduced labor costs (an apprentice has no insurance and receives a living stipend, not a wage) with the opportunity to evaluate the employee before offering even the security of a one-year contract. The use of apprenticeship labor is also common in Taiwanese companies. Young rural migrants enter the factory directly from technical school and receive reduced wages and no contract. These practices further reduce labor costs and also allow the company a fairly long period of time to evaluate workers before offering contract employment. There is also no requirement that apprentices receive a contract once the apprenticeship has ended, which raises the possibility that some FIEs endlessly recycle young migrant labor.52
“Nasty, brutish, and short” describes the conditions in many other firms that use illegal labor contracts or other illegal means to maintain control over their workforce. For example, some labor contracts may require workers to pay a security deposit to work at the firm. Firms may lock workers in the factory grounds or confiscate their identity cards, making it dangerous for workers to leave and impossible to be employed elsewhere. Even with a labor contract, dismissals are arbitrary, dependent on the production process and the firm’s economic health. There is no job security. The Hebei rural collective signed one-year contracts with its employees, but the manager was confident that he could fire anyone at anytime. He served jointly as the enterprise’s trade union chairman, which ruled out opposition from the trade union in the event of terminations. At the Tianjin urban collective, working under the contract management system, the general management had devolved the responsibility of signing contracts to the managers of each individual firm. These contracts are often not in compliance with Chinese labor laws and supervision from the central office is lax.53 The urban collective’s trade union had been absorbed into the general affairs office in order to reduce costs.
Despite the overwhelming influence on short-term labor contracts and flexible employment for production staff, many firms use the labor contract system to try to retain badly needed and coveted skilled labor. Some SOEs continue use of “open-ended contracts” as a means to encourage skilled staff loyalty. Open-ended contracts are more difficult to break without paying a fine and therefore are used by the company to limit the mobility of technical workers. These regulations ensure that skilled workers will have much more difficulty switching jobs once they sign an open-ended contract. Because the worker will have to break the contractual agreement to switch jobs, the company can delay or prevent this process by withholding his dossier, without which he would be unable to be employed elsewhere. The company can also demand compensation for any training received. Disputes involving breach of contract have increased dramatically, particularly cases where an SOE sues workers leaving to enter the private or foreign sector.54 These types of contract regulations strengthen the SOE’s power to retain skilled employees without competing with the higher salaries and extensive perquisites that are offered to skilled employees of some FIEs. FIEs that offer training abroad and extensive educational benefits to skilled workers also try to use longer-term contracts to encourage job stability and stem personnel losses to their competitors.55
In comparison to the emphasis at the firm level on individual labor contracts to maximize flexibility for the vast majority, the role of the collective contract system has remained minimal. Collective contracts have been successfully encouraged only in large, well-run firms; most often these firms seem to be profitable state firms or large joint ventures with American or European investors. Even here, however, research has found that collective contracts are often the result of the local CCP’s direct intervention into the signing process so that the contract becomes in effect an agreement between the local party-state and the firm’s management. In most nonstate firms, collective contracts remain inconsequential, either nonexistent or easily co-opted by a much stronger management and turned into a meaningless “form.”56 In the legal resolution of labor conflict, collective contracts have also had a negligible impact, even in regions where the implementation of collective contracts has been pushed. For example, the Shanghai local labor arbitration commissions arbitrated over thirteen thousand labor disputes in 2001, yet not one dispute was in regard to a collective contract.57 As one trade union official remarked, “We won’t re-sign collective contracts again in three years unless we are forced to, because this thing has no meaning.”58
The weakness of collective negotiations and contracts is in stark contrast to increased tendencies of enterprise managers to share information, tactics, and even set wage-setting guidelines to improve retention and reduce competition in labor markets. Japanese firms in Shanghai and Tianjin report that enterprise managers meet regularly to set wage guidelines and to share information about troublesome workers.59 In research on the Suzhou Industrial Park one researcher found that electronic firms in the park had formed the “Human Resources Club of Electronics Companies in Suzhou Industrial Park.” The main duties of this “club” were to lobby collectively the local governments on issues related to labor legislation and regulations and to “negotiate among members of the club issues regarding recruitment, retention, turnover, salaries and benefits.”60 Investors from the United States, Japan, and Korea dominated the club’s membership.
In sum the implementation of the labor contract system has created a system of employment relations that place much greater emphasis on flexibility than stability and on the individual over the collective. This is despite the original intentions of Chinese labor officials and others who believed that labor contracts would offer increased employment security and longer-term employment relations. In firms with labor contracts, employment security is usually guaranteed for a year at best. In the many firms that do not use formal labor contracts, employment in reality is simply “at will.”61
One-year employment contracts may seem relatively secure in comparison, for example, to the United States, where much employment is simply at will; however, the trend in China is toward even less security and the further degradation of the contract system itself. Nearly ten years after the passage of the National Labor Law, many firms have already found ways to avoid even the relative rigidity of the contract system, preferring instead to hire new workers on other more flexible terms. These include the apprenticeship system mentioned above and the subcontracting of workers through labor service companies. A Japanese JV in Shanghai had expanded its workforce from three hundred to eight hundred production line workers between 1996 and 2003. Yet after the initial hiring of the three hundred local Shanghai workers, some of whom were transferred from the SOE partner, the remaining five hundred have been migrant workers hired indirectly through a local Shanghai district labor service company. These workers, mainly from Anhui and Shaanxi Provinces, are not given benefits nor do they participate in social insurance. They are hired on three-month contracts. According to one manager, the firm does not need to fire workers; it simply waits for the contracts to expire.62 The Tangshan SOE also used similar strategies to ensure a more flexible workforce by hiring workers from its subsidiaries on short-term projects without transferring the labor contract or the terms of employment. This allowed the core workforce of the SOE to enjoy relative employment security while forcing much more uncertain terms on new workers.63 Moreover, by 2003 the SOE was no longer using subsidiaries to absorb redundant labor but was instead resorting to layoffs, terminations, and severance buyouts.64 Links between subsidiaries and the core company were used to make labor more flexible, but unlike the mid-1990s, they were not being used to reallocate workers who were no longer needed.
The implementation of the individual labor contract system and the renewed attention to labor flexibility has further increased the insecurity and dependency of Chinese workers on enterprise management. The regulatory framework initiated by the government has been implemented only haphazardly. The lopsided implementation of individual labor contracts with a negligible emphasis on collective contracts and collective negotiations has led to the atomization of the workforce. The large influx of rural migrants through subcontracted labor, apprenticeships, and even illegal practices such as bonded labor has revived practices seem in the pre-Communist era as the state has taken a less active role in the administration of employment.65
The preceding discussion regarding managerial control and autonomy in the setting of labor contracts has emphasized the degree to which individualized employment relations amid market reform have improved the relative power position of enterprises at the expense of individual workers. In addition to the state’s supply of legal labor rights as a protective institution for labor, collective organization of workers is also a means to temper the unequal bargaining relationship between enterprises and individual workers. As a socialist state, China has a long history of trade unionism and a highly developed union organization, the ACFTU, which serves as the umbrella organization for all legal unions in China. Independent unions or other types of worker organizations are illegal in China, and labor activists suffer long prison terms for attempting to organize workers outside of this official framework.
The following section details how managerial domination or suppression of worker organizations has been achieved despite the presence of the ACFTU and repeated attempts by the government to extend the union’s presence and influence in the new nonstate sectors. We begin with the structure and history of the ACFTU itself and then turn to changes within firms that have contributed to the marginalization of the trade union and management domination over issues involving worker organizations.
The ACFTU is the national federation of Chinese trade unions, which includes industrial unions, local-level trade union offices, and enterprise-level trade union branches. Higher levels approve appointments at lower levels. The trade union organization at every level is also subordinate to the Communist Party bureaucracy. In the tradition of Leninist democratic centralism, the union, like other mass organizations, should act as a transmission belt conveying worker concerns and suggestions to higher levels while ensuring that central policies and edicts reach down to the workplace. As in most state socialist economies, this dual function of the union weakens its ability as a body representing workers in conflicts with management or the state.66 At the national level, the union is subordinate to the CCP and the wishes of central CCP and state leaders. As a bureaucratic organization, the union is weak without the economic resources or bureaucratic control over policy that empower the other bureaucracies that influence labor policies, in particular the Ministry of Labor and Social Security.67
The ACFTU has a long history of affiliation with the CCP, appearing in its earliest form in the 1920s when the CCP and the Republican Party (KMT) were locked in a bitter struggle for political control of a divided nation. This history is marked by several periods in which the trade union attempted to stake out a certain degree of independence from the CCP. After 1949 these attempts became more difficult to justify as private and foreign ownership were eliminated. The CCP’s central role in enterprise management reduced the union’s position to that of a handmaiden of the party, with its responsibilities within enterprises largely limited to welfare and entertainment tasks. Union leaders who advocated for greater independence from the CCP were purged, most famously the long-time labor organizer and first vice chairman of the ACFTU, Li Lisan in 1951.68 The trade union was an early target of the leftist leaders and Red Guard brigades during the Cultural Revolution who accused trade union leaders of “economism,” “welfare trade unionism,” and other types of behavior that mostly entailed highlighting the particular interests of workers.69 These attacks on the ACFTU resulted in a ten-year hiatus during which the ACFTU was largely inoperative.
When the union returned to enterprises after its dissolution during the Cultural Revolution, important changes were already taking place in the management of state firms and in the expansion of the nonstate sector. As reforms progressed through the 1980s and 1990s, the union’s position did not markedly improve, despite the dramatic expansion of the nonstate sector, which theoretically justified a more active union presence to balance against the power of enterprise owners and managers. There are two reasons for the union’s continued weakness. First, enterprise reform within the core public sectors increasingly favored management’s economic goals over the political goals traditionally touted by the party or union officials. As a subordinate organization to the party, the union lost influence. Enterprise reform, in particular the expansion of enterprise autonomy, granted factory managers wide discretionary power over issues such as wages, capital investment, and production plans that were previously decided by higher authorities. Management became more professional. As the party identified increasingly with management goals and supported management in its decision making, the union found itself with no powerful ally in the firm.70 As management and party goals become increasingly intertwined, it also became common for the top manager of the firm to serve simultaneously as party secretary. The merging of these two once separate positions also served to reduce the influence of the union.71
Second, the rapid diversification in enterprise ownership through foreign investment, stockholding conversions, mergers, bankruptcies, factory leasing, and the rise of a private sector led to a rapid increase of enterprises that never had unions in the first place or that had “restructured” their unions out of existence. Thus the entire trade union institution found itself marginalized in the most dynamic sectors of the Chinese economy.
Although Chinese trade union law requires that all firms with twenty-five workers or more must have a trade union if requested by the workers, unionization rates vary greatly across types of firms. Due to the historical legacy of socialism and the preexistence of trade unions in SOEs, SOEs continue to have the highest rate of unionization. Joint ventures between SOEs and foreign companies are also likely to have a trade union organization, with personnel transferred over from the parent SOE. Large MNCs with well-developed human resource practices also tend to allow trade union formation, although this is not universal. Foreign firms whose owners are not of ethnic Chinese origin also seem more inclined to allow unionization, viewing the presence of a union as a means to improve communication with and cross-cultural understanding of their workforce.72 Ethnic Chinese investors from overseas seem far less inclined to establish unions. These differences notwithstanding, however, the general trend of trade union organization in China is toward greater managerial control and oversight of worker organization, if not out-and-out suppression of worker organization.
Firms that have enterprise-level trade unions use unions as a tool of management and as a stabilizing institution between workers and management. The role of the trade union is to mediate disputes and to relay worker opinions to management. It is a middleman more than it is a representative of the workforce, with little or no decision-making power.73 Management dominates union leadership, usually managers from the enterprise’s personnel department. The company’s management in agreement with the local union bureau usually selects union representatives. The election of union officials occurs after the field of candidates has been narrowed and approved by management.
Gordon White aptly termed reform period unions as having “access without autonomy.”74 By the late 1990s this form of representation had extended throughout the SOE sector and into the “higher end” foreign-invested firms. SOEs and some foreign firms converged toward this form of representation, but they were coming from opposite directions. Foreign firms had a very low rate of unionization, while SOEs had highly bureaucratized union offices with full-time union cadres. Market forces and rising labor tensions were pushing both types of firms to find a new mode of labor control.
The number of FIEs increased rapidly in the late 1980s and early 1990s, but unionization failed to keep pace. Prior to 1994, unionization at foreign firms was abysmally low, less than 10 percent, despite regulations specifically calling for unionization in foreign firms. Unionization of the FIE sector was encouraged by the government, but it was not enforced, and many foreign managers resisted unionization. Pearson’s study of joint-ventures in the 1980s found that trade union organizations were either extremely weak or nonexistent, compromised either through foreign managers’ resistance or attempts by local government officials to guarantee enterprise autonomy.75 In the economic boom regions of the South, Hong Kong, Macao, and Taiwanese investment led to rapid industrialization of rural and suburban areas. Workers in these firms were often former peasants unfamiliar with factory organization in general and unions in particular. With little job security, these unskilled workers had little power to push for unionization themselves.76 Nor were local governments enthusiastically pushing for unionization, concentrating on economic growth and development, and increased foreign investment. Trade unions were not a key concern. This continued until the 1990s when a rash of strikes and walkouts in the FIE sector alerted the leadership to the tinderbox nature of labor relations in these largely unregulated firms. As international and domestic media coverage of these conflicts increased, foreign investors expressed concern about stability and the Chinese media expressed anger at the treatment of Chinese workers by foreign bosses. The vice minister of Labor stated bluntly that unless labor legislation was quickly introduced, the strikes would only increase. Labor officials also worried about new demands from workers to set up independent unions in FIEs.77
Unionization of foreign firms did pick up and several cities achieved relatively high rates of unionization. By 1998 three-quarters of eligible FIEs had established trade unions.78 Many of the largest and most popular development zones boasted high rates of unionization. By 1999 a labor union had become a more regular fixture in many foreign firms—indeed many foreign firms found that a union improved communication and overall labor relations without unduly interfering in management decisions or production.79 Like SOE unions, FIE unions have access to management but they lack autonomy to represent workers fully. The main difference between the FIE and SOE unions is the way in which this access is achieved. In FIEs, the bureaucratic ties run between the enterprise union and the local development zone bureaucracies. The union’s access to foreign management is through the legitimacy and power of the local level union. SOE unions have bureaucratic ties to the firm’s management. Thus SOE unions tend to have more direct access to firm management, whereas FIE unions use ties to the local bureaucracy to pressure foreign management. However, the direct nature of the SOE ties does not necessarily translate into increased power. This point will be expanded upon below.
In development zones, the local bureaucracy plays a vital role in attracting FDI and managing the zone to please investors. Here the government is part administrator and part chamber of commerce. The trade union bureaucracy is part of the total developmentalist machine. In the Tianjin and Shanghai development zones visited, unions are set up and enterprise-level representatives are appointed as a bureaucratic process led by the development zone’s union office. In She-kou, a special economic zone (SEZ) in Guangdong Province, the district union chair is a voting member of Shekou’s board of directors and the party committee. The union has a role in resolving labor disputes, in reemployment programs, and in worker health and safety protection. They also direct the process of unionization in new FIEs and disseminate new labor regulations and government edicts.80 These SEZ unions are not necessarily weak. A union chairman who is concurrently on the district board of directors and party committee is likely quite powerful. This “access without autonomy” grants the union a monopoly on worker representation but it places stability and economic development over other union responsibilities.
Japanese firms, in particular, seem the most adept at using this bureaucratic structure (local union bureau, enterprise-level union, and management) to achieve relatively stable labor relations. Compared to many other foreign-invested firms, they have higher rates of unionization and use unions effectively as a mediating institution between managers and workers.81 Japanese firms fill the top union position with high-level Chinese managers, often the human resources manager or deputy manager. Japanese managers put emphasis on achieving consensual labor relations with the union chairman serving as a mediator between the foreign management and the Chinese workers.82
In a Sino-Japanese joint venture in Tianjin’s development zone, relations were somewhat antagonistic but the union clearly had a role in worker representation and dispute resolution. It is significant that in this firm, the workers requested the establishment of a union, rather than waiting for an administrative edict from above. Due to this difference, the union chairman was actually elected (rather than appointed) and had been reelected in succession for three years. This union chairman argued that his union was “a real union, not like the unions in SOEs,” and yet at the same time he jointly served as the personnel manager. The Chinese manager cast himself as the defender of Chinese interests in the firm against a band of noncooperative, misunderstanding Japanese.83 And, in fact, he had achieved some success. Not coincidentally, employee benefits had been increased from 28 percent of base salary to 71 percent from 1997 to 1999. This occurred at a time when the Tianjin Economic and Technological Development Area (TEDA) government cut the welfare requirement from over 60 percent to just 49 percent, in a bid to be more competitive with Shanghai and development zones in the south.84 However, his position as union chairman was obviously compromised by his joint position as personnel manager.
Japanese firms’ success with this bureaucratic system is in sharp contrast to other Asian investors including overseas Chinese and Korean investors.85 In a survey of 837 Japanese firms in China, 47.3 percent of firms surveyed reported that they were satisfied with the “cooperative” unions. Only 1.5 percent reported that they were satisfied with the unions although they were “not cooperative.” Another 1.5 percent reported that they were unsatisfied with the uncooperative unions. The survey also reported that 11.7 percent of the firms reported strikes or walkouts, mainly in disputes over wages. Most of these strikes were resolved in less than one day (48.4 percent) with 29 percent resolved after one day. These were also spontaneous outbursts of discontent with no reported union participation.86 Although the survey shows that some Japanese executives worry about the union interfering in management decisions, both the survey and the case studies reveal a relatively cooperative relationship between Japanese management and the unions. This cooperative relationship reflects the long-term investment plans of Japanese investors in China who express the need to establish a positive public image and to retain a stable and well-skilled workforce.87
Japanese investors are also adept at cultivating relations with the local union bureaucracy. In the Dalian Economic Development Zone where Japanese investors dominate, the union acts in cooperation with local governments and Japanese investors to preempt large-scale strikes and coordinate labor relations. The zone-level union joined with the labor bureau in formulating regulations on “collective work stoppages.”88 Noting that media coverage of earlier strikes (which numbered over 30 from 1992 to 1994) adversely affected Dalian’s reputation among foreign investors, these regulations make it extremely dangerous for workers to organize protests. Workers must notify authorities seventy-two hours in advance of any work stoppage so that authorities can “sound the warning bell” and also warn the workers that they will be severely punished. In the event of a strike the union acts in cooperation with the Public Security Bureau (PSB) and the Labor Bureau to manage the conflict and resume production as quickly as possible. The union’s role is to act as intermediary between the workers and management while the Labor Bureau supervises the process. The PSB is used as a show of force to dissuade workers from violent or destructive acts. The first priority is to resume production, call a meeting of workers and start negotiations. Both sides should “recognize their mistakes” and choose representatives (it is unclear whether workers can represent themselves) with the union relaying the proceedings to the workers. The Dalian Labor Bureau also recommends that China pass a no-strike law similar to those, the article notes, in England, Switzerland and Australia.89 The union takes an active role in the dispute resolution process in Dalian but as these proposed regulations show, its role is to control worker protest (if not preempt it), mediate negotiations, and encourage workers to return to work immediately.
American firms in China report significant problems with human resource management, but unlike many Asian investors they do not seem to experience as many extreme situations such as strikes, work stoppages, and sabotage.90 American managers have difficulty finding skilled workers and managers and even more retaining them. Poaching of employees by other FIEs is common.91 Because the average size of American investment is large and their higher public profile, stable labor relations are a priority for both the government and the firms. While no data are available on unionization rates by national origin of investor, unionization of American firms is probably quite high, although lower than in Japanese-invested firms.92 Labor lawyers report that there are palpable differences in labor dispute resolution cases that involve European and American firms. These firms tend to adhere to labor regulations and grant unions more decision-making input.93 Disputes, when they do arise, are negotiated quickly. For example, in the American WFOE in Tianjin, a regulation was passed that required all workers to be searched upon leaving the factory premises to reduce employee theft of materials. Workers promptly protested this new practice, proclaiming that the American company was “violating their human rights.”94
Foreign firms with high international profiles and public relation concerns over their investments in China are more likely not only to have unions but to allow unions greater responsibility and input. The result can be a management-empowered union, in which management pushes for better realization of the union role as set out in China’s own legislation.95
Although SOE and FIE unions have different institutional foundations, the pace of convergence is due to the growing market pressures on SOE firms. As mentioned earlier, the bureaucratic structures of FIE unions link the union to the local governmental bureaucracy. SOE unions, on the other hand, are increasingly incorporated into the enterprise management structure. This incorporation process, often coinciding with a period of restructuring, can grant the union an official position within a reformed firm, but it remains a weak junior partner vis-à-vis management.
With the deepening of SOE reform in 1994, ownership diversification has meant a rapid expansion in firms that (while perhaps still officially state owned) have undergone significant changes in management, often followed by drastic restructuring and downsizing.96 These include mergers, bankruptcies, leasing, renting, and outright acquisition of state-owned firms. Union offices are often the target of the restructuring, leading to the closure, merger, or downsizing of union offices.97 In a provincewide survey of Ningxia in China’s northwest it was found that 56.2 percent of unions had been merged with other offices or disbanded. In most cases of merging, the trade union was absorbed into the firm’s party branch.98 Reports from other areas seem to indicate that this is a nationwide phenomenon.99
The Supreme People’s Court of China has ruled that basic-level unions have legal personhood, making it easier for unions to sue when management arbitrarily disbands their offices. The Court also stated that it is illegal to appropriate, transfer, or freeze union accounts when the enterprise is in financial straits.100 But in reality unions have little financial independence from enterprise management. Financial constraints on the union contribute to an institutional dependency on management that leaves unions helpless and passive during the restructuring process. Many enterprises simply absorb union fees into their administrative budget or fail to dispense the required 2 percent of their total wage bill to the union office.101 The salaries of union cadres are paid by the enterprise, leading to a situation where management’s mantra is “you receive my money, you listen to me.” One indication of this phenomenon is the widespread failure of enterprise-level mediation committees. These committees, led by the union chairman, are responsible for the mediation of labor disputes. The lack of job security of union officials who have signed labor contracts with management inhibits their commitment to mediation. Many union chairmen who by law serve as the mediation committee chair hold a joint administrative position. Some union leaders even represent the enterprise in arbitration proceedings against workers.102
Other practices are become more similar across SOEs and FIEs, in particular the joint posting of union officials. Most union officials in FIEs and SOEs now jointly serve in management positions, most often in human resources and personnel.103 Joint posting is a practice used by one of the model union organizations, the Shekou SEZ union in Guangdong Province. Shekou has an extremely high rate of unionization, reaching 98 percent in the last few years.104 In an internal report in 1993 of the 250 enterprise-level unions, only two had full-time union posts. Thirty-three of the union chairmen were also general managers, 110 served jointly as deputy managers, and 115 union chairmen were middle managers, workshop directors, or workers.105 The joint-posting policy is consistent with the union’s goals, which are first and foremost to encourage production and strengthen “unity” between foreign capital and workers. The Shekou system has expanded to other regions with FIEs in Tianjin and Shanghai using the joint-posting system. Sino-Japanese joint ventures also seem to prefer this system, with union chairmen regularly serving concurrently as personnel managers or deputy managers.106
The practice of joint posting dilutes the power of the union. The conflict of interest it presents is most severe in joint ventures where joint posting as personnel manager and union chairman is common. Top union officials oppose this policy, realizing that it weakens the union’s capacity to bargain collectively and effectively and severely affects workers’ confidence in the union.107 One researcher notes that a union chairman who is concurrently party secretary, assistant manager, or a relative of the employer is not able to act as an advocate for workers. The union generally advocates that “the problem of joint positions” be quickly settled with the office of the union chairman as a special, full-time position without managerial responsibilities.108
Joint posting is not limited to the foreign sector. As seen above, union restructuring often means the amalgamation of the union offices into a larger administrative office. The union chairman might be a party official or a mid-to-high-level production manager. In the Tangshan SOE, which had converted to a state-controlled stockholding company in 1994, the union chairman was a voting member of the board of directors and a stockholder. Like FIE union chairmen who hold joint positions in human resource management, this practice clearly compromises the union’s role as the representative of workers’ rights and interests. It is unclear whether the practice of the union chair as company stockholder and voting board member is widespread among stockholding SOEs, but statistics from other regions indicate that it may be an unusual practice. In a survey of sixteen hundred firms in Hubei Province, only 2.5 percent of the stockholding firms had a labor representative on the board of directors.109 In a report of sixteen firms in Shenyang City, none had a union member on the board of directors.110
Even if the practice of assigning a board of director seat to the union chairman becomes more widespread (as the union hopes), it is questionable whether or not it would improve worker representation or exacerbate the existing conflict of interest.111 Does the union have more power because the chairman can vote against motions that are unduly harmful to workers? Or does the chairman’s own stake in the economic performance of the company compromise his union role? The Tangshan SOE union chairman adamantly stated that the union’s power had increased under enterprise reform, particularly through his presence on the board of directors. He cited a recent decision by the factory general manager to increase the enterprise’s contribution to an employee housing fund. After the workers complained that the company contribution was too low, the union chairman negotiated with management to increase its contribution.112 It is difficult to assess how this practice affects the union. Clearly the loyalty of the union chairman is divided. It may be that in comparison to stockholding companies without union representatives on the board of directors, his influence is greater. But the role of the union is dependent, then, on the chairman’s personal choices as this structure allows him to act as manager, as union chairman, or as a stockholder.
Despite some reluctance to allow unions on the part of some FIEs, many large multinationals seem to welcome the role played not only by the firms’ branch of the ACFTU but also the role played by the Communist Party, which seems to increasingly have branch committees within foreign enterprises. These organizations employ traditional Chinese socialist methods (thought work, propaganda, tight organization) to train the workforce to accept their role in the factory as loyal employees of a foreign company that often has extremely high demands and an exhausting work schedule. It is an ironic marriage of neoliberal capitalism with socialist tools of control.
In some cases, firms with global “no unions” policy allow CCP party branches as an apparent compromise with the local authorities. For example, a large MNC in Tianjin has continued for over fifteen years without a trade union despite various national campaigns to encourage unionization of foreign firms. This company, however, has a well developed CCP branch system and an “Employee Standing Committee” that fulfills many typical union responsibilities, including entertainment, welfare policy coordination, and the handling of special issues related to women workers (women make up 80 percent of their production workforce). The separate propaganda boards of the two organizations complement each other in a kind of numbing repetition of human resource management slogans and patriotic propaganda. While the Employee Standing Committee emphasized employee excellence, the party emphasized its role as a bridge between China and foreign investors. “Encourage understanding of foreign investment!” one slogan read while others lauded the recent feats of China’s new leaders. When asked what the party branch did exactly in the firm, one employee replied “patriotism, propaganda, and stability. Foreigners are surprised that we have the Party, but what do you expect in China?” Clearly discomfited by the fact that I could read the slogans and announcements as we toured the plant, she asked that I speak to her boss about it. “We aren’t really supposed to talk about this with you.”113
Leadership of party and union organizations are often combined in one person who serves jointly as party secretary and union chairman. In the Tianjin American WFOE the party secretary was also the head of the Employee Standing Committee, although workers were allowed to elect their workshop representatives for the committee. In a large Sino-American JV in Shanghai, the party secretary and the union chairman shared an office and were clearly the main middlemen between foreign management and the production workforce. In another large Sino-American JV in Shanghai, the party secretary was also the union chair.
These leaders are compensated at the level of upper management; they are mainly there to mediate between the company’s economic goals and the desires and demands of the employees. This is not interest representation of the workforce, but rather the more traditional transmission belt style trade unionism of Leninism—with the difference that the union and the party serve the interests of the foreign company. These leaders do “thought work” to convince the workers to accept new modes of production, long work shifts, cuts or changes in benefits, and other adjustments to global capitalism. The propaganda boards of these organizations are not very different from what one sees in Chinese SOEs with their mixture of corporate HR (human resources) and patriotic exhortation. “It’s so nice to have a trade union that works with us rather than against us,” is how one American manager put it when asked about their relationship with the trade union.114 Tired of working with oppositional trade unions in the United States and Britain, this manager expressed relief that things in China were different. In a Sino-Japanese JV in Shanghai, the structure was similar. The general manager was also the party secretary while the union chairman position was filled by the assistant manager of the general affairs department. The party’s role was “to encourage workers, to promote workers’ activism and set high production goals for workers.”115
Many other firms eschew the union system altogether and rely on a personalistic management style that does not tolerate organized worker representation. In firms visited by the author, small domestic firms, even publicly owned firms, did not have functioning unions. The urban collective union structure, once a regular institution in collective firms, has been emasculated by the contract management (chengbao) system. Among FIEs, Taiwanese firms seem most opposed to the establishment of enterprise level union organization. These firms rely on highly autocratic managers, often purposefully using local managers to control “their” workers. For example, firms in Guangdong were reported to hire Sichuanese managers to control Sichuanese migrant workers.116 Taiwanese managers cite localization as the main way to reduce labor tension. “Chinese,” one manager said, “don’t like to be managed by huaqiao (overseas Chinese).”117 Formal institutions that mediate between labor and management are absent. Some researchers have found evidence of informal organizations that workers form to achieve some sense of collective power. These organizations are often based on native-place affiliation. If the workers are migrant, their “baogongtou” (the person who contracts out the labor of workers) may serve as their representative in negotiations with management or the local government. These informal institutions are vulnerable to managerial opposition and have no legitimate, legal standing within the enterprise.
A rural collective in Hebei, a “national joint venture”118 between an older collective firm and a university in Beijing was a typical example of the new firms in China’s rural and suburban areas. The formation of this joint venture involved the near liquidation of the older collective and the transfer of management and land to the new firm. The original workers of the rural collective were left behind at the old company (which had stopped production) as this new venture hired sixteen- and seventeen-year-old youths from nearby villages to manufacture DVDs using equipment acquired with the capital infusion from Beijing. The enterprise had what the general manager called a “temporary union” that he said did nothing but give out free tea and sugar to the otherwise benefitless young peasant workforce. This general manager was also the union chairman. In leaving the old workers and the old enterprise structure behind, the new company was able to restructure labor relations with a younger, less demanding workforce. By ridding the new enterprise of older, more demanding, and experienced workers, the enterprise is unlikely to hear any new demands for unionization.119
The emasculation of the union also has occurred in the urban collective sector, mainly through implementation of the contract management system and more recently through the actual privatization of many small-to-medium firms. In a Tianjin urban collective, each individual enterprise is contracted out to individual managers who are under no obligation to establish a grass-roots-level trade union. The collective’s central administration had also restructured its management system, with the central trade union dissolved into the General Affairs Office.120 Thus at the enterprise level there was no union representation and at the administrative level, the union had been absorbed into a larger administrative office.
FIEs that ignore the regulation to unionize are one of the biggest problems for the Chinese state because these firms tend to have abusive management, the worst working conditions, and the most explosive disputes. Indeed the Taiwanese WFOEs visited were the only firms that reported openly in interviews significant labor problems, including strikes, sabotage, and tense relations with workers.121 Unlike a joint venture that has several former SOE managers join the new company, these independent enterprises have much greater independence to structure labor relations as they see fit. Often this can lead to extremely harsh and militaristic labor systems.122
The mutual contempt and ill will between workers and managers was most obvious in Taiwanese WFOEs. Despite a common language and culture, labor relations in these firms were overtly tense and antagonistic. Managers made no attempts to disguise their loathing of the workforce and the strict measures necessary to produce efficiency and quality. “These workers are all peasants, they don’t know how to behave, they spit, they jaywalk, they have no discipline,” is how one manager described the problems he has encountered since relocating to a mainland factory, while justifying the need for “militaristic” labor discipline.123 A manager in another department of the same factory bitterly complained about the attempts his largely young female workforce made to get time off for child rearing. “One hour of breast-feeding for them is one-hour of loss for me. Anyway, I know that they don’t really need that time. Their kids are back in villages. They just want to rest.”124
Both managers and workers, when interviewed separately, characterized their relations exactly the same way while blaming the other side. Managers complained that because workers only cared about money and not about the future of the company, they could be made to work hard only through material rewards and punishments. Workers complained that because their Taiwanese bosses were “cheap” they were underpaid while forced to work long hours in bad conditions. Both groups noted that their relations were only “money relations” and as such had no “human feeling.”125
In only one case was there a significant, qualitative change in the practices of a Taiwanese WFOE. The change in this firm’s labor practices coincided with its decision to pursue a longer-term investment plan and to win a significant proportion of the domestic market for office equipment.126 In the initial period of its PRC investment, this Taiwanese firm experienced labor conflict when a “gang” of Taiwanese managers was transferred from the firm’s calculator factory in Thailand. Their authoritarian labor management style upset the Chinese workers who had a “strong sense of their human rights.”127 As the firm began to make its transition from export production to domestic market penetration, it hired a Taiwanese industrial relations expert trained in the United States. The firm had also made major investments into staff housing in order to retain workers and had firm plans for localization of management in the short term.128
According to managers, the firm wanted to establish a corporate reputation in the PRC. For this reason the firm made substantial investment into human resource management, provided substantial benefits for skilled workers and managers (such as housing) and opportunities for advancement. Unionization, however, was avoided on the basis that it only increased local governmental interference. Their experience reiterates the opinions found in larger surveys of Taiwanese investors. In a survey of Taiwanese firms in China it was found that “the majority of Taiwanese firms in China are endeavoring to strengthen worker-management relations . . . through improved communication between workers and management (also between superiors and subordinates), and worker-oriented initiatives such as promotions and training programs.”129 When it comes to the question of worker organization, however, most Taiwanese investors reject it entirely and rely instead on direct managerial control of the workforce.130
There is reason to believe that small domestic firms increasingly mimic the strict labor practices of overseas Chinese. As the union (and party) structures weaken in many collective and state firms, despotic labor practices and authority relations spread to these other firms and indeed are often justified by the pressure of competition with foreign and private companies.131 These publicly owned firms are often competing against FIEs for export markets and reform their mode of labor control accordingly. For the Hebei rural collective it meant stripping away older and more experienced workers who might complain about working conditions or the lack of benefits. For the urban collective it meant granting enterprise managers increased autonomy and restructuring the traditional mass organizations out of existence. Organizations that represent workers’ interests in these firms are increasingly marginalized.
The emergence of a new regime of labor practices based on managerial control, insecure employment, and subjugation of workers organization in China came without a political transformation or even with large-scale privatization. In the absence of political transition, China’s trade unions have gone in the same direction as those in the post-socialist world: toward further marginalization and weakness.132 In fact, the weakness of postsocialisst labor may indicate that socialist worker organizations were uniquely unprepared to resistance the onslaught of global capitalism.
Labor practices at the firm level are varied and diverse, reflecting not only sectoral and regional variation but also vastly increased managerial autonomy and decision-making power in setting labor practices. The state’s withdrawal from its previous role as administrator of labor allocation and employment has granted enterprises a great degree of power in setting labor practices. Attempts to balance this withdrawal with greater attention to laws and regulations as a means of regulating managerial power have been mostly unsuccessful. Developmentalist local governments have neither the capacity nor the will to implement constraints on capital. The strengthening of worker organizations as a means to mitigate the unequal relationship between firms and individual workers has also not been achieved. Despite some legislative attention to collective contracts, collective bargaining, and an enhanced role for the trade union, in practice Chinese trade unions are marginalized or co-opted by management. Even in firms where the trade union is well established, its existence is closely tied to management goals.
China’s transition to capitalism in the absence of political change is intimately related to an economic reform program that emphasized trade and investment liberalization with regional decentralization. Convergence with free-market labor practices was part of a dynamic process of external liberalization and internal competition for the investment brought by liberalization. The state’s attempts to mitigate the excesses of capitalism through increased legislation and unionization drives have met with less success. Policies intended to preserve some of the stability and security of socialism are in implementation shifted to favor management and its demands for flexibility and autonomy.