Ames Gross, President of Pacific Bridge, Inc., a recruiting and HR consulting firm specializing in Asia. For more information, please visit www.pacificbridge.com
In the past, unions in China were either weak or virtually non-existent. Over the past decade, however, complaints about unfair labor practices have become increasingly common. This has led to a growing awareness of workers’ rights and the establishment of trade unions.
The state-run All-China Federation of Trade Unions (ACFTU) recently announced its plans to unionize all foreign-invested enterprises in China by 2008. Union leaders are also currently helping to draft a series of laws that would give unions more power.
Despite the efforts of the ACFTU, China’s unions are nowhere as powerful or as strident as their counterparts elsewhere. Nevertheless, it is essential for foreign managers and companies in China to monitor the nature, impact, and significance of unionization in the country.
This article will first examine the rise of unions in China, the role of the ACFTU, and the landmark unionization of global retailer Wal-Mart. It will then evaluate what these and other developments mean for foreign managers and companies operating in China.
Unionization in China Since Reform and Opening Up
In Maoist China, the concept of labor-management relations was alien. Workers were regarded as the vanguard of society, and worked together with cadres to create a socialist system.
Even when China began to open up in the late 1970s and early 1980s, labor relations hardly emerged as an issue. Labor was plentiful, and in the headlong rush for rapid economic expansion, poor treatment of workers and working conditions were seen as inevitable, even unavoidable.
After two decades of sustained development, however, workers have become increasingly aware of their rights and global labor norms. Workers who were laid off from inefficient state-owned enterprises clamored for their rightful compensation. Those working for foreign companies, too, have begun to make their voices heard.
Concerned by the rise in the number of lawsuits between employers and employees in labor arbitration courts, the National People’s Congress launched a campaign in August 2004 to enforce the Trade Union Law.
The Trade Union Law covers foreign and domestic companies, nonprofit organizations, and government agencies. The Law states that unions should be set up in companies where there are at least 25 employees. In companies with fewer than 25 employees, a representative may be elected to work with employees on various labor issues. The Law also makes it clear that unionized companies with 200 to 500 employees are required to have at least one full-time union official, and one additional official for every 500 employees.
Encouraged by the government’s actions, the ACFTU announced that it would “blacklist” and take legal action against any foreign company that refused to allow its employees to unionize. As of last year, 26% of China’s foreign-financed companies had been unionized.
Despite the trend towards greater unionization, independent unions are strictly prohibited. Those who attempt to set up such unions are usually sentenced to extended prison terms.
Furthermore, the right to strike is not provided for under the Chinese Constitution. All labor disputes, arising from contract violations or other issues, must be handled through consultations, mediations, arbitrations, or court proceedings.
The Role of the ACFTU
The ACFTU has strong ties to the government and is the only government-authorized union. Its members consist of provincial and industry federations as well as individual companies. All unions in the country must be affiliated with the ACFTU.
Historically, the primary function of the ACFTU was to transmit social and political values. Over the past two decades, its principal role has been to function as the labor-discipline enforcement arm of the government and the Chinese Communist Party. It also serves to promote political and economic stability so that the country can continue to attract foreign investment.
Hence, the ACFTU is more of a mediator for the government and management, rather than a defender of workers’ rights. It rarely, if ever, intervenes on the side of workers when disputes arise with management. It also hardly ever arbitrates in cases of worker protest and unrest.
Despite the Federation’s success with Wal-Mart (see below), unionists are largely inexperienced. To make up for this lack of experience, some of them have turned to their western counterparts for advice and training, particularly in grassroots organizing and collective bargaining techniques.
Case of Wal-Mart
Wal-Mart may be known in America and elsewhere for its staunch opposition to unions. But in August 2006, the world’s largest retailer announced that it would work with Chinese officials to establish unions in all its Chinese outlets. The announcement came shortly after Wal-Mart employees established their first union in China. Within a month of the announcement, 22 unions were set up all over the country.
Wal-Mart’s decision came as a surprise to many. The company had earlier said that it would not do anything to stop unions from being set up in its Chinese stores. But it had never suggested that it would actively participate in backing unionization efforts.
Wal-Mart has about 60 retail outlets and over 30,000 employees in China. It sees China as a potentially huge market and is keen to expand rapidly in the country. China is also the primary sourcing base for the millions of goods the retailer sells around the world.
Explaining the company’s move, a Wal-Mart official noted that unions in China are “fundamentally different” from their Western counterparts. The official also added that the ACFTU had made it clear that the Federation’s goal was to work with employers, and “not to promote confrontation.”
Wal-Mart’s decision to allow unions came after years of pressure from, and grassroots organizing on the part of the ACFTU. Wal-Mart was initially hostile towards the Federation and repeatedly denied meetings with its officials. Hence, the ACFTU resorted to grassroots techniques behind the backs of management. When Wal-Mart discovered that unions had been set up, it initially threatened not to renew the contracts of its employees. But it later relented and signed a memorandum with the ACFTU.
Under the Memorandum, a local union can enter Wal-Mart stores to propagate Chinese labor laws, hold multi-candidate elections for union chiefs and other executive committee members, and represent workers in collective bargaining.
But despite the inclusion of collective bargaining in the Memorandum, many are doubtful if any of the Wal-Mart unions can do so effectively. Much, of course, will depend on the strength of individual union and local officials. But evidence so far has shown that local officials are generally more interested in attracting foreign investment than in causing confrontation. And without the active cooperation of local officials, there is only so much that unionists can achieve.
Even labor activists are unconvinced that a unionized Wal-Mart will lead to significant changes in China’s labor climate. As these activists point out, the roles of unions in China are mainly to encourage workers to be more active in their work, distribute the workers’ welfare fund, and organize social and recreational activities.
The various attempts by ACFTU to speed up unionization should be seen in the light of China’s declining union membership. The closures and mergers of state-owned enterprises (SOEs) have drastically reduced the Federation’s membership base. Hence, the ACFTU has turned to foreign companies to enlarge its base. Moreover, apart from the need to address the disparity between unionization among the public and private sectors, unionization efforts by the ACFTU were also aimed at easing its financial challenges.
In addition, the ACFTU was also keen to eradicate the notion in the West that China had become a giant sweatshop and address the perception that it was not representative of workers’ interests. Besides genuine fears of even greater labor unrest, the ACFTU also hoped to prevent interference from international labor organizations.
With the success of unionization in Wal-Mart, the ACFTU also hoped that other foreign firms in China would fall in line.
It is often mistakenly believed that there is no collective bargaining in China. Such bargaining does occur in large joint ventures and the larger Chinese state-owned enterprises. But the bargaining process is not as sophisticated, legalistic or adversarial as in the United States or other western countries.
Recently, media coverage has focused on how foreign companies have resisted efforts to set up unions in the workplace. Evidence shows that the ACFTU has identified mainly U.S- and Korean-based companies as being noncompliant with minimum legal labor requirements.
Chinese authorities might also resort to unionization as a disciplinary tool against foreign companies that are seen publicly as being unfair to their workers. For instance, a Taiwanese-owned electronics company, Foxconn, received orders to set up unions last year in the Chinese city of Shenzhen. The company, which produces iPods, had earlier been exposed by the media for forcing its employees to stand throughout the 12-hour shifts.
To Unionize or Not to Unionize – Is There a Choice?
ACFTU is determined to set up more unions within foreign firms in China. And even giants like Wal-Mart have succumbed to such efforts. So would the failure to unionize indicate a violation of China’s labor regulations?
Due to China’s arbitrary Trade Union Law, the answer is not as clear-cut as many would like it to be. A foreign company would of course be violating Chinese laws if it disallows its employees from forming unions. But beyond that, it is unclear whether all companies with 25 or more employees must have a union, or if a union should be established only upon request.
As for employees wanting to set up unions, evidence so far has suggested that workers are unlikely to be at the forefront of such efforts. Generally speaking, many Chinese workers perceive a job with a foreign company as prestigious and hard to come by. Hence, they might not want to jeopardize their career prospects and personal well being by taking the lead to set up a union.
If there is any lesson that foreign firms in China can learn from Wal-Mart’s unionization experience, it is the fact that resisting unionization efforts is usually counterproductive. If approached by the authorities or employees, it would be best if foreign companies allow their unions to be established. For a start, goodwill can be generated, as the company will be seen as protecting the rights of its employees. Furthermore, it is important to bear in mind that the vast majority of unions in China cooperate with and are supportive of management. Therefore even with unionization, there is usually little union interference into company operations.
In addition, further goodwill can be generated if the foreign firm gives the impression of being eager and enthusiastic to work with Chinese officials in contributing to the country’s social stability. After all, the directive for greater unionization came from no less than Chinese President Hu Jintao. Mr. Hu has made “building a harmonious society” a cornerstone of his administration. And having harmonious labor-management relations is undoubtedly one important component of the harmonious society that he envisages.
But of course it is hard to predict how these relatively powerless unions will transform in the next 10 to 20 years. More time is certainly needed before Chinese workers emerge as a force to be reckoned with. But clearly, China is eager to put global norms in place in several aspects of its economy and society, and these unquestionably include unionization. Indeed, many Chinese see unionization as an indispensable component and irreversible trend in the country’s movement towards greater globalization.
Unlike their western counterparts, Chinese unions still have some way to go before they can acquire greater clout and influence. Even though more unions are being set up, the practice of collective bargaining is still a concept that many are still learning to grapple with. But clearly, in the years to come, leading the way in collective bargaining will surely be unions from the private sector.
As China further progresses, it is likely that Chinese unions and their operations will attain greater sophistication and develop norms that are in line with their global counterparts. But for now and the foreseeable future, these unions are likely to work amicably with management, and will be closely aligned with the fundamental goals of the Chinese government.
For more information, please visit www.pacificbridge.com.