Changing Workplace Relations in the Chinese Economy

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Changing Workplace Relations in the Chinese Economy Edited by

Malcolm Warner

Studies on the Chinese Economy General Editors: Peter Nolan, Sinyi Professor of Chinese Management, Judge Institute of Management Studies, University of Cambridge, and Fellow of Jesus College, Cambridge, England; and Dong Fureng, Professor, Chinese Academy of Social Sciences, Beijing, China This series analyses issues in China’s current economic development, and sheds light upon that process by examining China’s economic history. It contains a wide range of books on the Chinese economy past and present, and includes not only studies written by leading Western authorities, but also translations of the most important works on the Chinese economy produced within China. It intends to make a major contribution towards understanding this immensely important part of the world economy. Titles include: Thomas Chan, Noel Tracy and Zhu Wenhui CHINA’S EXPORT MIRACLE Sarah Cook, Shujie Yao and Juzhong Zhuang (editors) THE CHINESE ECONOMY UNDER TRANSITION Xu Dixin and Wu Chengming (editors) CHINESE CAPITALISM, 1522–1840 Christopher Findlay and Andrew Watson (editors) FOOD SECURITY AND ECONOMIC REFORM Samuel P. S. Ho and Y. Y. Kueh SUSTAINABLE ECONOMIC DEVELOPMENT IN SOUTH CHINA Kali P. Kalirajan and Yanrui Wu (editors) PRODUCTIVITY AND GROWTH IN CHINESE AGRICULTURE Bozhong Li AGRICULTURAL DEVELOPMENT IN JIANGNAN, 1620–1850 Alfred H. Y. Lin THE RURAL ECONOMY OF GUANGDONG, 1870–1937 Dic Lo MARKET AND INSTITUTIONAL REGULATION IN CHINESE INDUSTRIALIZATION Jun Ma THE CHINESE ECONOMY IN THE 1990S Guo Rongxing HOW THE CHINESE ECONOMY WORKS Sally Sargeson REWORKING CHINA’S PROLETARIAT

Ng Sek Hong and Malcolm Warner CHINA’S TRADE UNIONS AND MANAGEMENT Michael Twohey AUTHORITY AND WELFARE IN CHINA Malcolm Warner (editor) CHANGING WORKPLACE RELATIONS IN THE CHINESE ECONOMY Wang Xiao-qiang CHINA’S PRICE AND ENTERPRISE REFORM Xiaoping Xu CHINA’S FINANCIAL SYSTEM UNDER TRANSITION Yanni Yan INTERNATIONAL JOINT VENTURES IN CHINA Wei-Wei Zhang TRANSFORMING CHINA Xiao-guang Zhang CHINA’S TRADE PATTERNS AND INTERNATIONAL COMPARATIVE ADVANTAGE

Studies on the Chinese Economy Series Standing Order ISBN 0–333–71502–0 (outside North America only) You can receive future titles in this series as they are published by placing a standing order. Please contact your bookseller or, in case of difficulty, write to us at the address below with your name and address, the title of the series and the ISBN quoted above. Customer Services Department, Macmillan Distribution Ltd, Houndmills, Basingstoke, Hampshire RG21 6XS, England

Changing Workplace Relations in the Chinese Economy Edited by

Malcolm Warner Fellow of Wolfson College, Cambridge

First published in Great Britain 2000 by

MACMILLAN PRESS LTD Houndmills, Basingstoke, Hampshire RG21 6XS and London Companies and representatives throughout the world A catalogue record for this book is available from the British Library. ISBN 0–333–75342–9 First published in the United States of America 2000 by ST. MARTIN’S PRESS, LLC, Scholarly and Reference Division, 175 Fifth Avenue, New York, N.Y. 10010 ISBN 0–312–23264–0 Library of Congress Cataloging-in-Publication Data Changing workplace relations in the Chinese economy / edited by Malcolm Warner. p. cm. A collection of 14 papers contributed by an international group of scholars. Includes bibliographical references and index. ISBN 0–312–23264–0 (cloth) 1. Industrial relations—China. I. Warner, Malcolm. HD8736.5 .C378 331'.0951—dc21

2000 99–089964

Selection, editorial matter and Introduction © Malcolm Warner 2000 Chapter 2 © Malcolm Warner and Ying Zhu 2000 Chapter 6 © Malcolm Warner and Sek Hong Ng 2000 Chapters 3–5, 7–14 © Macmillan Press Ltd 2000 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London W1P 0LP. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act 1988. This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. 10 09

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Printed and bound in Great Britain by Antony Rowe Ltd, Chippenham, Wiltshire

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Contents List of Tables

vii

List of Figures

ix

Preface

x

Acknowledgements

xi

List of Abbreviations

xii

Notes on the Contributors PART I

xiii

SETTING THE SCENE

1 Introduction: Whither the Iron Rice-Bowl? Malcolm Warner 2 The Origins of Chinese ‘Industrial Relations’ Malcolm Warner and Ying Zhu 3 Chinese Trade Unions and Workplace Relations in State-owned and Joint-venture Enterprises Anita Chan 4 The Social Role of the Chinese State Enterprise Athar Hussain PART II

3 15

34 57

EMPIRICAL STUDIES

5 In Pursuit of Flexibility: The Transformation of Labour–Management Relations in Chinese Enterprises John Benson, Philippe Debroux and Masae Yuasa 6 Industrial Relations versus Human Resource Management in the PRC: Collective Bargaining ‘with Chinese Characteristics’ Sek Hong Ng and Malcolm Warner 7 Local or Global? Human Resource Management in International Joint Ventures in China Ingmar Björkman and Yuan Lu

v

77

100

117

vi Contents

8 Occupying the Managerial Workplace in Sino–foreign Joint Ventures: A Strategy for Control and Development John Child

139

9 Standardized Performance Management: A Study in JVs in China Niklas Lindholm

163

10 Work-Related Attitudes among Chinese Employees vis-à-vis ‘American’ and ‘Japanese’ Management Models Nailin Bu and Ji-Liang Xu 11 Pay and Motivation in Chinese Enterprises Brenda Sun PART III

185 205

EMERGING TRENDS

12 Readjusting Labour: Enterprise Restructuring, Social Consequences and Policy Responses in Urban China Sarah Cook

227

13 From Client to Challenger: Workers, Managers and the State in Post-Dengist China Jackie Sheehan

247

14 China’s Developing Civil Society: Interest Groups, Trade Unions and Associational Pluralism Suzanne Ogden

263

Index

299

List of Tables 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 7.1 8.1 8.2 8.3

8.4 8.5 8.6 8.7 8.8

9.1 9.2 9.3 9.4 10.1 11.1 11.2

Company proﬁle (manufacturing) Company proﬁle (banking) Work organization (manufacturing) Work organization (banking) Employment relations (manufacturing) Employment relations (banking) Industrial relations practices (manufacturing) Industrial relations practices (banking) A comparison of HRM practices in Western MNCs, local Chinese ﬁrms and international JVs Chinese and foreign tenure of key appointments Chinese and foreign nominations to key managerial appointments Correlations between (1) equity share and relative provision of non-equity resourcing and (2) occupancy of key appointments Correlations between length of JV operation and appointments to key positions Chinese and foreign tenure of key appointments by sector Chinese and foreign tenure of key appointments by status of foreign parent company Regression (least squares) of key executive appointments on predictor variables Pearson correlations between the holding of appointments by foreign managers and differences in foreign and Chinese control within speciﬁc areas Characteristics of subsidiary managers and subordinates Categorization of subsidiary managers’ PM style Chinese subordinates’ perceptions of PM style 1 and 2 Chinese subordinates’ job experience Chinese employees in comparison with American and Japanese employees Summary of statistics of basic data (Plant 1) Summary of statistics of basic data (Plant 2)

vii

81 81 83 83 86 87 92 92 124 147 149

151 153 154 155 156

157 171 176 177 181 192 214 214

viii List of Tables

11.3 11.4 12.1 12.2 12.3 12.4

Deﬁnition of what is ‘fair’ in pay and labour issues among the Chinese workers Estimates of regression equations Number of enterprise and SOE lay-offs, 1995–7 Number of laid-off workers registered in RSCs Households experiencing a decline on previous year’s income per capita by income quintile Unemployment and lay-offs in Chengdu and Shenyang, 1998

219 220 231 239 241 244

List of Figures 7.1 7.2

Resemblance of international JV HRM practices to MNC standard practices versus local ones Contextual factors that inﬂuenced an international JV’s resemblance to an MNC’s standard HRM practices versus local ones

ix

123

133

Preface This edited book attempts to come to terms with the many post-1978 reforms affecting the Chinese economy and workplace. Much has changed since the heady days of the Liberation in 1949. Indeed, in October 1999, the PRC celebrated its ﬁftieth anniversary. We have tried, in this volume, to bring together a set of informed and thoughtful contributions to the ﬁeld which portray the way the work-unit (danwei) has evolved since Deng’s reforms were introduced. We see how, whether at macro- or micro-economic level, enterprises and the workplace have been transformed. Technological transfer has taken place; management has been modernized; foreign capital has taken root. In human terms, this has had both positive and negative consequences. Living standards have risen considerably; labour mobility has increased; job choice has increased. None the less, job security has been weakened and the mini-welfare state of the danwei increasingly undermined. We thus look beyond the ‘iron rice-bowl’ (tie fan wan) that characterized the workplace for so many years, to see what is now beginning to replace and supersede it. The end of the last decade of the millennium saw the Chinese economy in the doldrums, unemployment rising and income inequality widening. The Asian economic crisis has not, however, hit China directly but its indirect effects are now being felt. As China faces the challenges of the new age of international competitiveness, it will have to see how far its reforms need deepening. It will have to balance the costs and beneﬁts of modernization and create new institutional bulwarks, not only at the macro- but also at the micro-level, against the excesses of economic neo-liberalism, as it perceives them, yet avoid retreating into its recent past. Cambridge

Malcolm Warner

x

Acknowledgements Who could be more important than the contributors to this volume? They cover a wide range of passports (American, Australian, British, Belgian, Canadian, Chinese, Finnish, Hong Kong Chinese, Japanese and so on) and are all specialists, in respectively, Chinese economics, human resource management, industrial relations, management studies, political science, sociology and the like, each based in a wide range of disciplines and in diverse university departments, faculties or business schools. I must give them pride of place in showing my appreciation for their zealous application, their learned endeavours and for their research experience. I should also like to thank the President, Dr Gordon Johnson, and Fellows of Wolfson College and the Director, Professor Sandra Dawson, Faculty and staff of the Judge Institute of Management Studies, University of Cambridge, for their institutional support. Professor John Child and Dr Sek Hong Ng have provided both helpful advice and encouragement in the development of this edited volume. Additionally, Ms Elizabeth Briggs was most generous with her time and administrative assistance. Professor Peter Nolan (the series editor) has been as enthusiastic and helpful as ever. Mr T. M. Farmiloe and the editorial staff at the publishers have also brought their considerable publishing experience and skills to this endeavour, together with their usual professionalism. Mr Keith Povey’s editorial skills have been invaluable, as ever. Last but not least, many thanks to my family for their inﬁnite patience.

xi

List of Abbreviations ACFTU CAEFI CCP CEO COEs DGM DPEs FDRS FFE FIEs FMCG FOCs GM HCN HR HRM IJV ILO JSC JV JVC MCA MLSL MNC MOFTEC MoLSS PCN PM PRC RSC SEZ SOE SSB SWRC TCN TVE WHO

All China Federation of Trade Unions China Association for Enterprises with Foreign Investment Chinese Communist Party chief executive ofﬁcer collective-owned enterprises deputy general manager domestic private enterprises factory director responsibility system foreign funded enterprise foreign-invested enterprise fast-moving consumer goods foreign-owned companies general manager home country national human resource human resource management international joint venture International Labour Ofﬁce joint stock company joint venture joint venture company Ministry of Civil Affairs minimum livelihood security line multinational corporation Ministry of Foreign Trade and Economic Co-operation Ministry of Labour and Social Security parent country national performance management People’s Republic of China re-employment service centre special enterprise zone state-owned enterprise State Statistical Bureau Staff and Workers’ Representative Congress third country national town and village enterprise wholly-owned subsidiary xii

Notes on the Contributors

John Benson is Reader in Industrial Relations in the Department of Management, University of Melbourne, Melbourne, Australia. Ingmar Björkman has been Visiting Professor in Management at the Euro-Asia Centre, INSEAD, Fontainebleau, France, and is a Professor at the School of Economics and Business Administration, Helsinki, Finland. Nailin Bu is Assistant Professor of Management of International Business, School of Business, Queen’s University, Kingston, Ontario, Canada. Anita Chan is a co-editor of The China Journal and an Autralian Research Council Senior Research Fellow in the China and Korea Centre at the Australian National University, Canberra, Australia. John Child is Co-Director of the Chinese Management Centre, School of Business, University of Hong Kong, on secondment, as well as Diageo Professor of Management Studies, Judge Institute of Management Studies, University of Cambridge, Cambridge, UK. Sarah Cook is a Research Fellow of the Institute of Development Studies, University of Sussex, Brighton, UK. Philippe Debroux is Professor of International and Comparative Management in the Faculty of International Studies at Hiroshima City University, Hiroshima, Japan. Athar Hussain is Senior Research Fellow and Deputy-Director of the Asia Research Centre, London School of Economics, London, UK. Niklas Lindholm, is a Consultant in Human Resource Process Development, Nokia Telecommunications, and has been a Research Associate at the Swedish School of Economics and Business Administration, Helsinki, Finland. xiii

xiv Notes on the Conributors

Yuan Lu is Associate Professor of Management in the Business School at the Chinese University of Hong Kong, Kowloon, Hong Kong. Sek Hong Ng is Reader in Management Studies, School of Business, University of Hong Kong, Hong Kong. Suzanne Ogden is a Professor in the Department of Political Science at NorthEastern University, Boston, Massachusetts, USA. Jackie Sheehan is a Lecturer in the Department of History, University of Nottingham, UK. Brenda Sun has been carrying out doctoral research at the Department of Industrial Relations, London School of Economics, London, UK, and in the Department of Labour Relations and Human Resources at the People’s University, Beijing, PRC. Malcolm Warner is Professor and Fellow, Wolfson College, Cambridge, and a member of faculty at the Judge Institute of Management Studies, University of Cambridge, Cambridge, UK. Ji-Liang Xu is Professor Emeritus, Institute of Human Resource Management, School of Management, Shanghai Jiao Tong University, Shanghai, PRC. Masae Yuasa is an Associate Professor in the Faculty of International Studies, Hiroshima City University, Hiroshima, Japan. Ying Zhu is Senior Lecturer in the Department of Asian and International Studies, Victoria University of Technology, Melbourne, Australia.

Part I Setting the Scene

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1 Introduction: Whither the Iron Rice-Bowl? Malcolm Warner

1

Background

This edited collection mainly deals with the fate of the ‘iron rice-bowl’ (tie fan wan) which has characterized work units (danwei) in the People’s Republic of China (PRC) for almost the last 50 years. The term summed up the institutionalized beneﬁts that Chinese urban workers were said to enjoy, such as guaranteed job security and comprehensive welfare (Lu and Perry, 1997). China’s factories were as close to ‘total institutions’ as could be found. They fed, housed, hospitalized and generally cosseted the ‘vanguard’ of the working class. It was part of the wider ‘social contract’ made by Chinese leaders with the Chinese working class after 1949, which promised full employment and social protection (Korzec, 1992). It had stemmed from the industrialization of the 1950s, when China had copied the Soviet industrial model. ‘Let’s be Soviet and Modern’ was the rallying cry of the day. However, since the economic reforms introduced by Deng Xiaoping in 1978, the subsequent enterprise reforms over the last two decades and the move towards a more market-led economy generally, its role has been increasingly undermined. It provided until recently ‘life-time employment’ and ‘cradle to the grave’ welfare coverage for many Chinese urban industrial workers, principally those in state-owned enterprises (SOEs) although these now only constitute a minority of urban working people, let alone of the total labour force, including agriculture (see Ng and Warner, 1998). The danwei not only provided a living for its workers in terms of what were proclaimed fair wages and good working conditions but also 3

4 Introduction: Whither the Iron Rice-Bowl?

housing and welfare facilities such as crèches, nurseries, schools, clinics and so on. ‘Who’ you were was deﬁned by ‘where’ you worked in China. In its time, it provided an anchor-point for everyday life in China’s cities for well over a hundred million workers. Its origins lay partly in the pre-Liberation period and partly in the 1950s (see Lu and Perry, 1997). It is said to have been, as noted, copied from the Soviet model, with adaptations and modiﬁcations (Kaple, 1994). There were precedents in the Chinese Communist Party (CCP) occupied area industries during the wartime period; it may even have had roots in the ‘golden rice-bowl’ (jin fan wan) system found in Japanese state enterprises in Manchuria (see Warner, 1995). By the mid-1950s, its present characteristics were embodied in a system of what has been called ‘institutionalized dependency’ (Walder, 1986). It was very slow to change and by the early 1990s, many SOEs were still identiﬁable as danwei in this conservative mould in many ways. The ‘three systems’ reforms (san gaige) in 1992 was an important catalyst for innovation, as later chapters point out. It set out comprehensive changes in employment status, rewards systems and social security (see Warner, 1995). A new Labour Law was passed in 1994 which has placed Chinese industrial relations on a more systematic footing (see Warner, 1996). The danwei was the focus of Chinese working life. It provided not only an economic and industrial structural form but also a political and psychological one. A worker’s or manager’s identity was for instance heavily embedded in his or her work-unit, whether a factory, a hospital, a government agency and so on. It evoked a ‘mind-set’ linked to a command economy, apparently immune from market pressures and fully buttressed by a set of supportive Party-led bodies such as the ofﬁcial trade unions, women’s and youth organizations. The degree of egalitarianism in the rewards structure has varied over the period since 1949 (see Takahara, 1994), the various phases of wage policy having been initially signiﬁcantly inﬂuenced by the Soviet eight-grade system in the 1950s. The Cultural Revolution saw a swing towards being ‘red’ rather than ‘expert’ but the pendulum swung back in the late 1970s and the early 1980s. Workers pay was to be linked to individual and/or group performance; a greater percentage of wages now consisted of bonus payments (see Chapter 11 below). The reforms of the late 1980s and the 1990s were to upset this institutional ‘apple-cart’ and set in motion a process of change that even now is still creating a new organizational status quo. Many SOEs had been inefﬁciently run in the command economy that formerly charac-

Malcolm Warner 5

terized Chinese industry. Goods were made to achieve physical quotas rather than to market demand. Factor-allocation was poor; reforms were introduced to decentralize many management functions. The enterprise and management reforms of the period thus gave directors and managers at the ﬁrm-level greater autonomy in decision-making. Enterprises were to be held accountable for proﬁts and losses (see Chapter 4 below). A number of larger SOEs have since become ‘corporatized’, as the term ‘privatized’ is avoided in China; many smaller ones have been merged or closed down. Some better known names in the state-sector have been ﬂoated on overseas stock markets and are known as ‘red chips’. Big Business ‘with Chinese characteristics’ is now de rigueur. Whereas the lion’s share of industrial production in China, over twothirds, was produced by the SOEs in 1978, it is now down to around one quarter. The SOEs and collectives employed over 150 million workers by the 1990s. Their share of industrial employment has however shrunk correspondingly, with the rise of non-state sector employers, such as joint ventures (JVs), privately owned ﬁrms and town and village enterprises (TVEs). The latter employed an astonishingly high number of employees, over 130 million, by the late 1990s. Although those working in urban collectives enjoyed somewhat fewer privileges than those in SOEs, those in the non-state sector had few of them at all. The cash-nexus became more important the more the ﬁrms were exposed to market forces. In many larger multinational JVs pay and conditions were relatively good (see Warner, Goodall and Ding 1999a) but in the smaller, overseas Chinese JV or fully-funded enterprises, workers were often markedly less well-off (see Chan, 1995, as well as Chapter 3 below). The implications of such changes for those employed in what was previously the typical danwei have been often dramatic, or at least signiﬁcant. Job security has been weakened and welfare diluted, as the various phases of the reforms have unfolded over the 1980s and 1990s. The rather privileged existence of the SOE workers as ‘masters’ (zhuren) has been transformed in many ways. Most now have ﬁxed-term employment contracts, and nearly all work to performance-based reward schemes; across the board, company-based social insurance has become contributory. Managers, too, have seen their roles and conditions become more subject to market forces. Some have responded favourably to the economic and enterprise reforms, particularly the young and better educated (see Chapter 10 below).

6 Introduction: Whither the Iron Rice-Bowl?

2

Going beyond the iron rice-bowl

This edited work consists of 14 chapters. It is designed to cover many aspects of enterprise, managerial and worker behaviour in the new Chinese economy and how they have changed from the old model associated with the ‘classic’ danwei that originated in the 1950s to the present market-driven one of the late 1990s. It has an international set of contributors (American, Australian, British, Belgian, Canadian, Chinese, Finnish, Hong Kong Chinese, Japanese and so on) who are known as specialists in Chinese economics, human resource management, industrial relations, management studies, political science, sociology and the like, based in this wide range of disciplines and in diverse university departments or business schools. They were asked by the editor to write about different dimensions of danwei behaviour and how these have been affected by the economic and management reforms of the last decade. An attempt has been made to link these chapters together as far as possible, and to bring out common themes from the topics discussed therein. Most of the chapters are based on recent empirical ﬁeld research that the authors have undertaken onsite in the PRC. Some of the contributors are old ‘China hands’ in research terms; some are newer ones. The book is divided into three parts. In Part I, we look at the status quo in the Chinese danwei and how it came about. The chapters here take a ‘broad-brush’ look at the development of the labour management and industrial relations system, worker representation, the role of the SOEs and so on. In this ﬁrst chapter, the editor introduces the main theme of the book. In Chapter 2, Malcolm Warner and Ying Zhu attempt to set out the origins of Chinese industrial relations from their early days to the present time. They examine the way in which concepts, terms and practices of labour management have changed since the late nineteenth century onwards, on through the inter-war years and most importantly since 1949. The signiﬁcant changes of the 1950s are set out, then the impact of the Cultural Revolution, followed by a fundamental shift towards a market-driven set of institutions after the post1978 reforms. The changing role of the trade unions is described. The subsequent reforms of the labour market are set out, and how the three ‘old’ irons have been replaced by the three ‘new’ ones. The authors conclude that the Chinese model of industrial relations may ultimately move closer to the Asian collaborative one than to the Western adversarial template.

Malcolm Warner 7

Next, in Chapter 3, Anita Chan examines the role of trade unions in China. Setting out their rationale as state-promoted Leninist ‘transmission-belts’, she clearly describes their lack of institutional independence and the absence of bargaining rights on Western lines. She critically examines the emerging relationship between government, unions and workers in the new market socialism, comparing both state and foreign-funded sectors. In particular, she looks at the conditions in JV ﬁrms where workers do not have the protection of the ‘iron rice-bowl’, once endemic in the SOEs and where, if they have union representation at all, this is very weak and dominated by management. She sees the trade unions represented by the All-China Federation of Trade Unions (ACFTU), basically top-down organizations, as ‘ineffectual’ weak bureaucracies, looking after ‘sectoral interests’. In her analysis of industrial relations in the foreign-funded sector, she goes on to discuss how a ‘capitalist logic’ is taking root, leading to greater industrial conﬂict in the workplace. The Chinese political elite, she notes, has a dilemma: should it side with labour or management/ capital? Can it allow the workers greater rights? Her questions are also echoed and discussed further in Chapters 13 and 14 below. In Chapter 4, Athar Hussain takes a bird’s eye view of the SOEs. He traces the waxing and waning of these enterprises from the ‘core’ of the Chinese economy to a less central role. Some added greatly to China’ industrial output; others limped along. Once they employed almost four in ﬁve urban workers. Since almost half of these ﬁrms are allegedly ‘in the red’, can the state continue to subsidize their activities and in effect continue to subsidize the ‘iron rice-bowl’? The costs entailed by the social activities of ﬁrms are, he argues, not only high and unevenly distributed, but they are also opaque to both the management and to employees. This is so for the enterprise managers because the personnel and resources employed in running social welfare are often not adequately costed separately from those employed in the principal line of business. As a result, the true costs of social welfare are, he concludes, often underestimated. Hussain argues that the economic reforms have eroded the viability and rationale of the SOEs. They are now being reformed but it will take time. Chapter 12 addresses itself to some of the proposed solutions the Chinese government has started to implement vis-à-vis the social consequences of the enterprise reforms. In Part II, we move on to highly detailed empirical studies of industrial relations and human resource management (HRM) in the Chinese workplace. We have particularly concentrated on enterprise level

8 Introduction: Whither the Iron Rice-Bowl?

ﬁeld-studies, carried out by Western social scientists, conducting onsite empirical research in the PRC. In Chapter 5, John Benson and colleagues present their ﬁndings on employment ﬂexibility in selected Shanghai ﬁrms. It is difﬁcult, they argue, to predict the form of labour management that will emerge from the reform process in China. Nevertheless, it is possible to make some predictions by considering three issues. First, they ask to what degree labour ﬂexibility been achieved, and how has this impacted on work organization? Second, to what extent has the ‘Western’ HRM paradigm been taken up? Third, what has been the role of workers’ organizations in the reform process? These issues are explored in nine manufacturing ﬁrms and ﬁve banks in the Shanghai region of China. This major city is at the forefront of micro-economic reform and so whilst the ﬁndings may not be not representative of all Chinese ﬁrms, the research will clarify the extent and direction of change in modern China. It is not clear, they ﬁnally conclude, whether trade unions in contemporary China can evolve into representative institutions which initiate and attempt to deﬁne corporate governance issues. If trade unions are to continue to be closely inter-related to the Party, then ﬁrms will continue to develop short-term and ad hoc policies. Flexibility will then be sought as a negative and containment strategy. If workers, however, can effectively voice their real interests to management through trade unions, they continue, it will greatly enhance the course of reform by deﬁning company objectives based on management and employee consensus. In this scenario a more ‘empowering ﬂexibility’ for workers may be the outcome. After this Ng and Warner in their contribution to this volume, suggest that collective bargaining ‘with Chinese characteristics’ has become an expanding and novel phenomenon in industrial relations in the PRC. They refer to both the legal-bureaucratic and the enterprise-level contexts of this development. The expansion of both individual, as well as collective contracts is examined, beginning with the Temporary Regulations of 1986 and carrying through to the Labour Law of 1994. The chapter also refers to empirical research on the prevalence of both kinds of contracts in Chinese enterprises. Individual labour contracts are now widespread in almost all Chinese workplaces. It is clear from their observations that the incidence of collective contracts is more common in SOEs than in JVs. In turn, the authors ask a number of wider questions relating to how far collective bargaining, Chinese-style, can be compared with its equivalents in the West and Japan. The authors’ view is that there is a ‘family resemblance’ between

Malcolm Warner 9

the two genres but it will take some time before Western-style collective bargaining is truly implemented in the PRC. In Chapter 7, Björkman and Lu look at HRM practices in Chinese ﬁrms. The objective of the research reported in this chapter was to examine the degree to which Chinese-Western JVs have adopted (1) the multinational corporation’s home-country HRM practices and (2) the HRM practices of local Chinese ﬁrms. The focus of the contribution is mainly on HRM practices for local managers and professionals rather than for rank-and-ﬁle employees. The chapter builds on the relatively small but growing literature on HRM in Chinese-foreign JVs. Additionally, it attempts to identify factors that shape HRM practices and is based on interviews conducted in 65 Chinese-Western JVs. The authors believe that the on-going interaction that takes place among managers in China is likely to contribute to the development and diffusion of a ‘hybrid’ HRM model across foreign investment enterprises in China. None the less, they conclude, some variance across companies is likely to persist and one of the challenges for researchers will be to discern determinants of corporate practices; another will be to attempt to understand the relationship between company performance and HRM practices better. In Chapter 8, John Child deals with the issue of who occupies the managerial workplace in foreign-invested China ﬁrms, both in terms of the right to appoint and the actual occupancy of key managerial positions. In JVs, he asks, is this the foreign parent company or the local partner? This issue is the focus of his contribution, which reports on an extensive empirical sample of 67 Sino–foreign JVs. More speciﬁcally, the chapter investigates the distribution of key appointments in key JV positions, factors predicting this distribution, and its impact on the control of the ventures. The extent to which these appointments were channels for importing resources and expertise conducive to the development of the ventures is also examined. Next, in Chapter 9, Niklas Lindholm deals with how subsidiary managers implement performance management (PM), especially in a country such as China, where the subsidiary personnel are primarily of host-country nationality with limited exposure to Western management techniques, and where the culture may be substantially different from that of the multinational corporation’s home- country. In addition, he examines the subsidiary managers’ subordinates and their perceptions of their manager’s style of implementing PM. Although little is known about the perceptions of non-managerial employees concerning this style of management in multinational corporations’

10 Introduction: Whither the Iron Rice-Bowl?

subsidiaries, it has been shown in other settings that subordinates’ perceptions of PM are crucial to the effectiveness and success of the process. Therefore, the ﬁrst objective of the chapter is to describe how subsidiary managers implement standardized PM for their Chinese subordinates. The second objective of the chapter is to analyse how subsidiary managers’ subordinates perceive the implementation of PM. In Chapter 10, Bu and Xu look at work-related employee attitudes in the PRC compared with those in America and Japan in what they describe as similar periods of economic expansion. They argue (using empirical evidence) that Chinese workers, although apprehensive about losing their company-provided beneﬁts were not particularly protective of their job security. Those in their Chinese sample were more receptive to managerial authority on operational matters than on personnel ones. But their ﬁndings suggest that the organizational commitment of Chinese workers was much lower than that of their Japanese counterparts, and, even lower than that of American employees. They conclude that Japanese-style management might not work as well in the PRC context as it did in the American. In Chapter 11, Brenda Sun analyses how reward systems in Chinese industry are evolving. The chapter examines the effect of a ‘payfor-labour’ (anlao fenpei) scheme versus that of an egalitarian payments system on motivation in two Chinese enterprises during July– September 1997. The estimates show that the perceived likelihood of additional pay as a form of reward for extra effort has positive effects on the work motivation of the sampled Chinese workers. Moreover, ‘fairness’ in pay-related issues is found to have a positive impact on work motivation. These results suggest that pay-for-labour schemes introduced in Chinese organizations as a centrepiece of the 1992 ‘three-systems reform’ (sanxiang zhidu gaige) in wage, labour and personnel have achieved a certain level of success, despite the fact that they came in multiple shapes and forms. Part III looks at on-going trends in the Chinese workplace. The contributions here are more broad-brush and discursive in scope. They touch on the political and social implications of the economic and management changes that have re-shaped the Chinese workplace. In Chapter 12, Sarah Cook reviews the policies which the Chinese authorities have recently formulated and are starting to implement in response to the social consequences of enterprise bankruptcies and restructuring, growing numbers of unemployed and laid-off workers, and the emergence of urban poverty. Her main objective is to review recent policy initiatives, to assess their progress to date, and to raise

Malcolm Warner 11

potential challenges. The contribution is largely centred on interviews undertaken in Beijing, Sichuan and Liaoning in 1998 and ﬁeldwork in several cities in early 1999, supplemented by a range of additional primary and secondary data. She ﬁrst deals with the context of restructuring and its consequences for labour, then examines the new systems of social protection and assistance involving central and local governments, enterprises and ‘society’. The creation of alternative social security mechanisms will involve changing forms of legitimacy of the workers’ state, renegotiation of the responsibilities of the state and of the expectations and entitlements of key social groups, and reconstitution of the mechanisms through which these responsibilities and entitlements are deﬁned and enforced. In Chapter 13, Jackie Sheehan speculates on how worker representation is China will evolve in the light of the challenges to the present industrial and political status quo. She looks speciﬁcally at the fate of workers in SOEs and the rising incidence of industrial protest in urban China, as the restructuring of failing enterprises in this sector is proceeding. Previously ‘organized dependency’ had kept such workers politically docile but now the reforms have begun to ‘bite’ and undermine the long-established ‘iron rice-bowl’ welfare privileges of such groups, and consequently workers have begun to protest in many cities. They are now, according to the chapter’s author, aspiring to seek their rights as workers and set up ‘independent’ trade unions. Taking issue with the view presented in Chapter 10, Sheehan argues that the lack of job security has become the ‘number one’ issue here. There is trouble ahead, according to her analysis, as the economic reforms deepen and ‘downsizing’ becomes more extensive, as Cook’s chapter later ampliﬁes. Workers are increasingly unhappy with the trade unions that purport to speak for them, as more join the ranks of the unemployed. Disenchantment, she concludes, may help encourage the spread of unofﬁcial unions. Finally, Suzanne Ogden deals in Chapter 14 with the rise of what she dubs the rise of ‘associational pluralism’. First she discusses three levels: the global, the developing societies and the speciﬁc Chinese context. She examines how far interest groups have appeared in Chinese society in recent years. She attempts to describe the changing pattern of interest group representation and how trade unions ﬁt into this. Ogden is well aware of the Leninist inheritance of the Chinese regime and the previously strong ‘top-down’ nature of the system. But things have changed, and the ‘red over expert’ days have now gone, she points out. There are today altogether more than 200 000 interest groups in the

12 Introduction: Whither the Iron Rice-Bowl?

PRC. They represent a wide spectrum of folk, from business people (alphabetically) to women’s groups. An example she gives is the AllChina Lawyers’ Association, speaking for the now over 90 000 legal practictioners. Later, she describes how corporatism has developed in China and how it has slowly moved out of state control to become ‘societal corporatism’. She shows how more latitude has been given to trade unions, but notes that some parts of the labour movement have gone ‘underground’ as protest organizations. There has also been a wide range of representational bodies offering a ‘voice’ to new economic groups such as entrepreneurs, the self-employed and so on. She concludes that the state may not be able to retract the power that has now been diffused.

Summing-up To sum up, the volume has attempted to see in considerable detail how far the economic reforms of the last two decades have eroded the ‘iron rice-bowl’ system of employment and changed the nature of the Chinese danwei. Industrial relations are being slowly transformed into HRM of a sort, although we may place many caveats on any straightforward Westernization here. There is cumulative evidence, a selection of which we have presented in this volume, that the reforms have had their impact not only on workers but also on managers (see Zhu, 1995). Job security has been undermined by labour contracts; social welfare in the workplace has become contributory; egalitarian rewards have been replaced by performance-based wages, as Chapter 11 pinpoints (see also Warner, Goodall and Ding, 1999a). Even the role of the ‘top-down’ trade unions has evolved to bind them into a form of collective bargaining ‘with Chinese characteristics’ and to try to expand their membership in non-SOEs. How far this extension of the union umbrella can be achieved is moot since there are now so many ﬁrms outside the state sector where unionization is weak or non-existent. More and more economic activity is now in effect, if not necessarily in name, virtually ‘private’ in ownership. The odds against extending union protection look formidable if present trends persist; unions in Asia generally have drawn in their horns in recent years. It is clear that the new millennium will see ‘leaner’ Chinese enterprises, many more concerned with minimizing losses if not maximizing proﬁts, while others will be going for optimal returns. If ‘overmanning’ characterized the traditional danwei, the new workplace will increasingly have to cope with external sources of competition, particularly if

Malcolm Warner 13

China is fully admitted into the World Trade Organization. Such changes may herald even more downsizing. Zhu Rongji’s reforms continued to be back-pedalled as conservative forces in the Party and ministries fought a rear-guard action against their implementation. The tenth anniversary of the Tiananmen Square demonstrations also put the authorities on high alert and security was greatly tightened. Rising job losses do not augur well for social stability, as several of the chapters discussed above have pointed out. Thus, a consensus, indeed if there was ever one, in favour of further economic reforms is very much in doubt, right now at least (see Warner, 1999a). The country is, at the time of writing, trying to ‘pump-prime’ the economy in order to counter deﬂation. There is oversupply in many industrial sectors and nobody knows how accurate the growth-rate predictions for the coming year will be. The shrinkage of welfare beneﬁts arising from the reforms has resulted in widespread angst, a phenomenon not conﬁned to China. Increasingly, a profound unease has surfaced in East and South-East Asia in the wake of the recent economic turmoil and its attendant massive job losses (see Godement, 1999). The ‘iron rice-bowl’, at least in its Chinese guise, seems more and more a feature of times past. The ‘brotherhood of the workshop’, to use Victor Hugo’s ringing phrase, unites less and less. A more individualistic set of values has raised its head; greater uncertainty abounds. People feel they have now to save more and spend less. The deﬂationary spiral is thus not only economic but also psychological. The authorities may try, with varying degrees of success, to spend themselves out of recession and deﬂation. The lowest paid workers, pensioners and unemployed may receive ‘social guarantee’ bonds. Consumer demand may be boosted, spending on infrastructure may be further increased and welfare payments may become more regular. Even so public protest is surfacing more openly and more frequently; independent trade unions remain off the agenda. Whatever ensues in policy detail, the Chinese economy and hence the society, is in for a rough ride in the immediate future at least (c.f Perry and Selden, 2000). Even less sure are the medium- and long-term consequences.

References Chan, A. (1995) ‘Chinese Enterprise Reform: Convergence with the Japanese Model’, Industrial and Corporate Change, 4, 2, pp.449–70. Godement, F. (1999) The Downsizing of Asia, London: Routledge. Kaple, D. A. (1994) Dream of a Red Factory: The Legacy of High Stalinism in China, Oxford: Oxford University Press.

14 Introduction: Whither the Iron Rice-Bowl? Korzec, M. (1992) Labour and The Failure of Reform in China, London: Macmillan and New York: St Martin’s Press. Lu, X. and Perry, E. (1997) Danwei: The Changing Chinese Workplace in Historical and Comparative Perspective, Armonk, NY, and London: M. E. Sharpe. Ng, S. H. and Warner, M. (1998) China’s Trade Unions and Management, London: Macmillan and New York: St Martin’s Press. Perry, E. J. and Selden, M. [eds.] (2000) Chinese Society: Change, Conflict and Resistance. London: Routledge. Takahara, A. (1994) The Politics of Wage Policy in Post-Revolutionary China, London: Macmillan and New York: St Martin’s Press. Walder, A. (1986) Communist Neo-Traditionalism: Work and Authority in Chinese Industry, Berkeley, CA: University of California Press. Warner, M. (1995) The Management of Human Resources in Chinese Industry, London: Macmillan and New York: St Martin’s Press. Warner, M. (1996) ‘Chinese Enterprise Reform, Human Resource and the 1994 Labour Law’, International Journal of Human Resource Management, 7, 4, pp.779–96. Warner, M., Goodall, K. and Ding, D. Z. (1999a) ‘The Myth of Human Resource Management in Chinese Enterprises’, in M. Warner (ed.), China’s Managerial Revolution, London: Frank Cass. Warner, M. (ed.) (1999b) China’s Managerial Revolution, London: Frank Cass. Zhu, Y. (1995) ‘Major Changes under way in China’s Industrial Relations’, International Labour Review, 124, pp.36–49.

2 The Origins of Chinese ‘Industrial Relations’ Malcolm Warner and Ying Zhu

1

Introduction

This chapter explores the origins of Chinese ‘industrial relations’ by examining the past literature as well as contemporary writings. The analysis is divided into the following sections: this section sets out a number of introductory remarks; Section 2 reviews the evolution and changes of the concepts of industrial relations in recent Chinese history; Sections 3 and 4 illustrate their usage in today’s China, as well as dilemmas in the present transitional period from the formerly planned economy to the contemporary market-driven system. We are particularly interested in attempting to clarify concepts and terminological usage in this ﬁeld (see Ng and Warner, 1998) as this has long been problematic in our view. Western (and often Japanese) concepts in general were introduced into Chinese by transliterating terms or borrowing neologisms (Liu, 1995). Even something as basic as the term ‘national character’ (guomin xing) changed meanings in its subsequent different guises. Neologisms have thus played a very important role in modern Chinese development (Harris, 1997:131). They have had a very signiﬁcant linguistic and political role in the twentieth century as ‘the Chinese language has struggled to adapt to unprecedented outside inﬂuences’ (1997:131). Many new terms were used ‘in different ways, in different contexts, sometimes inconsistently’ (1997:132). Such understandings as well as misunderstandings attempted to come to terms with ‘modernism’ and therefore constitute a potentially fascinating ﬁeld of research and speculation. In the set of terminologies we are exploring here, we ﬁnd a 15

16 The Origins of Chinese ‘Industrial Relations’

useful speciﬁc exempliﬁcation of the broader factors described and analysed by Liu (1995). We may conjecture that the cultural ‘ﬁt’ between such borrowed terms and practices and the economic, political and social realities they encounter will inevitably be less than exact and that it is only in their adaptation to Chinese circumstances, ﬁltered as they are here by local institutions, organizations and values, that they can be effectively and fully grasped and interpreted. ‘Siniﬁcation’ became the yunyong (application) of foreign concepts and terminology; the language of industrial relations may or may not be an exception to this process, as we shall shortly see. Attempts to ‘de-code’ the language of industrial relations in particular may be useful if we are to fully understand how far Chinese practices are comparable with those elsewhere or whether they constitute a ‘special case’. We should state at the outset that we use the term ‘industrial relations’, which originated in Britain, as synonymous with the term ‘industrial and labour relations’ as used in the USA. Poole (1997:264) deﬁnes both of these as ‘the study of the employment relationship’ in industrial and industrializing societies (1997:264). We also see the term in English ‘labour–management relations’ as co-extensive with the meaning of these two. They all cover both formal and informal dealings between workers and their managers and/or employers with respect to wages and conditions of work, whether the workers are organized into trade unions or not, and whether they bargain collectively and freely, with the right to strike. Industrial relations refers to the world of work and the ‘processes of control of work relations’ (1997:164) more speciﬁcally. There are usually three main sets of players – employers and managers; employees and labour (often unionized); and the state – involved here (1997:264). The variation in the way these players interact with each other, given the different cultural and ideological backgrounds that exist across the world, helps to determine the diversity of industrial relations systems. We make the latter points in order that the Chinese genre of industrial relations may potentially encompass a ‘family resemblance’ with its Western or Asian counterparts. The PRC often claims that its system is one with distinctive ‘Chinese characteristics’, although it do not go as far as the Japanese, who wholly appropriate ‘uniqueness’. Is there a speciﬁc ‘Chineseness’, unique to the PRC (or some wider transnational entity such as ‘Greater China’), which has common characteristics (see Dirlik, 1995:1–2)? What might be the dimensions of this ‘Chineseness’ in the industrial relations ﬁeld? If Chinese industrial relations are so difﬁcult to compare with (say) their Western counterparts, is this because of their

Malcolm Warner and Ying Zhu 17

distinctiveness, or is it due to the ambiguity of the concepts and terminology used in describing and discussing them? To what degree are linguistic complexities problematic?

2 The evolution of the language of industrial relations in China The period before 1949 The terminology of the Western concept of ‘industrial relations’ was ﬁrst translated into Chinese as chanye guanxi according to one source (Ma, 1959:2–3) and this term was said to be widely used in China during the Republican period in areas under the Guomindang’s (Nationalist Party) control before 1949. This term was not only allegedly used in Republican China in the ﬁrst half of the century, but also in the Republic of Korea and Japan in the inter-war years (Hashizume, 1983; Jin, 1990). The character chan means production and ye signiﬁes business in everyday language, but chanye itself does not suggest business relations; guanxi means relations or connections. Hence, we can infer that the original combination of these refers to relations engendered by production-based economic activities. In China, after 1949, however, almost everything related to the old society had to be changed and infused with new identity and meaning; industrial relations was no exception. The term ‘industrial relations’ had been introduced from Western usage and it had to be changed. For nearly two decades in the 1950s and 1960s, ‘socialist labour management system’ (shihui zhuyi laodong guanli zhidu) was used to refer the new industrial relations system (Yuan, 1990:72). Until the late 1970s, when the economic reform and open door policy were implemented, there was a call for changes in Maoist ideology and terminology. The term industrial relations was given new names, from gongye guanxi (industry relations), to laozi guanxi (labour–capital relations) and ﬁnally to laodong guanxi (labour relations: we will explain the reason for these changes later); in Taiwan and Korea, the term changed into laozi guanxi in Chinese characters (labour-capital relations) (Jin, 1990:2; Zhang, 1991:3); in Japan, the term became ‘rooshi kankei’ (laozi guanxi in Chinese characters, also meaning ‘labour-capital relations’: Yamashita, 1989:1). The respective terms of the worker and employment system Workers were generally referred to as laogong (working labour) in Republican China in the inter-war years (Ma, 1959:1). The term ‘laogong’

18 The Origins of Chinese ‘Industrial Relations’

was deﬁned as people who contributed their physical or mental capacity to production by exchanging income in order to maintain themselves and their families’ lives. Compared with gongren (working people), which was also used to refer to workers but became even more common after the Liberation later (see the explanation below), the term laogong (working labour) was said to be much more passive and subordinated in meaning (Qu, 1950:19). The different terminology of industrial relations after the Liberation also indicated a signiﬁcant shift of ideology. Before 1949, the ‘ruling class’ could be identiﬁed as a combination of foreign capital, national capital and landowners. The state had close links with those ruling elites and both had common interests. Industrial workers were seen as a subordinate class and had been exploited by the ruling elites in substantial ways. This provided an opportunity for the CCP to use Marxist ideology to gain support from the workers by promising that they would become the zhuren (masters) of the new society. But Mao Zedong believed that ‘Marxism must be realized through national forms (minzu xingshi)’, and not in the abstract (cited in Dirlik, 1997:613). Whilst revolutionary, the new forms should not discard their older cultural context, although during the Cultural Revolution he may have changed his mind. The labour-management system The labour-management system before 1949 was held to be a combination of Western capital plus local handicraft association structures. The major issues under the labour-management system included the following. 1 Gongshi guanli zhidu (working-hour management system):- long working hours and a few holidays were common phenomena under the old system. For instance, the average working time was 12 hours a day. But different sectors had different working hours and some small factories had 13–14 hours, sometimes even 17–18 hours; the average number of holidays was only three in total (Yuan, 1990:12–13). 2 Qiye guizhang zhidu (enterprise regulation system):- all enterprises had some written or non-written regulations. Relatively large ﬁrms had formal regulations in writing, and while some small factories or shops also listed the regulations in the written contract, others might only have word-of-mouth rules. Contract labour had become very common in Chinese enterprises since the country had started to industrialize in the late nineteenth

Malcolm Warner and Ying Zhu 19

century. The contract responsibility system evolved as baogong zhi (Yuan, 1990:7–8). Contract workers were known as waigong (outsideworkers) as opposed to ligong (inside-workers). They were as common in Chinese as foreign-owned enterprises. As Chesneaux (1968:57) has noted: ‘the labor force was recruited by an owner or manager of an enterprise through an intermediary, who was given full or partial authority over the workers he recruited throughout their terms of employment, and upon whom they were completely dependent for payment of wages and arrangements about working conditions’. In the inter-war years many workers, particularly young women, were engaged as baoshengong (body-contract workers) in industries such as textiles (Honig, 1983:421–54). These workers came from rural backgrounds and were almost ‘prisoners’ of the ‘labour-bosses’ who had virtually purchased them from their parents (1983:421). The system reached its apogee in pre-war Shanghai, where many mills were Japanese-owned and run. Apprentices (xue tu) often signed a ‘bodyselling contract’ (maishenqi) with their thumb-print. Written contracts came into greater usage in many mills in the 1930s (Showalter, 1983:387–419). Contracts were also common in mines and docks. The concept and terminology of ‘trade unions’ Chinese institutions reﬂect the twin Confucian values of the ‘public mindedness’ (gong) and the ‘private interest’ (si): that is, opposed to the public good. There was therefore a tension between the two concepts vis-à-vis any new collective association, whether united to protect commercial or trade interests. As the Chinese working class began to look around for models that could be used as a template for collective organization, they saw that commercial guilds had proliferated in the late nineteenth century (Fewsmith, 1983:617). Due to the exclusion practices of traditional guilds (hanghui) which only allowed the owners or master craftsmen to join (Needham, 1981), handicraft workers formed their own associations based on the same business and birthplace. They had no legitimacy in Qing law, but neither did the traditional guilds. These formations can be seen as the earliest workers’ organization, with a very strong feudalist structure such as a patriarchal clan formed in their home village or town. Their rationale, as in the case of the traditional guilds, was to protect the group interest of their members by invoking collective action. Originally, modern industrial workers started to form a new type of association called the ‘trade union’ in England in the mid-eighteenth century but this occurred later in China (Tian and Xu, 1989:1–2). The early form of Chinese

20 The Origins of Chinese ‘Industrial Relations’

workers’ organization in the late nineteenth century was dubbed the julebu (club: Deng, 1953:16). The meaning of julebu is more related to entertaining (ju means together, le means happiness and bu means section) than politics. However, due to the inﬂuence of different political forces, workers’ organizations gradually became subordinate political organizations under the control of a range of political parties. Meanwhile, the workers’ organizations were also transformed from small, separate julebu into gonghui (labour unions) in different industrial sectors. The onset of the First World War saw a visible rise in disputes across the main centres of industrial activity. In 1919, workers joined the democratic upsurge and carried out strikes in China (the so-called ‘Fourth of May Movement’); this was a watershed which demonstrated that industrial workers had acquired a growing political awareness (see Lee, 1986:1) and emerged as a new class which could be distinguished from peasants and feudal handicraft labour (Yuan, 1990:76). Different political parties saw labour as an important political force which could be used for their own political struggle: hence the labour movement in China was divided into different political factions. In the early years, political parties started to be involved in organizing workers, such as the Mutual Advancement Society (gongjin hui) which comprised workers and foremen (as well as gangsters: Perry, 1993:41), and the Republic of China Labour Party (zhonghua minguo gongdang), which attracted many craftsmen such as carpenters, jewellers, machinists and so on (1993:41). Later, three major dominant political groups emerged among the trade unions: one was controlled by the Guomindang, labelled by the communists as huangse gonghui (yellow labour unions: Yuan, 1990:200); a second was controlled by the CCP, labelled by the nationalists as hong (or chi) se gonghui (red labour unions: Ma, 1959:25); while a third was inﬂuenced by anarchists and labelled by the CCP as zhaopai gonghui (signboard labour unions), which meant that they did not represent ‘real’ workers (Zou and Liu, 1993:75). Politics dominated union organization, above all; the Communists saw their chance. As Lee (1986:1) puts it: ‘As a self-proclaimed party of the proletariat, it is natural that every communist party is keenly interested in organizing workers.’ After the Liberation in 1949 A major sea-change in the relations between labour and management took place when the PRC was born in 1949, even though many continuities remained. The link with the past was, in theory, rather tenuous;

Malcolm Warner and Ying Zhu 21

in reality, perhaps less so. When the Communists took power, many enterprises were still in the old hands and run by those managers who had not ﬂed. The transitional period took ﬁve years or more before both domestic and foreign ﬁrms were fully ‘nationalized’ and a new industrial order was institutionalized (see Kaple, 1994:58–71), although it remained very ‘Chinese’ in its new Marxist guise, as we shall soon see. After the Liberation (jiefang), language would be used in new ways; semantics became an instrument of political life. Each term was designed and selected carefully in order to make sure it was ‘politically correct’. Yet many terms continued to be used more or less as before, such as gongsi (company), guanli (management), guanxi (connections) and so on. Even so, a sizeable propaganda machine was set up to carry out the task of ‘socialist education’. Workers became the ‘masters of the country’ (guojia zhuren), and the ‘proletariat’ (the no-property class) became the ‘leading’ class (lingdao jieji: Warner, 1995). Marxism had gone through a process of ‘Siniﬁcation’, thus ‘making Marxism Chinese’ (Makesi zhuyide Zhongguohua: Dirlik, 1997:595–6). One important area of propaganda was in industrial relations and the world of work. In answer to the question, ‘What does socialism bring to people?’, Qu (1950:34) claimed that the most important issue was the ‘right to work’ (gongzuo quan) and ‘full employment’ (quanmin jiuye). It was even written into the Constitution of the PRC (xianfa) (Article 42: PRC citizens have the right and responsibility to work: see The Constitution of the PRC, 1949, 1982 and 1993). These rights were an essential part of the ‘social contract’ made at the time in order to protect the rights of the ‘new Chinese worker’ (Korzec, 1992:48). A ‘lifetime employment’ system, labelled the ‘iron rice-bowl’ (tie fan wan), was another pillar of the ‘social contract’, providing a bed-rock of job security for industrial workers, which was a critical part of the socialist system as copied from the Soviet Union (see Schurmann, 1968; Kaple, 1994; Warner, 1995). Indeed, to be ‘Soviet’ was to be ‘modern’. It is said that it continued earlier Chinese practices (see Lu and Perry, 1997) as well as the ‘golden rice-bowl’ (jin fan wan) introduced by the Japanese in state enterprises in Manchuria (Warner, 1995:17). But ‘Siniﬁcation’ shaped new forms and institutions. Job security could even extend inter-generationally, as children of employees came to inherit the job positions of retiring workers through dingti (occupational inheritance: Zhu and Campbell, 1996:33). After 1956, a nationally standardized wage system was introduced, also based on the Soviet Union’s model, with what was called the baji gongzi zhi

22 The Origins of Chinese ‘Industrial Relations’

(eight-grade wage system) for almost all manual workers (besides the wage standard for manual workers, there were 15 grades for technical workers and 25 for cadres: see Zhu and Campbell, 1996:32). The gap between different grades was very small and that was designed in order to achieve so-called pingjun zhuyi (egalitarianism). Later, this system was criticized as daguo fan (everyone eating out of one big pot: Feng, 1982:7). These ﬁxed statuses of employment, position and wages were deﬁned in a speciﬁc term in Chinese in the 1950s as the lao santie (three old irons): iron wage (tie gongzi), iron rice-bowl (tie fan wan), and iron chair or position (tie jiaoyi: see Li, 1992:64–76). Work units (danwei), although the term in Chinese means much more than its literal sense as we shall soon see, by the mid-1950s could offer permanent employees a ‘cradle-to-grave’, enterprise-based welfare system, more far-reaching than in the conventional Eastern European model (see Granick, 1990; Kaple, 1994; Lu and Perry, 1997). There were basically three types of enterprise-ownership system: SOEs (quanmin suoyouzhi qiye), collective-owned enterprises (COEs: jiti suoyouzhi qiye), and private and individual household economy (geti jingji). A large number of SOEs appeared as da gongchang, xiao shihui (big factories, mini-societies), whose function extended well beyond production to include housing, leisure, social security and so on. The state-owned factory was less an economic entity than a social institution (Walder, 1986:28). One may call the worker’s position in this body one of ‘structured dependence’ (1986:80–4). The Soviet, and later Chinese, factory (or ofﬁce) was on hand to furnish each of their employees’ basic economic and social needs. This kind of dependence was also partly reminiscent of the American company town or Japanese paternalistic enterprise. Such Chinese ﬁrms were to survive into the 1990s and are only now being transformed in the PRC (see Ng and Warner, 1998) as well as in the former Soviet Union (see Hertz, 1997), ‘organizational inertia’ permitting, as enterprises have been slow to shed their old practices and take on the new. Psychologically, the danwei mind-set has been even harder to shed; almost 50 years of institutionalization has seen to that! The model of micro-economic management (weiguan jingji guanli) adopted after 1949 was a hybrid of Soviet and indigenous inﬂuences and it dug its roots deeply; it was called China’s new ‘Industrial Management Mechanism’ (gongye guanli jizhi) but was heavily reliant on Soviet-inspired management notions (Kaple, 1994:58–65). The unity of politics and economic leadership (zhengzhi lingdao he jingji lingdao de tongyi) was the ﬁrst principle here; the second was to

Malcolm Warner and Ying Zhu 23

examine and select cadres (jiancha he xuanze ganbu); one-man management (yizhang zerenzhi) came next; democratic centralism (minzhu jizhongzhi) was fourth. The Chinese added six more features to the Soviet-inspired principles (Kaple, 1994:63): these were Party-sponsored socialist competition (shehui zhuyi jingsai) with its potential to motive workers; the Bolshevik style of leadership (buershiweike de lingdao zuofeng) mainly concerning Party cadres in enterprises; the productionterritorial system (shengchan quyu zhi), a form of straight line supervision (zhixian guanli zhi) where directors of workshops or ofﬁces have only one person to report to; economic accounting (jingli hesuan) with little added from its Soviet counterpart; socialist remuneration (anlao jichou de shehui zhuyi fenpei yuanze) based on Stalin’s dislike of ‘wage levelling’; ﬁnally, planned management (guanli de jihaxing) based on the planned economy as a whole (1994:64–5). In most enterprises, a ‘dual system’ of both Party and management control was the basis of enterprise leadership. Sometimes the same person shared the positions of Party Secretary and General Manager at the same enterprise. The lao sanhui (three old committees), dangwei hui (Party committee), gongchang guanli weiyuanhui (workers’ management committee) and gonghui (trade union) comprised the basic institutional structure at enterprise level. The last, for example, organized ‘worker emulation campaigns’ (laodong jingsai), derived from the socialist model noted above, to increase productivity. Together, they spoke the same industrial relations language and mouthed the same slogans. There were supposed to be no conﬂicts of interests – in theory at least – between the key players on the danwei stage. Each work-unit had a personnel administrative department (renshi bu) which was in charge of recruiting and allocating new workers, training them, as well as promoting them, when necessary; it was also concerned with managing their all-important personnel ﬁle (dangan) (see Goodall and Warner 1997; Warner, 1997). The ﬁle was very important for individuals because their behaviour would be recorded in it and it would follow them if they changed their work-unit. This ﬁle could be used to promote (or punish) any worker or staff member. After the 1949 Liberation, the ‘Red’ trade unions (which used to be underground organizations under the Nationalist (Guomindang) regime) became the ofﬁcial unions with the name of ‘Zhonghua Quanguo Zonggonghui or ACFTU, as it had remained since 1925 (Lee, 1986: xi, f.2). The state-sponsored unions were seen as a ‘transmissionbelt’ (chuansong dai) between Party and ‘masses’ (also see Chapter 3) but went into abeyance during the Cultural Revolution (Warner,

24 The Origins of Chinese ‘Industrial Relations’

1995). Unions were tightly integrated into Party organizational structures and indeed even into management hierarchies, and the key trade union personnel owed their appointment to their links to these structures (Zhu and Campbell, 1996:33–4). The main functions were in fact administrative rather than representative, covering activities such as ideological work, mobilization in support of Party campaigns, promotion of enterprise economic goals, supervision of the allocation of welfare beneﬁts (such as housing) and some responsibility for training (Ng and Warner, 1998). The union carried out the day-today tasks of the representative bodies in the enterprise. These varied in nomenclature over the period from 1949 but since the economic reforms in the 1980s they have been known as the Workers’ Congress (zhigong daibiao dahui). However, most matters coming up in Workers’ Congress discussions related to production rather than welfare issues.

3

Economic reform and industrial relations since 1978

Background Following the implementation of Dengist economic reforms and the Open Door policy, the industrial relations system was gradually restored but the debate continued. A new term which was adopted was laozi guanxi (labour-capital(ist) relations) which is now widely used in Taiwan, Korea and Japan. However, there is a problem here again, due to the concern of correctness of ideology. In China, the majority of enterprises are either SOEs or COEs and they are not ‘capitalist’. Therefore, for the public ownership system, the term laozi guanxi is not quite ‘accurate’. This term can only refer to the private sector, such as foreign-invested enterprises (FIEs: weizi qiye) and domestic private enterprises (DPEs: siying qiye). A new terminology has to be created in order to cope with this organizational reality. Now, the term laodong guanxi (labour relations) has been adopted to refer to industrial relations in all kinds of enterprises universally in China and it has been approved as politically correct. Meanwhile, the diversity of enterpriseownership has led to a more complicated outcome, following the development of FIEs and DPEs (Zhu, 1995:37). The fact is that many changes have occurred, especially related to the area of state policy and employment relations at both domestic enterprises (including SOEs, COEs and DPEs) and foreign-invested enterprises, including Sino–foreign equity JVs (zhongwei hezi qiye), contractual JVs (zhongwei hezuo qiye), and wholly foreign-owned enterprises (weishang duzi qiye):

Malcolm Warner and Ying Zhu 25

see Zhu and Campbell, 1996:30–1). The term laogong (labourer) surfaced again recently; it had in earlier years been a perjorative term used to describe workers in employment with private capitalists (Chan, 1998:124). It is possible to distinguish four phases in the evolution of the economic reforms: 1978–84, 1984–88, 1988–91 and 1992 to the present (Zhu and Campbell, 1996:34). In the ﬁrst phase, many reforms were introduced as experiments in carefully selected parts of the country – including in the Special Economic Zones (SEZs: jingji teqiu) such as Shenzhen, described as ‘a bell-wether for economic reforms’ (White, 1987:375) – before being extended from around 1984 to the national level. There were many temporary regulations implemented during the second phase, 1984–88. A brief period of retrenchment between 1988 and 1991 was followed in 1992 by the announcement of the goal of a ‘market economy’ (shichang jingji) with a surname of ‘socialist(m)’ (shehui zhuyi) and an acceleration of the process of economic reform (Bell, Khor and Kochhar, 1993:3–4). Breaking the ‘three irons’ With respect to the labour system in SOEs and COEs, the reforming initiatives of the government have been deﬁned as pou santie, or breaking three irons (iron rice-bowl, iron wages and iron position), and li sanzhi, or establishing three new systems: laodong hetong zhi (labour contract system), gongzi fudong zhi (ﬂoating wage system), and ganbu pinyong zhi (cadre or manager engagement system: Li, 1992:64–76). However, under Deng’s inﬂuence, skills and position were more closely linked with income in order to generate greater motivation. New types of wage system were introduced such as the piece wage system (jijian gongzi zhi), bonus system (jiangjin zhi) and later the ‘structural wage system’ (jiegou gongzi zhi) and ‘ﬂoating wage system’ (fudong gongzi zhi: Li, 1992:64–76), and the ‘post plus skills wage system’ (gangji gongzi zhi: Warner, 1997:35). This new wage policy was designed to break one of the three irons, ‘iron wages’; it was essential to create more ﬂexible labour practices and thus allow a more economically efﬁcient process of factor-allocation (see Chapter 11). In the early 1980s, many young graduates from school could no longer obtain the same guaranteed employment opportunity from the government as their parents had enjoyed in the past, and in fact they became temporarily unemployed. However, this situation was described by the ofﬁcials as daiye (waiting for being employed) but not shiye (unemployment: Feng, 1982:112). It could not be admitted that a

26 The Origins of Chinese ‘Industrial Relations’

socialist society could have unemployment. The boundary of the term of daiyie was even expanded to include the workers who were laid off from factories throughout the late 1980s and early 1990s (Geng, 1992:220–33). Only recently, shiye (unemployment) has been used to refer people who have not been employed for several years and unemployment beneﬁt is now available for some of them (Lim, Sziraczki and Zhang, 1996; Chen, 1997). Internal unemployment (xiagang) – within the walls of the enterprise, on a minimum stipend – is also now common, as overstaffed SOEs downsize and have no work to offer their employees but do not wish to deprive them of danwei entitlements, such as their housing, as we shall also see in Chapters 4, 12 and 13). As for the life-time employment system, the so-called ‘iron ricebowl’, it was still wholeheartedly practised in SOEs and COEs in the early 1980s (Warner, 1997:42). However, this attachment seemed to be associated with familiar problems of overstafﬁng, mismatch of skills and stagnation of productivity (Zhu and Campbell, 1996:37). Therefore an attempt to break the ‘iron rice-bowl’ (zasui tie fan wan) was made by the government with the implementation of temporary regulations in 1986, such as early retirement (tiqian tuixiu), enterprise powers to dismiss employees (jiegu zhigong), and to supplement and gradually replace permanent status with a ‘contract’ system (hetong zhi: White, 1987, Han and Morishima, 1992; Hu and Li, 1993; International Labour Ofﬁce (ILO), 1996). The reform of the employment system has been accelerated since 1992 (Bell, Khor and Kochhar, 1993; Sziraczki and Twigger 1995; Lim, Sziraceki and Zhang, 1996), and in some regions all employees in all enterprises have been drafted into a modiﬁed version of the contract system (Zhu and Campbell, 1996:38). For instance, in 1993 the Shenzhen SEZ completed an ‘All Employees Contract System’ (quanyuan hetong zhi), which covered staff and workers in all enterprises (Zhu and Campbell, 1996:38). There were both individual contracts (geren hetong); and collective contracts (jiti hetong) the latter were a sort of framework agreement, although not quite fully a Western collective bargaining contract (see chapter 6) (see Ng and Warner, 1998). The 1994 Labour Law (laodong fa) systematized these and other associated practices (Warner, 1996). It also legitimized the new ‘tripartite’ relationship between employees, employing organizations and the state (via the Ministry of Labour and local labour bureau). The major problem for policy concerns the non-wage beneﬁts constituting the welfare system within enterprises. This has been a major ﬁnancial burden for such enterprises and a barrier to the linking of the

Malcolm Warner and Ying Zhu 27

reward system to effort, as well as the key to the attachment of employees to the organization and an impediment to labour mobility (see Cook and Maurer-Fazio, 1999). A social insurance system (shehui baoxian zhi) was ﬁrst implemented among the FIEs with 25 per cent of wages covering all kinds of insurance costs (Zhu and Campbell, 1996:40). In SOEs and COEs, the introduction of the contract system entailed alterations to the welfare system. A separate labour insurance scheme was set up for contract workers in the state sector, for example (Dong, 1996). Enterprise reform Economic reform has aimed at decentralizing economic decisionmaking powers to the enterprise organizational level and replacing government direction with enterprise autonomy based on market adjustment (see also Chapters 7, 8 and 9). An initial ideological breach was the liangquan fenli – separation between two rights: ownership (suoyou quan) and management (jingying quan) – in SOEs (Li, 1992:64–5). The results are varied, but it does seem that managers have enjoyed an increase in power in terms of management (Zhu and Campbell, 1996:41). In addition, in order to break the third iron – the iron position – the managers’ engagement system (ganbu pinyong zhi) was also introduced. Economic reform is premised on a reduction of Party inﬂuence in the enterprise, which has been claimed by the government as zhengqi fenkai (separation between politics and enterprise management), but political networks form a readily accessible structure for informal bargaining and personal connections, generating problems ranging from unpredictability to corruption (Zhu and Campbell, 1996:41). What appears more likely is that management – still largely integrated into political networks (especially after the events in Tiananmen Square in 1989) – has increased its power at the expense of workers within the enterprise. The conventional organizational structure based on ‘three old committees’ (lao sanhui) has been superseded in importance by the ‘three new committees’ (xin sanhui): dongshi hui (board of directors), gudong hui (shareholders’ committee) and jianshi hui (monitoring committee), with the emphasis on supervision by investors externally and workers internally over the management (Chen, 1997). This can be seen as part of the authorities’ campaign to promote so called ‘supervision’ (jiandu) and ‘democratic management’ (minzhu guanli), but in fact the main props of ‘democratic management’ – the trade unions and the Workers’ Congress – are often still playing the

28 The Origins of Chinese ‘Industrial Relations’

role of ‘transmission-belt’ (chuansong dai) and ‘rubber-stamp’ (xiangpi tuzhang) respectively in many instances (Goodall and Warner, 1997:584). In recent years, a new term called ‘scientiﬁc management’ (kexue guanli) has been used widely (Huang, 1996:49) as part of a campaign to establish a ‘modern enterprise system’ (xiandai qiye zhidu: Li, 1994: 351), but this does not speciﬁcally refer to Taylorist practices (that is, work-measurement and so on) as such. This new term has been developed in order to implement reform into enterprise management. It emphasizes several issues related to management: production, planning, quality, equipment, statistics and technology. Meanwhile, it tries to develop a framework to allow both the old three committees and new three committees to function effectively (Huang, 1996:50–1). Human resource management Under the reforms of the employment system, a new terminology of human resource management (HRM) came to China in the middle of the 1980s. As Poole (1997:281) indicated, HRM is a relatively new term even in Western society: it originated in the USA and arrived in the mid-1980s in the UK and much of Europe. In China, a few Western management schools (mainly from the USA and UK) set up joint teaching arrangements with Chinese universities to introduce Western management subjects (see Warner, 1992). HRM was one of the new terms being introduced by these new subjects. The translation of this term into Chinese is renli ziyuan guanli, which means ‘labour force resources management’. In fact, people mostly use it as a synonym for ‘personnel management’ (renshi guanli: Warner, 1997:38). ‘Personnel management’ in the Chinese work unit (danwei) system has a powerful function for most employees. It is in charge of recruiting, allocating, promoting and discharging staff and workers at each danwei. It also holds the personnel ﬁle (dangan) which contains the entire history of each individual employee’s, both past and current performance and behaviour. Certainly, it is still very far from the initial concept of HRM as understood in the West (see Poole, 1997:281). In parallel, attempts were made to import ‘enterprise culture’ (qiye wenhua), a ‘code-word’ for adapting the Japanese model (Chan, 1997:106). The term HRM is now common in many JVs, particularly the larger ones (see Chapters 3 and 7). There is an tendency even for Western managers to become converts to the Japanese model on the Chinese shop ﬂoor where they solicit workers’ opinions on the work process and encourage an enterprise-oriented work ethic among the workers (Chan, 1997:105). However, even in these large JVs problems

Malcolm Warner and Ying Zhu 29

still exist: for example, management seems to be inward-looking with a focus on issues such as wages, welfare and promotion (see chapter 11) rather than strategic issues such as long-term development, crosscultural synergistic strategy and marketing strategies with before and after sales service. The Western concepts of industrial relations and HRM have been used in China by combining them with ‘Chinese characteristics’ (zhongguo tese), such as laodong guanxi and reli ziyuan guanli. The term ‘Chinese characteristics’ has also often been used as a code-word for explaining contemporary Chinese practice and differentiating it from, on the one hand, the ‘bad old days’ of Stalinist-Confucianism but, on the other hand, not conceding its ultimate convergence with Western/ Asian capitalism and globalization; hence the description of the reforms in general as ‘market socialism’, often using the phrase ‘with Chinese characteristics’. The exposition of ‘Deng-Xiaoping-Thought’ in the pages of the People’s Daily and elsewhere stresses that the common thread is still the distinctively Chinese way of doing things. The embedding of whatever nuance of new steps towards reform is on the scene in Chinese national and cultural space is most likely to be given prominence. The sphere of industrial relations and HRM is no exception here.

4

Concluding remarks

Looking back through Chinese history, rulers always adopted their own national title and emblem to distinguish themselves from the previous dynasty. It is not surprising to see that the Liberation of 1949 is the watershed between an old society and a new one. Fundamental changes of ideology led to the adoption of new concepts and terminology. As for industrial relations and HRM, Communist China evolved its own special brand of labour–management relations, if with many borrowings from Soviet and Japanese practices. However, as Walder (1986:251) claimed, the industrial management system in China is special not because it deviates from the ideal type of bureaucracy and system, but because it represents the integration of patrimonial rule with modern bureaucratic form. Today, the ‘three old irons’ are now being replaced in modern parlance by the ‘three new irons’, namely tie miankung (iron face), tie xinchang (iron guts) and tie showan (iron hands). Some workers are even ‘jumping into the sea’ (xaihai): namely taking the plunge into private businesses (Zhu, 1995:40). China is thus moving towards the year 2000

30 The Origins of Chinese ‘Industrial Relations’

with a more ﬂexible labour market: employee expectations and values are indeed changing (see Kelley and Luo, 1999). Although faced with a harsher economic climate, recent empirical surveys (for example, see Bu and Xu, 1996) suggest that Chinese workers have less of a pessimistic view than many accounts would suggest; they appear well aware that their danwei can no longer guarantee their jobs and beneﬁts, but none the less retain their motivation and compliance with managerial authority. None the less rural–urban, regional and gender inequalities have grown, not the least for the dagongmei or ‘working girls’ in the SEZs and newly industrialized areas (see Ngai, 1999). It is clear that in these circumstances China is beginning to see the emergence of a more market-oriented, although not necessarily adversarial, industrial relations model; it is not one as yet comparable to a Western one, let alone involving the implementation of HRM as we would understand it. The concepts, terminology and practices have correspondingly changed, albeit with a time-lag, particularly given the ‘organizational inertia’ of not only the SOE sector but also the wider ‘mind-set’ it engendered (see Goodall and Warner, 1997). In time, China may move closer to industrial relations and HRM as understood internationally but may be more likely to do so in line with a collaborative Asian model rather than the adversarial Western one (see Warner, 1999). So far, political transformation in the post-Deng era seems to be peaceful and smooth. A new generation of leadership came to the proscenium after the recent People’s Congress. It will not be surprising if we see some new concepts and terminology come out to serve the new leadership and ideology in the future. The philosophy of reforms based on the Dengist pragmatic approach of ‘crossing the river by feeling the stones’ will still be fundamental, and the so-called ‘third way’ of the Chinese development model (which distinguishes it from the ‘bad old days’ of Stalinist-Confucianism on the one hand and Western/Asian capitalism and globalization on the other hand) will still be the code-word for the Chinese leadership to carry out their new ‘long march’ of ‘socialist market economy’, characterized as ever ‘with Chinese characteristics’.

Malcolm Warner and Ying Zhu 31

References Bell, M., Khor, H. and Kochhar, K. (1993) China at the Threshold of a Market Economy, Washington: International Monetary Fund, Occasional Paper No. 107. Bu, N. and Xu, J. L. (1996) ‘Consensus and alienation: Changing attitudes among Chinese employees during the reform’, Paper presented to the Third International Conference of HRM in the Asia Paciﬁc Region, Kaohsiung, Taiwan, November. Chan, A. (1997) ‘Chinese Danwei Reforms: Convergence with the Japanese Model?’, in X. B. Lu and E. J. Perry (eds) Danwei: The Changing Chinese Workplace in Historical and Comparative Perspective, New York: M. E. Sharpe, pp.91–113. Chan, A. (1998) ‘Labor relations in foreign funded ﬁrms’, in G. O’Leary (ed.), Adjusting to Capitalism: Chinese Workers and the State, Armonk, NY, and London: M. E. Sharpe, pp.122–49. Chen, Y. (1997) Xiang Shehui Zhuyi Shichang Jingji Zhuanbian Shiqi De Gonghui Lilun Gangyao Yu Pingshu (The Outline and Analysis of Trade Union Theory in the Transition Period Toward Socialist Market Economy), Beijing: People’s Press. Chesneaux, J. (1968) The Chinese Labor Movement 1919–1927 (translated from the French by H. M. Wright), Stanford, CA: Stanford University Press. Cook, S. and Maurer-Fazio, M. (1999) ‘Introduction’, The Workers’ State Meets the Market: Labour in China’s Transition, London: Frank Cass, pp.1–15. Deng, Z. X. (1953) Zhongguo Zhigong Yundong Jianshi (The History of Chinese Staff and Workers Movement), Beijing: People’s Press. Dirlik, A. (1995) ‘Critical reﬂections on “Chinese capitalism” as a paradigm’, Conference on South China: state, culture and change during the twentieth century, Royal Netherlands Academy of Arts and Sciences, May. Dirlik, A. (1997) ‘Mao Zedong and “Chinese Marxism”’, in B. Carr and I. Mahalingam (eds), Companion Encyclopedia of Asian Philosophy, London: Routledge, pp.593–619. Dong, K. Y. (1996) Labour Market Policy in China, Beijing: China People’s University. Feng, L. R. (1982) Laodong Baochou Yu Laodong Jioye (Labour Reward and Employment), Beijing: China Prospect Press. Fewsmith, J. (1983) ‘From guild to interest group: the transformation of public and private in late Qing China’, Comparative Studies in Society and History, 25, pp.617–40. Geng, L. (1992) ‘Jiji Tuijing Shehuai Baozhang zhidu Gaige’ (Promoting the Reform of Social Security System), in China Enterprises Management and Training Centre (ed.), Qiye Zhuanhuan Jingying Jizhi: Lilun Yu Shijian (Changing the Function of Enterprise Management: Theory and Practice), Beijing: China People’s University Press. Goodall, K. and Warner, M. (1997) ‘Human resources in Sino–foreign joint ventures selected case-studies in Shanghai, compared with Beijing’, International Journal of Human Resource Management, 8, pp.569–94. Granick, D. (1990) Chinese State Enterprises: A Regional Property Rights Analysis, Chicago and London: University of Chicago Press.

32 The Origins of Chinese ‘Industrial Relations’ Han, J. and Morishima, M. (1992) ‘Labour System Reform in China and its Unexpected Consequences’, Economic and Industrial Democracy, 13, pp.233–61. Harris, P. (1997) ‘Chinese Nationalism; the State of the Nation’, The China Journal, 38, pp.121–38. Hashizume, Y. (1983) Roodoo Kijunhoo (Labour Standard Law), Tokyo: The General Labour Research Institute. Hertz, N. (1997) Russian Business Relationships in the Wake of Reform, London: Macmillan. Honig, E. (1983) ‘The contract labor system and women workers: Pre-Liberation cotton mills of Shanghai’, Modern China, 9, pp.421–54. Hu, T. W. and Li, E. (1993) ‘The Labour Market’, in W. Galenson (ed.), China’s Economic Reform, San Francisco: The 1990 Institute, pp.147–176. Huang, S. J. (1996) Guoyou Qiye Chanquan Zhidu Biange (The Reform of StateOwned Enterprises’ Ownership and Managment System), Beijing: Economic Management Press. ILO (1996) China: Employment and Training Policies for Transition to a Market Economy, Geneva: ILO. Jin, K. Y. (1990) Hanguo Laogong Yundong Zhidou Shi (The Illustration of Labour Movement in the Republic of Korea), Taipei: China Economic Research Institute. Kaple, D. (1994) Dream of a Red Factory: The Legacy of High Stalinism in China, Oxford: Oxford University Press. Kelley, L. and Luo, Y. (1999) China 2000: Emerging Business Issues. Thousand Oaks, CA; London and New Delhi: Sage publications Korzec, M. (1992) Labour and the Failure of Reform in China, London: Macmillan. Lee, L. T. (1986) Trade Unions in China, Singapore: Singapore University Press. Li, T. C. (1992) ‘Zhuanhuan Qiye Jingying Jizhi De Xuanze’ (The Choice for Changing Enterprise Management System) in China Enterprises Management and Training Centre (ed.), Qiye Zhuanhuan Jingying Jizhi: Lilun Yu Shijian (Changing the Function of Enterprise Management: Theory and Practice), Beijing: China People’s University Press. Li, X. F. (1994) Sida Tizhi Gaige Yu Jianli Xiandai Qiye Zhidu (Reforms of Four Systems and Establishment of Modern Enterprise System), Beijing: China Economic Press. Lim, L. L., Sziraczki, G. and Zhang, X. J. (1996) Economic Performance, Labour Surplus and Enterprise Responses: Results from the China Enterprise Survey, Geneva: ILO, Labour Market Papers 13. Liu, L. H. (1995) Translingual Practice: Literature, National Culture, and Translated Modernity – China, 1900–1937, Stanford, CA: Stanford University Press. Lu, X. B. and Perry, E. J. (1997) Danwei: The Changing Chinese Workplace in Historical and Comparative Perspective, Armonk, NY: M.E. Sharpe. Ma, C. J. (1959) Zhongguo Laogong Yundong Shi (The History of the Chinese Labour Movement), Taipei: China Labour Welfare Press. Needham, J. (1981) The Shorter Science and Civilisation in China, Cambridge: Cambridge University Press, 4 vols. Ngai, P. (1999) ‘Becoming “dagong mei” (Working Girls): The politics of identity and difference in reform China, The China’s Journal, no. 42, July, pp.1–20. Ng, S. H. and Warner, M. (1998) China’s Trade Unions and Management, London: Macmillan. Perry, E. J. (1993) Shanghai on Strike, Stanford, CA: Stanford University Press.

Malcolm Warner and Ying Zhu 33 Poole, M. (1997) ‘Industrial and labour relations’, in M. Warner (ed.), IEBM Concise Encyclopedia of Business and Management, London: International Thomson Business Press, pp.264–82 Qu, S. R. (1950) Gongren Shouce (Worker’s Handbook), Hong Kong: Ta-Kung Press. Schurmann, F. (1968) Ideology and Organization in Communist China, Berkeley, CA: University of California Press. Showalter, G. (1983) ‘Flying hammers, walking chisels: the workers of Santiaoshi’, Modern China, 9, pp.387–419. Sziraczki, G. and Twigger, A. (1995) Employment Policies for Transition to a Market Economy in China, Geneva: ILO, Labour Market Papers 2. Tian, M. and Xu, J. C. (1989) Gonghui Da Cidian (The Dictionary of Trade Unions), Beijing: Economic Management Press. Walder, A. (1986), Communist Neo-Traditionalism: Work and Authority in Chinese Industry, Berkeley, CA: University of California Press. Warner, M. (1992) How Chinese Managers Learn, London: Macmillan and New York: St Martin’s Press. Warner, M. (1995) The Management of Human Resources in Chinese Industry, London: Macmillan and New York: St Martin’s Press. Warner, M. (1996) ‘ Chinese Enterprise Reform, Human Resources and the 1994 Labour Law’, International Journal of Human Resource Management, 7, 1, pp.776–96. Warner, M. (1997) ‘Management-Labour Relations in the New Chinese Economy’, Human Resource Management Journal, 37, 4, pp.30–43. Warner, M. (1999) (ed.) China’s Managerial Revolution, London: Frank Cass. White, G. (1987) ‘The Politics of Economic Reform in Chinese Industry: The Introduction of the Labour Contract System’, The China Quarterly, 111, pp.365–89. Yamashita, M. (1989) Gendai Kigyoo No Roomu Kanri (Modern Enterprise Labour Management), Tokyo: White Peach Press. Yuan, L. Q. (1990) Zhongguo Laodong Jingji Shi (The History of Chinese Labour Economy), Beijing: Beijing Economic Institute Press. Zhang, G. X. (1991) Zhanhou Taiwan Laogong Wenti (Labour Issues in Taiwan Since the Second World War), Taipei: Council of Formosan Studies. Zhu, Y. (1995) ‘Major Changes under Way in China’s Industrial Relations’, International Labour Review, 124, pp.36–49. Zhu, Y. and Campbell, I. (1996) ‘Economic Reform and the Challenge of Transforming Labour Regulation in China’, Labour and Industry, 7, pp.29–49. Zou P. and Liu Z. (1993) Zhongguo Gongren Yundong Shihua (The History of Chinese Labour Movement), Beijing: China Workers Press.

3 Chinese Trade Unions and Workplace Relations in State-owned and Joint-venture Enterprises Anita Chan1

This chapter examines how China’s industrial reforms have affected the relationship between the government, labour unions, and industrial workers. It will focus particularly on the conditions of the workers in the SOEs and JVs (looking separately at Western and Asian-invested JVs) at a time when the iron rice-bowl is no longer intact. In each of these two industrial sectors, the relationship between workers and management is quite different, which in turn leads to their workplace unions playing quite distinct roles. As will be seen, the workplace unions in the state enterprises are ﬁghting to retain their bureaucratic status as the enterprises undergo rapid ownership restructuring. In the JVs, the new workplace unions are even weaker, and many are almost completely dominated by management. This chapter will try to draw some conclusions on the future prospects of the ofﬁcial Chinese trade unions in the context of the enormous pressures Chinese workers are facing as the economy advances towards capitalism.

1

The Maoist Party-state and trade unions

In the ‘workers’ states’ from the very start a fundamental question was debated as to why it should be necessary to have a trade union, given that in theory the Party-state was the embodiment of the workers’ aspirations. Immediately after the October Revolution in the Soviet Union, a compromise relegated the trade union to the role of a ‘trans34

Anita Chan 35

mission-belt’ between the state and the workers, a phenomenon characterized by students of socialist systems as ‘classic dualism’ (Pravda and Ruble, 1986:1–21). In 1949, once the CCP assumed power, despite internal debates it adopted the same modus operandi as its Russian mentor through ACFTU. The ACFTU was assigned two functions: by top-down transmission, mobilization of workers for labour production on behalf of the state; and by bottom-up transmission, protection of workers’ rights and interests (as seen in Chapter 2). In reality, the Chinese state was so powerful that the top-down transmission of Party directives regularly suppressed any bottom-up transmissions relating to workers’ interests. The union merely functioned as an arm of the Party-state. The result was that workers had little hope of channelling their grievances upwards, creating a potentially explosive situation. Over the past half-century, workers periodically participated in disturbances and conﬂicts, averaging about one major upheaval every decade, at times when the Party-state was weakened or in disarray. Sometimes ACFTU joined in, and it even took the lead in the mid1950s. But invariably, these movements were crushed with alacrity and sometimes brutality. As in other Communist states, on a daily basis the relationship between the Party-state and the workers embodied two separate components: (1) a package of work-related issues such as management– worker relations on the shop ﬂoor; and (2) the workers’ share in the redistribution of the wealth created by the production unit, paid out in wages, medical insurance, pensions and so on (see Chapter 4). Although to the individual Chinese worker these were very different concerns, in scholarly studies on Chinese workers the distinction is often glossed over, and in the process the issue of redistribution often dominates the discussion. The work relationship The state’s rhetoric concerning the relations of production is one which ostensibly involved worker participation. Formalistic institutions and procedures had been set up to solicit workers’ opinions and to instil a ‘voluntaristic’ work ethic on the shop ﬂoor. In reality, though, the factory’s Party Secretary basically decided all production policies. But even he (rarely was the secretary a female), standing at the end of a chain of Party hierarchical commands, usually acted in accordance with Party ﬁats, at times disregarding market, production and ﬁnancial considerations. Production units, after all, did not have

36 Trade Unions and Workplace Relations

to be responsible for proﬁts and losses so long as the unit could meet planned targets. The Maoist economy suffered from all the symptoms of a socialist command economy (Kornai, 1980; Walder, 1986). The problem was further exacerbated by a vast army of excess labour in the ﬁrm. What concerns us here is that workers’ grievances under the Maoist state system were not directed towards the work process. The core of the problem was not one of a suppressive work regime, of inhumanely long working hours, and so on; on the contrary, as a generic problem of the command economy, there was very little managerial control of workers in the process of production. Workers worked at their own pace, and management implicitly had to negotiate with them to fulﬁl production targets. Chinese workers’ disaffection arose instead from the general oppressiveness of a harsh political regime (as opposed to labour regime) manifested in the absence of personal space under the constant surveillance of the Party branch and Party members: the fear of uttering even in private anything perceived to be ‘counter-revolutionary’, the threat of the much-dreaded ‘struggle meetings’, unfair promotion prospects for jobs, the existence of a privileged political elite in the work unit, and unfair distribution of resources, especially in the distribution of housing. The redistributive relationship This brings us to the second component of management–labour relations, the politics of redistribution. In the Maoist decades, workers’ upheavals on a nationwide scale were met invariably with the authorities’ denunciation of ‘economism’ (Oksenberg, 1968; Liu, 1987). In everyday life, though, at the enterprise level state workers did not usually confront factory authorities with demands for pay rises, knowing that the factory’s Party Secretary was in no position to adjust the nationwide wage scales set by the government. The most acrimonious issue with regard to their immediate superiors had always tended to centre on perceptions of a lack of fairness in redistribution. This resentment was translated into violence when the Cultural Revolution broke out in 1966 (Liu, 1987:43–9). Under Mao, the industrial labour force, as in any capitalist economic system, was divided into core and peripheral sectors. The former were workers employed by state enterprises, normally on a lifetime basis, while the latter were employed either as temporary contract workers by the state-run ﬁrms or by urban and rural collectives. But this latter group was a minority. In 1978, on the eve of the Dengist

Anita Chan 37

economic reforms, there were 74 million state-enterprise employees, making up 78 per cent of the non-agricultural workforce, enjoying not just lifetime employment, but also better pay and cradle-to-grave beneﬁts (1990 Zhongguo laodong gongzi tongji nianjian: 9). The hallmark of this ‘socialism’ was ‘welfare socialism’, and the Maoist regime claimed its legitimacy in the cities based on this ‘welfare socialism’. It has come to be viewed as a birthright by state workers. For workers on the periphery, to attain that right became a life-long aspiration.

The Dengist Party-state and labour Beginning in 1978, when Deng Xiaoping and his supporters introduced economic reforms to lift the country out of economic stagnation, the main macroeconomic and industrial reform programmes involved: marketization; entry into the global economy; raising productivity in the state sector by reforming management practices; reducing excess labour in the state enterprises; gradually instituting a contract system in place of lifetime employment; introducing a labour market; reducing state workers’ beneﬁts and a widening of the wage gap by abolishing the national eight-grade wage system; separating the Party and administration by investing the manager with more power; and forcing enterprises to be responsible for their own gains and losses. On the shop ﬂoor, work discipline was expected to be tightened, and welfare socialism could no longer be taken for granted (Warner, 1996a:30–40). Meanwhile, challenged by the rise of Poland’s Solidarity movement, the Party rejuvenated ACFTU and the enterprises’ staff-and-workers’ congresses in the hope that these institutions could help to defuse workers’ discontent (Wilson, 1990:259–80). Worried about social instability, the reformers also took a more gradualist approach to industrial-sector transformation. The collapse of the Soviet Union and the East European bloc drove home the message that to be cautious is far better than ‘shock therapy’. These reform measures resulted in the emergence of several new phenomena that have grave repercussions for the state–worker relationship. First was the rise of bureaucratic sectoral interests. 2 As the state transformed itself from totalitarian to authoritarian in the absence of a civil society, bureaucratic interests, the most organized and powerful institutions after the CCP, have manoeuvred for political turf, and more recently also for economic turf. They have become more active proponents of their own sectoral interests.3

38 Trade Unions and Workplace Relations

ACFTU had been an insigniﬁcantly weak bureaucracy. However, over the past 25 years it has gradually gained a foothold in the decision-making arena (more about this in Section 4 below). To live up to its bureaucratic raison d’être, to serve as a conduit for its assigned constituency, at the national level it has put itself forward within the government as a representative of workers’ interests, and in the process it has had to contend with other, more powerful bureaucracies, especially those which are empowered to make economic decisions (Chan, 1993:31–61). A second consequence is the increasing autonomy gained by administrative regions at the expense of the central government. Central policies no longer always penetrate the provinces. Since local governments have the leeway to adjust central policies to local conditions, the central government’s policies on labour as well as the regulations that emanate from ACFTU are easily thwarted and superseded (Hsing, 1998:128–43). This also applies in the legal realm where local governments can draw up regulations so long as they do not ‘violate the national constitution, national laws, policies, orders and decrees’ (Siao and Chao, 1994:3). As will be seen later, this has had serious repercussions vis-à-vis labour conditions. The third consequence is that with decentralization, as enterprise management becomes empowered to set wage-scales and to decide on production plans, conﬂicts between workers and managers have dramatically increased (see Chapter 11). The issue of fairness that had been a source of conﬂict between the factory authorities and the workers continues to be so despite a drastically depoliticized climate on the shop ﬂoor. Indeed, management–labour tensions are on the rise now that directors have the power to set wage-scales instead of the distant central government in Beijing. This has given rise to a new form of industrial relations in the state sector. Finally, as China enters the global economy, new categories of enterprises that had previously not existed under Mao have emerged. Broadly, they can be classed into indigenous private enterprises, plus joint foreign/domestic ventures, and fully foreign-funded enterprises (FFEs). For all intents and purposes, these all operate under a capitalistic logic, giving rise to new types of industrial relations. In sum, the reforms that originally were initiated from above have eroded the power of the Party-state. The once direct relationship between state and workers is now mediated by sectoral bureaucracies, regional power brokers, and/or private capital.

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3 Management ideologies and patterns of industrial relations Based on the nature of ownership, enterprise size, divergent management philosophies and whether the production is labour- or capitalintensive, three ideal types of industrial relations can be distinguished: (1) a collective consultative pattern; (2) an HRM pattern; and (3) an Asian authoritarian pattern. The collective consultative pattern: state and collective enterprises Management–worker relations in these enterprises are prescribed by the Enterprise Law passed in 1988 (Renmin ribao, 16 April 1988). Under this, there supposedly is a built-in mechanism of checks and balances between management and workers, though with ultimate authority residing with management. Workers’ interests are supposed to be represented by a democratically elected enterprise Staff and Workers’ Representative Congress (SWRC) that is the supreme decision-making body, with the trade union acting as its executive organ. The Party Secretary, who in Maoist days was the supreme commander, is relegated to an overseer’s position. The guiding principle in these enterprises, according to the Enterprise Law, the Labour Law and the Trade Union Law, is supposed to be collective and egalitarian, granting the workers a role in the redistributive mechanisms and imposing a ceiling on managers’ salaries to a maximum of two to three times those of the workers (this does not prohibit managers from enjoying non-cash privileges). Above all, the SWRC is entrusted with the power to appraise and ﬁre managers. In practice, as is commonly recognized, the managers’ power in these enterprises far outweighs the workers’. Often the SWRC has been reduced to a formalistic institution, while in some ﬁrms they do not even exist. Worse yet, a fact that has been overlooked by other studies of organizational structures of Chinese enterprises is that, more often than not, the manager and some of the managerial staff have become SWRC representatives, with their power and status dominating the SWRC.4 The enterprise trade unions in most cases continue to function merely as departments of the management, in charge of welfare and beneﬁts. There is a great deal of overlapping in personnel between these functional organs despite the fact they were set up explicitly to check each other’s power. For example, the ﬁrm’s personnel manager is sometimes responsible for personnel matters in the trade union

40 Trade Unions and Workplace Relations

committee, or mid-level managers sometimes serve as SWRC representatives. So, too, since by deﬁnition every person in the factory is a state employee, the manager has as much right to be a trade-union member as any permanent worker. Readers who take Western-style adversarial management–worker relations as the norm in industrial relations undoubtedly will dismiss this set-up as a joke, yet my ﬁeld observations clearly show that describing this pattern of industrial relations as consultative cannot be so readily dismissed. Despite workers’ cynicism with regard to the effectiveness of the SWRCs, they actually hold an ambivalent attitude towards them. For instance, according to an ACFTU survey, 90.5 per cent of the state workers think that major issues proposed by management should be approved by the SWRCs (Feng, 1994:247). In fact, as more and more state enterprises and urban collectives have adopted a new corporate governance, the so-called modern enterprise system, which contains a new body called the ‘board of directors’, the trade unions and sometimes workers have been pushing hard to get SWRC representatives on to the board. Additionally, despite the general ineffectiveness of the SWRC, managers try to exclude SWRC representatives from the new management structure (Gongren ribao, 23 July, 10 November 1997; Laodong bao, 13 June, 14 August 1997; Wuhan gongren, 11 June 1997; Shenxi gongren, 25 June 1997). This very act of resistance is indicative of managers’ wary approach to the potential effectiveness of the SWRC. It can be argued that it is not so much whether these various overlapping organs (management, Party, SWRC and trade union) are in collusion or not, as without doubt they are; the real signiﬁcance lies in the collective ethos that in the large ‘core’ state enterprises has replaced the state-oriented ethos of the Maoist SOEs (Chan, 1996:181–202). This newer ethos prescribes a framework for all of the actors within the work unit to protect the interests of the enterprise vis-à-vis the state. Under the reforms, once state-run enterprises are no longer constrained by the central state’s economic plan (and, indeed, are forced to be ﬁnancially independent from the state), they need to fend for their own enterprise’s interests. Worker and managerial incomes alike depend upon protecting those interests from the state. Andrew Walder’s perceptive study of state enterprise managers’ behavioural patterns in the early phase of the reforms in the ﬁrst half of the 1980s precisely describes this behaviour. Managers had to depend on workers’ co-operation to get production going. The result was widespread capitulation to workers’ demands by enterprise managers once the doors were opened to a devolution to the ﬁrm of

Anita Chan 41

bonus-setting powers. Between 1979 to 1984, workers’ take-home pay doubled, far in excess of any rises in productivity (Walder, 1989:242–64). As managers were still able to manipulate the soft budget constraint in those years, there was a sudden blow-out in government deﬁcits and in consumption spending among China’s workforce, and especially in new enterprise-funded housing. Of the four kinds of managerial behaviour identiﬁed by Walder, involving various ploys to cultivate good ties with the Party, employees, the bureaucracy and other enterprises, all of them can be described as attempts to manipulate relations in order to gain more inputs and subsidies for the enterprise community (Walder, 1989:249). If Walder’s observation was correct, it meant state enterprise managers, like those in the Maoist days, still were not putting productivity and quality on their list of priorities. After all, it is not easy to raise incentives in obsolete and undercapitalized factories where ‘three people’s tasks are done by ﬁve people’, as the common saying went. Instead, the managers’ energy was taken up in responding to workers’ pressure to maintain or increase material redistribution. However, as the economic reforms deepened, the state’s determination to cut the expensive umbilical cord with state enterprises (though not to the extent that it created a politically dangerous sudden rush of massive unemployment) pushed more and more state enterprises into dire ﬁnancial straits. Without substantial new injections of capital, these state enterprises could not compete with products from the nonstate sector or with imports. At the same time, these enterprises had to support from current proﬁts a disproportionally large number of retirees, and their astronomical medical bills (see Chapter 4). Several options have been open to such money-losing state factories, which amounted to more than half of all the state enterprises in 1994 (China News Digest, 28–29 October 1994), and increased to 75 per cent in 1997 (Reuters New Service, 23 June 1997): to reduce the workforce by whatever means; to try to attract foreign capital and to turn the enterprise or a portion of it into a JV; to transform itself into a joint stock company; or, failing all of the above, to go bankrupt. All these options have been used by SOE managers in the 1990s, but it was the Fifteenth Party Congress which gave an ofﬁcial go-ahead to massive lay-offs and the restructuring of small and medium-sized SOEs (Lau, 1998). When this restructuring occurred, many workers were made to purchase ‘shares’ costing up to a year’s wages or more to keep their money-losing enterprises aﬂoat. Those who could not afford shares or refused to buy them were often penalized or ﬁred. In one survey of 640

42 Trade Unions and Workplace Relations

shareholding co-operatives in Liaoning province in 1998, 63 per cent of them had forced workers to buy shares against the workers’ wishes, and all of these tended to be poorly performing enterprises (Gongren ribao, 14 May 1998). All the same, this new kind of shareholding cooperative may give rise to a new type of industrial relations. When workers are both employees and shareholders, their relationship with management is likely to be different from that in the traditional state enterprises. We will need to wait and see. Whatever the case, as the umbilical cord with the state gets cut, large numbers of workers are being shed. Before 1997, the SOEs’ trump card against the withdrawal of state funding was the threat of social instability, but the government more recently has been determined to take the risk. In May 1997 the number of registered unemployed reached 5.6 million (Ming bao, 30 July 1997). In October 1998, according to the New China News Agency, the ﬁgure topped 8 million (China News Digest, 16 October 1998). But the enormity of the problem is in the number of laid-off (xiagang) workers. To be laid off, unlike unemployment, means that the worker’s relationship with the enterprise has not yet been completely severed. Housing and a minimal monthly survival allowance are still available from the factory. At the end of 1996 the number of laid-off workers stood at about 9 million (Nanfang zhoumo, 31 October 1996); by the end of 1997 it had reached more than 10 million (Zhongguo laodong bao, 11 November 1997). China Daily, China’s ofﬁcial English newspaper, cited an even higher ﬁgure, putting the entire number of the urban jobless at 27 million (China News Digest, 27 May 1997, citing China Daily a week earlier). In May 1998, after the new policies of the Fifteenth Party Congress had begun to bite, Premier Zhu Rongji reiterated that ‘mass lay-offs are unavoidable’ (China News Digest, 19 May 1998, citing New China News Service of 16 May 1998). The most affected have been women, who make up more than 60 per cent of those laid off (Zhongguo laodong bao, 11 November 1997). In addition to the laid-off and unemployed, an increasing number of retirees as well as workers who are still on the payroll have not been paid for months at a time (Forney, 1997:14–16), because neither the enterprise nor the local government has the money. In the ﬁrst quarter of 1998, about 3 million retirees were owed 4.7 billion yuan (http://www.singtao.com/news/08/0608eo06.html). The human resource management pattern: Western joint ventures This type of industrial relations is mainly found in JVs, which are an amalgam of a PRC state enterprise and investment by a corporation

Anita Chan 43

from an industrialized foreign country. When the JV involves a Western ﬁrm rather than an Asian ﬁrm, it is generally bigger, more capital-intensive and more high-tech – an operation that requires a better educated and stable workforce. These include big-name Western multinationals, where managers for decades have been used to contending with adversarial labour representation, but which in more recent years have become converts to the Japanese consensual style of management (Bamber and Lansbury, 1993:6; MacShane, 1994:52–5). The Western adaptation of this Japanese management style involves so-called human resource management (HRM), which has been packaged as a standard course taught in Western business schools. The idea is that nurturing people as a resource is a precondition to corporate success. My interviews in a number of these ﬁrms in north China suggest that Western management expatriates in Chinese JVs do try to put this management philosophy into practice, if for no other reasons than that it is necessary to maintain a stable workforce and to keep up work incentives. On the shop ﬂoor they try to solicit workers’ opinions on the work process, and to encourage an individually responsible work ethic among the workers. They also try to introduce more formalized, rule-abiding management practices and to decentralize authority to middle management. Promotion prospects are based on career ladders and quantiﬁable achievements (as opposed to the Chinese state’s subjective criterion of ‘good behaviour’, which promotes partiality in promotions and, understandably, workers’ disaffection). The Western managers soon ﬁnd that introducing HRM changes are not easy (see Chapters 7, 8 and 9). There is widespread unwillingness up and down the hierarchy to make decisions and take responsibility in the production process (Child, 1994:259–61; China–European Community Management Institute and China Enterprise Management Association, 1990:88–9). On these JV shop ﬂoors, to be sure, the pace of work is faster, work discipline tighter, and quality control more stringent than in Chinese state enterprises (Child, 1991:93–107). Since only a few expatriates can be sent to work in the JV, aside from a couple of top managers the expatriates normally head only the production and quality control departments. Chinese management therefore usually has charge of everything else. These Chinese managers, relieved from production and quality-control responsibilities, channel their main energies into redistribution and personnel. This latter area, where the personnel department in the Maoist tradition functions as a political and social control organ that relies upon particularistic patronage-building,

44 Trade Unions and Workplace Relations

arouses the greatest dissatisfaction among the expatriates (China– European Community Management Institute, 1990:62–7). The Party committee of the Chinese parent company will ensure that these ‘management practices with Chinese characteristics’ get implanted into the JV, if for no other reason than to continue to exercise the Party ofﬁcials’ long-standing power over other people. On the other hand, the Chinese parent enterprise ensures that the foreign partner complies with labour regulations. The Chinese side also presses for provision to employees of housing and other welfare beneﬁts matching up to the best of the state enterprises. The result is that JVs of this type, which require a more stable, skilled and technologically sophisticated workforce and are blessed with ample funds, often pay comparatively high wages and provide a cleaner, newer and safer work environment, complete with housing and fringe beneﬁts that are superior to those offered even by large proﬁtable state enterprises.5 Workers in these JVs, which often are located on a section of the Chinese parent factory’s main compound, become the targets of envy from their counterparts in the parent enterprise. Management–worker relations in these JVs generally are not adversarial (see Ng and Warner, 1998). Rather the fault line is usually drawn between the foreigners and the Chinese (for both management and workers). By regulation, the trade union of the Chinese parent company can function in the JV but, because a Party branch cannot function ofﬁcially in a JV, the trade union chair here is sometimes really the Party Secretary or Vice-Secretary in disguise. That is to say, the JV’s Party branch has basically incorporated the functions that are normally performed by the trade unions (Nyaw, 1991), which means the trade unions in such JVs actually have some power. A foreign manager who understands how the power structure of the Chinese side works tends to take the union seriously. The trade union and Party branch together with the Chinese manager, form a united front. They view the foreign partner in much the same way that state managers view the state, as the source of welfare provisions. The foreign partner, on the other hand, is happy that it does not have to deal with a powerful trade union like the one back home. Negotiations get carried out with the Chinese management and trade union-cum-Party, which act as the mediators between foreign management and the Chinese workforce. The foreign partner can be assured that the Chinese management will not be too demanding and unreasonable, for it too has a vested interest in making the JV a ﬁnancial success. The end result generally provides for non-confrontational management–worker relations.

Anita Chan 45

In fact, workers’ private resentments often are directed not against the foreign employers but rather towards the Chinese managers for their inefﬁciency, corrupt practices and partiality towards their own kin and cronies. The number of JV enterprises of this kind is comparatively small. The United States, the third biggest foreign investor, only constituted 8 per cent of the total foreign capital investment in 1996, and Germany and Britain together comprised only 4 per cent. The major investors are Chinese from Hong Kong and Taiwan, taking up 58 per cent (Zhongguo duiwai jingji maoyi nianjian 1997:603). Out of the 6 million workers employed in the entire foreign-invested sector, the number employed by the Western JVs is correspondingly few. These ﬁrms’ signiﬁcance lies in their being seen as agents of the transfer of advanced technology. The presence of Westerners is important too, in that their business communities provide the training ground for what are considered modern marketing and management skills, either by funding PRC managerial personnel to go abroad for training, or by propagating the HRM philosophy in foreign management schools set up in the major Chinese cities. With time these efforts might yet take root. Warner is willing to forecast ‘a possible progression from past divergence to future convergence’ (Warner, 1997:29). Both Western and Chinese managements ﬁnd HRM appropriate as a non-adversarial and consultative management style that succeeds in co-opting the workforce. The Asian authoritarian pattern: Asian joint ventures and homegrown private enterprises This pattern of industrial relations is found in two different kinds of enterprises: ﬁrst, in the indigenous private enterprises, which tend to be small and are located mainly in the rural townships and county towns; and second, in the Asian JVs and fully funded enterprises from Asian countries where there is no tradition of management negotiations with trade unions. In the Asian-invested enterprises the management–labour relationship is reminiscent of the nineteenth-century Industrial Revolution (Chan, 2000). Workers are forced to labour anywhere from 10–12 hours or even longer each day, with no days off for weeks on end, at low pay, in poor and unsafe working conditions, with high accident rates and deskilled repetitive tasks set at break-neck speed for four hours at a time without rest, except for brief scheduled toilet breaks of one to two minutes (Chan, 1998b; Hsing, 1998:78–107). At two factories, I was told of workers being made to rotate their back-to-back bunk-bed bed-space

46 Trade Unions and Workplace Relations

(literally the only private living space that a worker can claim to be his or her own) with workers working other shifts. In short, workers are treated like machines, not only in the production process on the shop ﬂoor, but for 24 hours a day. In 1997, according to a survey that Shenzhen’s labour inspection organs carried out in Taiwanese-invested ﬁrms, 210 of the 561 enterprises inspected were notiﬁed of various labour law violations. Deducting wages and withholding deposits was widespread. About one-ﬁfth of some 200 enterprises in one industrial district were found to owe workers wages. The average monthly overtime enforced by these Taiwanese enterprises was 50–70 hours, and in some cases this reached 120 hours. The worst factory of all had required 216 hours: that is, more than 50 hours of overtime per week. This is some six times the maximum allowed amount of overtime stipulated in the Labour Law (Guangdong laodong, 21 April 1997). The logic of this management method is to squeeze as much surplus labour as possible out of these human machines, and to discard them once they are spent, for there is no job security and no unemployment beneﬁts. All of these practices are blatant violations of Chinese government regulations. In comparison, one cannot but appreciate the difference it makes when the PRC JV partner is a state enterprise and when the union is headed by a Party branch secretary. The Korean, Taiwanese and Hong Kong employers have been reported as the most suppressive foreign managements vis-à-vis workers.6 These ‘Little Dragon’ foreign-funded factories are mostly located in the SEZs along the eastern seaboard and are most highly concentrated in Guangdong province. A large proportion of the workforce is made up of migrants from the countryside, and a high percentage of these are young women. Some of the Taiwanese and Korean owners are known to run factories like an army boot camp (Chan, 1997:12–15; Hsing, 1998:103–4). Workers are made to march to work in the morning, stand at attention, yell out company mottos, and obey iron discipline on the shop ﬂoor and in the dormitories. In one notorious case at a Taiwaneseinvested shoe factory in Guangzhou City, based on an investigative report by two newspaper reporters posing there as migrant workers, corporal punishment was meted out to workers on a daily basis. Workers were made to do push-ups, hang upside down against a retaining wall, stand in the sun, and run around the factory grounds with tens of kilograms of iron shoe moulds around their necks. The factory was so heavily guarded that workers could not escape

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(Yangcheng wanbao, 30 August 1997; see also Shenzhen tequ bao, 7 February 1994; Yuegang xinxi ribao, 4 February 1994). The Chinese authorities are afraid that if industrial peace is not maintained, and if an image gets out to potential investors that the Chinese workers are no longer docile and hard-working, capital will ﬂee and potential investors will locate elsewhere in Asia. Already, Vietnam has diverted from China a large amount of Taiwanese capital. Many Hong Kong and Taiwanese ﬁrms now eye Vietnam as the next frontier for contracting-out labour-intensive industries (a move that is being encouraged by the Taiwan government, which warns of overdependence on the PRC). The Chinese government realizes that attracting foreign investors is a cut-throat and competitive business. The indigenous Chinese partners in these ‘Little Dragon’ foreignfunded JVs tend to be either local governments and their various bureaucracies, or indigenous capitalists. They work in collusion to keep out the ofﬁcial trade union, or to keep it very tame and a tool of management. In mid-1994, only 20–30 per cent of the FFEs contained union branches. But when the central government became worried about worker discontent in this sector, it handed down quotas, in a manner reminiscent of a Maoist-era campaign, to set up workplace unions as soon as possible in these enterprises. In a race to meet the quotas, by the end of 1995 around 57 per cent of the 460 000 foreignfunded factories were reported to allegedly contain union branches (Zhongguo gonghui nianjian 1996:37), and by 1997, in some districts in Guangdong province, the unionization rate supposedly reached over 90 per cent (Nanfang gongbao, 20 August 1997). This unionization drive had been twisted to the foreign investors’ beneﬁt, however. Field interviews revealed that the workplace union chairpersons in these enterprises more often than not were the managers or deputy managers of the enterprise who had been asked to take on a second responsibility as the trade union chair (Chan, 1998a:122–49). As an example, in a JV factory co-owned by a Hong Kong corporation and a Chinese county government that I visited in 1994, the new union chairman embodies the blessed trinity; he is the manager on behalf of the Hong Kong investors, the Party branch secretary and the trade union chairman, all in one. The factory’s personnel manager, who is also the deputy trade union chairman, reached for a pile of leaﬂets detailing Guangdong province’s labour regulations and casually handed me one to show that she is well aware of the labour regulations. She had all but forgotten that the pile was sent to her by the provincial government for distribution to her factory’s 1500 workers so

48 Trade Unions and Workplace Relations

as to alert them to their labour rights. Not surprisingly, the workers in her factory were not aware that two months earlier the national government had shortened the ofﬁcial working week from 48 to 44 hours, and neither did they know that working four hours’ overtime every night is against regulations, nor that the workers should have been paid 11/2 times the normal hourly wages for every hour of overtime. Given the poor working conditions, spontaneous strikes and goslows are becoming a commonplace phenomenon in the SEZs (see Chapter 13). Back in the late 1980s, in some of the earliest export zones in southern China’s Guangdong province such as Shenzhen, Shekou and Zhuhai, workers had already been staging wildcat strikes and protest actions against the low pay, poor work conditions and long working hours. But at that time, when the export zones were being heralded in the Chinese press as great economic successes, the Beijing authorities paid scant attention to the voices of protest. After all, in 1989, the emergence at Tiananmen Square in Beijing of the ﬁrst independent trade union, the Beijing Workers’ Autonomous Federation, had not stirred up any ripples in the southern export zones. But as vast amounts of foreign capital from Hong Kong and Taiwan poured into the zones in the 1990s, and industrial action in the south shot up dramatically at the Little Dragon-funded factories, Party leaders began to perceive that they could no longer so readily turn a blind eye to workforce unrest. China, after all, is still purportedly a ‘socialist’ state.

4

Sprouts of a tripartite structure

The deteriorating conditions of a portion of the state workers, and the exploitation suffered by the workers in the factories of investors from the three Little Dragons and the private sector, have gradually forced the state into acting as an arbitrator between management and labour (Feng, 1994:251). The Enterprise Law, as noted earlier, places the Party in a mediating role inside state enterprises. Beyond the enterprise level, the Ministry of Labour and the local labour bureaus serve in this capacity. Workers with grievances regularly go to the labour bureau ofﬁces to appeal for help or bring cases to the local arbitration committee. The committee is comprised of local representatives in equal numbers from (1) the government’s labour administrative organ, representing the state; (2) the trade union; and (3) economic coordinating administrative organs. This amounts to an implicit recognition of a tripartite system of industrial relations, with three

Anita Chan 49

divergent interests, composed of representatives for the state, labour and employers (Renmin ribao, 21 July 1993). It is signiﬁcant that the local economic co-ordinating administrative organs such as the Foreign Economic Commission (Waijingwei) and the State Economic Commission have been granted the de facto role of serving as the representative for indigenous and foreign capital. Between 1994 and 1999, there has been a rapid increase in the number of cases handled by the country’s 2800-plus arbitration committees, a higher percentage of further appeals, and an increase in the number of decisions in favour of labour rather than management. At the national level, without much domestic propaganda, the government in 1990 ratiﬁed the International Labour Organization’s Convention 144, on tripartite consultation to implement international labour standards (ACFTU Law Department, 1994) (see Warner, 1996b). Having joined the ILO in the mid-1980s, China has been edging closer and closer to working with the ILO ofﬁce in Beijing, and has been consulting with the ILO on labour policy issues. The three sets of representatives who meet with ILO personnel are from the Ministry of Labour (representing the state), ACFTU (for the workers) and the China Enterprise Directors’ Association (for the employers). The last is a loose organization for state enterprises, with some private entrepreneurs participating, that was established by the government. 7 In organizing workshops and seminars on collective bargaining and on setting up a new nationwide social welfare system, the ILO invites an equal number of representatives from each of the three groups. In 1998, when the government launched a campaign for all enterprises to sign collective contracts with their workers (see Chapter 6), the ILO ofﬁce helped to organize workshops on collective bargaining, or what is euphemistically known in Chinese as ‘collective consultation’ (jiti xieshang), an expression that avoids any confrontational connotion.

5

The union federation and the labour laws

Interviews with ofﬁcials from these three groups centred in part on the negotiations to develop new labour laws for China. This was a tortuous process that went through some 40 drafts. 8 The ACFTU had taken the initiative in insisting that new labour laws had to be enacted, in lobbying the National People’s Congress and the China’s People’s Political Consultative Committee, and in attempting to seek the sympathetic ear of members of the State Council and the Party Central Committee. Had it not been for these efforts, the labour laws would not have been

50 Trade Unions and Workplace Relations

drafted, and would not be in their present form. Finally passed in July 1994, the laws evolved from many years of heated debates and negotiations between ACFTU and ‘them’ (that is, those in charge of economic affairs), over labour issues such as the number of work hours per week (a 40-hour or a 48-hour week), maximum overtime (24 or 48 hours’ overtime a month), dismissal procedures (whether the union needs to be consulted), unemployment beneﬁts, retirement beneﬁts, indexing wages to inﬂation, and so on. Comparing the October 1993 draft with the ﬁnal laws, ACFTU had won some points, but lost or compromised seriously over others. For example, the laws stipulate the maximum number of work hours per week as 44 hours and the maximum hours of overtime a month as 36 hours, exactly the midpoint between ACFTU’s and the economic bureaus’ positions. A fundamental issue that was debated is the deﬁnition of a ‘labourer’, as only a ‘labourer’ will come under the protection of the labour laws. Should a former peasant whose ofﬁcial residential status is classed as rural be classiﬁed as a labourer if he or she works in a nearby countytown factory? Local governments and agricultural bureaucracies lobbied for their exclusion, effectively attempting to strip some 100 million people of their rights under the law. ACFTU insisted on an inclusive deﬁnition. On this score, ACFTU won. Despite this partial victory for ACFTU, the nascent tripartite structure is weighted against the union federation. ACFTU is a weak bureaucracy and itself is in want of drastic structural reforms. At the apex it is under the ‘leadership’ of the CCP, and at the local levels it is under the thumb of local governments. An attempt in the 1980s to establish a more democratically elected union structure was thwarted by the postTiananmen clampdown. Had this earlier effort been successful, ACFTU could have strengthened its industrial unions in a way that would have helped it to better counter the local governments, Asian-funded JVs, private interests, and authoritarian SOE managers. It would also have created one of the preconditions needed for collective bargaining at enterprise level, as written into the laws. The government and ACFTU is now pushing a programme to have workplace-level collective contracts signed, concentrating their efforts in the state enterprises. In this sector, where labour is better organized and educated and more aware of workers’ rights, and where SWRCs are well organized, preconditions exist for some form of collective bargaining, or at least some kind of consultation. The success of the programme depends on whether the trade unions and/or the workers are willing to exert their rights. A recent study by Warner and Ng (1998) of

Anita Chan 51

collective contracts in Shenzhen cites ofﬁcial statistics showing that only a small percentage of the enterprises, mostly big ones, have signed collective contracts. Even among this small minority, it is unclear whether the contracts are of any value. That would depend on the contents of the contracts, the circumstances under which they were signed, whether the two parties were ‘consulting’ as equals, and the rate of enforcement. The Chinese press abounds with reports on the difﬁculty of carrying out genuine ‘collective consultation’ in state enterprises, the conclusion of one-sided contracts unfavourable to workers, poorly written clauses, and of management (and trade unions as well) going through the motions of signing photocopied sample contracts with scant consideration paid to reality (Gongren ribao, 14 July 1995; 30 March 1998; Guangzhou gongyun, 2, 1997:16–19). There are also signs for optimism, however. Collective consultation is beginning to take place beyond the enterprise level. In Guangdong province, a new policy calls for the amalgamation of the workplace unions of small enterprises into ‘trade union associations’ (gonghui lianhehui) which would sign contracts with employers’ associations (shanghui) (see Guangdong laodong bao, 2 April 1998). In Shanghai, the Machinery and Electrical Trades Union, comprising over 300 workplace unions and representing 240 000 workers and staff, signed a collective contract in October 1997 with the Shanghai Electrical Corporation (formerly the Electrical No. One Bureau). According to an ofﬁcial of this industrial union whom I interviewed in 1998, the initiative to draw up the collective contract came from the union. It has been hailed as a breakthrough in China’s industrial relations. But meaningful negotiations can only take place in those enterprises which are ﬁnancially healthy, and not those that are already in dire ﬁnancial straits, in particular those on the verge of bankruptcy. In circumstances where millions of state and collective workers are laid-off or not getting their regular pay (see Chapters 12 and 13), collective bargaining and the signing of collective contracts are nigh impossible. Workers can then only bring their grievances to the local government or central authorities.

6

Conclusion

The Chinese trade union federation is at a crossroads in these dire circumstances (White, Howell and Shang, 1996:39–68; Howell, 1997:73–90). To survive as a bureaucracy it needs to deﬁne a role for itself and to gain some trust from its assigned constituency, the

52 Trade Unions and Workplace Relations

workers (see Chapter 14). During the past two decades since the economic reforms began, it has not been a totally docile bureaucracy (Jiang, 1996:121–6): it has initiated pro-labour programmes, argued with other bureaucracies over drafts of labour legislation, and in other ways confronted bureaucracies whose functions by their very nature are anti-labour, such as those entrusted to develop the economy. No matter how weak and ineffectual ACFTU has been, it is the only bureaucracy in China today which holds a ‘pro-worker’ stance. The Party is careful to ensure that the trade union comes under tighter surveillance than other bureaucracies. ACFTU’s basic structure is enterprise unionism, which prevents cohesiveness within the union bureaucracy. Each level of the trade union is under the control of the Party-state organ of that same bureaucratic level. Marketization and privatization exacerbates the fragmentation. In SOEs, the trade union is being sidelined; in the newly transformed shareholding enterprises, managements are trying hard to rid themselves of workplace unions (Feng, 1998); in the Asian FFEs, as described above, the new workplace unions are predominantly chaired by the factory managers. Under Mao, the ‘transmission-belt’ vertical command structure held the union bureaucracy together. Today, economic decentralization weakens the trade union command structure. To the extent that the Party-state is willing to preserve the union and give it a role to play, the political leadership’s main purpose is to use it to diffuse workers’ discontent. Under the government’s prodding, and itself in search of a role, the union has taken on new roles as a welfare relief agency and as an employment agency. But within the trade union some wonder whether the union should get involved in relief work or whether it should instead concentrate on protecting workers’ rights. To pose the question in such terms is itself an indication that the perception of what trade unionism means is changing among some of the union staff. The ruling elite in China is caught in a dilemma (see Chapter 14). Should it throw its lot in with labour or with management/capital? Should it allow the union more independence to protect workers’ rights, or should it push ahead with the reforms and allow more layoffs and unemployment? For the time being, the political elite is undecided, but the drift is obviously towards the latter options. For some years, ACFTU has been able to play on leadership fears of workers’ unrest to win out in some of its efforts, but now that worker protests have become commonplace a crisis is looming. Should the union itself exploit this opportunity and side with the workers? Those

Anita Chan 53

within the union who advocate this position are very much in a minority. With both Chinese leadership and union ofﬁcials unwilling to intercede during the foreseeable future, the plight of the workers will almost certainly worsen.

Notes 1 Some of the material in this chapter appeared, in an earlier form, in ‘The Emerging Patterns of Industrial Relations in China and the Rise of Two New Labour Movements’, China Information, IX, 4 (Spring 1995), pp.36–59. My ﬁndings are based on six yearly ﬁeld visits, each of one to two months, to various cities in China between 1991 and 1998. The ﬁrst trip was funded by the Australian Academy of Social Sciences and the Chinese Academy of Social Sciences Exchange Programme, and the rest by Australian Research Council grants. Thanks are due to several colleagues from various Chinese institutions who worked with me as an ad hoc research team. As team members we shared contacts and helped each other to arrange interviews and factory visits. Thanks also go to Zhu Xiaoyang for helping with documentary research in Canberra and to Zhao Minghua, Li Cheng, Vic Taylor and Stephen Frenkel for their comments on earlier drafts. I am grateful to Jonathan Unger for his unreserved criticism and copy-editing. The ideas expressed here remain my own. 2 Some scholars have called this a ‘fragmented authoritarianism’ model (Lieberthal and Lampton, 1992:6–13). 3 One such example is that the newly revived All-China Federation of Industry and Commerce and the Ministry of Foreign Trade serves as advocate for their own interests and constituencies. On this, see Jonathan Unger (1996: pp.795–819). 4 Examples of scholars who have neglected this problem can be found in Yuan Lu (1996) and Ng and Ip (1994). My ﬁndings are based on visits to a number of state enterprises in Shanghai and Beijing. 5 Observation based on visits to three big Western JVs in Beijing in 1994. 6 Based on oral communications with PRC trade union ofﬁcials, trade union organisers and labour NGOs in the USA, ILO ofﬁcials, Western managers working in China, PRC workers, members of various diplomatic corps in Australia, and independent union researchers in Hong Kong in the past ﬁve years. 7 The best way to describe an organization like the Chinese Enterprise Directors’ Association (Zhongguo Qiyejia Xiehui) is that it is a semi-ofﬁcial organization with overlapping personnel from the China Enterprise Management Association, which was an association of state-enterprise managers originally set up by the State Council. This ofﬁcial linkage is manifested (like so many other evolving Chinese associations) by the fact that they share the same building, with both their signboards displayed in tandem at the front gate. 8 Information from two separate interviews conducted with a union ofﬁcial and an ofﬁcial of the Ministry of Labour who took part in the negotiations for the drafts.

54 Trade Unions and Workplace Relations

References ACFTU Law Department (1994) Waiguo laodongfa yu guoji laogong gongyye he jianyishu xuanbian (Selections of Foreign Labour News and International Labour Conventions and Suggestions), Beijing: ACFTU Law Department. Bamber, G. J. and Lansbury R. D., (eds) (1993), International and Comparative Relations, 2nd edn, Sydney: Allen & Unwin. Chan, A. (1993) ‘Revolution or Corporatism? Workers and Trade Unions in Post-Mao China’, The Australian Journal of Chinese Affairs, 29, pp.31–61. Chan, A. (1996) ‘Chinese State Enterprise Reform: Convergence with the Japanese Model?’, in B. McCormick and J. Unger (eds), China after Socialism: In the Footsteps of Eastern Europe or East Asia?, Armonk, NY: M. E. Sharpe, pp.181–202. Chan, A. (1997) ‘The Regimentation of Workers in China’s Free Labour Market’, Chinese Perspectives, 9, (January/February), pp.12–15. Chan, A. (1998a) ‘Labour Relations in Foreign-funded Ventures, Chinese Trade Unions and the Prospects for Collective Bargaining’, in G. O’Leary (ed.), Adjusting to Capitalism: Chinese Workers and the State, Armonk, NY: M. E. Sharpe, pp.122–49. Chan, A. (1998b) ‘Labour Standards and Human Rights: The Case of Chinese Workers Under Market Socialism’, Human Rights Quarterly, 20, 4 (November), pp.886–904. Chan, A. (ed.) (2000) China’s Workers Under Assault, Armonk, NY: M. E. Sharpe. Child, J. (1991) ‘A Foreign Perspective on the Management of People in China’, The International Journal of Human Resource Management, 2, 1, pp.93–107. Child, J. (1994) Management in China During the Age of Reform, Cambridge: Cambridge University Press. China–European Community Management Institute (1990) The Management of Equity Joint Venture in China, Beijing: China-EC Management Institute. China News Digest (electronic news service). Chinese Language Newspapers, Journals and Yearbooks: Gongren ribao (Workers’ Daily). Guangdong laodong (Guangdong Labour). Guangdong laodong bao (Guangdong Labour News). Guangzhou gongyun (Guangzhou Labour Movement). Laodong bao (Labour News). Ming bao (Bright News) (Hong Kong). Nanfang gongbao (Southern Labour News). Nanfang zhoumo (Southern Weekend). Renmin ribao (People’s Daily). Shanxi gongren (Shanxi Workers). Shenzhen tequ bao (Shenzhen Special Economic Zone News). Wuhan gongren (Wuhan Workers). Yangcheng wanbao (Canton Evening News). 1990 Zhongguo laodong gongzi tongji nianjian (Chinese Labour Wage Statistical Yearbook 1990), Beijing: Chinese Statistical Bureau. Yuegang xinxi ribao (Guangdong–Hong Kong Information News). Zhongguo duiwai jingji maoyi nianjian 1997 (China Foreign Economic Statistical Yearbook 1997), Beijing: China’s Economic Press.

Anita Chan 55 Zhongguo gonghui nianjian 1996 (Chinese Trade Union 1996 Yearbook), Beijing: The Chinese Statistics Press. Zhongguo laodong bao (China’s Labour News). Feng Tongqing (1994), ‘Zhongguo zhigong zhuankuan diaocha de zonghefenxi’ (An Analysis of a Survey of the Situation of Chinese Staff and Workers) in Jiang Liu et al., China 1993–1994: Shehui xingshi fenxi yu yuce (Analysis and Prognosis of the Social Situation in China 1993–1994), Beijing: Social Science Academy, pp.237–55. Feng Tongqing (1998) ‘Zhigong shehuicanyu yu wentiyanjiu – 1997 nian chuanguo zhigong duiwu zhuangkuang diaocha zhuanti baogao zhi wu’ (Research into the problem of social participation by staff and workers – ﬁfth report on the topic of the 1997 conditions of the nation’s staff and workers), unpublished article. Forney, M. (1997) ‘We Want to Eat’, Far Eastern Economic Review, 26 June, p.14. Howell, J. (1997) ‘Looking Beyond Incorporation: Chinese Trade Unions in the Reform Era’, Mondes en Devéloppement, 99, pp.73–90. Hsing You-tien (1998) Making Capitalism in China: The Taiwan Connection, New York: Oxford University Press. Jiang, K. (1996) ‘Gonghui yu dang-guojia de chongtu: bashi niandai yilai de Zhongguo gonghui gaige’ (The Conﬂicts Between Trade Unions and the Party-State: The Reform of Chinese Trade Unions in the Eighties), in Xianggang shehui kexue jikan (Hong Kong Journal of Social Science), 8, pp.121–6. Kornai, J. (1980) The Economics of Shortage, Amsterdam: North-Holland. Lau, R. (1998) ‘The 15th Congress of the Chinese Communist Party: Milestone in China’s Privatization’, paper presented at the International Conference on Communist and Post-Communist Societies, University of Melbourne, 6–10 July. Lieberthal, K. and Lampton, D. M. (1992) Bureaucracy, Politics and Decision Making in Post-Mao China, Berkeley, CA: University of California Press. Liu Guokai (1987) A Brief Analysis of the Cultural Revolution (edited by Anita Chan), Armonk, NY: M. E. Sharpe, especially pp.45–9. Lu Yuan (1996) Management Decision-Making in Chinese Enterprises, London: Macmillan and New York: St Martin’s Press. MacShane, D. (1994) ‘Unions at Home and Abroad’, Dialogue, 104, pp.52–5. Ng S. H. and Ip, O. K. M. (1994) ‘The Public Domain and Labour Organizations’, in M. Brosseau and Lo Chi Kin (eds), China Review, Hong Kong: Chinese University Press, pp.14.1–14.33. Ng S. H. and Warner, M. (1998), China’s Trade Unions and Management, London: Macmillan and New York: St Martin’s Press. Nyaw, Mee-Kau (1991) ‘The Signiﬁcance and Managerial Roles of Trade Unions in Joint Ventures with China’, in O. Shenkar (ed.), Organization and Management in China 1979–1990, Armonk, NY: M. E. Sharpe, pp.109–24. Oksenberg, M. (1968) ‘Occupational Groups in Chinese Society in the Cultural Revolution’, in The Cultural Revolution 1967 in Review, Ann Arbor, MI: Michigan Papers in Chinese Studies, 2, pp.1–44. Pravda, A. and Ruble, B. A. (1986) ‘Communist Trade Unions: Varieties of Dualism’, in A. Pravda and B. A. Ruble (eds), Trade Unions in Communist States, Boston, MA: Allen & Unwin. Reuters New Service.

56 Trade Unions and Workplace Relations Siao, R. and Yuanling Chao (eds) (1994) ‘Provincial Laws on the Protection of Women and Children’, a monograph issue of Chinese Law and Government, vol. 27, no. 1. Unger, J. (1996) ‘“Bridges”: Private Business, the Chinese Government and the Rise of New Associations’, The China Quarterly, 147 (September), pp.795–819. Walder, A. (1986) Communist Neo-traditionalism: Work and Authority in Chinese Industry, Berkeley, CA: University of California Press. Walder, A. (1989) ‘Factory and Manager in an Era of Reform’, The China Quarterly, 118, pp.242–64. Warner, M. (1996a) ‘Human Resources in the People’s Republic of China: The “Three Systems” Reform’, Human Resource Management Journal, 6, 2, pp.30–9. Warner, M. (1996b) ‘Chinese Enterprise Reform, Human Resources and the 1994 Labour Law’, The International Journal of Human Resource Management, 7, 4, pp.779–96. Warner, M. (1997) ‘China’s HRM in Transition: Towards Relative Convergence?’, Asia Paciﬁc Business Review, 3, 4, pp.19–33. Warner, M. and Ng Sek Hong (1998) ‘The Ongoing Evolution of Chinese Industrial Relations: The Negotiation of “Collective Contracts” in the Shenzhen Special Economic Zone’, China Information, XII, 4, pp.1–20. White, G., Howell, J. and Shang Xiaoyuan (1996) In Search of Civil Society: Market Reform and Social Change in Contemporary China, New York: Oxford University Press. Wilson, J. (1990) ‘“The Polish Lesson”: China and Poland 1980–1990’, Studies in Comparative Communism, 3/4, pp.259–80.

4 The Social Role of the Chinese State Enterprise Athar Hussain

1

Introduction

Historically, Chinese state enterprises have operated as semienclosed communities, more akin to the army than to ﬁrms in market economies (Walder, 1986). As well as producing goods or services for sale they have also provided either free or at low prices a wide range of services to their current and retired employees, and often to their families as well. Prominent amongst these have been housing, in- and out-patient medical treatment, schooling for children and (in some cases) even public utilities. The cash wage has traditionally been just one component of a package with array of beneﬁts in kind (see Hu, 1996). The extended social role of Chinese state enterprises binds much of the urban labour force to their respective work units (danwei) for not merely their working lives but also retirement (Walder, 1986). This role is increasingly perceived as a major barrier in the restructuring of state enterprises, including the closure of the ones with a slim chance of survival. Besides, faced with a dramatic worsening of their ﬁnancial position in recent years, many state enterprises have defaulted on their social obligations, such as pensions to their retirees, and have laid off their employees in large numbers. As result, the urban labour force no longer perceives employment in a state enterprise as a secure guarantee of income for life complemented with generous beneﬁts in kind; it offers, in Chinese parlance, neither an ‘iron rice-bowl’ nor an ‘iron chair’ (see Chapter 2).

57

58 Social Role of the Chinese State Enterprise

Dating from the pre-reform period, the social role of state enterprises was originally embedded in an economic and political structure with three salient features: • the integration of government budget with enterprise budgets and the proﬁtability of the state sector as a whole; • a combination of low wages with surplus labour and lifetime employment; • the work unit as the primary locus of political organization and social control. The integration of enterprise and government budgets spreads the ﬁnancing of social responsibilities across all enterprises, and insulates employment and wages in cash and kind in an enterprise from its ﬁnancial performance. At the outset of economic reforms, despite its extensive social obligations and surplus labour, the state sector generated a huge ﬁnancial surplus, thanks to its monopolistic position. This ensured the sustainability of the system of labour recruitment and remuneration in cash and kind. In the state industrial sector alone, one component, surplus (pre-tax proﬁt), amounted in 1978 to a hefty 21.8 per cent of GDP (State Statistical Bureau, or SSB 1998a:55 and 461). Labour recruitment in the state enterprises and government organization was geared less to meeting the labour demand and more to preventing the emergence of unemployment in urban areas. As it were, the labour supply created its own demand, and this had two consequences. First, the work unit-based social provision covered a large majority of the urban population. In 1978, 78.3 per cent of the urban labour force was employed in the state enterprises or government organization, and the rest were employed in collective enterprises, which tended to emulate state enterprises. Second, because of the large excess of job seekers relative to vacancies in urban areas, most work units had more employees than they needed. State enterprises were the mainstay of the urban social welfare system and the suppliers of a wide range of services that in market economies would be provided by the government, civil associations or ﬁrms (see Walder, 1986). Pre-empted by the extensive social role of work units, government provision of social services tended to be sparse, largely for government employees. Thus, a paradoxical feature of the Chinese urban economy has been the combination of extensive social security beneﬁts with a rudimentary capacity of the government to manage and administer social security schemes. If government agencies performed many of the

Athar Hussain 59

managerial functions, such as making output and investment decisions, enterprises, in turn, did what in developed market economies governments or civil organizations do. Thus, whereas economic decisionmaking was centralized in government departments, decisions concerning social services and collective goods were dispersed across a large number of enterprises. Broadly economic reforms are reversing this pattern by decentralizing economic decision-making to enterprises and centralizing (termed socializing in China) the social security system in the newly established Ministry of Labour and Social Security (MOLSS) and its territorial counterparts. The ﬁrst has preceded the second, which only started only a few years ago and is far from completed. Two factors kept in check the cost of overemployment and social provision by work units during the pre-reform period. One was the strict control on immigration from rural areas that limited the urban population and thus the numbers of beneﬁciaries. The control persists but is considerably loosened. The other was low cash wages and sparseness of social provision, which amounted to the price the urban labour force had to pay for secure employment and access to social services. As employment was non-terminable, welfare provision covered the whole life-cycle of individuals and employment and kinship relations were intertwined. There was an implicit obligation on work units to provide employment to sons and daughters of employees (at least the eldest, if not all), a practice (known as dingti) that continued well into the 1980s. Though phased out, the echoes of the paternalistic recruitment practice persist in the composition of employees (see Walder, 1986). The economic reforms and ensuing changes in their train have gradually eroded the ground from underneath the social role of state sector and called into question its rationale. Four aspects are particularly relevant in this regard: • the separation of enterprise budgets from the government budget; • a steady deterioration in the ﬁnancial position of the state sector which has accelerated in the 1990s; • the weakening of centralized wage determination and the granting to enterprise management discretion over wage determination; • the introduction of employment on terminable contracts and, in recent years, a huge rise in the numbers of lay-offs. Each of the above has been necessary to raise the efﬁciency of state enterprises and each in a particular way raises problem for continuing with their social role.

60 Social Role of the Chinese State Enterprise

The separation of enterprise budgets from those of the territorial government, which was amongst the ﬁrst measures of economic reforms, converted social provision by enterprises from a joint ﬁnancial liability of the state sector into individual enterprise liabilities, akin to ‘mandated employer beneﬁts’ (for a discussion of such beneﬁts see Kingson and Schultz, 1997). Such beneﬁts create a special problem in a transitional economy such as the Chinese, given that state enterprises were not established with reference to their future ﬁnancial viability. Thus the change introduced a tension between the extended social role of enterprises and their transformation into market-oriented organizations. With bankruptcy ruled out as an option, the continuation of the social role of enterprises became premised on subsidies to insolvent enterprises from the budget or through the banking system. The subsidization of enterprises unable to meet their ﬁnancial liabilities has given rise to what has been the running dilemma of reform of state enterprises. Strict adherence to ﬁnancial autonomy threatened to cut the ground from underneath the urban social welfare system and many of the social services, such as schooling. Conversely, subsidies to nonsolvent enterprises blunted, if not negated, the main aim of reforms. The Chinese government has since 1978 tried to deal with this dilemma through ad hoc compromises. Insolvent enterprises have been kept aﬂoat, though disadvantaged in various ways. A major effect of these compromises has been to widen variation in the range and level of welfare and social provision by enterprises depending on their ﬁnancial position. But the marked deterioration in the ﬁnancial position of state enterprises in recent years has made subsidization of lossmaking increasingly untenable and led to substantial erosion of social beneﬁts in loss-making enterprises. For example, the ﬁnancial surplus of the state industrial sector (the pre-tax proﬁt) amounted to a mere 4 per cent in 1997, down from 21.8 per cent of GDP in 1978 (SSB 1998a:55 and 461), and a majority of state enterprises are reported to be making a loss. The massive fall in the proﬁtability of the state industrial sector has been due to a mixture of competition, both internal and from imports, and a large shift in the share of value added going to wages (see Hussain and Zhuang, 1998). The transfer of wage determination to the enterprise management, which has been essential for economic incentives, has swept away the low-wage regime that previously ﬁnancially underpinned extensive beneﬁts in kind provided by enterprises. Incentive payments, to the extent they have worked, have widened the gap between the actual and the necessary labour force in enterprises.

Athar Hussain 61

Besides, three developments in terms and conditions of employment have diminished the large overlap that previously existed between enterprise-based and urban social welfare and provision. First, the percentage of state sector employees on short-term terminable contracts has risen from 7.0 per cent in 1986, when it was generalized to all new recruits, to 51.6 per cent in 1997 (SSB 1998a:148). As a result, unlike in the past, a majority of state sector employees no longer expect a lifetime attachment to a particular work unit, which provided the main rationale for its social role. Second, a substantial percentage of those who are formally ‘permanently employed’ are now laid-off (xiagang gong) – a category different from ‘unemployed’ – and expected to cut themselves lose from their respective work units within two years of their discharge (see also Chapter 12). The number of laid-off employees in state industrial enterprises at the end of 1997 totalled 4.1 million, around 10 per cent of their labour force (SSB, 1998a:438). These two developments call into question the rationale of tying social provision to the employment unit. Third, the percentage of urban employees in the state enterprises and government organizations has fallen from 78.4 per cent in 1978 to 54.7 per cent in 1997 (SSB, 1998a:130). It is likely to drop further by the turn of the century when the category of ‘laid-off employees’, who nominally are still regarded as employed, is due to be abolished. These, together with a rapid growth of non-state enterprises mean that social provision by state enterprises, and government organizations no longer cover a vast majority of the urban labour force as they did in the past. If state enterprises no longer ﬁnd it feasible to offer jobs for life, employees, in turn, have a greater incentive to resign from a state sector jobs than they had in the past. The non-state sector has grown and has become diverse; parts of it can offer remuneration comparable to that in the state sector. The rest of the chapter divides into four sections. Section 2 outlines the social responsibilities of state enterprises, with special reference to those in industry. Section 3 analyses the main problems created by these responsibilities. Section 4 discusses the recent trends towards a redeﬁnition of the social role of enterprises.

2

Social responsibilities of enterprises

The social responsibilities of state enterprises may be divided into two groups (see Wong, 1998): the ﬁrst covers, inter alia, housing, schools and out- and in-patient medical facilities, and the second includes their responsibilities under labour insurance. In a market economy, the

62 Social Role of the Chinese State Enterprise

items in the ﬁrst group would normally be provided by government agencies, civil organizations or ﬁrms. The second group comprises a changing mixture of what in market economies would be classiﬁed as ‘mandated employer beneﬁts’ and social insurance for wage-employed labour force (Kingson and Schultz, 1997). Housing, education and medical facilities A substantial proportion of housing, primary and lower middle schools and medical facilities in urban areas are attached to state enterprises and government organizations. In addition to these, enterprises also provide a wide range of social facilities to their employees, ranging from nurseries, kindergartens and laundries to bath houses and recreational facilities. Housing Until the state council directive of 1998, state enterprises were responsible for housing their employees. Given the missing market in housing, this responsibility covered the acquisition of land and construction of housing and also its distribution, maintenance and repairs. Paradoxically, the economic reforms increased the involvement of enterprises in housing rather than reducing it (World Bank, 1992). Given the huge shortage of urban housing inherited from the prereform period, enterprises and government agencies have since the early 1980s invested heavily in housing for their employees. Up to twothirds of new housing stock in the 1980s was built by state enterprises. As a result, housing in urban areas has improved substantially: for example, living space per capita has more than doubled from 3.6 square metres in 1978 to 8.8 square metres in 1997 (SSB 1998b:324). In market economies, except in special conditions, ﬁrms or organizations do not provide housing to their employees. Such special conditions normally concern a long-term attachment between an employer and employee and a close relationship between the place of residence and work performance, on the one hand, and a lack of alternatives on the other. The ﬁrst condition no longer holds as strongly as in the past. The rise in employment on contract in state enterprises (referred to above) implies that a majority of state-enterprise employees no longer expect a life-long attachment to one enterprise, which considerably weakens the initial rationale for the provision of housing by enterprises. The shift in the terms of employment over the reform period further raises the question of the source of housing for the rising

Athar Hussain 63

percentage of the urban labour force employed on short-term contracts or on a casual basis. Chinese cities increasingly need a channel for housing catering for workers who switch from one employer to another and for ‘temporary’ workers from the countryside. The obverse side of the provision of housing by enterprises, which is generally restricted to regular employees, is the proliferation of makeshift housing and informal settlements in Chinese cities. The principal economic problem with the provision of housing by enterprises is less that it is highly subsidized and more that the extent of subsidy is disguised. Generally, house rents cover little more than the recurrent cost of repair and maintenance, leaving most of the capital cost to be covered by enterprises. Despite a rise in recent years, house rents in urban areas average only 3.6 per cent of the living expenditure per person, which is exceptionally low by international standards (SSB, 1998b). It is estimated that house rents have to rise by six to seven times so as to amortize the capital cost of housing. The true cost of the subsidy remains disguised because commercialized housing, which normally provides a visible bench-mark for gauging the extent of subsidy, is still rudimentary. Divesting enterprises of their responsibility for housing is conditional on the emergence of a market in housing in urban areas. This, in turn, is premised on the purchase of existing housing stock by sitting tenants, on the one hand, and the growth of the construction of new housing for sale or rent on the other. Though accelerated since the State Council regulation of 1998, the sale of the existing housing stock is impeded by the structure of incentives and constraints facing enterprises and employees. The incentive for enterprises to off-load their housing stock immediately is not high because they are likely to get no more than a knockdown price paid in instalments. Employees with apartments have the option of either remaining as tenants or becoming owner-occupiers. The principal attraction of the latter is a capital gain in the long run when the housing market is developed but it offers no signiﬁcant additional beneﬁt immediately. If purchase prices of apartments are low, so are their rents. Employees with ample savings and secure jobs may opt for purchase. But for the rest, the absence of mortgage loan facilities and rising unemployment and lay-offs tilt the balance against not purchasing immediately. Many of the laid-off employees, who in most cases pay no rent, have neither the ability nor the incentive to purchase even at knockdown prices. The implication is that it would take a considerable time for the existing housing stock to be sold.

64 Social Role of the Chinese State Enterprise

Education State enterprises play a central role in providing the 9-year basic education to the children of their employees. They run 18 000 primary and middle schools, and employ 600 000 teachers and administrative personnel, which represents around 25 per cent of the educational staff in urban areas. These schools are ﬁnanced by enterprises, and their teaching staff are employees of enterprises rather than of education departments. The main problem with enterprise-run schools is that their pupils are drawn from a population that may be too small to exploit the economies of scale and of scope, a problem that is further accentuated by the falling number of children due to the one-child policy. Besides, the increasing percentage of employees on short-term contracts further weakens the rationale for enterprise-based schools. The principle of divesting enterprises of their role in basic education is now widely accepted and faces fewer obstacles than does the divestment of housing. The usual arrangement is the transfer of schools together with their staff to local education departments over a period of two to three years. The speed of transfer depends crucially on the ﬁscal position of the local government, which varies widely. Medical facilities Side by side with the medical facilities under the central Ministry and Territorial Bureaux of Public Health, there is an extensive parallel health system run by state enterprises (see Wong, 1998). Most enterprises have at least their own out-patient clinics and large ones may have extensive in-house medical facilities, including hospitals. The total number of medical facilities run by enterprises and organizations other than public health departments is 110 000. These employ 1.4 million medical personnel, who represent around 26 per cent of the total number of medical personnel, and they also account for around a quarter of hospital beds in the country. In recent years many enterprises with extensive medical facilities have separated off those facilities as cost centres from the main line of business and let them market their services. In some cases, these market-oriented health facilities have turned out to be more proﬁtable than the main lines of enterprise business. The major argument in favour of transferring enterprise hospitals to health departments is that they are less efﬁcient than public hospitals. For example, the average occupancy rate of beds in enterprise hospitals is 197 days per year compared to 237 days for hospitals run by health departments (SSB, 1998c:774). Small-scale out- and inpatient facilities pose a more difﬁcult problem than large ones do. They

Athar Hussain 65

are widely dispersed and are often too small to exploit the economies of scale and scope. Many of these may have to be eventually closed down, as the public health system develops. Re-employment centres As state enterprises divest themselves of health and education facilities and the housing stock, their role in the income maintenance of laid-off workers, their retraining and their job-placement has risen (see Chapter 12). At the end of 1997, state industrial enterprises carried responsibility for 4.1 million ‘laid-off’ workers (xiagang gong), which comes to around 20 per cent of their labour force (SSB, 1998a:432). Unlike ‘unemployed’ workers (shiye gong) with no relationship with their ex-work units, ‘laidoff’ workers are reckoned as employees and thus excluded from unemployment ﬁgures, even though they are not engaged in any work and are receiving only a living allowance rather than a wage. In principle, enterprises have to ﬁnance a third of the cost of their living allowances that range between 70 to 80 per cent of the minimum wage for the locality, and the remaining two-thirds are covered by the unemployment insurance fund and the municipal budget. The category of ‘laid-off’ workers is a recent innovation replacing the previously used category of ‘surplus workers’ (fuyu gong), who were paid basic wages but not bonuses (see Chapter 13). Each enterprise with more than a certain number or a percentage of laid-off workers is mandated by the government to establish a re-employment centre to retrain laid-off workers and place them in jobs. Job placement takes a variety of forms ranging from placement of retrained workers within the enterprise or in other enterprises, setting up subsidiary enterprises to create jobs for laid-off employees, or provision of capital for self-employment. Tutelary care and maintenance of ‘laid-off’ workers have in recent years become the biggest component of the social responsibility of state enterprises, second only to the care of ﬁnancing of their retirees. The ﬁnancing of the living allowances for laid-off workers and their retraining and redeployment is parallel to similar services for the formally unemployed run by municipal Labour and Social Security bureaux. As the numbers of ‘laid-off’ workers are currently around over three times the numbers of the formally unemployed, the system based in state enterprises (known as the ‘internal channel’) is far larger than the government one (known as the socialized or ‘external channel’). The principal problem with the ‘internal channel’ is that the burden of the care and maintenance of laid-off workers is unevenly distributed and has perverse consequences. Given that loss-making enterprises need to

66 Social Role of the Chinese State Enterprise

lay off a higher percentage of their labour forces than proﬁtable enterprises do, the burden is in inverse proportion to the ﬁnancial health of the enterprise. Besides, the burden is higher in older than in newer enterprises and industrial centres (for example, in north-eastern cities). Thus the current system handicaps poorly performing enterprises and cities and impedes their recovery. The government is aware of the problem and the category of ‘laid-off’ workers is due to be phased out at the turn of the century when they become the responsibility of municipal labour and social security bureaux (see Wong, 1998). Social welfare responsibilities under labour insurance State enterprises and government organizations have been the backbone of labour insurance that provides the following: • old-age and disability pensions; • health care and maternity beneﬁt; • unemployment insurance (only introduced in 1986). Labour insurance beneﬁts in the Chinese state sector are comparable to those in developed market economies and generous by the standards of developing economies. The problem in China is not one of introducing a system of social security from scratch but revamping the inherited system while keeping it functioning. Although labour insurance is based on national regulations, it has been largely ﬁnanced, organized and managed by work units. Until the changes in the middle of 1998, the government’s role consisted mainly of supervision and coordination. Unemployment insurance, which in cost terms is a smaller scheme than old-age pensions or health insurance schemes, has been an exception. It has been ﬁnanced by a pay-roll tax on enterprises and managed by Municipal Labour and Social Security Bureaux. It comes nearest to being a social insurance scheme and serves as the model for a reform of other labour insurance schemes. The main problem with it is that it covers only a minority of the unemployed, leaving a large majority classiﬁed as ‘laid-off employees’ in charge of enterprises. As mentioned above, labour insurance is currently in a state of ﬂux from being a mandated employers’ beneﬁts scheme to a comprehensive social insurance scheme covering all wage employees in urban areas. Labour insurance poses problems for enterprise restructuring in sofar as much of it is still resembles mandated employers’ beneﬁts. As details of above schemes vary, we discuss them under separate headings.

Athar Hussain 67

Pensions There are currently 19.1 million retirees in state enterprises which comes to around 26 per cent of their labour force (SSB, 1998a:233 and 484). They receive their pensions from their ex-work units, which continue to house them and cover their medical costs. Since the mid1980s, the pension costs of state enterprises have been pooled, usually at the city level. The pooling system has been in a state of ﬂux and the stated aim is a uniﬁed pooling at the provincial level of pension liabilities regardless of ownership status, which is some years away from full realization. Pooling, as it currently operates, resembles the ﬁnancing of pensions by a pay-roll tax but also differs in some crucial respects. It is done after the payment of pensions rather than before. In the ﬁrst instance enterprises pay the pensions of their employees. They receive from or pay to the pool only the difference between the actual pension cost and the speciﬁed proportion of their wage bill, depending on whether it is positive or negative. The pooling system is marred by a number of problems, such as the following. 1 Currently pooling covers only the cash part of the pensions. Enterprises have to pay from their own funds for health care costs, housing and other facilities for their retirees. For example, in 1997, of the 116 billion yuan spent by state enterprises on their retirees, only 82 billion (70 per cent) was covered by pension pools (see SSB, 1998a:497–8). The rest, which excludes subsidized housing, had to be covered by the enterprises themselves. As a result, the actual burden of supporting retired employees may vary widely among enterprises belonging to the same pool. 2 The pension burden varies widely across cities and between state and non-state enterprises, an issue that is currently being addressed through the establishment of provincial pools covering all ownership types. Further, the pools have done little towards accumulating reserves to meet the future pension costs of the already retired and those who do not have enough years of working life left to accumulate pensions. 3 Pools do not work smoothly. The percentage of enterprises defaulting on payment into pension pools is signiﬁcant and has risen with the deterioration in their ﬁnancial position: for example, in 1997 there was a shortfall of around 20 per cent in contributions to pension pools (SSB, 1998a:459). Moreover, enterprises facing

68 Social Role of the Chinese State Enterprise

difﬁculties delay pension payments, and such delays have become common with the deterioration in the ﬁnancial position of state enterprises. The management of the pension system still rests largely with enterprises, which administer all aspects of the pension system. This involves distributing pensions, organizing recreational and sport activities, caring for the ill, arranging funerals and executing wills. To give an idea of the administrative burden on enterprises, there are around 19 million retirees in the state sector and approximately one administrator is required per 100 retirees. This means that 190 000 employees are fully occupied with the management of pensions and taking care of retirees. As the ratio of retirees to the labour force varies, the administrative burden is very unevenly distributed across enterprises. Further, this burden will rise sharply in the future with the expected rise in the number of pensioners. A new trend that will add to the problem is the decline in the size of the labour force in state enterprises. For example, between 1996 and 1997, the total labour force in state enterprises declined by almost 3 million, from 75 to 72.4 million (SSB 1997:217; SSB, 1998a:233). There is now a trend towards transferring the responsibility for paying pensions and the care of pensioners to municipal labour and social security bureaus. But the speed of transfer, which differs greatly across localities, depends not only on enterprise reform but also on the administrative capacity of labour and social security bureaus. Medical care State enterprises have been responsible for the full medical expenses of their employees and retirees (see Walder, 1986). They are also responsible for 50 per cent of the medical expenses of the immediate relatives of employees. But the range of beneﬁciaries is commonly wider than immediate family members, and enterprise health facilities function as ‘small family pharmacies’. Medical care provided by each enterprise relies partly on in-house medical facilities and partly on outside medical facilities, especially hospitals. Employees are reimbursed for the expenditure on outside medical facilities, but only after an indeﬁnite delay in enterprises facing ﬁnancial difﬁculties. To deal with the problem of rising medical costs, enterprises have introduced a number of measures. These include a limit on drug expenditure, part payment by employees receiving medical treatment (copayment), and restrictions on the type and place of medical treatment.

Athar Hussain 69

Many of these measures are needed to contain rising costs, but some of these violate the basic principle of social insurance: that is, people with a high risk of illness should pay the same as those with a low risk. An example is enterprises paying a ﬁxed cash allowance to cover medical care to everyone, which is equivalent to the abolition of social insurance. In response to the mounting problem of widespread default by enterprises on the reimbursement of medical expenses, the State Council unveiled at the end of 1998 a framework for medical insurance, transferring the responsibility from enterprises to the municipal government. The framework draws heavily on pilot experiments in 57 cities and has the following salient features: • joint ﬁnancing by employees, employers and the municipal government; • individual accounts for smaller expenses complemented by a social account for larger medical expenses; • a uniform schedule of beneﬁts for the labour force covered; • divesting work units of all responsibilities for the management of health insurance. The new system is still in the planning stage, though all cities are supposed to implement the system by the end of 1999. The system, when implemented, will constitute a substantial reduction in the role of state enterprises in the administration of health insurance, even out the burden across enterprises and also provide the urban labour force with a more secure insurance cover. Unemployment insurance Unemployment insurance is not organized by enterprises, which simply contribute up to 1 per cent of the wage bill to the insurance fund. In response to the sharp rise in the unemployment rate, the contribution rate has since the middle of 1998 been raised to 3 per cent, divided two-to-one between employers and employees. At the end of 1997, the total number of the unemployed was around six million. Added to this there are around 14 million laid-off workers, mostly from the state sector, including government organizations. As pointed out above, their care and maintenance falls to work units, except that one-third of their living allowance is paid from the unemployment insurance fund. Having been a relatively minor component of labour insurance, unemployment insurance has risen in importance with the rise in unemploy-

70 Social Role of the Chinese State Enterprise

ment over the last few years. The trend is expected to accelerate because of two reasons. First, laid-off workers who have not succeeded in ﬁnding a job are transferred after two years to unemployment insurance. Depending upon their history of employment, they are entitled to up to two years of beneﬁts. Given that the re-employment rate for laid-off employees over two years falls well short of 100 per cent, a signiﬁcant percentage of the current population of laid-off employees would become a responsibility of the unemployment insurance system. Second, the category of ‘laid-off’ employees is due to be phased out completely at the turn of the century. Thereafter, all laid-off employees will be treated as unemployed.

3

Problems associated with the social role of enterprises

Having covered the various facets of the social role of state enterprises, we turn now to the problematic features of their costs. Schematically, there are three: they are high, unevenly distributed across enterprises, and opaque. An immediate economic implication of the extensive social welfare responsibilities of enterprises is that the cost of labour is much higher than the wage bill. To give an idea of the magnitude, expenditure on welfare and labour insurance in 1997 in the state enterprises and government organizations came to 36 per cent of the total wage bill (SSB, 1998a:241 and 490). This is a gross underestimate because it omits, to name some major items, housing subsidy, in-house medical facilities and schools and the care and maintenance of laid-off employees. All told, the total non-wage cost, including beneﬁts in kind, is estimated to be as high as the wage bill. However, the crucial part is not the high non-wage costs but their arbitrary distribution across enterprises. They tend to be higher in larger than in smaller enterprises, and most of the former are stateowned. Given that they arise from obligations dating from the prereform period (see Wong, 1998), they tend also to be higher in older than in newer enterprises. Unlike the former, the latter have had a greater degree of freedom to adapt the labour remuneration package to the changed economic environment. State enterprises tend to have higher non-wage costs than non-state enterprises do because, compared to the latter, the former have more extensive social obligations and a higher ratios of redundant workers and pensioners to the labour force. The principal implication of the arbitrary distribution of costs is that the observed proﬁts and losses of enterprises are distorted indicators of their relative efﬁciency. Some enterprises may perform poorly

Athar Hussain 71

because of their high social costs and, conversely, some enterprises may perform well thanks only to their fewer social obligations. The costs entailed by the social role of enterprises are not only high and unevenly distributed, but they are also opaque to the enterprise management and to employees. This is so for the enterprise management because the personnel and resources employed in running social welfare facilities are often not costed separately from those employed in the main line of business. As a result, the true of cost of social welfare facilities is often underestimated: for example, the cost of treatment in enterprise hospitals tends to be lower than public facilities, but this low cost is often due simply to the fact that these facilities rely on enterprise resources that are not fully costed. True costs are even more opaque to employees. First, in the case of many services there is no bench-mark for gauging the extent of subsidies. Second, until recently, they did not make any contribution towards services, though this has changed over the last few years. Employee contribution towards labour insurance has become a general norm.

4

Conclusion: recasting the social role of state enterprises

Accepting that the extended social role of state enterprises not only impedes their efﬁciency but is also inadequate from the point of view of employees, we need to address the following questions. 1 Which organizations, instead of enterprises, should be providing particular services? 2 How should particular services be ﬁnanced? 3 As regards non-marketed services, what should be the level of beneﬁts? In the case of labour insurance, for example, what level of beneﬁts should be available to all employees (the mandatory level) and what should be left to employees and enterprises to decide for themselves (the discretionary level)? Answers to the above questions would vary with services, and we need to distinguish between the ultimate goal and transitional steps towards that goal. Broadly, the ultimate goal is the disengagement of service provision from the employment relationship. In the case of many of the services currently provided by enterprises, the feasible alternatives are provision by government agencies or by specialized enterprises. Focusing on such services, these include schooling, public utilities and the management of labour insurance schemes. The

72 Social Role of the Chinese State Enterprise

principal constraints in the transfer of responsibilities from enterprises to government agencies, in most cases at the municipal level, are, (1) strained public ﬁnances and (2) the limited administrative capacity of the local government. The ﬁrst applies to the transfer of schools and public utilities and the second to labour insurance schemes. Focusing on labour insurance, the government has in recent years taken a number of major steps towards its disengagement from enterprises and transformation into a social insurance scheme. In principle, if not yet in practice, all schemes covered by labour insurance – old-age pensions, health insurance, unemployment insurance and maternity beneﬁts – are now extended to the wage-employed labour force regardless of the ownership status of the work unit. Paralleling this extension, the oversight and administration of all labour insurance schemes since the middle of 1998 are centralized in the Ministry of Labour (renamed Ministry of Labour and Social Security) and its territorial subsidiaries. This consolidation paves the way for a step-by-step transfer of the management and administration of labour insurance from work units to government agencies. Moreover, the ﬁnancing of labour insurance solely by work units, previously a norm, is now replaced by joint ﬁnancing by employers, employees (or beneﬁciaries) and territorial governments. Employee contributions, which did not exist previously, have become a general norm for all labour insurance schemes. Finally, the beneﬁts schedule, instead of being left to the discretion of work units, is now formalized. These changes set the stage for the transformation of labour insurance into a comprehensive social insurance run by the government (see Wong, 1998, pp.198ff). However, the transformation is likely to take a number of years and its speed would vary from locality to locality.

References Hu, X. (1996) ‘Reducing State-Owned Enterprises’ Social Burdens and Establishing a Social Insurance System’, in H. G. Broadman (ed.), Policy Options for Reform of Chinese State-Owned Enterprises, Washington, DC: World Bank, pp.125–48. Hussain, A. and Zhuang, J. (1998) ‘Enterprise Taxation and the Transition to a Market Economy’, in D. J. S. Brean (ed.), Taxation in Modern China, New York: Routledge, pp.43–68. Kingson, E. R. and Schultz, J. H. (eds) (1997) Social Security in the 21st Century, New York: Oxford University Press. Walder, A. G. (1986): Communist Neo-Traditionalism – Work and Authority in Chinese Industry, Berkeley, CA: University of California Press. SSB (1997) China Labour Statistical Yearbook 1997, Beijing: SSB. SSB (1998a) China Labour Statistical Yearbook 1998, Beijing: SSB.

Athar Hussain 73 SSB (1998b) China Price and City and Town Households Income and Consumption Survey Statistical Yearbook 1998, Beijing: SSB. Wong, L. (1998) Marginalization and Social Welfare in China, London: Routledge. World Bank (1992) China – Implementation Options for Urban Housing Reform, Washington, DC: World Bank.

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Part II Empirical Studies

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5 In Pursuit of Flexibility: The Transformation of Labour-Management Relations in Chinese Enterprises John Benson, Philippe Debroux and Masae Yausa1

1

Introduction

In industrialized nations, the pursuit of ﬂexibility has underpinned enterprise reform since the 1980s. This ‘new frontier’ in the management of labour (Baglioni, 1990) is seen as the only way for ﬁrms to improve productivity and so survive in the global marketplace. Elimination of rigidities, especially those in the labour market, has been perceived as the key to increased competitiveness and decreased unemployment in the advanced economies. This ﬂexibility argument was articulated by Piore and Sabel (1984) who argued that the saturation of markets in advanced economies and shrinking demands in the Third World make Fordist-type mass production less appropriate and uncompetitive. The same evolution is also noticeable in service industries such as retailing and ﬁnance, where a transformation of management practices is required to cope with the diversiﬁcation and segmentation of markets and the proliferation of products. Is the pursuit of ﬂexibility applicable to Chinese industry where there is an enormous, uncultivated market and where purchasing power is improving at a faster rate than other developing regions? These factors, coupled with relatively low wages, suggest that there are beneﬁts to be gained from more traditional management systems, such as the Fordist-type system of mass production in manufacturing. Chinese policy-makers appear to think, however, that labour practices 77

78 In Pursuit of Flexibility

need to be more ﬂexible and have since the mid-1980s introduced a range of market-driven reforms. As in the advanced economies, the trade-off has been between efﬁciency and equity. It is now accepted by the government that differences in wages and other rewards will be needed to boost motivation and improve ﬂexibility. It is difﬁcult to forecast the form of labour management that will emerge from the reform process. Nevertheless, it is possible to make some predictions by considering three issues. First, to what extent has labour ﬂexibility been achieved and how has this impacted on work organization? Second, to what extent has the ‘Western’ human resource management (HRM) paradigm been adopted? Third, what has been the role of workers’ organizations in the reform process? These issues are explored in nine manufacturing ﬁrms and ﬁve banks in the Shanghai region of China. Shanghai is at the forefront of micro-economic reform and so, while the ﬁndings are not representative of all Chinese industry, the research will clarify the extent and direction of change in modern China.

2

Enterprise reform in China

Chinese policy-makers are aware of the problems of import substitution strategies practised by many developing economies, and also the limitations of their export-oriented light industry processing strategy that brought about high growth during the 1980s (Steidlmeier, 1995). These factors have led to the adoption of an efﬁciency competition strategy. Under this strategy China will import high-technology and resource material products and export more value-added goods. The Chinese policies towards multi-national corporations (MNCs) reﬂect this increased openness and are seen as the key to achieving the goals of the policy-makers (Steidlmeier, 1995: p.62). In addition, a diversity of forms for public ownership of enterprises is now encouraged (Li, 1998). These developments point to a globalization strategy. This strategy is based on improving ﬂexibility at various levels and functions within the enterprise. In the case of manufacturing, the option of a Fordisttype national development model, based on the combination of mass production and mass consumption balanced by government intervention in the domestic market, by default, has been rejected. In the case of banking, the objective is to provide banks with greater business and ﬁnancial autonomy. Two elements are integral to this strategy: (1) the adoption of modern technologies for internal management efﬁciency and the improvement of external networking; (2) the acquisition of modern management approaches and improved organization.

John Benson, Philippe Debroux and Masae Yausa 79

The socialist nature of the Chinese state has, however, meant that reform has proceeded cautiously (see Chapter 2). This is especially true of the reform programme in the ﬁnancial sector where national security and economic factors provide some constraints. In particular the Chinese leadership has placed a high priority on monetary stability to avoid fuelling inﬂation, on interest rate and credit control to balance the need for state enterprise reform with the need to supply funds to ailing enterprises, and on the target of currency convertibility to encourage long-term foreign investment. Nevertheless, despite the cautiousness in both manufacturing and banking, autonomy has been given to management through a number of schemes such as higher proﬁt remission rates, tax-for-proﬁt and proﬁt contracting (Goodall and Warner, 1997). Such schemes were necessary in both manufacturing and banking if ﬁrms were to be competitive against foreign rivals in terms of productivity, proﬁtability and service standards. All these reforms require changes in labour ﬂexibility and human resource management. To improve labour ﬂexibility Chinese managers have a choice between empowering workers or containing them (OECD, 1988). Empowering workers involves providing autonomy and re-training so that functional ﬂexibility (OECD, 1986) can be achieved through methods such as self-managed work teams. Containing workers, on the other hand, is often achieved through the introduction of new technology where the amount of human involvement in the work processes is reduced. This often results in deskilling workers and enforcing hierarchical control. Accompanying this approach is the use of atypical employment practices. The focus is thus on wage and numerical ﬂexibility (OECD, 1986) with little thought to the development of a long-term employment strategy (OECD, 1988). The two ideal types are not, however, mutually exclusive. This gives rise to a third type of ﬂexibility where empowerment and containment are pursued simultaneously for different workers depending on their classiﬁcation, tasks or locations. One example of this third type is the core–peripheral model (Atkinson, 1985; Atkinson, 1987). Functional ﬂexibility is achieved through a core of highly trained workers while wage and numerical ﬂexibility is pursued through the employment of a peripheral workforce when and if required. Depending on the industrial sector, business environment, management philosophy and overall corporate strategy, each company will develop its own preferred strategy (see Chapter 8). In part, this reﬂects the varying contributions that labour management can make to ﬁrm performance. Clearly,

80 In Pursuit of Flexibility

containment and empowerment represent a continuum with a number of possible choices for any one ﬁrm. The models of ﬂexibility described above apply to market economies that share a number of common attributes. Nevertheless, even among the developed market economies the issue of the social embeddedness of economic action has to be considered (Granovetter, 1985). Are, then, these models of ﬂexibility applicable to China? China is a country whose existing practices and socio-economic background are far removed from advanced economies in terms of the political system, the concept of private ownership, and the role of trade unions. It is also a country where the basic infrastructure needed to support a modern market-based economy does not yet exist. To assist in our examination of labour ﬂexibility, the categorization of labour management as proposed by Gospel (1983, 1992) will be used. Gospel regarded labour management as a generic term and divided it into work relations, employment relations, and industrial relations. Work relations refers to the way work is organized and the development of workers around the prevailing technologies and production processes. Employment relations covers the various personnel management practices, such as recruitment, training, remuneration and work conditions. Industrial relations is concerned with the collective representation of workers through union organization and management’s dealings with unions through joint consultation and collective bargaining. As noted by Gospel (1983, 1992) these distinctions are rather arbitrary, and some overlapping between categories will exist. Nevertheless, the classiﬁcation is useful as it focuses on the role of employers and their key labour decisions and strategies.

3

Case study enterprises

Fourteen ﬁrms in the Shanghai region were selected for the study: nine manufacturing enterprises and ﬁve banks. Both these sectors have been the focus of the reform process and both have seen substantial changes in the introduction of new technologies, new management tools and the approach taken to HRM. The research was carried out in the period March 1997 to July 1998. Each case study typically involved interviews with a senior manager, the personnel manager and the union leader. Interviews averaged about two hours and in many cases the visit included workplace inspections and, in some cases, informal gatherings. Company documents were also collected.

John Benson, Philippe Debroux and Masae Yausa 81

The proﬁle of the case study companies is presented in Tables 5.1 and 5.2. The composition of the manufacturing case study companies included four JVs (three with Japanese partners), four joint-stock or state-owned enterprises and one fully-owned Japanese company. The JV companies had only been operating for a short period, while the Chinese ﬁrms had a longer history. Products ranged from heavy machinery, to a range of electronic and electrical appliances, to textiles. In the banking sector, three Chinese banks were selected, along with two fully-owned branches of foreign banks (Dutch and German). Differences between the types of ﬁrms were also evident in their size as measured by the number of employees and the number of workplaces belonging to the company.

Table 5.1

Company proﬁle (manufacturing)

Dimension

Firm

Type Age (years) Size (employees) Workplaces

A

B

C

D

E

F

G

H

I

SOE 37 667 3

a

b

b

JVC 5 436 1

JVC 5 1467 1

JVC 3 70 1

JVC 7 300 1

FOC 12 210 1

JSC 114 3600 4

JSC 28 4000 6

JSC 20 550 4

Note: FOC = foreign-owned company (Japanese); JSC = joint-stock company; JVC = Joint venture company; SOE = state-owned enterprise. a SOE up to 1996, thereafter a JSC. b Township enterprise up to 1992, thereafter a JSC.

Table 5.2

Company proﬁle (banking)

Dimension

Type Age (years) Size (employees) Workplaces

Firm J

K

L

M

N

SOE 5 230 12

SOE 12 158 13

SOE 16 180 17

FOC 8 52 1

FOC 4 40 1

Note: FOC: foreign-owned company (German and Dutch respectively); SOE = state-owned enterprise.

82 In Pursuit of Flexibility

4

Labour management in Chinese enterprises

Work relations Work relations is one of the crucial areas which can affect, and in turn is affected by, improved ﬂexibility. Although numerous types of ﬂexible work relations are theoretically possible, there are certain elements found in both the manufacturing and service sectors that are seen as creating a more ﬂexible work organization. These include teamwork, multiskilled workers, the devolution of quality responsibility to the shop ﬂoor, and new information technology. Each of these elements cannot be considered, however, as an independent measurement of ﬂexible work relations. They are logically connected and mutually dependent. Furthermore, the realization of optimal ﬂexibility depends on compatible employment and industrial relations. Thus, these dimensions should be regarded only as indicators of potential ﬂexibility. Teamwork is a symbolic technique that marks ﬂexible work organization. Under the Fordist regime, Tayloristic breakdown of the work process inevitably individualized labour tasks under the direct control of management or machine pacing. This individualization and deprived control are regarded as an source of alienation and, therefore, analysed as an origin of low productivity and high absenteeism of blue-collar workers in industrial nations during the 1970s (Lipietz, 1987; Boyer, 1988). In the same way, the highly routinized clerical work in banking was also considered a source of alienation. This was especially the case in China where clerical activities were monotonous and devoid of any social recognition. There are, however, cases where teamwork brought about increased ﬂexibility and proﬁtability, not by increased autonomy, but by peer or group pressure. This is often the case where management allocates tasks and sets clear targets for the group to achieve (Berggren, 1993). Members of the group put pressure on each other to contribute and not to hold back their efforts. In our case study companies, teamwork was the most widely adopted practice, being present in six manufacturing ﬁrms and the ﬁve banks (see Tables 5.3 and 5.4). In the two textile companies (companies D and H), teamwork was not considered important due to the implementation of a performance pay scheme linked to individual performance. On the other hand, in the banks it was considered a priority due to the need to absorb new technologies, products and marketing strategies. Nevertheless, teamwork is not a new practice for Chinese ﬁrms; it was a popular technique for encouraging workers’ participation in the Maoist

John Benson, Philippe Debroux and Masae Yausa 83 Table 5.3

Work organization (manufacturing)

Dimension

Firms

Teamwork Multitask Quality control New technology

A

B

C

D

E

F

G

H

I

v % % v

v x v %

v x x v

x x % x

v x v %

v x v v

x x % x

x x % v

v v v v

Key: v – practice present; % – practice present to some degree; x – practice not present.

Table 5.4

Work organization (banking)

Dimension

Teamwork Multitask Quality control New technology

Firms J

K

L

M

N

v % x v

v % x v

v % % v

v % v v

v % v v

Key: v – practice present; % – practice present to some degree; x – practice not present.

system (Chan, 1995). In part, this was due to the collectivist tradition (Warner, 1995) and the socialist ideology, both of which emphasized non-individualistic gains. Thus, it is possible that these practices have been implemented without any managerial intention of improving ﬂexibility. The ﬂexibility gained from teamwork, however, is limited without multitasked workers. If workers are multitasked and they share work tasks, then signiﬁcant ﬂexibility in work organization can be achieved. Much of this ﬂexibility is achieved through allowing workers more decision-making power and more autonomy. However, this multitasked workforce does not always have a positive effect on production workers. A multitask approach can often result in simple job intensiﬁcation by blurring the boundaries and summating simple tasks. It is not skill upgrading but simply the broadening of production tasks (Ramsey, Pollert and Rainbird, 1992). In our study, a multitasked workforce was the least developed system: only one manufacturing company had developed this practice fully, with one other enterprise

84 In Pursuit of Flexibility

having a partially multitasked workforce. All ﬁve banks put a strong emphasis on the mastering of multiple skills and the use of the technology. However, despite this emphasis, a multitasked workforce has not been fully developed. Quality control or quality concerns are a core and indispensable element of ﬂexible production. The product or service quality is not only a signiﬁcant measurement of competitiveness, but is also necessary for cost management. In manufacturing, ﬂexible production increases the range of products and therefore multiplies the amount of raw materials required or semi-products produced. If stocks are kept for just-in-case at every step in the production process the cost will be far greater than that occurring in the Fordist type of mass production. Thus it becomes necessary to minimize the number of faulty components by detecting them as early as possible and determining the reasons for the fault in order to prevent repetitions. In banking, speed and accuracy are the key factors affecting competitiveness. Any mistake has the potential to be extremely costly, so knowledge has to be continuously upgraded to match the latest advances in technology. Moreover, Chinese banks have to upgrade customer service: an issue totally neglected in the past. The research found, as indicated in Tables 5.3 and 5.4, that four manufacturing companies had fully developed a quality control system while a further four companies had utilized these concepts to some degree. This ﬁnding indicates that quality concerns are widespread in manufacturing. In the ﬁve banks, the equivalent of quality circles had been developed but was underdeveloped in the local banks. In the main, the issues considered were how to improve customer service through presentation, speed and accuracy of information. This was particularly the case with the two foreign banks (companies M and N) where a strong emphasis was placed on employee involvement in problem-solving. In these banks, management was concerned about mistakes being hidden behind various rules and regulations. The experiences of Western industrial nations during the 1980s suggested that ﬂexibility targeted reforms tended to start from buying new technology aimed at a quick technological ﬁx (Tidd, 1991:14–16). In manufacturing, these technologies include computer-aided design (CAD), computer numerical control (CNC), industrial robots, automated transfer systems and process-control systems. These production technologies link design, management, production and marketing into one integrated system and can produce a ﬂexible and rapidly changing mix of products and services which were, under the Fordist regime,

John Benson, Philippe Debroux and Masae Yausa 85

regarded as unproductive and unproﬁtable. Similarly, in the banking sector new technology has prompted the need for enhanced ﬂexibility, and again the major functions of management, products and marketing are linked. Among our nine manufacturing companies, new information technologies were a popular dimension of their ﬂexible practices; seven ﬁrms, at least to some extent, had adopted such technology. Although it was not possible to ascertain the degree of integration of this technology with the production process and therefore the real ﬂexibility gained, the purchase of these new technologies by the manufacturing companies does support the argument that it was management’s intention to increase ﬂexibility. This ﬁnding also applies to the banking ﬁrms. All ﬁve banks had recently introduced new technology, mainly in the form of integrated computer network systems. This reﬂects the high priority given in the Shanghai area to improving the debit and credit card networks, and bank clearing networks in an industry characterized until recently by extreme bureaucratization and rigidity. It is argued that MNCs are change agents which bring new technology and new management techniques to domestic ﬁrms (Cantwell, 1996). In our study, the most advanced manufacturing ﬁrm in terms of work organization was company I, a wholly- owned Japanese high-tech company. The second most advanced ﬁrm (F) was a middle-tech China-Japan JV company, and the third (E) was a high-tech ChinaEurope JV. This ﬁnding seems to conﬁrm conventional wisdom, although, interestingly, one of the least advanced companies (using this criteria) was company G, a China–Japan JV. In terms of potential ﬂexibility in its work organization, the Chinese SOEs and joint stock companies (JSCs) are less developed. Nevertheless, this is a relative measure as even the low-tech former township enterprise (company C) had introduced a computer-aided manufacturing system. In banking, not surprisingly, the most technologically advanced ﬁrms were the two foreign banks. Implementation of technology is still controlled by the authorities in the local Chinese banks. This impedes access to information, the development of new products and the launching of an effective marketing strategy. Managers in local banks are, however, attempting to recruit specialists in information technology and have also commenced discussions with foreign banks to exchange ideas and to improve management knowledge and skills. In addition, these banks have developed training programmes that involve young executives spending time in foreign and overseas banks to gain more experience.

86 In Pursuit of Flexibility

Employment relations The foregoing analysis suggest that the conﬁguration of work relations in the vast majority of respondent companies had the potential to lead to greater ﬂexibility which, in turn, should improve productivity. These practices are consistent with government policy that stressed the pursuit of improved competitiveness. Whether this potential ﬂexibility in work organization can, however, lead to real competitive ﬂexibility in the global market will depend on their employment and industrial relations. Payment and working conditions Individual contracts existed in the nine manufacturing companies and in the ﬁve banks. With the exception of one company these individual contracts co-existed with collective contracts. Details are provided in Tables 5.5 and 5.6. This is in accord with legislative changes that took place in the 1980s, ﬁrst in the foreign-owned companies (FOCs) and then in the SOEs. The labour contract system was introduced in 1986 and gave SOEs greater autonomy to recruit employees. New workers were required to sign contracts for a period of between one and ﬁve years. Contracts can be terminated by the employer on such grounds as poor performance during the probationary period, violation of

Table 5.5

Employment relations (manufacturing)

Dimension

Adherence to rules Common values Transformational managerial role Importance of line managers Freedom in personnel selection Individual performance pay Harmonization of work conditions Individual contracts In-house training Standardized contracts Right to hire and ﬁre Strategic role for HRM manager Customer focus Involvement/participation

Firms A

B

C

D

E

F

G

H

I

v v x v x % v % v v % x % v

v v % v x % v % % v % x % %

v v v v x v v % v v v x % %

v v v v v v x % v v v x v v

v v x v v % v % v v % % % v

v v v v v % v % v v % x % v

x v x v v % v % % v % x x x

v v x v v v v v v v % % v v

v x v v v % v % v v % x x v

Key: v – practice present; % – practice present to some degree; x – practice not present. Source: adapted from Storey (1992).

John Benson, Philippe Debroux and Masae Yausa 87 Table 5.6

Employment relations (banking)

Dimension

Adherence to rules Common values Transformational managerial role Importance of line managers Freedom in personnel selection Individual performance pay Harmonization of work conditions Individual contracts In-house training Standardized contracts Right to hire and ﬁre Strategic role for HRM manager Customer focus Involvement/participation

Firms J

K

L

M

N

v x x v v % v % v v % x x %

v x x v v % v % v v % x x %

v x x v v % v % v v % x x %

v x v v v % v % v v v v v %

v x v v v % v % v v v v v v

Key: v – practice present; % – practice present to some degree; x – practice not present. Source: adapted from Storey (1992).

company rules or bankruptcy (Markel, 1994). This was a departure from the ‘iron rice-bowl’ policy and a move towards practices common in more developed economies (see Chapter 6). Wages, up to the mid-1980s, were determined by government legislation and regional agencies. At this time age was the most important predictor of an employee’s earnings in SOEs. By 1990, job responsibility in the company had replaced age as the most signiﬁcant predictor, and more advanced education and training had begun to make a difference to workers’ pay (Child, 1994). This trend is illustrated by the ﬁnding that all companies had some element of individual performance built into the wage system. The new wage structure has increased internal differentials in the 1990s, although in most manufacturing companies income differences still remain relatively small. Managers still seem to prefer to win the co-operation of workers by uniformly increasing wage and beneﬁts. The one exception to the above in the manufacturing sector was company D. This company had adopted a modiﬁed management by objectives scheme where wages were now primarily determined by individual performance. In this company, the wages of the best performing employee were about ten times that of the worst performer (see Chapter 11).

88 In Pursuit of Flexibility

Wage differentials were much larger in the banks due to the acute shortage of qualiﬁed personnel and the need to offer a competitive compensation package to attract and retain staff. The use of management by objectives techniques appeared widespread in both local and foreign banks at the executive level, and the two foreign banks are considering extending the scheme to all employees. Overall, however, at this time wage differentials for most employees of the case study companies were low. A major reason for the low wage differentials is that individual contracts are not the result of meaningful negotiation between the parties. Employees were required to accept a standard contract in all companies. In all manufacturing companies, few penalties existed for poorly performing workers. This is supported by the research of Child (1994) and represents a departure from the HRM model. The only penalties related to the infringement of company rules and not to the quality of the work itself. This was also the case with the ﬁve banks. Local and foreign banks were reluctant to impose penalties, such as ﬁnancial sanctions or demotion for poor performance. In the two foreign banks, where some sanctions may have been expected, management recognized that there was not yet a clear understanding of the HRM system. Sanctions, they argued, would be seen as a breach of trust and would lead to a decline in the good relations enjoyed with the trade union. Moreover, at this time, there was enough ﬂexibility in awarding wage rises and bonuses to encourage good performers and to push others to make a greater effort. There appeared opposition to individualized payments and a clear preference for group incentive schemes. This is despite the popularity of rewarding employees for their individual performance in the early period of economic reform (Wang, 1991). This approach was, however, later combined with a team approach that placed considerable emphasis on a collectivist orientation among employees (Wang, 1991). Our case study companies reported that as compensation shifted from social rewards to material rewards, some individual ‘fringe beneﬁts’ such as cars, housing, and so on were provided on an ad hoc basis. These beneﬁts were considered a crucial incentive tool in all ﬁve banks, although the trend was substantially weaker in the manufacturing sector. Selection and development of employees A key characteristic of the HRM model is the careful selection and development of employees. Today, recruitment of personnel to SOEs is

John Benson, Philippe Debroux and Masae Yausa 89

only partly subordinated to state control (Child, 1994). As illustrated in Tables 5.5 and 5.6, some freedom to select employees existed in six of the manufacturing companies and in all of the banks. Nevertheless, in the three SOE/JSCs, manufacturing companies’ selection of employees remained external to the ﬁrm. Companies are, and can afford to be in view of the move towards an open labour market, more selective in their recruitment. These ﬁndings show a departure, albeit limited, from the centralized dispatching of workers with little account of their individual characteristics or the particular needs of the company. The trend towards managerial prerogative in the selection of staff is strongest in the banking sector. The transition to a modern banking system has been so rapid that existing personnel are inadequately trained and lack the necessary experience. This has been recognized by the government and so substantial freedom has been granted to banks in their recruitment activity. This is demonstrated in Table 5.6, although again it is the foreign banks that have achieved the most autonomy in personnel selection. This has led, however, to job hopping and to the poaching of employees becoming a common practice. Some numerical ﬂexibility has been granted to the case study companies by the delegation of the right to dismiss employees. Among manufacturers this practice was present in all ﬁrms, although only two companies reported full managerial discretion. In both cases the companies (C and D) had commenced operations as township enterprises. Company D had also achieved signiﬁcant numerical ﬂexibility by employing 20 to 30 temporary workers and outsourcing 15 per cent of its production at peak periods. At this stage, however, the degree of numerical ﬂexibility is limited. In most cases workers were dismissed because they continually broke workplace rules or had been convicted of criminal offences. Only Company D reported that they had laid off workers due to economic reasons. Non-renewal of contracts would provide a degree of ﬂexibility but, to date, this has only resulted in minor adjustment to staff levels in one of the nine manufacturing companies. Again, the situation is different in the banks. The banking sector is currently characterized by downsizing and expansion. As a consequence many employees have been required to seek work elsewhere or in a number of the service companies created by the banks or the trade union. In spite of the reforms of the 1990s, SOEs still recruit mainly graduates rather than workers from other ﬁrms (Warner, 1993). Our case study companies adopted a similar approach. All ﬁrms offered in-house

90 In Pursuit of Flexibility

training with a strong emphasis on vocational and managerial training. Most ﬁrms (including three of the four SOE/JSCs) made a considerable effort to continuously upgrade the quality of the workforce through the use of in-house training and external traineeship for promising young executives. In this regard, little difference was noticed between ﬁrms in the manufacturing and banking sectors. Managerial philosophy A mixture of control and nurturing was observed in the majority of the companies. There was little evidence, however, to suggest a cultural change taking place that would facilitate consensus, ﬂexibility and commitment (Storey, 1992). In four of the manufacturing companies and the two foreign banks, the most senior management did demonstrate a more transformational leadership (Table 5.6). Nevertheless, even in these cases middle management and those in charge of personnel demonstrated the more transactional approach. In addition, in most respondent companies the emphasis was placed on respect for rules with little regard for the HRM implication. Only in one company could what Storey (1992) termed a degree of ‘Impatience with Rule’ or a ‘Can Do’ outlook be found. In 13 of the 14 respondent companies, there was an emphasis on personnel procedures and rules as the basis of good managerial practice. This approach is in contrast to the HRM model where the aim is employee commitment, not merely compliance with the rules. The position of the human resource (HR) manager was not a specialized one and in all case study companies was ﬁlled, usually on a rotational basis, by a line manager. A non-specialist HR manager is a departure from the traditional approach in personnel management. However, as illustrated in Tables 5.5 and 5.6, little evidence was found of a strategic role played by the HR managers. It was only in the Chinese–European JVC, the Chinese–Japanese JVC and the two foreign banks that the HR manager was more directly involved in strategic and policy matters. In the other companies, the HRM task was more operational (wage, social welfare calculations) than strategic. This is clearly a more traditional role for the HR manager, which suggests the HR manager was not a key inﬂuence in the policies concerning selection, communication, training, reward and appraisal of employees. In eight of the nine manufacturing companies and in the ﬁve banks, there was evidence of a desire to develop a common set of values and missions. Slogans were created and displayed which emphasize the culture management wished to develop. Clearly a departure from

John Benson, Philippe Debroux and Masae Yausa 91

custom and practice as the guiding managerial philosophy is occurring, although some confusion existed which reﬂects the ambiguity of the corporate governance status. Chinese companies have not reached the stage where managing culture is seen as more important than managing procedures and systems. The vagueness of their business status impacts on the development of a culture and this affects the kind of HRM they can develop and the way human resources are utilized to create a competitive edge. Our impression is of piecemeal measures taken for short-term gain. In manufacturing, with the exception of the JVCs, there was little evidence of any attempt to integrate strategies on selection, communication, training, reward and development. In the banks there was a strong push from management to achieve excellence in the use of technology and marketing so as to develop a competitive edge. This was most obvious with the foreign banks, although it was a clear objective with the management of the local banks. A key element of the HRM model, the pursuit of product quality and excellence in customer service as key organizational goals, appeared to be very important in some companies but of little importance in others. Senior management in the manufacturing companies appeared to focus largely on internal issues. Only the two textile companies (D and H) had an external customer focus. In part this was due to the highly competitive market for textile products. Five of the manufacturing companies were moving to an external focus, while in the remaining enterprises management seemed to concentrate on internal matters only. In the banking sector, only the two foreign banks had developed a clear customer focus. Overall customer-orientation appears to be of little importance, and most companies remain inward-looking. Employee involvement schemes, which are an integral part of the HRM approach, are present in the majority of the case study companies. The degree of involvement differed from company to company, as shown in Tables 5.5 and 5.6. In addition, the level of involvement varied substantially between the various schemes and also between various groups of employees. For instance, in some companies only executives were included in the committees that meet regularly to give feedback to management or to inform participants about company strategy. In other companies, workers at all levels were involved in these consultative committees. In general, manufacturing ﬁrms have embraced these schemes more than their banking counterparts.

92 In Pursuit of Flexibility Table 5.7

Industrial relations practices (manufacturing)

Dimension

Firms

Trade union Workers’ Congress Union density (%) Full-time ofﬁcials Union meetings/yr Collective contracta Union–Management meetings/yr Grievance procedure

A

B

C

D

E

F

G

H

I

v v 100 2 12 v

v v 100 25 12 v

v v 100 >20 6 v

v v 99 1 4 v

v x 100 2 3 v

v v 95 2 12 v

v v 100 0 12 v

v v 70 1 AR x

v v 100 0 26 v

>W v

W %

B-M %

I %

W x

B-M %

AR %

B-M x

I x

Key: v – practice present; % – practice present to some degree; x – practice not present. a All ﬁrms also operated under individual contracts. W = weekly; B-M = bi-monthly; I = regular but not scheduled; AR = as required.

Table 5.8

Industrial relations practices (banking)

Dimension

Trade union Workers Congress Union density (%) Full-time ofﬁcials Union meetings/yr Collective contracta Union–Management meetings/yr Grievance procedures

Firms J

K

L

M

N

v v 100 1 12 v

v v 100 1 12 v

v v 100 1 4 v

v x 100 0 2 v

v x 100 0 2 v

B-M %

B-M %

I %

I %

I %

Key: v – practice present; % – practice present to some degree; x – practice not present. a All ﬁrms also operated under individual contracts. B-M = bi-monthly; I = regular but not scheduled.

Industrial relations The foregoing analysis demonstrated that the employment relations adopted in the 14 case study companies both facilitated and limited the potential ﬂexibility found in work relations. The type and nature of the prevailing industrial relations can, however, provide a further

John Benson, Philippe Debroux and Masae Yausa 93

constraint or encouragement to the development of improved enterprise ﬂexibility. Present day industrial relations in China does not conform to the conventional Western view of labour–management interactions. The role of trade unions, as propagated under the Communist government and reinforced under labour law, is to assist management in achieving a productive enterprise. This role includes long-term planning, income distribution, management appraisal and election or selection of enterprise-level directors (Wang, 1991). As such, wage bargaining has not formed a major task of Chinese unions (see Chapter 6). In part this is due to the co-existence of the Workers’ Congress which undertakes this responsibility and, in part to the nature of the wage regulations emanating from regional and central governments. Trade unions thus appear to be relegated to the important, although minor, role of watchdog over working conditions, health and safety, and workers’ rights. Yet, placing the nature of trade unions in the political and economic context raises an alternative model of worker control. It is this second possibility which our research wishes to test. In particular, do unions constrain management in their attempts to introduce more ﬂexibility into labour management? Table 5.7 and 5.8 provide a proﬁle of union organization at each of the 14 companies. All companies had a trade union and most workers were, at least nominally, members, with the exception of company H where union density was lower at 70 per cent. Management explained that this lower trade union density was due to new employees not joining the union upon arrival. This company did not, however, have a collective agreement (see Chapter 6). This ﬁgure may, therefore, represent a conscious decision by employees not to join the union as the beneﬁts of membership were not obvious. Nevertheless, a basic employee voice mechanism existed in all the case study companies. Seven of the nine manufacturing companies had full-time union ofﬁcials on-site, as was the case with the three local banks. The two foreign banks did not have a full-time union ofﬁcial, although this is more a product of size rather than a direct management decision. Where full-time ofﬁcials existed, the number of members they were responsible for varied widely. Nevertheless, for workers of these ten companies, the union had an identiﬁable focus. Union meetings occurred in all companies, although the frequency of such meetings varied widely. In general these meetings were more frequent in manufacturing than they were in the banks. Clearly, the structural conditions for active unionism existed in most of the case study companies. How far could these unions affect

94 In Pursuit of Flexibility

managerial policy? As Warner (1995) argued, unions were expected to co-operate with management and focus on improving enterprise productivity. This was certainly the case with the 14 companies studied. In three of the companies, the union met weekly with management. Only in ﬁve companies did unions meet on an ad hoc or infrequent basis, and usually this was to address a particular problem. In the other nine cases most issues relating to work, including production and productivity issues, were raised. The absence of full-time ofﬁcials in the foreign banks did not appear to impede regular contact with the union, and various issues (including the need for more efﬁcient management) have been raised. All ﬁrms, with the exception of company H, had a collectively negotiated agreement, which related to payments, hours and conditions of work, and insurance and social beneﬁts. As such many of the union–management meetings concerned individual grievances. Thus, if the union raised a problem, an attempt would be made to settle the issue at these meetings. If the issue had wider ramiﬁcations then it could be referred to the Workers’ Congress. Eight of the nine manufacturing enterprises and the three local banks had also established a Workers’ Congress. These bodies were made up of delegates elected from various sections of the company and provided a basic form of democratic management (Lui, 1989). These bodies appeared to supplement the formal representative function of unions. Partly this is due to overlapping membership of both organizations and partly due to the right of Workers’ Congresses to deliberate on a range on managerial issues including policy, long-term plans, contracts, veto over wage reform and bonus distribution, and workers’ conditions and welfare. The effectiveness of unions and Workers’ Congresses to act as a channel for workers’ grievances varied substantially between the 14 ﬁrms. Our assessment of this effectiveness is based on comments by union and management personnel. Workers in three manufacturing companies, all of which involved foreign ﬁrms, did not have effective representation. Only one company, an SOE, could be said to have effective representation of workers’ grievances. The remaining ﬁve manufacturing companies and the ﬁve banks had partial representation, often utilizing either the trade union or the Workers’ Congress. Trade unions and Workers’ Congresses have the potential to provide many of the beneﬁts of worker organizations in Western economies. However, it is clear that these institutions also play an instrumental role in the management of the enterprise. Their involvement in a range of managerial activities suggests they may be instrumental in

John Benson, Philippe Debroux and Masae Yausa 95

helping workers to adapt to new management practices (Warner, 1996). For example, in two of the local banks, the trade union was in charge of the retraining of redundant workers and in the creation of new jobs for these workers. In these cases, the trade union has sponsored new companies that provide a range of services to the bank such as cleaning, typing and photocopying. It is this issue that has the potential to add strength to these institutions but also to threaten their ability to represent workers effectively (see Chapters 12 and 13). This dilemma facing trade unions is particularly obvious with issues concerning labour ﬂexibility and enterprise productivity. Workers and their representatives are aware of the need to improve ﬁrms’ performance. This, coupled with the enterprise focus of unions, means that union ofﬁcials will support strategies that seek to improve enterprise efﬁciency. In one sense, this could be considered as an adoption of the HRM principle of employee participation in order to increase job satisfaction and improve the decision-making process. Nevertheless, workers can become the victims of reform rather than the vehicle for change. Chinese workers are, therefore, in a similar situation to workers in most other countries. As Warner concluded Chinese trade unions have tended to adopt an administrative role and are still at best reactive vis-àvis the momentum of rapid economic change (1995:33–5).

5

Conclusion

This chapter has examined the effect of the economic restructuring in China on the nature and form of labour management. In the area of work relations, most of our companies have deployed some distinctive features of ﬂexible production. This suggests a degree of departure from the Fordist model. The installing of new technology was one clear indication of manufacturing managerial intention to increase ﬂexibility. The same can be said about both the local and foreign banks. Technology is changing the scope and content of many jobs. As a consequence more functional ﬂexibility is required from bank employees. Overall, it was concluded that the potential for increased ﬂexibility existed in most of our case study companies. However, in order to realize ﬂexible work organization, a competent, ﬂexible and committed workforce is necessary (Storey and Sisson, 1993). The key to achieving this ﬂexibility thus rests with employment relations and the adoption of the HRM approach. Employment relations in our case study companies can be characterized as midway between the old communist approach and the

96 In Pursuit of Flexibility

idealized form of HRM (see Chapter 2). Foreign companies are more advanced in their employment relations, especially the two foreign banks, but they too have to cope with a number of constraints in an industry that is not fully deregulated. It is, however, difﬁcult to conclude that the former approach will always be an inappropriate strategy as the HRM model is an American adaptation of Japanese management methods (Benson and Debroux, 1997:15). This raises the question as to whether other versions of the HRM model can develop and achieve the desired goals. As Whitley contended, different cultures can develop different but equally effective business and employment systems (Whitley, 1992). Although managers seem willing to empower their workforce they appear to have developed few opportunities to encourage workers to be more ﬂexible and committed. Some respondent companies were developing schemes that emphasized individual incentives, but these were usually made on an ad hoc basis. Overall, HRM practices have been adopted to some degree and thus our ﬁndings support Warner’s (1993) description of HRM ‘with Chinese characteristics’. It does appear that little attempt, with the exception of company D, has been made to develop a strategic conﬁguration of employment practices that are mutually supporting and consistent. Thus employment relations are a major obstacle to realizing the potential ﬂexibility in work organizations. Even in the case of company D, where a strategic conﬁguration of employment relations existed, the beneﬁt was lost as it was combined with a rather Tayloristic regime of work organization. Moreover, the lack of coherency in the employment strategy will not be solved in the near future as there is a lack of clear and precise objectives to guide the development of a comprehensive strategy. The ambiguity in company values and missions suggest the absence of clear corporate objectives. The requirements of a competitive marketplace were not a prime guide for company action, although the market realities facing the two textile companies (D and H) forced management to have a clearer view of their company identity. For the remaining companies the restructuring of the market has led to confusion in company status and identity: what is the company and why does the company exist? This was a problem that was not unique to our small sample of companies but one shared by industry as a whole. Many issues relating directly to company status may, however, be resolved once the securitization principle for Chinese companies, adopted at the recent Fifteenth Congress of the Communist Party, comes into effect.

John Benson, Philippe Debroux and Masae Yausa 97

Nevertheless, a major problem that persists is the contradiction in the use of the term ‘socialist market economy’. The word ‘socialist’ is needed to legitimate control by the Communist Party. The Party’s political survival depends on whether it can protect and preserve a ‘socialist’ system while at the same time advancing a market economy. Even if the Party cannot protect the socialist system, it will need, at least in the short term, to conceal the reality. Workers have to appear as ‘masters of the house’. There is, however, the danger that this rhetoric will hide the conﬂicting interest between stakeholders which is inherent in a market economy (see Chapters 13 and 14). This will cause further confusion on the issue of corporate governance. Without fully accepting different stakeholders and their different interests, the company will be unable to develop clear objectives and a stable identity. The contradiction in the term ‘socialist market economy’ may, however, give workers a chance to initiate and direct the course of reform by deﬁning the term though their day-to-day practices. Here representative bodies such as trade unions can become a powerful institution for change. Trade unions were present in all 14 enterprises and most workers were members. In conventional terms this would suggest strong worker representation and voice. This view was reinforced through the existence of the Workers’ Congress and the political and institutional role of union ofﬁcials, yet only one company had instituted effective representation over matters of workers’ grievances. This suggests that Chinese trade unions perform an administrative or managerial function rather than adopt a representative role. It is this divided role that makes difﬁcult any assessment of trade union carriage of issues raised by workers. In the context of increased market and institutional reform, however, unions may well be able to position themselves to constrain the excesses of management and to provide a degree of empowerment to workers. Alternatively, the pace of reform may leave many casualities among the workforce, irrespective of trade union intervention or action. Flexibility in this case will be achieved through hierarchical control and the introduction of new technology. It is not clear whether trade unions can develop into representative institutions which initiate and attempt to deﬁne corporate governance issues (see Chapter 14). If trade unions are (and continue to be) closely inter-related with the Communist Party, then companies will continue to develop short-term and ad hoc policies and ﬂexibility will be sought as a negative and containment strategy. If workers,

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however, can effectively voice their real interests to management through trade unions, it will greatly enhance the course of reform by deﬁning company objectives based on management and employee consensus. In this scenario a more empowering ﬂexibility for workers may be the outcome.

Note 1

Authors are listed alphabetically and contributed equally to the research and writing of this chapter. This research was initially funded by a research grant from the Daiwa Bank Foundation for Asia and Oceania and received subsequent grants from the University of Melbourne and Hiroshima City University.

Reference Atkinson, J. (1985) Flexibility, Uncertainty and Manpower Management (IMS Report No. 89), Brighton: Institute of Manpower Studies). Atkinson, J. (1987) ‘Flexibility or Fragmentation: The UK Labour Market in the 1980s’, Labour and Society, 12, 1, pp.87–105. Baglioni, G. (1990) ‘Industrial Relations in Europe in the 1980s’, in G. Baglioni and C. Crouch, (eds), European Industrial Relations: The Challenge of Flexibility, London: Sage, pp.1–41). Benson, J. and Debroux P. (1997) ‘HRM in Japanese Enterprises: Trends and Challenges’, Asia Paciﬁc Business Review, 3, 4, pp.62–8 1. Berggren, C. (1993) ‘Lean Production – The End of History?’, Work, Employment and Society, 7, 2, pp.163–88. Boyer, R. (ed.) (1988) The Search for Labour Market Flexibility, Oxford: Clarendon Press. Cantwell, J. (1996) ‘Transnational Corporations and Innovatory Activities’ in UNCTAD, Transnational Corporations and World Development, London: Routledge, pp.145–80. Chan, A. (1995) ‘Chinese Enterprise Reforms: Convergence with the Japanese Model?’, Industrial and Corporate Change, 4, 2, pp.449–70. Child, J. (1994) Management in China During the Age of Reform, Cambridge: Cambridge University Press. Goodall, K. and Warner, M. (1997) ‘The Evolving Image of Human Resource Management in the Chinese Workplace’, Paper presented at the LVMH Conference, INSEAD, Fontainebleau, February. Gospel, H. (1983) ‘Managment Structures and Strategies: An Introduction’, In H. Gospel and C. Littler (eds), Managerial Strategies and Industrial Relations, London: Heinemann Educational Books, pp.1–24. Gospel, H. (1992) Markets, Firms and the Management of Labour in Modern Britain, Cambridge: Cambridge University Press. Granovetter, M. (1985) ‘Economic Action and Social Structure: The Problem of Embeddedness’, American Journal of Sociology, 91, 3, pp.481–510.

John Benson, Philippe Debroux and Masae Yausa 99 Li, J. (1998) ‘Diversiﬁed Forms for Materializing Public Ownership’’ Beijing Review, 41, 1, pp.13–16. Lipietz, A. (1987) Mirages and Miracles, London: Verso. Lui, T. (1989) ‘Chinese Workers and Employees Participate in Democratic Management of Enterprises’, Chinese Trade Unions, 2, 1, pp.5–10. Markel, D. (1994) ‘Finally, a National Labour Law’, China Business Review, 21, 6, pp.46–9. OECD (1986) Labour Market Flexibility, Paris: OECD. OECD (1988) New Technologies in the 1990s: Socio-Economic Strategy, Paris: OECD. Piore, M. and Sabel, C. (1984) The Second Industrial Divide: Possibilities for Prosperity, New York: Basic Books. Pollert, A. (1991) ‘The Orthodoxy of Flexibility’, in A. Pollert (ed.), Farewell to Flexibility?, Oxford: Basil Blackwell, pp.3–31. Ramsey, H., Pollert, A. and Rainbird, H. (1992) ‘A Decade of Transformation? Labour Market Flexibility and Work Organization in The United Kingdom’, in OECD, New Directions in Work Organisation, Paris: OECD, pp.169–90. Steidlmeier, P. (1995) Strategic Management of the Chinese Venture, Westport, CT: Quorum Books. Storey, J. (1992) Developments in the Management of Human Resources, Oxford: Basil Blackwell. Storey, J. and Sisson, K. (1993) Managing Human Resources and Industrial Relations, Buckingham: Open University Press. Tidd, J. (1991) Flexible Manufacturing Technologies and Industrial Competitiveness, London: Pinter. UN (1988) Transnational Corporations in World Development, New York: United Nations Centre on Transnational Corporations. Wang, Z. (1991) ‘Human Resource Management in China: Recent Trends’, in R. Pieper (ed.), Human Resource Management: An International Comparison, Berlin: de Gruyter, pp.24–35. Warner, M. (1993) ‘Human Resource Management with Chinese Characteristics’, International Journal of Human Resource Management, 4, 1, pp.45–65. Warner, M. (1995) ‘Managing China’s Human Resources’, Human Systems Management, 4, 3, pp.239–48. Warner, M. (1996) ‘Beyond the Iron Rice-Bowl’, in D. Brown and D. Porter (eds), Management Issues in China, London: Routledge, pp.214–36. Whitley, R. (1992) Business Systems in East Asia: Firms, Markets and Societies, London: Sage.

6 Industrial Relations versus Human Resource Management in the PRC: Collective Bargaining ‘with Chinese Characteristics’ Sek Hong Ng and Malcolm Warner

1

Introduction

Background Since the economic reforms initiated by Deng Xiaoping since 1978, China has been gradually introducing greater ﬂexibility into its factormarkets. Previously, under the pre-reform employment system, for example, workers were assigned to enterprises by state labour bureaus. Now, a nascent labour market is evolving (Ng, 1995; Warner, 1995; Ng and Warner, 1998). China’s industrial relations were once only weakly comparable to those in other countries, such as in Western economies or those in Asia. Today, its labour–management relations and management of human resources are increasingly subject to outside inﬂuences (see Warner, 2000, in press). We turn in this context to examine critically a new industrial relations instrument known as the ‘collective contract’ (jiti hetong), now implemented as part of the above economic reforms in general, and labour market innovations in particular (Wu, 1995). Resembling collective bargaining in established market economies, at least prima facie, its purposes are to deﬁne the market terms and conditions governing the hiring and management of staff members and workers. It complements an ‘individual labour contract’ (geren hetong) introduced into Chinese labour–management relations from the mid-1980s onwards (see Korzec, 1992; Warner, 1995, 1996; Sheehan, 1998). The latter, 100

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whilst implementing greater employment ﬂexibility, does not necessarily imply that China has adopted Western-style HRM (see Warner, 1995). Research method In an empirical investigation on both kinds of contracts, we interviewed Chinese Ministry of Labour experts and civil servants, as well as enterprise managers, trade union ofﬁcials and lay workers representatives about the evolution and implementation of such agreements over a number of years. We also collected examples of these, as well as other background documentary materials. A further study of 62 industrial enterprises (undertaken by one of the authors and colleagues in 1996: Warner, Goodall and Ding, 1999) dealt with the human resources context of the arrangements and will be discussed below. We have also carried out an extensive and on-going literature-search of the contextual setting of this new workplace device of collective contracts. The background here is the on-going process of economic reforms, introduced in the PRC since 1978 (for full details see Child, 1994; Naughton, 1996). A key ingredient of these reforms is a form of ‘labour market’ in China (see Xia, 1991; Chan, 1995; Warner, 1995; Zhu, 1995; Ng and Warner 1998) which has led to the system of ‘lifetime employment’, the so-called ‘iron rice-bowl’ (tie fan wan), now being phased out; we will go on to discuss this brieﬂy as it had been the anchor of job security in post-1949 China and is now being increasingly by-passed in the search for labour market ﬂexibility. The iron rice-bowl The ‘iron rice-bowl’ mainly characterized state-sector jobs in Chinese urban industrial enterprises. Its roots belong in the early 1950s when it was inspired by a Soviet-style industrial model. It was also inﬂuenced by earlier Chinese experience and by Japanese employment practices in pre-war Manchuria as well as under the Occupation, for Japanese personnel at least (see Warner, 1995). The system was originally intended to protect skilled workers after 1949, but eventually spread to cover many other groups in the urban workforce (see Chapter 2). On leaving secondary school, young Chinese workers were sent to jobs picked by local labour bureaus, in most cases with little regard to where they wanted to work and at which kinds of tasks. They were placed in work units (or danwei) which registered their citizenship status (or hukou). In a number of respects, it was perhaps akin to a ‘lifetime employment system’, although comparisons with Japanese companies may be as

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misleading as they are illuminating, as the two country contexts differ markedly; one is nominally still ‘socialist’ and the other ‘capitalist’. Citizenship registration thus linked the worker to his or her danwei and labour mobility was minimal, often zero. Urban dwellers without their hukou were non-persons. The wage grade system – usually eight levels for factory workers – had been taken over from the Soviet model but was not designed to motivate effort signiﬁcantly by offering effortbased rewards. In fact, workers received a standard wage with little or no bonus-element; piece-work was also relatively uncommon. In the iron rice-bowl’s place, individual labour contracts have been experimentally instituted since the early 1980s and given greater visibility, as in the Regulations of 1986 (Ng and Warner, 1998). Earlier, temporary contracts had been used quite widely and had been a major bone of contention (for example, during the Cultural Revolution: see Sheehan, 1998). Most Chinese urban industrial workers now have individual contracts, usually short term but some lasting up to ten years and after this, for a minority, permanent status (Josephs, 1996). The second kind of contract, namely the collective contract, ﬁrst emerged in the same period but may have predecessors in the contracts made with groups of workers in the 1950s (Kaple, 1994). However, the modern version of the ‘collective agreement’ was not known ofﬁcially until the late 1980s (see Gong, 1994). The overt purpose was ostensibly to enable enterprise managers to integrate workers into the decisionmaking process at enterprise level better. Agreements were signed between management and trade union to create ‘a community of interests’. Such agreements were superseded by the ‘collective contracts’ which were redeﬁned more precisely and schematically in the 1994 Labour Law for regulating market relations between employees and their employing units. In trying to understand the evolution of such agreements, we hope to adduce an economic interpretation of why they came about and the rationale for their implementation. We shall also ask whether this latest formula betrays features which are reminiscent of collective bargaining in advanced market economies. Trade unions and workplace relations in the PRC Trade unions in the PRC are very different from those found elsewhere; they have, since 1949, functioned (and have indeed been fashioned) as the state’s ‘transmission-belts’ under the organizational umbrella of the nation’s mainstream and unitarist trade union centre, ACFTU (see Chapters 2 and 3). They cover most of the workers in the SOEs and

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many other categories of (for the most part urban) industrial workers, with a total membership (on paper at least) of over 100 million formally signed-up adherents. The ACFTU has been since its early days, and still is, moulded in the doctrinal orthodoxy of Marxist–Leninist ideology. Such a ‘socialist’ character, which extends from the logic of ‘democratic centralism’ and the subordination of the unions to the revolutionary political party as one of its popular organs for organizing the masses, is still considered as sacrosanct today, in spite of the growing need and pressure upon the ACFTU to restructure its philosophy, strategy activities and organization in order to better harmonize with the current ‘marketplace’ reforms in the economy and to reconcile the role of the Chinese trade unions with these new imperatives (see Ng and Warner, 1998). ACFTU was revived by the CCP in 1948 at the convention of the Sixth Labour Congress, a year before its assumption of government in Peking in 1949. The National Labour Congress adopted a new constitution for ACFTU in 1950 which deﬁned its membership as being drawn from all waged workers (including manual and non-manual workers and staff members in enterprises, institutions and schools) and prescribed a basic framework for structuring the subsequent system of trade union organizations in China. As stated ofﬁcially by ACFTU, ‘All trade union members in the same enterprise or institution are organized in one single basic organization: all trade union members in the same industrial branch of the national economy are organized in the same national industrial union’ (Seventh All-China Congress of Trade Unions, 1953:131–2). The notion of ‘industrial’ unionism was not only consistent, doctrinally, with the Marxist–Leninist ideology of ‘socialist’ unionism, but also seen as instrumental by the ACFTU leadership for consolidating the organization (and solidarity) of the Chinese workers in the ‘grass-roots’ unit of the workplace. It was then part of the command economy, with the central notion of trade unions as ‘transmission-belts’, and with most of the decisions in the labour-management ﬁeld ﬁltering from the top-down. Most SOEs have one union representing the workers, with almost comprehensive (that is to say, 100 per cent) trade union membership. There was previously an ‘imposed’ system of industrial relations and it was mostly geared to mobilizing workers-enthusiasm and effort towards production plans. The model which evolved in the 1950s based on the Soviet example (see Schurmann, 1966; Ruble, 1981), apart from the turbulent years of the Cultural Revolution in the 1960s, was revived in the late 1970s and has persisted over the last two decades (see Ng and Warner, 1998).

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The formal goals of ACFTU were from the very start ‘to unite all workers and promote the welfare of workers’ (Lee, 1986:9). It thus set out from 1925 onwards to:- (1) develop workers’ unions in China; (2) unify the labour movement; (3) set up an organizational system; (4) direct union activities; (5) adjudicate inter-union disputes; (6) propagate the aims of class struggle; (7) represent the Chinese workers in relations with outside countries; (8) raise workers’ educational levels; and (9) protect workers’ beneﬁts (Lee, 1986:9). Many decades later, little had changed: The trade unions of China are Chinese working-class mass organizations led by the Chinese Communist Party and formed voluntarily by workers and staff members, and are important social and political organizations. Trade unions should conscientiously take economic construction as their central task and should faithfully reﬂect and safeguard the particular interests of workers and staff members while upholding the interests of the people as a whole, speak on behalf of workers and staff members, work for them, build up a dedicated, high-minded well-educated and disciplined contingent of workers and staff members and bring into full play the role of the Chinese working class as the main force in developing socialist material and cultural civilization. (ACFTU Constitution 1988:1) Trade unions in China are currently organized around four main functions, according to the most recent ofﬁcial (and legal) deﬁnitions pronounced upon by ACFTU headquarters ofﬁcials we interviewed. First, they state that they must ‘protect’ the interest of the whole country, but at the same time ‘safeguard’ the legitimate rights and interests of the workers. Second, they must help their members ‘participate’ in the management of their own work units. Third, they should ‘mobilize’ the labour force to raise productivity and the economy’s performance. Fourth, they should ‘educate’ the workers to be better members of society. These four functions are clearly set out in the Trade Union Law, which was revised in 1992; they were no less salient in the late 1990s. Whether their rank-order is signiﬁcant is moot, but it may well be. The union spokespersons who formulated such phrases may be readier to put the ‘safeguard’ and ‘participation’ functions before the ‘mobilization’ (and ‘education’) priority, although the managers and Labour Ministry bureaucrats may arrange them otherwise. Chinese trade unions have pursued these roles in a top-down ‘unitarist’ rather than ‘pluralist’ context and hence had not previously been

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involved in what may resemble the collective bargaining process as known in most advanced economies. Even with China now in transition from ‘socialist’ democratic centralism to a decentralized system of ‘market socialism’, the idea of having to conclude a collectively negotiated agreement between the trade union and the mangement of the enterprise on workplace-wide conditions still appears novel. It is the purpose of this study to address this new phenomenon of collective contracts in the PRC in terms of their characteristics and implementation, followed by a tentative assessment of their impact on the nation’s workplace industrial relations. Article 33 of the 1994 Labour Law declares, inter alia, that the staff members and workers in a Chinese enterprise ‘may conclude a collective contract with the enterprise’, competent to deal with such matters as ‘labour remuneration, working hours, rest and vacations, occupational safety and health, and insurance and welfare’, in effect, wages and conditions, as covered elsewhere. Where a workplace union is organized, the union is authorized by law to act as the bargaining agent. In addition, its contents have to be vetted and ratiﬁed by the Workers’ Congress (or, in its absence, by all members of the workforce in plenary session). By virtue of the twin instruments of Regulations of the People’s Republic of China for Labour-Management in Chinese–Foreign Joint Ventures’ and the ‘Regulations for the Implementation of the Law of the People’s Republic of China on Joint Ventures Using Chinese and Foreign Investment’, promulgated by the State Council successively in July 1980 and September 1983, the Chinese trade unions have negotiated collective labour–management contracts with a small number of ‘pilot’ JV enterprises since the earlier years of the 1980s (Ng and Warner, 1998). The ofﬁcial deﬁnition of the collective contract is distinctive for emphasizing its consensual (and collaborative) property of ‘collective consultation’, as a written agreement concluded on the basis of ‘equality and unanimity through consultation’ (Ministry of Labour, 1994:Article 5). The rationale of such a design is to minimize (if not ‘neutralize’) the adversarial nature of conventional practices of collective bargaining. Neither is the collective contract a mere aggregation of the individual labour contracts or, in the classic language of Flanders (1969), the individual contract writ large. The reason is its supposed gestation by a ‘collective consultation’ process, as prescribed by Articles 7 and 8 of the provisions. By virtue of ‘collective consultation’, the collective contract purports to reafﬁrm the importance hitherto attached by the state to the micro-economic regulation of the workplace.

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Since the post-1978 economic reforms, the wage share of valueadded in SOEs has more than doubled from its orginal level in that year. In 1979, it was 23.3 per cent in state ﬁrms; by 1995, it was 52.9 per cent. Over this period, it has hardly risen as a percentage in non-state companies (Hussain and Zhuang, 1998:48). Wage ﬁgures here are derived from Chinese ofﬁcial statistics and have risen partly because of the rising elements of bonuses, labour insurance and welfare beneﬁts in kind. Personal taxation is low in China and most of the wage income has been exempt from tax deductions. Moreover, wages were not until recently relatively fully costed in Chinese enterprises, as the non-wage beneﬁts (such as wage bonus payments and a number of fringe-perks) were not allowed to be deducted for cost purposes. By 1994, partial deduction of spending on trade union outlays, worker welfare and training were allowed (Bahl, 1998:134–5). Trade union costs were deductible up to 2 per cent of the ‘ofﬁcial’ base salary; welfare costs, up to 14 per cent; technical training, likewise. Expert opinion suggests that the rise in wage-share was an unanticipated and unintended consequence of the reforms (Bahl, 1998:49). Whilst there has been a large rise in labour efﬁciency, much of the rising wage-share has been due partly to other than efﬁciency-linked increases, even though the growth of incentive-based rewards was intended to link individual and enterprise performance (see Warner, 1995). The decentralization of wage determination with its attendant rise in bonuses, due to the reforms which reduced central controls, saw the onset of ‘wage bargaining’ on a recognizable scale in Chinese enterprises (Hussain and Zuang, 1998:50). Such bargaining ‘with Chinese characteristics’ has also led to competitive wage demands by other groups of workers, thus driving up the share of wages across the economy, often unjustiﬁed by efﬁciency gains (see Chapter 11). What were deemed ‘unjustiﬁed’ wage increases were taxed by the state authorities but, since there was little risk of bankruptcies until recently and hardly any pressure for redundancies, the rise in wages was hard to control. Such labour market behaviour has led the authorities to try to think of a device to ‘recollectivize’ workplace regulation. It seems, however, to be a policy that may enhance enterprise efﬁciency in times of economic expansion but which may conﬂict with macro-level employment policies in a labour-surplus economy. Even so, the rise in wage-share has for the most part led to a rise in real wages, since rises in both wage and non-wage rewards have exceeded the rise in prices over the last two decades. Given that the rise in real wages has probably exceeded productivity gains in many cases in SOEs,

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there has been a perceived need by the authorities to rein in the scope of such uncontrolled ‘wage bargaining’. The emergence of the collective contract as deﬁned and regulated by law might be seen as just the tool to tackle the task of harnessing this kind of bargaining. In order to help ascertain the degree to which the collective contract is analogous to the logic of collective bargaining known for a century and half in the industrialized West, it is now necessary to make a brief reference to the notion of collective bargaining as a ‘mainstream’ industrial institution there.

3

Comparison with practices elsewhere

Collective bargaining in advanced economies Collective bargaining was originally conceptualized by Western mainstream industrial relations theorists (such as the Webbs, 1914, as well as later scholars such as Dunlop, 1958, for example) as a key institution which helps integrate and stabilize labour–management relations in industry in capitalist economies. In the post-Second World War period, there was a notable shift of collective bargaining to focus upon plantspeciﬁc productivity deals. Mirroring these shifts, collective bargaining was later diluted in the West, giving way to a type of performanceoriented ‘individualism’ and incentive-based form of managerial control, packaged under the generic label of a ‘human resource’ model (see, for instance, Storey, 1991:5–10; Storey and Sisson, 1993; Hyman 1994). In order to reconcile these new parameters and challenges, the twin notions of collective bargaining and trade unionism have been adjusted and re-interpreted so that the ‘iron law’ of the union and management bargaining collectively, as adversarial parties, no longer applies ipso facto. Instead, it is apparent that collective bargaining can nowadays feature such a diversity in patterns, both between nations as well as intra-national, that these variations have been recognized academically as well as by international agencies such as the International Labour Organization. In parallel, there has been a growing trend in the USA of the so-called MIT (Massachusetts Institute of Technology) School in interpreting and instructing the management of workplace relations (see authors such as Kochan, Katz and McKersie, 1986). These conceptual perspectives may elucidate key anchoring points against which the embryonic system in the PRC may be bench-marked. For one thing, it is worth noting that the system being advanced in China is heavily sponsored by the state. It is hence highly ‘unitarist’ instead of ‘pluralistic’ in pattern, although the contract is collectively

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negotiated in a decentralized process at basic workplace levels. In principle, the spirit of the ‘common rule’ prevails, inasmuch as the nature of the collective contract is imperative in prescribing the ﬂoor standards of the labour conditions it lays down (Article 35, Labour Law). However, the new Labour Law provides for an arrangement which appears to depart from the Anglo-Saxon ‘common law’ tradition by declaring that the collective contract is legally binding for all parties. Such a position is more consistent with the US system (Kahn-Freund, 1972:76–85, esp. 79). Collective bargaining ‘with Chinese characteristics’? After a brief look at how the collective bargaining notion has evolved in the West and the manner by which the collective contract is now legally fashioned at the workplace under the state’s sponsorship inside China, it is useful to explore areas of convergence and diversity between the Chinese arrangement and the collective bargaining institution featuring the world’s advanced market economies in Europe, North America, Japan or elsewhere. Due to the state’s intervention, what seems to characterize the Chinese practice is hence a ‘unitarist’ system, in particular concerning the writing of the procedural norms governing the negotiation processes. These are speciﬁed in considerable detail by the Labour Law and locally promulgated Regulations governing the negotiation and making of the collective contract, pertaining to aspects such as the competent scope of the contract as well as the public authority’s prerogative to vet and register the concluded agreement in order to confer upon it a ‘legal’ status. The law is not explicit in declaring whether such a legally-sponsored contract is enforceable at court but its binding status is unequivocal. Moreover, the procedural norms it prescribes for settling disputes and conﬂict arising from the bargaining process are again highly structured and consistent across enterprises. These conﬂict resolution arrangements are made available legally, by virtue of the Labour Law, as the enterprise’s in-house conciliation procedures, or else outside the workplace in a tripartite conciliation and arbitration board in the locality. The latter feature stands in noticeable contrast to its silence about the legality or permissiveness of a strike as labour’s weapon of last resort in the event of an impasse. The strike is still viewed with apprehension by the state for possibly negative implications, such as a degree of workplace syndicalism, which might undermine industrial order and pose a potential source of social unrest, as well as also potentially disrupting labour–management co-operation.

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In seeking such industrial harmony (see Thurley, 1988), the Chinese collective contract innovation not only draws its inspiration from Western institutions but also modern Asian industrial relations, notably the Japanese. Of course, the state’s instrument of fashioning the collective contract, backed by a highly standardized and ‘unitarist’ regime of procedural norms prescribed by the Labour Law, is not to emulate per se the Japanese system of enterprise bargaining. Dore distinguishes the Asian approach from the ‘adversarial market orientation’ characteristic of Western industrial economies (Dore, 1990:428–38; Chan, 1995:449–70). This process nevertheless contrasts with postreform China where, at best, only the permanent ‘staff and workers’ belonging to the SOEs, as opposed to the others on short-term contracts, may share in such a collectivistic ethos at ﬁrm-level. Outside this state domain, the Chinese workers are more likely to be lukewarm about having to co-operate with FFEs, let alone identify with the latters’ business interests (Ng, 1995, 1997). Yet an explanation of the industrial arrangement of the collective contract can be stated from a two-point perspective. The ﬁrst probably pertains to the nation’s macro-regulation of China’s labour-cum-wage economy. The device of such a workplace institution, by assigning the agency roles to the ACFTU (to negotiate collectively) and the Labour Ministry (to vet and certify the negotiated contract), provides the public authority with an effective lever at the workplace level to intervene to contain the latter’s wage movements in the marketplace. The second reason is probably more subtle and largely political, mirroring the state’s lingering anxiety about the institutional vacuum left exposed in the Chinese workplace since (and due to) the Party’s ostensible withdrawal from the shop ﬂoor. Such a drift towards a politically normless situation was in part an aftermath of extensive reforms which have devolved autonomy, self-control and decentralized power of decision-making to the individual enterprises during the ﬁrst half of the 1980s. At the time, China began a nationwide process of devolving such autonomy to the enterprise in its innovative search for a revitalized economy under ‘market socialism’ (see Chapters 7, 8 and 9). A workplace system of democratic management was purposively advanced and inculcated by the state as a key arrangement to facilitate transition from the previous management system of ‘directors assuming responsibilities for production and administration under the leadership of the Party Committee’ to a less politically oriented one. However, the latest logic is to vindicate the administrative authority and autonomy of the

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enterprise directors in their exercise of their managerial prerogative, subject to the latters’ accountability to the elected workplace organ of the Workers’ Congress (a possible Chinese surrogate for the works council in Continental Europe). Additionally, it has been observed by authors such as Child (1994) that the state was nervous about the strategic vulnerabilities of decollectivizing the relations of production on the shop ﬂoor and, for that reason, the withdrawal of the Party from workplace control may have been simply nominal in many instance (Pearson, 1991; Child, 1994:67–70, esp. 69; Ng and Pang, 1997:33, 114–16). Given the relative absence of Workers’ Congresses from the FFEs (which are exempted from such provision) and the growing docility of this workplace institution, the state is evidently anxious to reinstate some form of indirect control from the political centre in industry, through a trusted agency such as ACFTU and its web of Chinese trade unions. The ‘arena’ is again located at the workplace now that the latter has become more conducive and amenable to individualized ‘pay-haggling’ and hence wage-drift risks, which may undermine nationwide ‘pay-hike’ norms and undue propensities towards wagepush inﬂation, as experienced before the June 1989 crisis. A prominent Chinese trade leader, Wei Jianxing (the top union leader, a member of the Political Bureau of the CCP Central Committee and president of the ACFTU), stressed the unions’ goals of protecting such interests by signing collective contracts (Xinhua New Agency, 30 April 1995). However, it can be appreciated that what is installed at the Chinese workplace is not a norm of autonomous collective bargaining activities per se. Instead, it is a ‘unitarist’ arrangement of procedural rules standardizing its practice across enterprises. In particular, the procedural norms governing the settlement of collective conﬂict at the workplace appear to have been designed carefully under the state’s central prerogative in order to contain any undue workplace propensity towards spontaneous or organized workers’ militancy. The institutionalization of industrial conﬂict at the Chinese workplace and the associated role played by the collective contract are hence now brieﬂy examined below.

4

Discussion and evaluation

Collective contracts and industrial conﬂicts The 1994 Labour Law provides for a relatively prescriptive framework to sponsor activities of collective bargaining at the Chinese workplace.

Sek Hong Ng and Malcolm Warner 111

Such a legal infrastructure, however, apparently pertains more to the product of the process, as in the form of a collective contract, rather than the substance. The trade union is hence given a legal capacity to conclude this collective instrument, which is legally binding and enforceable. However, the employer (or the employing unit) is not obliged to bargain collectively with its workforce or the workplace union organizing it. Presumably, silence of the Labour Law on the principal issue of union recognition suggests the intention of its architects to leave such an obligation optional, rather than mandatory. In the foreign-funded sector, in particular, there has been a conspicuous amount of management resistance and hostility towards the workplace union or the grass-roots labour organization, quite apart from accepting it as a legitimate partner and agency for collective bargaining purposes (Ng, 1997:208–9). However, it is not clear whether nonrecognition issues have actually been an important cause behind labour disputes, including both those brought before the (tripartite) Arbitration Commission for dispute settlement and those not comprehended ofﬁcially. This notwithstanding, the share of the nation’s labour disputes attributed to the parties’ differences and conﬂicts over collective contracts has actually remained relatively small, up to the present. Where an impasse arises over the scope of application and implementation of a collective contract (already made) in its lifetime, the dispute ‘may be submitted to the labour dispute arbitration committee for arbitration’ (Article 84, Labour Law). The tripartite labour dispute arbitration committee is hence empowered to adjudicate over the dispute within 60 days from the receipt of the application. Such a ‘built-in’ automatic mechanism of referring industrial disputes locked in an stalemate to the labour dispute arbitration procedure outside the workplace is tantamount to erecting a strike ban (or strike pause). Whether the new Chinese system can be immune from, or conversely prove equally vulnerable to, unofﬁcial and unauthorized shop ﬂoor actions which undermine workplace stability has to be tested by future events. Competent scope of the collective contract The discussions above raise in turn a number of interesting points concerning the scope and coverage of the collective agreement in the Chinese context. 1 It is problematic, in this connection, whether the collective agreement covers the managerial and administrative cadres in the enterprise.

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2 It is not certain whether the collective contract has competent jurisdiction over other types of employees other than those having a labour contract and on the regular payroll (notably, those who are part-time or temporary, migrant and commuting labour). 3 Whether the contract is able to cover workers who do not belong to the workplace union is not clearly stated either. 4 There is a parallel issue about the scope of the collective contract. In the Anglo–American system of collective bargaining, it has been a common practice for such negotiations to include substantive as well as procedural norms. The latter arrangements are especially of strategic importance, as in deﬁning the ‘rules of the game’ (Flanders, 1969:21). However, it looks as if when drafting the blueprint of the Labour Law, the state and the architects of the Labour Law had not envisaged, or at least were not aware of, such a notional but key distinction between substantive and procedural norms. Clearly, it is premature to assume that the design of the collective agreement and its application in the workplace are converging with analogous practices in the Western industrial nations. However, there have been painstaking attempts by the Chinese labour movement, led by ACFTU, to propagate the twin institutions labelled ‘equal consultation and collective contract’ (ACFTU 1996:2). Yet a cursory inspection of the relative density of collective agreements adopted and practised among Chinese enterprises of different ownership types suggests the rather uneven incidence of such an arrangement in the home (stateowned, collectives and such like) and foreign (overseas) funded sectors. As reported by the ACFTU, the percentage of the latter having instituted and signed a collective contract is limited. Research by Warner, Goodall and Ding. (1999), in a nationwide sample of 62 ﬁrms investigated in detail on-site in 1996, reveals that more large SOEs have concluded both individual and collective contracts compared with JVs in the sample they studied. Yet many of the latter had very comprehensive ACFTU representation, although weaker Worker Congress frequency. The multinational-associated JVs in the sample paid higher wages and had reformed their social insurance arrangments (see Goodall and Warner, 1997) but they tended to have more employees than many overseas Chinese FFEs. Ironically, the level of density achieved in the supposedly standard-bearing foreign-funded sector is nationally unimpressive. Among the nation’s FFEs which have been organized by a workplace union, less than 10 per cent (9.86 per cent) have concluded a collective contract according to union sources

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(ACFTU, 1996) This limited level achieved apparently falls short of the ofﬁcial target which the state had envisaged for this type of enterprises, at a threshold of 30 per cent organized as publicized by the ACFTU (ACFTU, 1996:3). Such a shortfall is not surprising, granted the limited scope of trade union organization among enterprises in the non-state sector (see Ng and Warner, 1998). By the end of 1998, the ACFTU claimed that over 300,000 firms had concluded collective contracts, covering 66 million workers altogether (see http://www.acftn.org.cn) although some scepticism may be registered at this large number.

Concluding remarks To sum up, we have argued that many of the ‘bench-mark’ characteristics of conventional collective bargaining institutions ascertainable in advanced capitalist economies are not as yet fully developed, or are not set to evolve at all in the Chinese case. Conceivably, the workplace contract instrument, individual or collective, is intended to accommodate potential conﬂicts of interest between labour and capital under a market-driven ‘socialist’ economy. However, the notion of the contract is likely to remain problematic and even alien in the Chinese context, whether measured against the Confucian tradition of paternalistic trust or the ideological dictum of Marxist socialism. Yet it is ironic that whilst workplace relations in Western capitalist advanced economies are drifting towards the individualized HR model, China is now introducing collective contract negotiation in the wake of its reforms for market socialism but apparently in counterpoise to such a ‘mainstream’ trend. The apparent reason is to ‘re-collectivize’ workplace industrial relations to contain possibly disintegrative and self-seeking ‘individualism’ arising from labour market developments, such as individual labour contracts, performance pay practices and the growth of individualized rewards systems. We have noted elsewhere how Chinese enterprises, especially SOEs, have yet to advance beyond personnel management (renshi guanli), let alone embrace full-blown HRM (Warner, 1995; Ng and Warner, 1998; Warner, Goodall and Ding, 1999). However, we may ask whether such a ‘unitarist’ industrial strategy is likely to work vis-à-vis an institution mainly dependent on ‘pluralist’ norms. Even so, although collective bargaining is weakening and even fragmenting elsewhere, both individual and collective contracts may be found co-existing as in many Western instances; there is no reason why they should not do so in the Chinese context.

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The anxiety with which the state is now promoting the practice of the collective contract at the Chinese workplace suggests, in the ﬁrst instance, an urgency in the shaping of workplace reforms via institutionalization of this consultative-cum-negotiation arrangement (Hai, 1996). The ofﬁcial desire for such collectivized negotiation activities reﬂects, in turn, the apprehension of the state, and of the Party as well, regarding the potential drift towards individualized ‘wage-haggling’ which is now emerging inside China. We have argued earlier in a possible economic explanation that the collective contract, as a set of industrial ‘common rules’ negotiated collectively and jointly with management, is apparently intended to contain any unchecked tendencies of the Chinese workplace to drift towards divisive and competitive wage-bidding among the Chinese workers (see Chapter 11). The second question is probably more one of strategy and design of the policy architects when addressing the agenda of institutional transfers from the industrially advanced economies to the late developing societies. The 1994 codiﬁcation of the Labour Law, and the conscious propagation of the collective contract as one of its key provisions, are overtly emulative attempts by the PRC to bench-mark its evolving labour market(s) at home against those which have been established in the mature capitalist economies. However, as a late developer, China now enjoys the strategic advantage of having a latitude of choice and adaptation to a variety of alternative versions of putting collective bargaining ‘with Chinese characteristics’ into practice. Collective contracts will no doubt be implemented more widely in the PRC as the reforms are carried one stage further, but it will take some time yet before they become more common outside the medium to large SOEs and JVs. What China has formulated from its (institutional) drawing-board is a ‘hybrid’ product mixing both Western and Eastern ﬂavours, plus its own imaginative and innovative inputs, so as to harmonize activities of ‘collective bargaining’ with the needs of the reformed workplace in contemporary China. It will take, in our view, some time for these HRM changes to become more widely implemented. Thus China has neither implemented Western-style industrial relations – with its attendant ‘free’ collective bargaining – nor does it yet have explicit HRM in place, except perhaps in the ‘best practice’ Western multinationals operating in say, Shanghai (see Goodall and Warner, 1998). A pragmatic accommodation between the two models may no doubt emerge in the next decade.

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References ACFTU (1953) Proceedings of Seventh All-China Congress of Trade Unions, Beijing. ACFTU (1996) ‘ACFTU Presses ahead with Collective Contract System’, in ACFTU Bulletin, 4, (December), pp.2–3. ACFTU website (http://www.acftu.org.cn). Bahl, R. (1998) ‘Central-Provincial-Local Fiscal Relations: The Revenue Side’, in D. J. S. Brean (ed.), Taxation in Modern China, London: Routledge, pp.125–50. Chan, A. (1995) ‘Chinese Enterprise Reform: Convergence with the Japanese Model’, Industrial and Corporate Change, 4, 2, pp.449–70. Child, J. (1994) Management in China During the Age of Reform, Cambridge: Cambridge University Press. Dore, R. (1990) British Factory – Japanese Factory, with a new afterword by the author, Berkeley, CA: University of California Press. Dunlop, J. T. (1958) Industrial Relations Systems, New York: Henry Holt. Flanders, A. (1969) ‘The Nature of Collective Bargaining’, in A. Flanders (ed.), Collective Bargaining, Harmondsworth: Penguin, pp.11–58. Goodall, K. and Warner, M. (1997) ‘Human Resources in Sino-foreign Joint Ventures’, International Journal of Human Resource Management, 8, 5, pp.569–94. Gong, Y. (1994) ‘Collective Contracts’, Chinese Trade Unions, 4, pp.9–11. Hai, T. (1996) ‘Collective Contracts Promote Stability of Labour Relations’, Chinese Trade Unions, 1, pp.3–5. Hussain, A. and Zhuang, J. (1998) Enterprise Taxation and Transition to Market Economy’, in D. J. S. Brean (ed.), Taxation in Modern China, London: Routledge, pp.43–68. Hyman, R. (1994) ‘Changing Trade Union Identities and Strategies’, in R. Hyman and A. Fermer (eds), New Frontiers in European Industrial Relations, Oxford: Basil Blackwell, pp.108–39. Josephs, H. (1996) ‘Labour Law in a “Socialist Market Economy”: The Case of China’, Columbia Journal of Transnational Law, 33, 4, pp.561–81. Kaple, D. (1994) Dream of a Red Factory: The Legacy of High Stalinism in China, Oxford: Oxford University Press. Kahn-Freund, O. (1972) Labour and the Law, London: Stevens & Sons. Kochan, T. A., Katz, H. C. and McKersie, R. B. (1986) The Transformation of American Industrial Relations, New York: Basic Books. Korzec, M. (1992) Labour and The Failure of Reform in China, London: Macmillan. Lee, L. T. (1986) Trade Unions in China: 1949 to the Present, Singapore: Singapore University Press. State Council of the PRC (1980) Regulations of the People’s Republic of China for Labour-Management in Chinese-Foreign Joint Ventures, Beijing: Ministry of Labour. Ministry of Labour, Provisions on Collective Contracts; Circular of the Ministry of Labour on the Printing and Distribution the Provisions on Collective Contracts, LMI, No 485, Beijing: Ministry of Labour. Naughton, B. (1996) Growing Out of the Plan: Chinese Economic Reform, 1978–93, Cambridge: Cambridge University Press. Ng, S. H. ((1995) ‘A Current Note on the Chinese Labour Movement’, International Journal of Employment Studies, 3, 2 (October), pp.61–75.

116 Industrial Relations vs HRM Ng, S. H. and Pang, C. (1997) Structuring for Success in China: Critical Organizational and HR Issues, Hong Kong: Financial Times. Ng, S. H. (1997) ‘Industrial Relations in Joint Ventures in China: A Re-visit’, Advances in Chinese Industrial Studies, 5, pp.191–216. Ng, S. H. and Warner, M. (1998) Trade Unions and Management in China, London: Macmillan and New York: St Martin’s Press. Pearson, M. M. (1991) Joint Ventures in the People’s Republic of China: The Control of Foreign Direct Investment Under Socialism, Princeton, NJ: Princeton University Press. Ruble, B. A. (1981) Soviet Trade Unions: Their Development in the 1970s, Cambridge: Cambridge University Press. Schurmann, F. (1966) Ideology and Organization in Communist China, Berkeley, CA: University of California Press. Sheehan, J. (1998) Chinese Workers: A New History, London: Routledge. State Council of the People’s Republic of China (1983) Regulations for the Implementation of the Law of the People’s Republic of China on Joint Ventures Using Chinese and Foreign Investment, Beijing: State Council. Storey, J. (1991) ‘Introduction: From Personnel Management to Human Resource Management’, in J. Storey (ed.), New Perspectives on Human Resource Management, London: Routledge, pp.1–18. Storey, J. and Sisson, K. (1993) Managing Human Resources and Industrial Relations, Buckingham: Open University Press. Thurley, K. (1983) ‘Trade Unionism in Asian Countries’, in Y. C. Jao, D. A. Levin, Sek-Hong Ng and E. Sinn (eds), Labour Movement in a Changing Society, Hong Kong: Centre of Asian Studies, University of Hong Kong, pp.24–31. Warner, M. (1995) The Management of Human Resources in Chinese Industry, London: Macmillan and New York: St Martin’s Press. Warner, M. (1996) ‘Chinese Enterprise Reform, Human Resource and the 1994 Labour Law’, International Journal of Human Resource Management, 7, 4, pp.779–96. Warner, M. (2000) (ed.) ‘Introduction’, Symposium: Asia Paciﬁc HRM Revisited, International Journal of Human Resource Management, 11, 2 (in press). Warner, M., Goodall, K. and Ding, D. Z. (1999) ‘The Myth of Human Resource Management in Chinese Enterprises’, in M. Warner (ed.), China’s Managerial Revolution, London: Frank Cass, pp.223–237. Webb, S. and Webb, B. (1914) Industrial Democracy, New York: Longmans, Green. Wu Jiang (1995) ‘Collective Bargaining Boosts the Growth of An Enterprise’, Chinese Trade Unions, 2, pp.16–7. Xia, J. Z. (ed.) (1991) Zhongghuo laodong lifa wenti (Issues of China’s Labour Legislation) Beijing: China Labour. Zhu, Y. (1995) ‘Major Changes Under Way in China’s Industrial Relations’, International Labour Review, 124, pp.36–49.

7 Local or Global? Human Resource Management in International Joint Ventures Ingmar Björkman and Yuan Lu1

1

Introduction

In the international business literature, the strategy and operations of MNCs are often conceptualized in terms of global integration versus local responsiveness (Prahalad and Doz, 1987). The framework is typically used to analyse the advantages of global integration and/or standardization of the execution of certain tasks versus the beneﬁts of adjusting to the contextual differences across nations (Ghoshal, 1987). A similar framework has been proposed for HRM policies and practices (Schuler, Dowling and De Cieri, 1993; Taylor, Beechler and Napier, 1996); in this chapter, we will use it to examine the HRM practices for local employees in JVs between Western companies and their local Chinese partners. The establishment of international equity JVs is a central strategy adopted by foreign companies in the PRC. According to China’s statistics, by the end of 1996, over 66 per cent of foreign directly invested ﬁrms were JVs (China Statistical Yearbooks 1985–95; Ministry of Foreign Trade and Economic Co-operation, or MOFTEC, 1997). International JVs have at least two parent organizations, who may have conﬂicting objectives as well as divergent notions about what constitutes appropriate HRM practices. There may thus be inﬂuence on the JV from both parents that in different ways may impact on the venture’s operations (Shenkar and Zeira, 1987; Geringer and Frayne, 1990). Furthermore, the practices may be inﬂuenced by institutional pressures in the JV’s local environment (Rosenzweig and Nohria, 117

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1994). Hence, conceptually international JVs in China can be viewed as facing two contradictory pressures. The ﬁrst comes from the foreign parent company, which may expect the venture to follow its own policies and practices. There are at least two different reasons why an MNC may want its home country policies and practices to be transferred to the JV (Bird, Taylor and Beechler, 1998): First, facing considerable uncertainty as to what constitutes efﬁcient practices, MNC decision makers may prefer practices that are well-known and have worked well elsewhere; second, MNC executives may believe that the home-country practices constitute a competitive advantage that enables the corporation to compete successfully worldwide. Accordingly, they may try to transfer at least some of the MNC’s home-country (and/or international) HRM practices to the JV in China. At the same time, HRM practices have to conform to expectations and requirements derived from practices in local Chinese ﬁrms, plus China’s laws, government regulations, culture, labour supply and other external forces (see Chapter 2) (Holton, 1990; Warner, 1995). The local partner may also require the JV to adopt their HRM practices. As most employees are locals, to imitate local practices would help the JV avoid conﬂicts caused by cultural differences or resistance to the introduction of the foreign management. Previous research conducted in both the USA (Rosenzweig and Nohria, 1994) and on Taiwan (Hannon, Huang and Jaw, 1995) has found that foreign subsidiaries are more likely to adopt a higher degree of local than MNC practices. To the best of our knowledge, no study has been published on this topic in the Chinese context. The objective of the research reported in this chapter was to examine the degree to which Chinese–Western JVs have adopted (1) the MNC’s homecountry HRM practices and (2) the HRM practices of local Chinese ﬁrms. The focus is on HRM practices for local managers and professionals rather than rank-and-ﬁle employees. The chapter builds on the relatively small but growing literature on HRM in Chinese–foreign JVs (such as Child, 1991, 1994; Ding, Fields and Akhtar, 1997; Goodall and Warner, 1997, 1998; Verburg, 1996). Additionally, we will attempt to identify factors that shape the HRM practices. The research is based on interviews conducted in 65 Chinese–Western international JVs.

2

Personnel management in China

The term HRM is usually used to describe a wide range of activities involved in attracting, developing, and maintaining the best and most

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capable people as a talented and energetic organizational force. Since the early 1980s, the term HRM has become popular, and is frequently used as a description of new philosophies and methods of management of employees (Guest, 1990). In contrast with ‘personnel management’, which concerns mostly issues related to industrial relations and administering employees, HRM is advocated as a strategic function which should be concerned with the consequences of all organization decisions for human productivity and for the well-being of the entire workforce (Prewitt, 1982). Although scholars deﬁne HRM from various perspectives, it has been generally agreed that HRM is a specialized profession whose purpose is to help business/line managers enhance company performance through better management of people. Compared with the situation in Western countries, personnel practices in China are still at a primary stage. As persuasively argued by Warner (1993; 1995), the term ‘personnel management’ is more to the point when describing the practices of local Chinese companies. Prior to the mid-1980s when the Chinese government decided to reform the economic system, most issues concerning management of people were controlled by planning authorities, such as government personnel and labour bureaus. For a long time, the Chinese government implemented a policy of ‘high employment, low wages’. New employees were allocated to enterprises. Recruitment was subject to planning quotas granted by the government. Neither employees nor employers had much freedom to choose according to their preferences. Wages and salaries were not determined by management, but ﬁxed according to the government’s grades that were based on seniority and position rather than an individual’s performance (World Bank, 1985). China’s centralization of employment led to a situation where most SOEs had redundant workers. In addition to the rigid state control of employment, managers and technicians were strictly administered by personnel bureaus and the Party organization. Seniority and political attitudes were regarded as two important criteria when deciding on promotions. The ‘iron rice-bowl’ (tie fan wan) and ‘eating from one big pot’ (daguo fan) were characteristics of the Chinese personnel system (see Chapters 2, 3 and 4). The ﬁrst referred to life-long employment, the second to the payment of equal wages and bonus allocations. Neither of the practices did much to motivate employees to improve the performance of the company. As early as the 1950s, the Chinese government tried to solve these problems and several attempts were made to reform the employment system: for instance, in 1956 a proposal called for the adoption of a contract labour system. In the early 1960s, a proposal to

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introduce a temporary employment system was put forward. None of these proposals was implemented due to China’s unfavourable political environment at the time (see Lu, 1996). When economic reform started in the late 1970s, the Chinese government attempted to reform the personnel and labour systems by expanding enterprise decision autonomy in recruitment/dismissal, wage-setting, training and promotion. A labour contract system was subsequently introduced to require employees to sign a labour contract with management. Executives could then make policies on rewards and bonus allocation, as well as decisions on appointment and promotion of middle managers. In large urban areas, job centres were established to offer recruitment opportunities that increased mobility of labour across organizations. Despite the change in government policies and institutional arrangements for labour and personnel management, in reality, the progress in the reform of HRM in local ﬁrms has been limited by the intervention of local governments which felt anxious about an increase in unemployment (see Chapter 12) (Lu, 1996). In general, local practices for managing employees have remained as traditional personnel and labour management, merely concerned with routine activities, including record-keeping of employee ﬁles, recruitment and selection according to state plans, wage-administration and allocation of welfare (Warner, 1995; Lu, 1996). None the less, recent research indicates that some changes have taken place, and that signiﬁcant differences today can be found across companies (Goodall and Warner, 1997). In addition to the rules and regulations of the government, culture and social values have impacted on HRM practices of Chinese organizations. Scholars have suggested that the following cultural aspects have signiﬁcant inﬂuences on personnel practices in China (see Lockett, 1988; Child and Markóczy, 1993). 1 2 3 4

Respect for age and authority. The importance of maintaining harmonious human relations. The importance of personal relations (guanxi). Group orientation, which emphasizes collective action and thus casts an individual’s behaviour into a group context. 5 The preservation of ‘face’ (mianzi), which suggests an individual tries to avoid losing ‘face’ in public. For instance, an emphasis on harmonious relations and group orientation could lead to egalitarianism in wage-setting and bonus distribution regardless of an individual’s performance. The importance of

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personal relations could give rise to nepotism in recruitment or to the selection of personnel who have personal loyalty and ties to executives.

3 The research project From Section 2, it should be clear that there are signiﬁcant differences between the methods used to manage people in China and in Western countries. However, foreign companies that invest in China not only face the question of to what extent they should adopt their HRM policies and practices to better ﬁt with the local context, but the fact that many of the investments are in JVs with local partners also adds to the complexity of the question. As a consequence, when investing in China, an MNC may encounter a great challenge if it attempts to transfer Western HRM practices to its JVs. Some of the early writing on HRM in foreign units in China indicate that this in fact has been the case. For instance, US companies were reported to experience tremendous problems when attempting to introduce their home country HRM approaches to JVs in China, and in the 1980s the HRM practices of Chinese-Western JVs were apparently rather ‘local’ (von Glinow and Teagarden, 1988; Holton, 1990). However, MNCs have greatly increased their experience in China since the 1980s. Furthermore, the Chinese operations of most large Western MNCs now constitute a much more important part of their global business undertakings, and the units in China are more integrated with the rest of the MNCs’ operations. Finally, during the 1990s there have been some changes in local personnel practices. Hence, at the outset of our research project it was not clear to what degree HRM practices for local managers and professionals would be found to be ‘local’ or ‘global’. There was also a need to increase our understanding of the factors that shape JV practices. To provide answers to these questions, qualitative and quantitative data were collected through interviews with expatriate and local managers in 65 Chinese–Western JVs. In most companies one manager was interviewed, and in the others discussions were undertaken with two or three managers. The interviewee was usually the general manager and/or the human resource manager. The interviews were carried out between January 1996 and February 1997. The sample included 13 JVs with a parent organization from the USA, 49 with a European parent company and three from other Western countries. The size of the ventures varied from over 1000 to

122 Local or Global? HRM in China

less than 100 employees, with the average number of employees being 493. No fewer than 44 JVs had foreign parent dominant ownership (over 50 per cent), 11 had equally split ownership (50:50), while 10 had local parent dominant ownership. The JVs were located in Beijing (22.2 per cent), Guangdong (22.2 per cent), Shanghai (17.5 per cent), and other parts of the country (38.1 per cent).

4

The Human Resources/Personnel Department

Of the 65 JVs in our study, 20 had a formal and independent HR department while 25 had a Personnel Department. Of these 45 ventures, 11 had HR staff who had been transferred from the foreign parent’s regional headquarters or the Chinese corporate headquarters, while 15 were staffed by HR managers recruited from external organizations. The remaining 19 JVs plus eight ventures that had no speciﬁc HR or Personnel Department, had HR staff appointed by the Chinese parents. Almost all of the 20 JVs without a separate HR/Personnel department were small, and they had typically integrated the HR functions into the administration department. Twelve of them had no HR staff whatsoever. Although most HR/personnel managers reported directly to the general manager, in some companies the HR/personnel manager was subordinate to an administration manager. Additionally, in a number of cases there was a ‘dotted line’ between the HR/personnel manager and the corresponding function in the foreign company’s organization. In contrast with local ﬁrms where the Party and trade union exert signiﬁcant inﬂuences on management of personnel and labour, there was little evidence of such inﬂuence in the JVs. In fact, many JVs had no Party organization, and only 36 of the sampled units had trade union branches. The Party’s activities usually took place within local parent ﬁrms while the role of the union was mostly limited to welfare issues and organization of entertainment activities, such as Chinese New Year parties, recreation activities, and celebrations of employees’ birthdays. Despite the Labour Law which states that the union could represent workers in collective bargaining, most ventures still signed individual contracts with their employees.

5

Human resource management practices

The central question in our research concerned the extent to which the JVs had adopted (1) the foreign partner’s home country HRM practices

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and (2) those of local companies. We categorized HRM activities into ﬁve areas: recruitment (source of recruitment and methods of recruitment);, training (contents of training and amounts of training); performance appraisal (criteria of performance appraisal and methods of performance appraisal); criteria of promotion; and ﬁnancial rewards (rewards criteria and importance of ﬁnancial rewards). During the interviews, the respondents were asked to answer the following questions concerning the degree to which the JVs HRM practices resembled those of the (main) foreign parent organization: ‘compared to the MNC’s home country operations, the [JV’s HRM practices] are very similar (1) … very different (7)’. Figure 7.1 exhibits our survey results. Overall, the HRM practices in the sampled ventures were reported to be more similar to MNC practices than to local ones. However, there were signiﬁcant differences across the HRM functions. Performancerelated activities and criteria of promotion were more similar to MNC standard practices, whereas activities such as recruitment and ﬁnancial rewards resembled local practices more than did the others. Below we will describe each of the HRM functions based on the qualitative data collected during our interviews. Table 7.1 summarizes our ﬁndings. The table illustrates general characteristics of HRM practices

Similar to MNC standard practices

Similar to local practices

1. Source of recruitment 2. Methods of recruitment 3. Contents of training 4. Amounts of training 5. Criteria of performance appraisal 6. Methods of performance appraisal 7. Criteria of promotion 8. Financial rewards criteria 9. Importance of financial rewards 10. Overall HRM practices

Figure 7.1 Resemblance of international JV HRM practices to MNC standard practices versus local ones

Mostly local college/university graduates

Written tests and interviews or informal talks; usually no references

Basic operation skills and technology

Limited

Quality of human relations, political attitudes, and outputs

Recruitment 1. Sources of recruitment

2. Recruitment/selection methods

Training 3. Training contents

4. Training amount

Performance appraisal 5. Criteria of performance appraisal

Traditional personnel and labour management. HR managers usually received limited training and were administrators for record-keeping, wage management organization of training, recruitment and other services to line managers.

HRM practices in local Chinese ﬁrms

HRM in international JVs

Mostly quantitative measures, such as quantities, costs, outputs, and accomplishment of targets

Extensive, particularly in ventures with high technology

Basic operational and technical skills and management concepts

Written tests are important, plus formal discussions, but usually limited use of references

Often college/university graduates and people with experience; local partner could be a source of selection

Where the foreign parent company (MNC) dominated ownership, HRM practices were emphasized and HR staff received training and participating in strategic management. In JVs where local parents were in control, HRM practices were similar to those in local ﬁrms.

A comparison of HRM practices in local Chinese ﬁrms and international JVs

HRM activities

Table 7.1

124

continued

Performance, position, and seniority

Extremely important but pay between workers and managers is not differentiated

9. Importance of ﬁnancial rewards

Performance track records, capability, political attitudes, and others (health, age, and education)

Self-assessment, peer assessment, and vertical assessment; sometimes subordinates involved

HRM practices in local Chinese ﬁrms

Financial rewards 8. Financial rewards criteria

Promotion 7. Promotion criteria

6. Methods of performance appraisal

HRM activities

Table 7.1

Very important; signiﬁcant differences between workers and managers

Performance and position

Performance track records and capabilities

Vertical assessment by the boss; sometimes peer assessment (if management is local)

HRM in international JVs

125

126 Local or Global? HRM in China

ﬁndings. The table illustrates general characteristics of HRM practices in China’s local ﬁrms, and in the JVs examined in this study. Recruitment and selection Let us ﬁrst consider the situation in local ﬁrms. As most local ﬁrms suffer from a surplus of workers, recruitment of new employees has become rare. If recruiting is essential and necessary, a ﬁrm usually begins the selection process by examining the people available in the company’s internal labour market, starting with redundant workers who have already been removed from workshops. When hiring from external sources, managers usually are in favour of local graduates through contact with job centres, local labour bureaus, or the job market. As in Western MNCs, recruitment is jointly conducted by line managers and HR staff. A candidate is recruited to take a written test of basic technical, management or political knowledge. Then an informal talk with personnel staff and managers is usually arranged. There is no evidence to suggest that letters of reference or psychological tests are used. A candidate has a better chance of getting the job if he or she is introduced by a friend or acquaintance of the managers (Lu, 1996). Turning now to consider JVs, the transfer of staff from the local partner was most common in old JVs and in companies where a local partner held a large equity share. Also, when the JV was established based upon a local partner’s existing site, the local partner was a major supplier of workers to the venture, providing the workforce, administrative staff, technicians and managers. In most of the JVs sampled, both the particular characteristics of the Chinese labour markets and features of the Chinese culture had inﬂuenced the recruitment and selection practices. Our interviewees pointed to a lack of qualiﬁed and experienced local job candidates, especially in general management, ﬁnancial management and HRM. The JVs sometimes recruited managers and professionals who already had experience from other foreign-owned companies or representative ofﬁces but, as with the ﬁndings in a recent study by Goodall and Warner (1998), our interviews indicate that this option was relatively seldom used. To recruit experienced managers from local ﬁrms was unusual. Job centres or government agencies were sometimes used as the sources of recruitment of professionals, but less often for managers. Instead, JVs controlled by the foreign parent company preferred to recruit professional employees upon their graduation from university or when leaving school, and then develop them through formal and on-the-job training. This was particularly the case in high-tech JVs with large Western

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MNCs. As a result of this recruitment strategy, the average age in many ventures was less than 30 years. Interviews were by far the most commonly used selection method. Typically a local HR/personnel manager ﬁrst screened candidates based on their curriculum vitae, and then through interviews. Subsequently, the line manager and an expatriate top manager interviewed the candidate. Several MNCs had trained their local HR managers in how to conduct recruitment interviews. Expatriate managers had also gone through a learning process concerning how to conduct interviews in China: They are usually so nervous that they can hardly talk in the beginning. Therefore, you have to be very careful that you don’t upset the interviewees too much in the beginning. After a while they loosen up. That’s why I would never make a decision based on the ﬁrst impression here in China. You must also choose your questions very carefully; you cannot be as direct as you might be in [the West]. (Björkman and Lu, 2000a) Several JVs had introduced selection methods from the foreign MNC, such as standard analytical and technical tests. However, some companies had decided to somewhat adjust these methods to the local context: for instance, Western psychological tests had been abandoned by some companies. In many JVs expatriates participated in the selection process, partly in order to reduce the perceived problems of nepotism. External pressure on local employees to recruit a certain person – for instance, the relative of an inﬂuential local ofﬁcial – could be handled more easily when a foreign manager took formal responsibility for the selection decision. Letters of reference were used by some ﬁrms, but due to the existence of forged documents being presented by applicants, certiﬁcates and references were checked more rigorously than in the MNCs’ home countries. Training In local ﬁrms, due to limited funds, the quantity of training is reduced to the minimum and most training is arranged within the company. Occasionally, managers are dispatched to external training organized in universities, industrial bureaus, or other training institutes (Warner, 1995). The focus is on technical training and few ﬁrms conduct systematic and regular management training (see Lu, 1996).

128 Local or Global? HRM in China

In the JVs, most of those sampled had invested substantially in training. Some of the formal training took place in the company itself, but many large MNCs had invested in corporate training centres and/or allied themselves with local universities to train all employees afﬁliated with the corporation in China. A few selected employees were even sent on corporate training programmes outside China. Especially concerning technical training, the content of the training was relatively similar to programmes offered by the MNC in other parts of the world. More adjustments had to be made in terms of how the training was offered than in its content: in spite of the fact that more than half of the sampled companies provided their local employees with English language training, language problems typically held back the learning process. When the training took place in English, it was particularly difﬁcult to activate the participants through role plays, discussions and employee presentations, as these techniques are seldom used in the Chinese educational system where traditional lecturing is still the norm (Melvin, 1996). Second, as the Chinese seldom provided direct individual feedback during the training session, few expatriate trainers understood whether the participants really had grasped the contents of the training. Third, due to a lack of understanding of the Chinese culture, several foreign trainers behaved in an inappropriate manner, (for instance, by telling jokes that hurt the feelings of the participants). One company had tried to solve the problem in the following way: We have tried to improve the situation by picking some of our staff who know English well, and ask the experts to train these persons so that they can provide the training. Another method is to include a person who speaks Chinese as a co-trainer. For example, I have recently taken part in a few courses where I acted as a co-trainer and interpreter. In this way the courses get more effective. The feedback we got showed that the courses were much more appreciated than similar courses we have had without a co-trainer. We are going to use this method a lot in the future. Earlier we used a local interpreter, but that didn’t work out well because he just translated everything that the trainer said. (Björkman and Lu, 2000a) Compared to the situation in Western MNCs, perhaps an even more important objective of the training programmes for professionals and managers was to offer a good long-term development path for the local employees. Retention was seen as a major problem and, besides paying

Ingmar Björkman and Yuan Lu 129

competitive salaries, offering a high-class development programme was viewed as perhaps the best way to retain key employees. Performance appraisal In local ﬁrms, the Chinese performance appraisal system shares some similarities with those in Western companies (for instance, the assessment of an individual’s performance or outputs). However, there are at least two features that distinguish them from typical Western appraisal systems. The ﬁrst refers to an emphasis on political behaviour, including a manager’s attitudes towards the Party and socialist society, while the second concerns the quality of human relations. The assessment methods tend to be complex, starting with a manager’s self-assessment, and then peer assessments by colleagues or sometimes even by subordinates. The Party staff and boss are the last ones to make comments on and conclude the appraisal results. In the JVs, almost half of the companies in our study had periodic performance appraisal (or ‘management’) systems, and most of these had adopted the MNCs’ global policies concerning performance appraisal. The focus of the appraisals was clearly on the appraisee’s job performance. An individual’s attitudes towards the Party and human relations, both commonly used in local ﬁrms, were seldom used as appraisal criteria. The exceptions concerned a few JVs where the General Manager position had been staffed by the local parent company, and where attitudes towards peers and subordinates and harmonious human relations were sometimes included in the assessment. However, even in JVs that had introduced an appraisal system from the foreign MNC, in reality there were often some small adjustments made in the appraisal process. First, in the companies that used a formal appraisal, the superior typically conducted a performance appraisal interview with the subordinate. The discussions were organized once a year but their style and content differed from common practice in Western countries. Some companies used a very formal assessment scheme in which both the superior and subordinates were asked to ﬁll in an assessment form, while others preferred to arrange an informal talk between the boss and subordinate. Above all, experienced appraisers were careful in their feedback to the appraisee to help the subordinate save face and to maintain interpersonal harmony, two central Chinese values (see Bond, 1991, for a discussion of these characteristics of Chinese society). Some MNCs had also tried to train the expatriate managers to be aware of these concerns.

130 Local or Global? HRM in China

Second, a few ﬁrms had decided not to use subjective numerical performance ratings because Chinese managers were unwilling to give their subordinates poor ratings as that might lead to a loss of face for the appraisee and disrupt the superior–subordinate relationship. The performance appraisal system was linked instead to daily, informal coaching and formal training and development. As a result, the system focused more on employee development than on the evaluation of past performance. Third, although goal-setting is an integral part of many performance appraisal systems in China (as they are in the West), the superior typically set the goals for his or her subordinates, an action that reﬂects the hierarchical nature of Chinese society (Lockett, 1988) where ‘superiors speak and inferiors listen’ (Gao, Ting-Toomey and Gudykunst, 1996:286). A more participative approach would be common in the West. Promotion In local ﬁrms, the criteria for promotion include factors such as education level, health and age in addition to performance records (EasterbySmith, Malina and Lu, 1995). An emphasis is always given to ‘good’ personal traits and harmonious relations with others, plus ‘correct political attitudes’. In SOEs, the Party organization still exerts some inﬂuence on promotion and career management decisions (Lu, 1996). In the JVs, generally speaking, promotion decisions were made based on an evaluation of the merits of the person in question. The obvious exception concerned positions that were ﬁlled directly by the parent organizations. In many JVs, the general manager had also been granted the formal right to promote the most capable person. Thus, promotion decision-making largely resembled that in the foreign parent companies. Conﬂict may occur between parents about who to promote. An incumbent manager who was regarded by expatriates as ‘capable’ and ‘competent’ could be seen as ‘aggressive’ by locals. Additionally, according to our interviews, in a few JVs foreign parent organizations were sometimes reluctant to approve the promotion of middle managers who had been recruited from the local partner, while some Chinese parent companies were unwilling to accept externally recruited persons in top positions. A key issue for most ventures was how to develop capable local managers who would later take over strategic positions. This localization process became more urgent in a JV which had a large number of expatriates, so promotion of local managers was considered by the MNC to

Ingmar Björkman and Yuan Lu 131

be an important ingredient of their HRM strategy. For this reason, a number of JVs had introduced a career planning system from the MNC. To have a well-developed career planning system was also viewed as an important tool for employee retention. As one expatriate commented: We have started to discuss the possibility [of] a formal career planning and an appraisal system with experts from [the foreign parent]. One expert has also visited our company in order to ﬁnd out which of the local people has the potential to take over managerial positions in the future. We now have a personnell ﬁle of each of these promising persons and we have also discussed the future with them. Financial rewards and compensation In local ﬁrms, egalitarianism has been regarded as one of the unique characteristics of the payment system, especially in SOEs where wage grades are set according to government regulations. Despite the increasing importance of an individual’s performance as a determinant of pay, other factors such as age, education level and position remain equally signiﬁcant in wage-setting. Income differences between workers and managers are relatively small, although the internal differentials have apparently been increasing in the 1990s (Easterby-Smith, Malina and Lu, 1995). In many cases, bonuses and other material incentives are allocated equally among employees and managers. Firms also offer a wide range of welfare and social services, including medicine, pensions, housing and even foodstuffs and the education of employees’ children. In the JVs, compared to local ﬁrms, considerably higher salaries were paid. Companies also provided their key employees with a number of fringe beneﬁts, ranging from housing, pensions, insurance and company cars to overseas training (including ﬁnancial support during the visit abroad). Especially when the local parent organization was located next to the JV, the Chinese partner tended to oppose pay increases. None the less, the compensation packages of key local managers continued to increase rapidly throughout the 1990s. A good half of the JVs in our study had introduced some kind of performance-based bonus system (see Chapter 9). The systems were virtually always introduced by the foreign partner and usually closely resembled that of the MNC in other parts of the world. The use of a system based on individual performance was most common, closely followed by a combination of individual and collective results, and

132 Local or Global? HRM in China

only collective results as the basis for calculating the employee bonus. The individual bonus was sometimes linked to a formal performance management system (see the previous section). Such schemes were relatively widespread among sales people.

6

Towards a contingency model

As indicated in the previous sections, overall HRM practices in the sampled ventures more closely resembled those of the MNC than those of local ﬁrms. However, the JVs differed signiﬁcantly in terms of their HRM practices: for example, while the pay difference between workers and managers in a majority of the JVs was considerably bigger than in local SOEs, in some the pay distribution was quite similar to the structure in local ﬁrms. Furthermore, as shown in Figure 7.1, the degree of the resemblance varied from one HRM function to another. Promotion, performance appraisal and ﬁnancial rewards were much closer to MNC standard practices than activities associated with recruitment and training. How can these results be explained? Figure 7.2 illustrates key contingencies which inﬂuenced the adoption of (1) MNC home country practices and (2) local practices. The ownership structure of the JV was an important determinant of the HRM practices, especially concerning promotion decision-making, performance appraisal and ﬁnancial compensation. A parent with dominant ownership was likely to strongly inﬂuence how the human resources were managed in the company. This was the case for both foreign and local parents. The majority partner typically appointed the general manager, who was in a key position to inﬂuence the HRM practices. A positive relationship was also established between the number of expatriates and the degree of ‘global’ training practices of the JV. None the less, we did visit a few JVs with local general managers who attempted to transfer HRM practices from the foreign partner: for instance, in a Chinese–French JV, a local general manager, after having replaced an expatriate, continued to pursue management practices from the French company. In another JV with a British company, local managers imitated some of performance appraisal practices from other JVs. However, these ventures also maintained some local practices, such as assessment of human relations. Perhaps somewhat surprisingly, whether or not the HRM/personnel manager had been recruited from a local organization did not seem to have any signiﬁcant effect on the HRM practices. Our interviews indicated that in JVs with a dominant Western partner, it was typically not

Ingmar Björkman and Yuan Lu 133

Ownership structure

Establishment method

Number of expatriates

Nationality of MNCs

HRM practices in IJVs 1. Recruitment 2. Training 3. Performance appraisal 4. Promotion 5. Financial rewards

The MNC’s HR department in China

Figure 7.2 Contextual factors that inﬂuenced international JV’s resemblance to an MNC’s standard HRM practices versus local ones

the HRM/personnel manager who took the initiative and decided on the JV’s HRM policy. Instead, in JVs with a dominant foreign partner, many HRM policy decisions were initiated by expatriate managers in the JV, often the general manager. None of the HRM/personnel managers provided by Chinese organizations had any experience of (modern) Western HRM, and most expatriate managers failed to entrust the responsibility for the development of HRM policies in the JV to them. When analysing our data, we identiﬁed several other factors that inﬂuenced the HRM practices. The method of establishment was a strong determinant of recruitment and training practices. JVs that had been created based on a local parent’s existing operations were less likely to have ‘global’ recruitment and training practices. There was also a positive correlation between the number of MNC units in China and more ‘global’ HRM practices. Many large MNCs had established a Chinese headquarters, also called the China Centre, to control and coordinate their various units in China (Meier, Perez and Woetzel, 1995).

134 Local or Global? HRM in China

In virtually all companies, the Chinese headquarters included an HR department and an HR manager/director for the country. This department helped the operating units implement corporate HR policies, provided HR services to the various JVs, wholly-owned subsidiaries and representative ofﬁces belonging to the MNC, and helped transfer HR learning across the different units. Hence, many of the JVs that we studied were at least to some extent integrated in the MNCs’ HR function in China, and the integration contributed to a higher degree of ‘global’ HRM practices on the part of the JV. Finally, the nationality of the MNC also mattered. Comparative research has indicated differences among MNCs from different Western countries in terms of how they inﬂuence subsidiary practices; compared with European companies, US ﬁrms are more likely to set or inﬂuence HRM policies in their foreign units (Ferner, 1997). Also in the present research, there was a tendency for JVs with US parent companies to be more ‘global’ in terms of HRM practices. Our ﬁndings are in line with those obtained by Child and his collaborators (Child et al., 1990; Centre for International Business and Management, 1995).

7

Concluding remarks

In the 1980s, the HRM practices of Chinese–Western JVs were apparently rather ‘local’ (von Glinow and Teagarden, 1988; Holton, 1990). According to our research, today the HRM practices of local professionals and managers are considerably more similar to those of the MNCs than to those of domestic Chinese companies. At least three factors may have contributed to this ﬁnding. First, the foreign executives that we interviewed expressed a strong dissatisfaction with Chinese management practices. Although few respondents were certain about the kind of HRM practices that would be efﬁcient in China, most believed that Western management principles should be implemented into their units for them to be competitive. Many looked to their own parent organizations for models of HRM practices that they could implement in their Chinese operations. Efforts to implement overseas practices have been facilitated by the recent trend towards dominant control over Chinese–Western JVs on the part of the Western parent organizations. Second, during the last few years there has been a move away from the Marxist personnel practices that previously prevailed in Chinese state-owned companies. Currently, there appears to be no undisputed institutionalized HRM/personnel model in China (Warner, 1996).

Ingmar Björkman and Yuan Lu 135

Recent research indicates changes in how some Chinese companies manage their human resources, and there are signiﬁcant differences across Chinese companies (Goodall and Warner, 1997). Moreover, as China continues the reform of overall social and economic environments (for instance, the establishment of social security and pension systems), in combination with relatively few codiﬁed laws and, according to our interviewees, little interference by the local government in HRM issues, it has consequently apparently become easier for Western MNCs to introduce their own HRM policies and practices to their JVs in China. Third, our research concerned local professionals and managers, whereas earlier studies typically examined the whole labour force. It is conceivable that the HRM practices for workers are, relatively speaking, more similar to those of local companies than those of the MNCs. A few years ago, HRM was treated as an afterthought among foreign executives in China. Recent reports have noted that HRM has emerged as one of the most important but also most challenging issues for foreign companies in China (Business China, 8 July 1996; Southworth, 1996). To many local staff, HRM is new. A great deal of effort is needed to design and develop a HRM system in international JVs. As one HR manager pointed out: All these aspects [HRM practices] are very new in China. Even HRM is a new concept. That’s why you have to put a lot of effort into introducing these new systems. You have to be patient, that’s for sure, because it will take a lot of time to implement them successfully. MNCs aim at aggressively reducing their reliance on expatriates, but the question is how to do it: should they adopt the MNC’s own HRM practices and/or adopt the HRM practices of local ﬁrms? While most foreign companies today tend to be closer to the former than to the latter, most MNCs also realize that there will be problems in transferring the whole set of their practices to their China operations. As foreign companies continue to gain experience in China, we expect there to be a further development towards a third ‘hybrid’ HRM model which will incorporate many features from the MNC’s home-country practices but also allow for some adjustments to the speciﬁc features of the Chinese context. We believe that the on-going interaction that takes place among executives in China is likely to contribute to the development and diffusion of this HRM model across foreign invest-

136 Local or Global? HRM in China

ment enterprises in China. None the less, some variance across companies is likely to remain and one of the challenges for researchers will be to try to establish determinants of corporate practices (see Chapter 8). To study the HRM policies and practices of foreign companies in China will continue to be an interesting task in the years to come!

Notes 1 The authors would like to acknowledge ﬁnancial support given by the Academy of Finland and a Direct Grant from the Chinese University of Hong Kong, and the contribution of Bjorn Adahl who assisted with data collection. The authors would also like to thank the managers involved for their support of this study. 2 For a more in-depth discussion of the kind of HRM practices that may be successful in China, see Björkman and Lu (2000a). 3 For a statistical analysis of the impact of potential determinants on the degree to which the HRM practices resembled those of the foreign parent organization, see Lu and Björkman (1997). 4 For a China headquarters perspective of HRM in multiple units in China, see Björkman and Lu (2000b).

References Bird, A., Taylor, S. and Beechler, S. (1998) ‘A typology of international human resource management in Japanese multinational corporations: organizational implications’, Human Resource Management, 37, 2, pp.159–72. Björkman, I. and Lu, Y. (2000a, forthcoming) ‘A corporate perspective on the management of people in China’, Journal of World Business, 34(1), pp.16–25. Björkman, I. and Lu, Y. (2000b, forthcoming) ‘The management of human resources in Chinese-Western joint ventures’, Journal of World Business, 34(3), pp.306–24. Bond, M. H. (1991) Beyond the Chinese Face, Hong Kong: Oxford University Press. Centre for International Business and Management (1995) ‘Joint venture strategy in China’, unpublished report, Cambridge: Judge Institute of Management Studies, Cambridge University. Child, J. (1991) ‘A foreign perspective on the management of people in China’, International Journal of Human Resource Management, 2, pp.93–107. Child, J. (1994) Management in China during the Era of Reform, Cambridge: Cambridge University Press. Child, J., Boisot, M., Ireland, J., Li, Z., and Watts, J. (1990) ‘The management of equity joint ventures in China’, unpublished manuscript, Beijing: China– Europe Management Institute. Child, J. and Markóczy, L. (1993) ‘Host-country managerial behavior and learning in Chinese and Hungarian joint ventures’, Journal of Management Studies, 30, 4, pp.611–31. China Statistical Yearbooks, 1985 to 1996. Beijing: China Statistics Press. Ding, D. Z. Fields, D. and Akhtar, S. (1997) ‘An empirical study of human resource management policies and practices in foreign invested enterprises in

Ingmar Björkman and Yuan Lu 137 China: the case of Shenzhen Special Economic Zone’, International Journal of Human Resource Management, 8, 5, pp.595–613. Easterby-Smith, M., Malina, D. and Lu, Y. (1995) ‘How culture-sensitive is HRM: a comparative analysis of practice in Chinese and UK companies’, International Journal of Human Resource Management, 6, 1, pp.31–59. Ferner, A. (1997) ‘Country of origin effects and HRM in multinational companies’, Human Resource Management Journal, 7, 1, pp.19–37. Gao, G. Ting-Toomey, S. and Gudykunst, W. B. (1996) ‘Chinese communication processes’, in M.H. Bond, (ed.) 1996. The Handbook of Chinese Psychology, Hong Kong: Oxford University Press. Geringer, J. M. and Frayne, C. A. (1990) ‘Human resource management and international joint venture control’, Management International Review, 30, special issue, pp.103–20. Ghoshal, S. (1987) ‘Global strategy: an organizing framework’, Strategic Management Journal, 8, 5, pp.425–40 Goodall, K. and Warner, M. (1997) ‘Human resources in Sino-foreign joint ventures: selected case studies in Shanghai compared with Beijing’, International Journal of Human Resource Management, 8, 5, pp.569–94. Goodall, K. and Warner, M. (1998) ‘HRM dilemmas in China: the case of foreigninvested enterprises in Shanghai’, Asia Paciﬁc Business Review, 4, 4, pp.1–21. Guest, D. (1990) ‘Human resource management and the American dream’, Journal of Management Studies, 27, 4, pp.377–97. Hannon, J., Huang, I.-C. and Jaw, B. S. (1995). ‘International human resource strategy and its determinants: the case of subsidiaries in Taiwan’, Journal of International Business Studies, 26, 3, pp.531–54. Holton, R. (1990) ‘Human resource management in the People’s Republic of China’, Management International Review, 30, special issue, pp.121–36. Lockett, M. (1988) ‘Culture and the problems of Chinese management’, Organization Studies, 9, 4, pp.475–96. Lu, Y. (1996) Management Decision-Making in Chinese enterprises, London: Macmillan and New York: St Martin’s Press. Lu, Y. and Björkman, I. (1997) ‘MNC standardization versus localization: MNC practices in China–Western joint ventures’, Journal of World Business. Meier, J., Perez, J. and Woetzel, J. R. (1995) ‘Solving the puzzle: MNCs in China’, McKinsey Quarterly, 2, pp.20–33. Melvin, S. (1996) ‘Training the troops’, The China Business Review, 23, 2, pp.22–8. MOFTEC (1997) Bulletin, January. Prahalad, C. K. and Doz Y., (1987) The Multinational Mission: Balancing Global Demands and Global Vision, New York: Free Press. Prewitt, L. B. (1982) ‘The merging ﬁeld of human resource management’, Personnel Administrator, May, pp.81–7. Rosenzweig, P. M. and Nohria, N. (1994) ‘Inﬂuences on human resource management practices in multinational corporations’, Journal of International Business Studies, 25, 2, pp.229–51. Schuler, R. S. Dowling, P. J. D. and De Cieri, H. D. (1993) ‘An integrative framework of strategic human resource management’, International Journal of Human Resource Management, 4, 4, pp.717–64. Shenkar, O. and Zeira, Y. (1987) ‘Human resources management in international joint ventures’, Academy of Management Review, 12, 3, pp.546–57.

138 Local or Global? HRM in China Southworth, D.B. (1996) ‘FIEs in China: Finding Qualiﬁed Personnel in China’, GBAktuell, March, pp.15–21. Taylor, S., Beechler, S. and Napier, N. (1996) ‘Toward an integrative model of strategic international human resource management’, Academy of Management Review, 21, 4, pp.959–85. Verburg, R. (1996) ‘Developing HRM in foreign-Chinese joint ventures’, European Management Journal, 14, 4, pp.518–25. von Glinow, M. A. and Teagarden, M. B. (1990) ‘Contextual determinants of human resource management effectiveness in international cooperative alliances: evidence from the People’s Republic of China’, International Human Resource Management Review, 1, pp.75–93. Warner, M. (1993) ‘Human resource management “with Chinese characteristics”’, International Journal of Human Resource Management, 4, 1, pp.45–65. Warner, M. (1995) The Management of Human Resources in Chinese Industry. London: Macmillan and New York: St Martin’s Press. Warner, M. (1996) ‘Managing China’s enterprise reforms: a new agenda for the 1990s’, Journal of General Management, 21, 3, pp.1–18. World Bank (1985) China: Long Term Development Issues and Options. Baltimore and London: Johns Hopkins University Press.

8 Occupying the Managerial Workplace in Sino–Foreign Joint Ventures: A Strategy for Control and Development?1 John Child

1

Introduction

During the past decade, China has attracted more direct investment by foreign companies than any other emerging economy, and has ranked second only to the USA as a host country for such investment (United Nations, 1999). It has continued to retain this position despite the Asian economic crisis. Foreign-invested ﬁrms have steadily become a larger part of the Chinese economy, accounting for 15 per cent of its total investment in ﬁxed assets by the end of 1997, and employing around 18 million people. These ﬁrms are mainly JVs, though the number of new wholly-owned subsidiaries exceeded that of new JVs for the ﬁrst time in 1997. They already constitute an important Chinese ‘workplace’, even in purely quantitative terms. The qualitative signiﬁcance of foreign-invested ﬁrms is even greater because they are regarded as major agents for China’s development through their inward transfer of technology and managerial expertise. The managers and other expatriate personnel who are appointed to foreign-invested ﬁrms are expected to assist this transfer. However, the appointment of foreign managers also serves an important control function. Many foreign ﬁrms have expressed disappointment with the performance they have achieved in China (Economist Intelligence Unit, 1998). While external factors, such as growing competition and logistical problems, are seen to contribute to 139

140 A Strategy for Control and Development

poor returns (Berger and Partner, 1998), there has been growing agreement among foreign partner executives that they also need to address the problem through taking over the management of their China businesses (Vanhonacker, 1997; Shaw, 1998). This draws attention to the role of key appointments to such businesses in securing control over them. It has also become conventional wisdom that a controlling share in Chinese investments is crucial to obtain the right to make key appointments and exercise control. There is, then, an issue of who occupies the managerial workplace in foreign-invested Chinese ﬁrms, both in terms of the right to appoint and the actual occupancy of key positions (see Chapter 7). In JVs, is this the foreign parent company or the local partner? This issue is the focus of the present chapter, which reports on a sample of Sino–foreign JVs. More speciﬁcally, the chapter examines the distribution of appointments to key JV positions, factors predicting this distribution, and their impact on the control of the ventures. The extent to which these appointments were channels for importing resources and expertise conducive to the development of the ventures is also considered. We begin with a discussion of the issues and constituent variables before describing the sample and ﬁndings.

2

Inﬂuences on the distribution of key appointments

The term ‘key appointments’ refers to membership of a JV’s board of directors, its Chief Executive Ofﬁcer (CEO, or general manager) and the heads of major areas normally reporting to the CEO. Two main perspectives inform the question of how the allocation of senior appointments in JVs is determined. They reﬂect respectively the political and task contingency considerations which have been offered as competing explanations for organizational phenomena over many years (Donaldson, 1985). The political perspective leads one to expect that the allocation of key appointments will depend primarily on the distribution of formal ownership rights emanating from equity share. One of these rights is to appoint JV directors in proportion to equity share. This usually governs the appointment of the board’s chairman, although Chinese regulations until 1990 required the chairman of a Sino–Foreign JV to be a PRC citizen. Moreover, control of a JV board ensures the right to appoint its CEO unless this is stated otherwise in the JV’s founding contract. In practice, this right may also be limited by an agreement to arrive at all board decisions by consensus.

John Child 141

In addition to offering equity capital, the provision of support services and other inputs may be quite signiﬁcant for a JV located in a developing country such as China where the local partner may not be able to supply sophisticated know-how, systems and training (Beamish, 1988). This support requires the oversight and assistance of personnel from the parent company. The provision of non-capital resources by a foreign parent company is therefore expected to go together with having more of its staff in key JV appointments. A particular consideration in China’s political environment occurs for those foreign JVs that are located in sectors where state ownership and control remains strong. In many non-consumer industrial sectors, a government ministry, state holding company or local government authority in effect delivers, or at least heavily inﬂuences, access to the domestic China market. Under such conditions, it may be deemed expedient to co-opt representatives of such external parties to a JV board, which is a well-established practice of organizations with signiﬁcant external dependencies (Selznick, 1966; Pfeffer and Salancik, 1978). For this reason, it is expected that there will be a more signiﬁcant Chinese representation on the boards of Sino–foreign JVs in sectors that rely signiﬁcantly upon the support of governmental authorities. The task contingency perspective anticipates that the incumbency of senior appointments will reﬂect the operational needs faced both by JVs and their parents. A general contingency arises from the fact that normally the great majority of the personnel in China-based JVs are local people who have not had the experience of working with advanced technology or managerial practice. This poses a need for foreign managers and experts to take direct responsibility for a JV’s operations in its early years, and to assist in the development of local managers during that time so as to bring them up to required standards of performance (Child, Yan and Lu, 1997). For this reason, younger JVs are likely to have more senior appointments ﬁlled by foreign managers. According to the task contingency perspective, the owning parent which is able to supply the most competent managers to ﬁll key functions is assumed to do so, on the grounds that all partners have a common interest in the JV’s success. In Sino–foreign JVs, the advantage of business experience and training is likely to rest with the foreign investing partners in most functional areas as well as in general management, the main exception being HRM because of its sensitivity to local norms and conditions (see Chapter 7).

142 A Strategy for Control and Development

The high cost of employing expatriate managers in a country such as China, however, places an obvious constraint upon the application of this principle. Moreover, the signiﬁcance of functional contingencies is speciﬁc to the sector in which JVs are located. This has implications for the areas of competence which foreign parent companies deem it particularly important to develop and direct. Thus in a high-technology sector serving industrial markets, the technical and production functions are likely to be regarded as key; in a consumer-oriented sector, the marketing function may well be regarded as key. The task contingency perspective draws attention to a further likely inﬂuence on the distribution of key JV appointments. The importance attached by a foreign JV partner to making its own senior managerial appointments will depend on the need it perceives to maintain its own procedures and standards as opposed to adopting those of the local partner or local environment. Bartlett (1986) analysed the control implications stemming from the relative strengths of the need to maintain standardization of global products and to foster responsiveness to local conditions. This suggests that MNCs bringing globally standardized and branded products to China will attach greater importance to having their own managers in key JV positions than will other foreign parent companies that do not have an extensive global reach and globally standardized products. Even when multinationals do not market globally standardized products, they are likely to give priority to maintaining the consistency of standards that underwrites their international reputation and may, for this reason as well, be likely to favour appointing their own managers. Multinationals can also usually command superior ﬁnancial resources to support the costs of expatriate employment in China. These considerations give rise to the expectation that foreign occupancy of key JV appointments will be greater when the following conditions hold: the foreign parent has a larger share of JV equity; the foreign parent supplies the larger share of non-capital resources; the JV is of more recent origin, the JV is located in a sector not highly dependent on Chinese government goodwill, and the foreign parent is an MNC. The speciﬁc functional areas in which foreign appointments occur are likely to depend on the key competency requirements of different sectors.

3

Appointments: joint venture control and development

Schaan (1988) points out that, in addition to a substantial equity share, parent companies have available other mechanisms for controlling their

John Child 143

JVs. These include key appointments. Schaan comments that, ‘the appointment of key personnel is a control mechanism for parents especially if they are in a minority [equity] position or geographically remote’ (1988:9). Many foreign investors are geographically remote from China. The ability of managers to exercise control has in the past been discussed primarily in connection with ﬁrms whose ownership is dispersed and/or passive, and where there are consequent concerns about the lack of managerial accountability (Scott, 1985). Although a dispersion of ownership does not normally characterize JVs, where there are often only two owning partners, other factors intrinsic to management that were identiﬁed as sources of control and inﬂuence could well apply. These include the possession of expertise and information. It is to be expected that executive appointments will exercise greater inﬂuence over the functions of a JV with which they are immediately concerned than over other areas of management. This does not, however, rule out the possibility that certain managerial appointments are key for exercising direction over a JV as a whole. The position of JV general manager is an obvious instance. Moreover, JVs are commercial organizations, and having one of their managers in charge of the ﬁnance function is therefore likely to be of particular assistance to a parent company in securing accurate information on the venture’s basic ﬁnancial data and ensuring propriety in its ﬁnancial dealings. This may be considered of special signiﬁcance in countries where accounting systems are underdeveloped and corruption is an ofﬁcially admitted problem (McDonald, 1995). One of the justiﬁcations for placing foreign managers in key positions is that, in a developing country such as China, they can facilitate the transfer of expertise from the foreign parent company and best contribute towards the development of the JV directly, and the Chinese parent indirectly. Ofﬁcial Chinese policy has always given high priority to inward foreign investment as a channel for technology transfer and the introduction of management expertise. There is, then, an expectation that the more active involvement of foreign personnel in JV management will contribute to the development of those ventures.

4 Method Sample Interviews were conducted with 212 managers in 67 manufacturing JVs formed between Chinese and foreign companies headquartered in the USA, Western Europe, Japan or overseas Chinese territories (primarily

144 A Strategy for Control and Development

Hong Kong and Taiwan). The JVs were sited in three regions: Beijing/Tianjin, Shanghai/Hangzhou, or Guangdong province. They had been in operation for between two and ﬁfteen years. As explained later, different lines of questioning were pursued with different categories of managers within the JVs: general managers (GMs), deputy general managers (DGMs) and head of functions. The foreign share of JV equity ranged between 25 and 95 per cent. In the great majority of cases there was only one foreign parent company and in the other cases, for purposes of analysis, only the foreign parent with the most active involvement in the JV’s management will be taken into consideration. Twenty-nine of the foreign parents were MNCs, deﬁned for present purposes as ﬁrms with production facilities in two or more continents as well as engaging in worldwide sourcing and/or distribution. The JVs were located in two sectors where many Sino–foreign JVs are found, namely non-consumer electronics (such as semiconductors and industrial process controls) and fast-moving consumer goods, or FMCG (such as branded foods and cosmetics). The choice of these two sectors was informed by three considerations. First, their different primary business needs were expected to generate different resourcing and control priorities. In electronics, technology transfer and its management is a key factor, with product design being a focus of competence. In FMCG, marketing is particularly important, especially brand management and product promotion. The two sectors contrast in a second respect, in that both the market and choice of local partners is much more dependent in China on government policy and goodwill in nonconsumer electronics than in FMCG. Third, both sectors contain quite large populations of foreign companies operating in China from which to select cases. Every JV was visited in the period 1994–95. At least two people carried out the interviews, working together to cope with the demands of language. The interviews were conducted with managers individually and, when acceptable, they were tape-recorded. Following the interviews, all data were recorded on separate schedules from the original notes and tapes. Information on key appointments and evaluations of parent control were obtained from the most senior available JV manager in order to obtain a broad and authoritative view. These were GMs or DGMs.2 Information on more speciﬁc matters such as provision of support services and other non-capital inputs was obtained from functional managers, normally in operations and HRM.

John Child 145

Measures Appointments to key positions We asked for details of JV board membership. The nationality was noted of the person holding each of seven key executive positions: GM, DGM, and heads of the ﬁnance, HRM, marketing, production and technical functions. We also took account of whether managers in these positions had been nominated by the Chinese or foreign partner. Thus, Chinese nationals could be recruited from outside the JV by the foreign partner. Provision of capital and non-capital resources To measure equity share we asked the GM or the DGM of each JV to report the share of equity held by the Chinese and foreign parent companies. To measure non-capital resources, we asked managers in each JV whether the parents had contributed each of ﬁve different resources not valued as part of JV equity: product design, production technology, management systems, management services and training. Separate note was made of Chinese and foreign contributions, and they were scored on a binary (provided/not provided) scale. Control ‘Control refers to the process by which one entity inﬂuences, to varying degrees, the behavior and output of another entity through the use of power, authority and a wide range of bureaucratic, cultural and informal mechanisms’ (Geringer and Hébert, 1989:236–7). Our approach to assessing JV control was informed by previous research and discussion (Killing, 1983; Lecraw, 1984; Yan and Gray, 1996, Child Yan and Lu, 1997). This leads to the following conclusions: (1) control refers to an ability to inﬂuence JV activities and how they are performed; (2) a parent company’s control should be considered in relation to that of other parents; (3) in assessing the level of control, it is preferable to employ direct measures which refer to activities which are the objects of control; and (4) a range of such activities should be taken into account, recognizing the fact that some are strategic and others operational. We therefore measured the relative control of the foreign parent on the basis of GM or DGM assessments of the inﬂuence each parent had over 13 separate aspects of JV management and then subtracting the score for the Chinese parent from the score for the foreign parent, item-byitem. Five-point scales were used (1 = very little, to 5 = considerable). The 13 areas are:

146 A Strategy for Control and Development

• • • • • • • • • • • • •

use of proﬁt; re-investment policy; setting strategic priorities; allocating senior managerial positions; technological innovation; ﬁnancial control; reward and incentive policies; training and development policies; sales and distribution; product pricing; quality control; purchasing policies; production planning.

These items were included because they are important areas for control and decision-making in Chinese JVs (Geringer and Hébert, 1989; Child and Lu, 1996). When there was more than one Chinese or foreign parent company, the questions on inﬂuence were put with reference to the Chinese or foreign parent most involved in the JV’s management. Coefﬁcient alpha was calculated for the 13 inﬂuence items and it proved to be acceptable to aggregate them to produce a measure of relative foreign overall control (0.95). Two sub-scales of inﬂuence were also constructed. Scores for the ﬁrst four areas listed above were aggregated to measure strategic control, the last ﬁve items were aggregated to measure operational control. The differences were calculated between Chinese and foreign scores (foreign minus Chinese) on the strategic inﬂuence scale (0.83) and on the operational inﬂuence scale (0.89). Development We assessed JV development in three ways: ﬁrst, the extent to which GMs or DGMs perceived that the JVs had succeeded in achieving technological development and in developing their local staff and managers. Second, when these senior managers thought that technology transfer and/or the acquisition of management expertise were among the top ﬁve Chinese parent company objectives for establishing the JV, we asked them to assess how far the two objectives had been achieved. All these measures employed ﬁve-point scales. We also collected information on the trend of expenditure on training for JV personnel and the types of training to which they had access.

John Child 147

Data on the MNC status of foreign parent companies and on the length of time that JVs had been in operation were collected among the general background information for each case.

5

Key appointments and determining factors

Thirty-seven per cent of the JVs had boards with a foreign majority, 30 per cent had boards with a Chinese majority and the rest had equal membership. By contrast, approximately 60 per cent of the JVs had over half of their equity held by foreign parents and only 22 per cent had majority equity holdings by Chinese parent companies. In other words, the distribution of JV board members tended to favour the Chinese partner(s) compared to the share of equity that they held. Table 8.1 gives the distribution of key appointments between Chinese and foreign nationals in the 67 JVs. China’s Joint Venture Law, until it was amended in 1990, required the Chinese side to appoint the chairperson of a JV’s board of directors. Although the requirement had been abandoned previously in the South China SEZs, it helps to explain why the board was chaired by an appointee of the

Table 8.1 Chinese and foreign tenure of key appointments (N = 67 Sino–foreign JVs unless shown otherwise) Appointmenta

Number

b

Majority on JV board Chairman of JV board GM DGMc Technical (N = 51)d Production Marketing Finance HRM (N = 65)e

Percentage

Chinese

Foreign

Chinese

Foreign

20 47 14 48 24 33 37 42 60

25 20 53 12 27 34 30 25 5

44.4 70.1 20.9 80 47.1 49.3 55.2 62.7 92.3

55.6 29.9 79.1 20 52.9 50.7 44.8 37.3 7.7

x2

P

0.6 10.9 22.7 21.6 0.2 0.0 0.7 4.3 46.5

n.s. 0.001 0.000 0.000 n.s. n.s. n.s. 0.04 0.000

n.s = not signiﬁcant a In functional areas, these are heads of functions. b The 22 JVs where board representation was equal are not shown. c The table excludes six JVs which each had one Chinese and one foreign DGM, and another JV which had two Chinese and one foreign DGM. d Fifteen JVs in FMCG and one in electronics did not have a separate technical or equivalent function. e Two JVs did not have separate HRM or personnel functions.

148 A Strategy for Control and Development

Chinese parent company in as many as 70 per cent of the JVs investigated. Some of these Chinese chairpersons, however, were people such as local government ofﬁcials who are unlikely to take a close interest in the management of the JV, though they might inﬂuence the quality of the venture’s external relationships. The great majority (79 per cent) of the JVs had a foreign GM. It was also usual for appointments to the positions of GM and DGM to be reciprocated between Chinese and foreign nationals. In 84 per cent of the JVs, the GM had a deputy of his partner’s nationality. 3 Headships of the technical and production functions were slightly more likely to be occupied by foreign than Chinese personnel, but the percentage of other key managerial positions held by foreign staff was lower. The HRM or personnel management function, in particular, was headed by a Chinese national in all but ﬁve cases. On average, non-PRC nationals headed almost two functional headships out of the ﬁve investigated. None of the JV GMs was recruited from outside the parent companies or the JV itself, but some functional heads were. External appointments were made with the approval of the foreign parent company and should be taken into account to obtain a comprehensive picture of parent company involvement in senior JV managerial appointments. Table 8.2 compares two groups of appointees. The ﬁrst group consists of PRC managers recruited from the Chinese parent company or from within the JV. They are considered to be Chinese nominations. The second group consists of managers who are either non-PRC nationals or who were recruited from the labour market with foreign parent approval. They are considered to be foreign nominations. According to this calculation, over half of the technical, production, marketing and ﬁnance functional heads were foreign partner nominations, with the highest proportions again being in the technical and production areas. The distribution of managerial appointments is consistent with expectations. The two roles mostly occupied by Chinese nationals – DGM and head of HRM – are those for which foreign JV partners do not necessarily possess superior competence. The DGM position is normally complementary to that of GM and tended to have charge of areas closely linked to established Chinese practice such as welfare and government relations. While the foreign partners in many of the JVs sought to introduce new HRM practices, such as systematic recruitment, appraisal and performance-related pay, most thought it advantageous to have Chinese HR managers. One advantage lies in their better understanding of local government policies and regulations concerning salaries and recruitment. Another is that Chinese HR managers

John Child 149 Table 8.2 Chinese and foreign nominations to key managerial appointments (N = 67 Sino–foreign JVs unless shown otherwise) Nomination of:a

General manager Deputy general managerb Technical (N = 51)c Production Marketing Finance HRM (N = 65)d

Number

Percentage

Chinese

Foreign

Chinese

Foreign

14 46 16 24 28 32 46

53 14 35 43 39 35 19

20.9 76.7 31.4 35.8 41.8 47.8 70.8

79.1 23.3 68.6 64.2 58.2 52.2 29.2

x2

P

22.7 17.1 7.1 5.4 1.8 0.1 11.2

0.000 0.000 0.008 0.02 n.s. n.s. 0.001

n.s. = not signiﬁcant a In functional areas, these are heads of functions. b The table excludes six JVs which each had one Chinese and one foreign DGM, and another JV which had two Chinese and one foreign DGM. c Fifteen JVs in FMCG and one in electronics did not have a separate technical or equivalent function. d Two JVs did not have separate HRM or personnel functions.

have greater sensitivity to the prevailing cultural and social environment required in the advice and support they give to workplace management. By contrast, the functional areas foreign managers were more frequently appointed to lead are those in which greater technical knowledge and experience will in most cases rest with the foreign JV partner. These are the marketing, production and technical areas. The two highest strategic priorities of their Chinese partners for forming the JVs were, overall, to secure technology transfer and to acquire management expertise. These priorities are consistent with a willingness to allow foreign leadership in areas where the foreign partner can offer technology and expertise not previously available to Chinese enterprises. It is, nevertheless, still surprising to ﬁnd so many JVs in which several functional areas were headed by a non-PRC appointee in view of the high costs of expatriate managers in China, and other difﬁculties such as settling families there. Mention has been made of a number of determinants that might account for the level of foreign involvement in senior management appointments. These are parent company capital and non-capital resource provision, sector, age of the JV and parent company status as an MNC or otherwise. They are now examined.

150 A Strategy for Control and Development

Table 8.3 shows the allocation of key appointments between Chinese and non-PRC persons in the light of the relative equity and non-capital resource commitments of the parent companies. The percentage equity share held by Chinese and foreign parent companies was quite strongly reﬂected in the ratio of Chinese to foreign-appointed JV board members (R = 0.76). This is consistent with the similar ﬁnding by Yan and Gray (1994) in a previous study of Sino–US JVs. The greater the equity share of either the Chinese or foreign parent company, the more likely it is that certain appointments will be held by persons of the same national category, namely the chair of the board, the GM, and the heads of ﬁnance, marketing and production. This connection is not apparent for the other posts. The relative provision of non-capital resources by the Chinese and foreign parents is associated positively with the nationality of all the executive management appointments except for the heads of the HRM and technical functions. This means that when one parent company provides greater non-capital resource to the JV than does the other, it is more likely to have one of its appointees in those managerial posts. While most of the correlations are quite weak, the GM’s nationality is quite signiﬁcantly associated with the relative share of non-contractual input provision. There is a negative relationship in the case of appointments to DGM which reﬂects the reciprocity of this appointment to that of GM. Overall, the correlations between the relative share of parent resource provision to the JVs and the nationality of their senior executive appointments were as we expected. However, while many of them are unlikely to have occurred by chance, they are not generally very strong. The nationalities of GM and ﬁnance manager are more consistently related to the relative provision of inputs by the parent companies than are those of the other senior JV managers. Other evidence indicates that these two positions are regarded as particularly crucial ones by many foreign companies investing in China (Child, 1996; Berger and Partner, 1998). The association between nominations to key appointments and parent company inputs reﬂects the pattern for manager nationality, but it is generally weaker. The task contingency perspective postulates further inﬂuences on the distribution of key appointments, of which JV age is one. The longer a JV has been in operation, the greater the number of Chinese managers expected to occupy its key positions. In fact, as Table 8.4 shows, Chinese managers were more likely to be appointed to functional headships in the longer-established JVs. In particular, older JVs were somewhat more likely to have PRC nationals heading their pro-

Non-capital resourcing

0.42*** 0.06 0.56*** –0.39*** 0.20 0.32** 0.22 0.31** 0.16 0.39** 0.36*

Equity share

0.76*** 0.39** 0.32** –0.17 0.10 0.23* 0.45*** 0.42*** 0.15 0.34** 0.45**

2

0.09 –0.15 0.49*** –0.35** 0.17 0.24* 0.00 0.14 0.10 0.26* 0.18

Non-capital resourcing controlling for equity share

Pearson correlations between ratio of foreign to Chinese equity and non-equity resourcing and occupancy of key appointments

Differences in non-equity resourcing = foreign non-equity resourcing minus Chinese non-equity resourcing. Appointments (items 2–9) are scored so that Chinese occupancy = 0 and foreign = 1. One-tail probabilities: * P ≤ 0.05; ** P ≤ 0.01 ***; P ≤ 0.001.

1

1. Ratio of JV board members (foreign/Chinese) 2. Chairman of JV board 3. General manager 4. Deputy general manager 5. Technical manager (N = 51) 6. Production manager 7. Marketing manager 8. Finance manager 9. HR manager (N = 65) Total of appointments 5–9 inclusive (N = 50) Total of appointments 6–9 inclusive (N = 65)

Key appointments2

Table 8.3 Correlations between (1) equity share and relative provision of non-equity resourcing1 and (2) occupancy of key appointments (N = 67 JVs, except where otherwise shown)

151

152 A Strategy for Control and Development

duction and ﬁnance functions. They were also more likely to have Chinese nationals chairing their boards, but here the presence of regulations requiring this before 1990 has to be borne in mind given that approximately 40 per cent of the JVs studied were established before that date. When account is taken of how JV managers were nominated, the effect of JV age becomes greater. The results in the second column of Table 8.4 indicate that older JVs were more likely to have key executives nominated by the Chinese parent. This could signify that as JVs mature they can supply more suitable local candidates for senior positions, which would signify a foreign contribution to Chinese management development. It may alternatively indicate that Chinese inﬂuence over key appointments is greater in those JVs which were established in the earlier phase of economic reform. The contingency perspective also suggests that the proportion of foreign appointees in key JV executive positions will vary according to the political and task contingencies of different business sectors. The key competitive requirement in non-consumer electronics is to support high technology and in FMCG to achieve a marketing edge. Given that it is the foreign JV partners who enjoy superior managerial and technical capabilities, one would therefore expect a higher proportion of foreign managers to be heading the technical function in electronics and the marketing function in FMCG. We also noted that electronics ﬁrms face greater political contingencies in China and may need correspondingly greater local support to handle these. Table 8.5 sets out the distribution of key appointments between the two sectors. FMCG JVs had a higher proportion of foreign nationals as GMs and as heads of their main functions (except for HRM and technical) than did electronics JVs. Although not statistically signiﬁcant, the pattern of distribution was along the lines expected. In the electronics JVs, 53 per cent of technical departments were headed by expatriates, but only 42 per cent of production and 33 per cent of marketing departments. By contrast, in the FMCG JVs, 59 per cent of production departments and 56 per cent of marketing departments were headed by expatriates. There were only 10 foreign technical heads in the 34 FMCG JVs, and indeed almost half of them did not even have a separate technical function. The FMCG JVs also had higher ratios of foreign to Chinese nominated directors on their boards. This difference was due to the fact that the average number of foreign directors on JV boards in both sectors was 3.5, whereas the average number of Chinese directors was only 2.8 in the FMCG sectors but as high as 3.7 in electronics. Many of the

Nomination of appointeeb n.a. 0.04 0.04 0.07 0.43** 0.22* 0.35** 0.24* 0.40**

Nationality of appointeea 0.25* 0.04 0. 03 –0.10 0.27* 0.10 0.22* 0.02 0.24*

Pearson correlations between number of years of JV operation and key appointments

n.a. = not applicable. a Nationality of appointee is scored so that PRC Chinese = 1 and Foreign = 0. b This indicator takes account of both the nationality of the person occupying the position and whether he or she was appointed from a Chinese parent company, or as a member of the IJV originating from the Chinese parent, as opposed to the external labour market. Higher scores indicate Chinese managers internally recruited, or originating, from a Chinese parent company. One-tail probabilities: * P ≤ 0.05; ** P ≤ 0.01.

1. Chair of JV board 2. General manager 3. Deputy general manager 4. Technical manager (N = 51) 5. Production manager 6. Marketing manager 7. Finance manager 8. HRM manager (N = 65) Total of appointments 5–8 inclusive (N = 65)

Key appointments

Table 8.4 Correlations between length of JV operation and appointments to key positions (N = 67 Sino–foreign JVs, except where otherwise shown)

153

154 A Strategy for Control and Development Table 8.5 Chinese and foreign tenure of key appointments by sector (N = 67 Sino-foreign joint ventures unless shown otherwise) Appointment

Electronics %

Majority on JV boardb Chair of JV board GM DGMc Technical (N = 51)d Production Marketing Finance HRM (N = 65)e

Fast-moving Consumer Value of Goods Pa %

Chinese

Foreign

Chinese

Foreign

45.5 78.8 30.3 69.7 46.9 57.6 66.7 66.7 90.6

24.2 21.2 69.7 27.3 53.1 42.4 33.3 33.3 9.4

14.7 61.8 11.8 73.3 47.4 41.2 44.1 58.8 93.9

50.0 38.2 88.2 17.6 52.6 58.8 55.9 41.2 6.1

0.004 0.13 0.06 0.25 0.97 0.19 0.07 0.51 0.62

a

Probabilities derived from T-tests comparing the distribution of Chinese and foreign appointments by each sector. b Percentages where board representation was equal are not shown. c The table excludes six JVs which each had one Chinese and one foreign DGM, and another JV which had two Chinese and one foreign DGM. d Fifteen JVs in FMCG and one in electronics did not have a separate technical or equivalent function. e Two JVs did not have separate HRM or personnel functions.

Chinese board appointments in electronics were government ofﬁcials, or members of holding companies linked to ministries in electronics and telecommunications, thus lending support to the view that political contingencies in China impact on JV board appointments. A third expectation is that the proportion of foreign appointees to key JV executive positions will be higher when the foreign parent company is an MNC. Twenty-nine of the 67 JVs studied had foreign parent companies which were multinational in the sense of both manufacturing and marketing on a global, or at least multicontinental, basis. Table 8.6 compares the distribution of board and key executive positions in these JVs with the others not having multinational foreign parents. MNCs were more likely to have a Chinese chair of the JV board. Around 83 per cent of their JVs had a Chinese board chair as against just over 60 per cent of the JVs not having an MNC foreign parent. This did not reﬂect their relative equity shares or board compositions, since there was virtually no difference between the two groups in these

John Child 155 Table 8.6 Chinese and foreign tenure of key appointments by status of foreign parent company (N = 67 Sino–foreign JVs unless shown otherwise) Appointment

Majority on JV boardb Chair of JV board General manager Deputy general managerc Technical (N = 51) Production Marketing Finance HRM (N = 65)d

MNC parent (N = 29) (%)

Non-MNC parent (N = 38) (%)

Chinese

Foreign

Chinese

20.7 82.8 6.9 86.2 34.8 44.8 48.3 44.8 86.2

37.9 17.2 93.1 3.4 65.2 55.2 51.7 55.2 13.8

36.8 60.5 31.6 60.5 57.1 52.6 60.5 76.3 97.2

Value of Pa

Foreign 36.8 39.5 68.4 28.9 42.9 47.4 39.5 23.7 2.8

0.76 0.04 0.01 0.00 0.12 0.53 0.33 0.01 0.13

a

Probabilities derived from T-tests comparing the distribution of Chinese and foreign appointments by each sector. b The table excludes six JVs which each had one Chinese and one foreign DGM, and another JV which had two Chinese and one foreign DGM. c Fifteen JVs in FMCG and one in electronics did not have a separate technical or equivalent function. d Two JVs did not have separate HRM or personnel functions.

respects. By contrast, the JVs with MNC parents consistently tended to have a higher proportion of foreign managers in key executive positions, with the notable exception of the DGM. The higher proportion of foreign appointees among the MNC ventures was highly signiﬁcant in the case of the GM and Chief Financial Ofﬁcer. Most MNCs clearly prefer to have their own people in these two positions. In order to assess the combined power of the factors considered to predict key JV appointments, a multiple regression was performed with foreign as opposed to Chinese occupancy of key appointments as the dependent variable. Foreign equity share, non-capital resourcing, years of JV operation, sector (dummy variable) and MNC or non-MNC status (dummy variable) were entered as predictors. We ﬁrst examined the GM position on its own and then an aggregate of the GM position and functional headships, excluding technical (for this aggregation, = 0.71). The results are shown in Table 8.7. Taking the GM position on its own, non-capital resourcing and MNC status were the two signiﬁcant predictors. Taking the GM along with functional headships,

156 A Strategy for Control and Development Table 8.7 Regression (least squares) of key executive appointments on predictor variables (N = 67 Sino–foreign JVs) Predictors

Foreign equity share Non-equity resourcing Years of international JV operation Sector MNC vs non-MNC foreign parent Multiple R2

GM

Key appointments

Beta

p

Beta

p

0.13 0.36 –0.01 0.12 0.25

n.s. 0.00 n.s. n.s. 0.02

0.40 0.12 –0.19 0.05 0.31

0.00 n.s. n.s. n.s. 0.01

0.31

0.36

n.s. = not signiﬁcant

foreign equity share and MNC status of the foreign parent company were the two signiﬁcant predictors.

6 Key appointments and joint venture control There is a clear overall association between the nationality of key JV managers and the relative degree of control exercised by the respective parent companies (Table 8.8). When its managers occupy key JV positions, the parent’s control tends to be higher. There are, however, three exceptions to this trend. Appointment to the Chair of the JV board has no apparent impact on parent company inﬂuence or control. Having its managers as DGMs is also neutral for parent company control except in the technical and quality areas, where it is associated with less control. This arises because the DGM role is often a compensatory one and thus becomes the reciprocal of the normally inﬂuential GM appointment. Third, heading the HRM function does not enhance JV control, even in contingent areas such as rewards and training (not shown in Table 8.8). Three appointments are key to the exercise of control over a wide area of JV issues. These are GM, ﬁnance manager and marketing manager. The nationality of these managers predicts control more than which JV partner was primarily responsible for their nomination. The ﬁnance appointment is particularly signiﬁcant as a basis for exercising inﬂuence over strategic issues, while the other two positions have rather greater weight in the operational area. The greater impact of GM nationality on operational than on strategic control would be

0.17 0.23 0.03 0.15 0.00 0.25 0.12

Chair of JV board 0.43** 0.38* 0.44** 0.29 0.39** 0.40** 0.46**

–0.25 –0.13 –0.25 –0.18 –0.12 –0.37* –0.41**

0.29 0.17 0.33* 0.19 0.36* 0.32 0.26

0.30 0.20 0.36* 0.19 0.34* 0.43** 0.45**

Production manager

Key appointmenta

General Deputy Technical manager Gen manager manager

Nationality of appointee is scored so that PRC Chinese = 0 and Foreign = 1. One-tail probabilities: * p ≤ 0.01 ** p ≤ 0.001.

a

Overall control (N = 56) Strategic issues Operational issues Financial control Sales & distribution Technical development Quality control

Area of control

0.42* 0.36* 0.40** 0.43** 0.47** 0.47** 0.33*

Marketing manager

0.46** 0.45** 0.37* 0.44** 0.34* 0.40** 0.37**

Finance manager

0.24 0.14 0.27 0.09 0.26 0.26 0.24

HRM manager

Table 8.8 Pearson correlations between the holding of appointments by foreign managers and differences in foreign and Chinese control within speciﬁc areas (N = 67 JVs, except where otherwise shown)

157

158 A Strategy for Control and Development

surprising were it not for the fact that in many of the JVs studied the GMs are the only foreigners available to take responsibility for operational matters, and have been appointed primarily to do so. Appointment to the headship of production is related to inﬂuence on operational and technical issues rather than to overall control. Across the sample as a whole the control impact of the technical function was limited. While appointments to the ﬁnance, marketing and production functions are correlated with inﬂuence in their respective functional areas, there appears also to be considerable cross-over to other functions. For example, when a parent company has its staff heading those three functions, it also tends to enjoy greater relative inﬂuence over the JV’s technical development and quality control. Similarly, the association between appointment to technical manager and inﬂuence is as strong for sales and operational issues as it is for technical development and quality control. The inﬂuence associated with appointment to JV GM tends to be less in sales and ﬁnance than that associated with the relevant functional appointments, but as strong in the operational and technical areas. In an environment such as China expatriate managers are expensive appointees with precious competence and experience, and this is why they often assume responsibilities and enjoy inﬂuence well beyond their formal functional designations. The impact which managerial appointments have on areas of inﬂuence differs between the two sectors in ways that are masked by taking the sample as a whole. Appointments to general manager impact on inﬂuence over technical and quality issues in electronics JVs, and on inﬂuence over sales and distribution in the FMCG JVs. In electronics JVs, it is the production rather than the technical function which is a lever for control over technical development and quality control. In the FMCG sector the reverse appears to apply in that when technical heads are appointed this appears to boost the relevant parent company’s inﬂuence over operational issues. This may be due to the normally more integrated and automated process technology in FMCG. The pattern of similarities and differences between the two sectors is not straightforward and inter-sector variations deserve further investigation. The larger a parent company’s majority on the JV board of directors, the greater tended to be its overall inﬂuence in the affairs of the JV. Representation on the JV board was more predictive of inﬂuence over strategic issues than over operational ones. Appointments to the JV board do therefore appear to be levers for inﬂuence and control, as

John Child 159

expected. There is, however, an important qualiﬁcation. The impact of board representation is lower than that of equity share by approximately 6 per cent. We earlier noted two considerations which may account for this differential. First, some 42 per cent of the variation in board membership is not accounted for by equity share, largely because (as noted earlier) the distribution of JV board members tends to favour the Chinese partner(s) compared to the share of equity which they hold. Second, as already noted, a partner’s equity share increases the likelihood that its staff will ﬁll a number of key appointments, and these appointments in turn provide an additional channel of inﬂuence.

7

Key appointments and joint venture development

Table 8.3 showed that there is some connection between placing foreign managers in the positions of GM, ﬁnance and production heads and the range of non-capital resources provided by the foreign parent company. In theory, such appointments should ease the inward transfer of these resources and so contribute towards the development of the JV and its Chinese staff. In practice, they appear mainly to bolster foreign control rather than contribute signiﬁcantly to development. Many of the speciﬁc non-capital provisions introduced by foreign parent companies enhance their control, whether directly (in the case of ﬁnancial control systems) or indirectly (as in the socialization effects of training). There was no evidence from this study to indicate that foreign tenure of key JV appointments facilitated technology or staff development. Evaluations of progress in the JVs’ technological and staff development were not related to occupancy of key positions, except that the evaluations for technology development tended to be lower when production was led by an expatriate. The transfer of technology and of management expertise from the foreign parent was judged to be more successful when the JV board was chaired by a Chinese national and, in the case of technology transfer, when ﬁnance and marketing were also headed by Chinese personnel. Based on this evidence, it may actually be helpful to have Chinese nationals in key positions in order to foster JV development. The provision of training was the only developmental indicator to beneﬁt from a more active foreign involvement with the JVs. The JV was more likely to provide technical training when a foreign manager held the GM position, and conversely did not occupy that of DGM.

160 A Strategy for Control and Development

However, this did not apply to other areas of training. Moreover, the higher the level of foreign control in the JV, the more likely it was to be experiencing a rising trend in training expenditure.

8 Conclusion This chapter posed the question of whether occupancy of the managerial workplace in Sino–foreign JVs offers a strategy for their control and development. The evidence elicited from a sample of such JVs clearly shows the control potential of appointing one’s nationals to key positions. The GM position, plus those heading ﬁnance and marketing, emerged as particularly signiﬁcant levers for control. However, the picture is not clear so far as development is concerned. While additional non-capital resourcing by foreign parent companies tends to be accompanied by more expatriate JV appointments, this is oriented towards enhancing control rather than development. Resource provision also serves to provide legitimacy for the appointment of foreign nationals to key posts. Other indicators of JV development suggest that foreign rather than Chinese control may actually hinder the transfer of technology and knowledge, except within the more formal and controlled format of training. However, the indicators of JV development used were relatively indirect, and further investigation is warranted. There is, nevertheless, a strong presumption in much of the literature that control can inhibit organizational development and learning. The present investigation suggests that this tension exists in Sinoforeign JVs in that senior managerial appointments are chieﬂy performing a control function that does little to enhance development. There were no signiﬁcant correlations between the indicators of control and of development, except in the case of training. Experience in China has led us to argue already that a requirement for effective management development through the medium of JVs is that Chinese managers be permitted to participate in signiﬁcant areas of decisionmaking (Child, Markózcy and Cheung, 1995). Closer examination in the light of the speciﬁc deﬁning characteristics of the JVs also revealed that certain of these predicted the incidence and distribution of key appointments between foreign and Chinese partners. The share of JV equity taken by a partner provides an important basis for securing key appointments as a whole, and especially the board chairmanship, ﬁnance and marketing headships. Noncapital resourcing is closely associated with occupancy of the GM

John Child 161

position, though the causality here may be that GMs once appointed, prefer to call upon such support from their own companies through the people they know. As JVs gain experience, there is a tendency in all functional areas except for the technical to recruit more Chinese heads from within the JV or its local parent. There was also a tendency for foreign parent companies of MNC status to recruit expatriates to the board chair, GM and head of ﬁnance positions. There were no very marked sector differences. Taken together, equity share and MNC status emerged as the signiﬁcant independent predictors of how far the JV managerial workplace was occupied by persons of a partner’s own nationality and/or choosing. The policy implication of these ﬁndings is that the JV managerial workplace can be occupied if the investing parent company has the necessary resources and ability to underwrite the cost. Apart from the fact that most MNCs value strong control over their afﬁliates to integrate them into their global value-chains, they also have the wherewithal to sustain their JVs with expatriate manpower and supporting non-capital resources. Other companies may be advised to foster a good partnership with local Chinese partners as an alternative.

Notes 1 Grateful acknowledgement is made of funding by the Economic and Social Research Council [ESRC] towards the cost of research from which this chapter is drawn. Appreciation is also due to Dr. Yuan Lu, Dr. Yanni Yan and staff of the Development Research Centre, Beijing for their collaboration on the project. 2 Thirty-seven of these top JV managers were expatriates and the other 30 were from the PRC. Although we are conﬁdent that this group of senior respondents was able to present an overall perspective for each JV, its national mix introduces the possibility of bias because the subject matter concerns potentially sensitive issues such as their own parent company’s level of control. For example, a manager may overestimate the inﬂuence of the parent company that he is from. To assess this possibility, we used data from 21 of the JVs where an additional senior manager, of the opposite nationality, also answered the questions on control. Comparison of the two sets of responses produced no signiﬁcant differences for assessments of overall Chinese and foreign parent company control. 3 All the JV general managers were men.

References Bartlett, C. A. (1986) ‘Building and Managing the Transnational Corporation: The New Organizational Challenge’, in M. E. Porter (ed.), Competition in Global Industries, Boston, MA: Harvard Business School Press, pp.367–401.

162 A Strategy for Control and Development Beamish, P. W. (1988) Multinational Joint Ventures in Developing Countries, London: Routledge. Berger, R. and Partner (1998) Success Analysis of German Direct Investments in the P.R. China, Beijing: Roland Berger & Partner GmbH. Child, J. (1996) ‘The Management of Joint Ventures within Multinational Corporate Networks: US Companies in China’, University of Cambridge, Research Papers in Management Studies, WP11/96, June. Child, J. and Lu, Y. (1996) ‘Institutional Constraints on Economic Reform: The Case of Investment Decisions in China’, Organization Science, 7, pp.60–77. Child, J., Markóczy, L. and Cheung, T. (1995) ‘Managerial Adaptation in Chinese and Hungarian Strategic Alliances with Culturally Distinct Foreign Partners’, Advances in Chinese Industrial Studies, 4, pp.211–31. Child, J., Yan, Y. and Lu, Y. (1997) ‘Ownership and Control in Sino-Foreign Joint Ventures’, in P. W. Beamish and J. P. Killing (eds), Cooperative Strategies: Asian Paciﬁc Perspectives, San Francisco: The New Lexington Press, pp.181–225. Donaldson, L. (1985) In Defence of Organization Theory, Cambridge: Cambridge University Press. Economist Intelligence Unit (1998) ‘Path to Proﬁt’. Business China, 8 June, pp.1–3. Geringer, J. M. and Hébert, L. (1989) ‘Control and Performance of International Joint Ventures’, Journal of International Business Studies, 20, pp.235–54. Killing, J. P. (1983) Strategies for Joint Venture Success, New York: Praeger. Lecraw, D. J. (1984) ‘Bargaining Power, Ownership, and Proﬁtability of Transnational Corporations in Developing Countries’, Journal of International Business Studies, 15, pp.27–43. McDonald, G. (1995) ‘Business ethics in China’, in H. Davies (ed.) China Business: Context and Issues, Hong Kong: Longman pp.170–89. Pfeffer, J. and Salancik, G. R. (1978) The External Control of Organizations: A Resource Dependence Perspective, New York: Harper & Row. Schaan, J-L. (1988) ‘How to Control a Joint Venture even as a Minority Partner’, Journal of General Management, 14, pp.4–16. Scott, J. (1985) Corporations, Classes and Capitalism, 2nd edn, London: Hutchinson. Selznick, P. (1966) TVA and the Grass Roots, New York: Harper & Row. Shaw, M. (1998) ‘Bulls in the China Shop?’, China New Investor, 3, pp.3–9. United Nations (1999) World Investment Report 1999, New York: United Nations Conference on Trade and Development. Vanhonacker, W. (1997) ‘Entering China: An Unconventional Approach’, Harvard Business Review, 75/2, pp.130–40. Yan, A. and Gray, B. (1994). Bargaining power, management control, and performance in United States-China joint ventures: A comparative case study’, Academy of Management Journal, 37, pp.1478–517. Yan, A. and Gray, B. (1996) Linking management control and interpartner relationships with performance in US–Chinese joint ventures’, in J. Child and Y. Lu (eds), Management Issues in China: International Enterprises, London: Routledge, pp.106–27.

9 Standardized Performance Management? A Study of Joint Ventures in China Niklas Lindholm

1

Introduction

‘Performance management’ (PM) is an integral part of most HRM processes (Waldman, 1997), China not withstanding. The process may provide the means for the MNC to evaluate and continually improve individual, subsidiary unit, and company performance against clearly deﬁned, pre-set objectives linked to company strategy (Dowling, Welch and Schuler, 1999). Studies have demonstrated that PM may have positive effects on employees’ commitment, job satisfaction and job performance (Fletcher and Williams, 1997). Studies have also shown that, provided that the design and the implementation of PM is appropriate, it tends to be the HRM process which is most likely to make a signiﬁcant contribution to company performance (Williams, 1991; Sparrow and Hiltrop, 1994; Rheem, 1996). MNC subsidiaries overseas typically bring together expatriate and host-country employees who differ in national origin and have different cultural values and social norms (Shenkar and Zeira, 1987). The mixture of employees may bring about some controversy regarding how the subsidiary organization should be managed (Björkman, 1994), and, for example, how the subsidiary employees’ performance should be managed. Although MNCs may employ standardized PM policies, it could be expected that great differences will exist in the way subsidiary managers implement PM, for instance, the practice they use to formulate performance objectives for their subordinates, and the style they adopt when communicating performance feedback. 163

164 Standardized PM? A Study of JVs

An important characteristic of PM is that the process is owned and implemented by the managers of the organization (Fletcher and Williams, 1997). Ideally, the implementation takes the form of a discussion where the manager and the subordinate meet in a private context to discuss different elements of PM (Locke and Latham, 1984). PM commonly consists of the formulation of performance objectives, formal and informal feedback on performance, links to training and development planning, and possibly compensation (Mabey and Salaman, 1995). None the less, while a great deal of the research has been conducted on various aspects of PM (predominantly in the US context), little is known about how subsidiary managers implement PM for host country subordinates in MNC subsidiaries overseas (Vance et al., 1992; Dowling, Schuler and Welch, 1994). This is surprising since it could be assumed that an appropriate implementation of PM may have a positive inﬂuence on the commitment, job satisfaction, and job performance of the host country’s workforce (Paik, Vance and Stage, 1996). It is consequently of great importance to investigate how subsidiary managers implement PM, especially in a country such as China, where the subsidiary personnel are primarily of host country nationality with limited exposure to Western management techniques, and where the culture may be substantially different from that of the MNC’s home country (see Chapters 7 and 8). In addition, it is imperative to study the subsidiary managers’ subordinates and their perceptions of their manger’s style of implementing PM. Although little is known about the perceptions of non-managerial employees concerning PM in MNCs’ subsidiaries, it has been shown in other settings that subordinates’ perception of PM is crucial to the effectiveness and success of the process (Dobbins, Cordy and Platz-Vieno, 1990; Giles and Mossholder, 1990). Therefore the ﬁrst objective of this chapter is to describe how subsidiary managers implement standardized PM for their Chinese subordinates, and the second objective is to analyse how subsidiary managers’ subordinates perceive the implementation of PM.

2

Previous research

In the international setting, the process of PM has received attention mainly in comparative contexts. The majority of studies, especially those with comparative attitudinal data, has demonstrated the cultural sensitivity of PM and that differences in cultural values and management styles may inhibit the transferability of PM between countries

Niklas Lindholm 165

(Hofstede, 1980; Laurent, 1983; Pucik, 1988; Schneider, 1988; McEvoy and Cascio, 1990; Vance et al., 1992; Logger, Vinke and Klugtmans 1995; Milliman et al., 1995; Paik, Vance and Stage, 1996; Mendonca and Kanungo, 1997; Lindholm, Tahvanainen and Björkman, 1998; Snape et al., 1998). There have been a few studies conducted on the management of Chinese employees in MNC subsidiaries in China (von Glinow and Teagarden, 1988; Child and Markóczy, 1993; Child, 1994: Goodall and Warner, 1997). While there is little research focusing speciﬁcally on PM in MNCs subsidiaries in China, empirical work does suggest that HRM techniques such as appraisal practices, for instance, have been transferred with limited success to Chinese–Western JVs (Child, 1991, 1994; Child and Marckóczy, 1993: Warner, 1995). The HRM policies of MNC subsidiaries have commonly been described in terms of standardization as against localization (Schuler, Dowling and De Cieri, 1993). Scholars have analysed the extent to which subsidiary HRM policies resemble those of local ﬁrms (‘localization’) as opposed to those of the MNC parent organization (‘standardization’: see Beechler and Yang, 1994; Rosenzweig and Nohria, 1994). Studies have shown that PM may be a function of HRM that is generally more standardized in MNC subsidiaries (the use of similar PM documentation, training, and process in the subsidiaries as in the MNC headquarters: see Anderson, 1990; Lu and Björkman, 1997; Dowling, Welch and Schuler 1999: for example, in a study of 70 MNC subsidiaries in China, it was argued that practices of PM were signiﬁcantly more similar to MNC home country practices than practices such as selection and compensation (Lu and Björkman, 1997). Although the standardization versus localization conceptualization is an important contribution to the understanding of PM policies and practices in MNC subsidiaries, it may be criticized for operating mainly on the policy level. Scholars employing the conceptual framework have commonly relied on survey data from subsidiary HR directors and top managers when evaluating standardization or localization of HRM policies in MNC subsidiaries (Rosenzweig and Nohria, 1994). As such, the conceptualization does not address an obvious but important question: how are standardized PM policies actually implemented by subsidiary managers in MNC subsidiaries? For example, a recent study suggested that localization of PM may take place when implemented by subsidiary managers for their department or team (Lindholm, Tahvanainen and Björkman, 1998). Further, it has been argued that localization of HRM practices may be more prevalent at lower levels of subsidiary organizations. The present chapter aims to contribute to two

166 Standardized PM? A Study of JVs

apparent shortages in the existing literature: ﬁrst, it focuses on the implementation of standardized PM in MNC subsidiaries in China and, second, it examines subsidiary managers’ subordinates’ perceptions of the implementation of PM.

3 Subsidiary managers’ implementation of performance management It is generally assumed in the ﬁeld of PM that managers modify their style of implementing and conducting PM for subordinates based on both the circumstances and/or the subordinates’ job experience and performance (Greller, 1998). For example, when the subordinates’ performance is positive the PM discussion tends to be more participative, meaning that subordinates are encouraged to share ideas, discuss problems, and so on. On the other hand, if the subordinates performance is negative the PM discussion may be less participative (French, Kay and Meyer 1965). In addition, studies have shown that PM discussions with experienced employees also tend to be more participative, as opposed to those conducted with subordinates with little experience in the job (Greller, 1998). Similarly, it could be assumed that managers in subsidiaries in China may modify their implementation of PM according to the job experience of their subordinates and the local circumstances. A complementary explanation of subsidiary managers’ implementation of PM in MNC subsidiaries relates to the issue of experiential learning. Experiential learning implies that managers often have taken-forgranted views about management practice and often transfer practices that have worked in one setting to new settings. However, when transferred practices have been proved to be ‘unsuccessful’ they are modiﬁed and/or changed. The taken-for-granted views may, in turn, have their roots in the subsidiary managers’ home country culture (Westney, 1993). It could be assumed that expatriate managers implementing PM for subordinates in cultures distinctly different from their own may go through such a problem-driven process of experiential learning (Cyert and March, 1963). Over time, expatriate managers may learn to implement PM for their Chinese subordinates in a perceived efﬁcient way, adopting behaviours appropriate to the local norms and culture, and instigating a process of localization. Similarly, Chinese managers may go through a process of experiential learning, thus, learning to implement PM according to the way they have been trained or by modifying it to the local circumstances, conforming with

Niklas Lindholm 167

local practices of employee evaluation. Such experiential learning processes may occur even though the subsidiary organization would employ a standardized PM system on the policy level.

4

Performance management and Chinese culture

A standardized implementation of PM can be seen to contradict Chinese cultural values in general and Chinese leadership styles in particular (Fung, 1995). It will be elaborated upon how differences in cultural values and leadership styles may inﬂuence subsidiary managers’ implementation of central elements of PM for Chinese subordinates. Performance objectives for Chinese subordinates PM assumes clear links with the organization’s strategy through the emphasis on departmental goals and formulation of individual performance objectives as well as job descriptions (Fletcher and Williams, 1997). Studies have shown that the setting of speciﬁc performance objectives to be achieved by employees may result in higher performance and job satisfaction (Latham and Wexley, 1994). However, other studies argue that goal attainment of employees may be higher when they are able to contribute to the formulation of job objectives since their understanding of how to attain the objectives may be increased (e.g. Greller, 1978). For managers in subsidiary operations in China, the setting of performance objectives for Chinese subordinates may be inﬂuenced by central facets of Chinese culture. As regards the objective-setting process, the role of subordinate involvement may be problematic in the Chinese context where respect for authority and centralized decision-making is assumed and accepted (Lockett, 1988). The hierarchical structure of interpersonal relationships dictates authoritarian patterns of interactions between managers and subordinates where subordinates are expected to be submissive and relatively passive (Selmer et al., 1994). As a consequence, this may inﬂuence how subsidiary managers set performance objectives, as Chinese subordinates are unlikely to engage in frank discussions with their managers. This notion is corroborated by research on communication patterns in China, which have shown that in superior–subordinate relationships a good employee is one that listens, and does what he or she is told (Gao, Ting-Toomey and Gudykunst, 1996). In addition, it can be assumed that Chinese subordinates expect managers to behave autocratically and may feel uncomfortable if they consult them openly in PM discussions

168 Standardized PM? A Study of JVs

(Hofstede, 1991). It has in fact been argued that foreign subsidiary managers inviting participation and open consultation during PM in authoritarian cultures may be perceived as incompetent in the eyes of their subordinates (Mendonca and Kanungo, 1997). Moreover, it could be expected that Chinese managers rooted in such hierarchical structures would employ a less participative and more top-down oriented style of implementing PM, where performance standards and objectives are dictated by the manager without seeking the subordinates’ input and suggestions (Snape et al., 1998). Performance feedback and Chinese subordinates. PM commonly assumes formal performance feedback through the evaluation of performance against pre-set objectives as well as informal performance feedback on progress towards objectives (Fletcher and Williams, 1997). Studies have shown that that effective PM is dependent on employees’ perceptions of receiving fair performance evaluations (Greenberg, 1986). However, perceptions of fair performance evaluations are contingent not only on the outcome (for example, the performance rating), but also on employees’ understanding of the process of how their performance is evaluated (Latham and Wexley, 1994). Research has also found that informal performance feedback is strongly correlated with the job satisfaction and performance of employees. Moreover, performance feedback conveyed frequently and at appropriate moments may lead to higher job satisfaction and performance. For subsidiary managers in China, the conveying of formal and informal performance feedback to Chinese subordinates may also be inﬂuenced by central facets of Chinese culture. In a more grouporiented or collectivist society such as the Chinese (Redding and Wong, 1986), social orientation is important and there is more emphasis on maintaining good relationships within the work group and on saving face and avoiding shame (Snape et al., 1998). Chinese individuals tend to identify themselves as part of a speciﬁc group, team or unit, and an important distinction is made between ‘insiders’ and ‘outsiders’ (Gabrenya and Hwang, 1996). It is conceivable that this collective orientation on the part of Chinese subordinates may inﬂuence how subsidiary managers conduct the performance evaluation and convey performance feedback. For instance, it may make it difﬁcult for subsidiary managers to evaluate the attainment of individual performance objectives and to confront employees openly about performance issues in a collectivist society such as China (Redding and Wong, 1986).

Niklas Lindholm 169

Furthermore, the concepts of ‘face’ and harmony are related to communication behaviours that are unique to Chinese culture (Lockett, 1988). The Chinese way of communicating is considered a social rule and ‘appropriate’ communication (both verbal and non-verbal) in various social and relational contexts is reserved, implicit and indirect. An implicit style of communicating enables one to negotiate meetings with others and helps to maintain existing relationships among individuals without destroying harmony (Gao, Ting-Toomey and Gudy Kunst, 1996). It is widely believed in the Chinese culture that it is more effective to resolve disputes through negotiation and compromise rather than through confrontation (see Chapter 2). The issue of face and harmony may complicate the direct performance feedback between subsidiary managers and subordinates which is often assumed in PM. Studies have shown that the conveying of direct feedback on job performance to employees in China may be extremely difﬁcult and must be done carefully (Holton, 1990; Zhu and Dowling, 1994).

5

Research methodology

Research site The data collected included both interview and survey data from a European MNC’s subsidiaries in China. The European MNC is a business unit of a leading international high-tech group and is headquartered in Europe. The MNC employs over 42 000 people in 45 countries. The European MNC was selected because it pursues a global HRM strategy and strives to implement a standardized PM system in its subsidiaries worldwide. The choice of a single company was important since it was necessary to control for variation in PM systems had the sample been collected from several organizations. Goals of the PM system The overall goal of the MNC’s PM system is to continuously improve performance by: (1) communicating strategies and goals of the organization to all levels of the organization; (2) setting clear performance objectives for all managers and professional employees cascaded from organizational and department goals; (3) evaluating performance both quantitatively (rating system) and qualitatively against the pre-set job objectives; (4) conveying performance feedback in the daily work; (5) evaluating skills required for the job and short-term training needs to improve current performance as well as career development aspirations and opportunities; and (6) rewarding excellent performance. The

170 Standardized PM? A Study of JVs

subsidiary line managers have the responsibility of implementing PM through discussions with their direct subordinates. The process is implemented twice a year and has an indirect linkage to base salary, but a direct linkage to incentives and bonuses. Subsidiary managers Twelve in-depth interviews with subsidiary managers were conducted in the MNC’s subsidiaries in the capital of Beijing in January 1999. Table 9.1 describes the interviewees. All interviewees held managerial positions and had mainly local subordinates. They represented different job categories and different organizational levels. The selected interviewees had worked in the subsidiaries for more than two years and had implemented PM for their subordinates more than four times. The expatriate managers had worked for the subsidiary in China for 4.8 years on average. The majority of the subsidiary managers had participated in a 2-day management training programme about PM in order to streamline the managers’ approaches to the implementation of PM. The training programme was a standard PM training programme that covered a variety of skills related to the successful implementation of PM in the Western setting: for example, how to set SMART (speciﬁc, measurable, agreed, realistic, timely) performance objectives, how to convey positive and negative feedback, challenges in the evaluation of performance, how to increase employee involvement, and how to improve listening skills, training and development planning. The management programme had been delivered in both Chinese and English. Personal interviews The personal interviews were loosely structured conversations where the main focus was on the experiences of using PM for their Chinese subordinates in the subsidiaries. In the interviews, pre-planned themes and questions were used to guide the discussion as suggested by Patton (1994). In reference to this, interviewees were asked questions regarding different elements of PM (objective-setting, performance feedback, performance evaluations). The interviews lasted on average one hour and were recorded with permission of the interviewees (Yin, 1994). The tapes were transcribed. The validity of the analysis was further improved by the author’s several years’ experience of working for the MNC’s subsidiaries in China, thereby gaining an augmented understanding of the research phenomenon and its context.

JV

JV

JV

JV

JV

WHO

JV

HCN 3

HCN 4

HCN 5

PCN 1

PCN 2

PCN 3

PCN 4

IT manager

Manager

Controller

Sales manager

Logistics manager

HR manager

Sales manager

Production manager

2 years

9 years

2 years

4 years

3 years

3 years

3 years

3 years

JV

HCN 2

2 years

14 years

6 years

8 years

4 years

5 years

5 years

3 years

3 years

3 years

JV

HCN 1

Quality manager

Subsidiary Experience experience in MNC

N/A

N/A

N/A

N/A

No

Yes

No

Yes

Yes

Experience in SOE

Characteristics of subsidiary managers and subordinates

Subsidiary Subsidiaryb Position managera

Table 9.1

2 years

9 years

2 years

4 years

N/A

N/A

N/A

N/A

N/A

Yes

Yes

Yes

No

Yes

Yes

Yes

Yes

Yes

10

10

6

17

10

10

8

12

18

•

China PM Sub experience training ⌺

Engineers

Managers

Bookkeeping personnel

Account managers

Logistic coordinators

HR professionals

Sales assistants

Production supervisors

Quality engineers

Subordinates positions

171

WHO

JV

TCN 1

TCN 2

4 years

10 years

8 years

4 years

Experience in MNC

N/A

N/A

N/A

Experience in SOE

4 years

4 years

10 years

Yes

Yes

Yes

12

9

12

•

Account managers

Account managers

Account managers

China PM Sub Subordinates positions experience training ⌺

N/A = not applicable. a A common classiﬁcation of MNC employees is parent country national (PCN), a national of the country of the MNC; host country national (HCN), a national of the country of the subsidiary; and third country national (TCN), a national of a country other than the MNC’s home country. b WHO: Wholly-owned subsidiary.

Product manager

Marketing manager

4 years

3 years

WHO

PCN 5

Marketing manager

Subsidiary experience

Continued

Subsidiary Subsidiaryb Position managera

Table 9.1

172

Niklas Lindholm 173

6

Key ﬁndings from subsidiary manager interviews

Performance objectives for Chinese subordinates The interviews revealed some variation regarding the communication of performance expectations by subsidiary managers for their subordinates. More than half of the interviewees described a participative style of setting performance objectives for their Chinese subordinates during the PM discussion. This style was indicated by the fact that these managers commonly asked their subordinates to prepare their own performance objectives some days in advance and also asked for their subordinates’ input and suggestions when formulating the objectives during the PM discussion. This approach was similar to the one that had been communicated as being effective in the management training. For example, one expatriate manager maintained: ‘I usually ask them to think about their objectives beforehand and ask them to come up with objectives ﬁrst … they are usually pretty good and I then make some suggestions and we change them together.’ Chinese managers also reported participative styles of setting performance objectives: ‘I set the objectives from the job description … they must be tightly linked together … it is usually a very two-way process … generally I make a suggestion of the area and then we together write a detailed objective.’ None the less, some managers preferred to use a different style in respect to the setting of performance objectives during the PM discussion: for example, one expatriate manager argued: in January, I communicate the action plan for my team … then I have my own PM discussion with my boss where I get the objectives for my job and then I cascade them down … they accept them as such … the objectives that I set in the PM discussion do not come as a surprise since I communicated the action plan in advance. Another expatriate manager continued: ‘when I set the objectives … the employee does not participate in the process but that is because he is aware of them already … they have heard the action plan … so there is the involvement … the commitment is already built into the process.’ A similar style was reported by two Chinese managers, one of them maintaining: the way I set objectives … well, actually I will present the strategy in meetings … and then we discuss who will have the responsibility of

174 Standardized PM? A Study of JVs

which areas … afterwards they [the subordinates] commonly want to have informal meetings where we go through the expectations personally … during the actual PM discussion I show the strategies to the employee and point out which areas are related to his/her work … and set the objectives. The reports of these managers indicate that the managers did not expect their subordinates to participate in the setting of performance objectives during the PM discussion. Instead, the managers preferred to involve their subordinates informally in meetings in order to increase employees’ understanding of future actions and plans. The same expatriate manager maintained: I found this approach works … the Chinese themselves think that we should be more direct and almost give orders … we shouldn’t expect too much participation … our corporate culture of course promotes employee involvement at all levels but I seriously think there is not so much added value in the PM discussion over here. Performance feedback for Chinese subordinates The interviews revealed different styles with respect to the conveying of formal and informal performance feedback to Chinese subordinates. A majority of the subsidiary managers described a very indirect and subtle approach of conveying performance feedback to their subordinates, as indicated by one Chinese manager: actually before the PM discussion we have had quite a long informal discussion already where we review informally how to improve and solve problems. I describe and explain the situation … and then I give suggestions how to solve problems face to face … if the person is sensitive, and has not ﬁnished a task you really have to discuss about where the problems are and then give the feedback … something like an investigation … it is usually something else and not the person’s fault … better be able to give advice. Another Chinese manager argued: ‘Why I think I don’t give feedback directly in the PM discussion is that all the time when there is a performance problem I point it out to the person directly and then I do not need to emphasize that in the PM discussion again … that way the atmosphere is much better in the PM discussion.’ Expatriate managers

Niklas Lindholm 175

also employed an indirect style of conveying performance feedback. One of them suggested: I try to ‘bake’ it in a way that the reason why I give this feedback is not too directed to the person … I am just saying that this where the person has to be careful … you can feel it when you are giving feedback to the Chinese … if he starts making excuses and so on … then back off … it will not have the same effect. In respect to the formal evaluation of performance, several Chinese managers reported that they felt uncomfortable rating their subordinates’ attainment of performance objectives. A few of the Chinese managers maintained that they preferred not to use the rating system that the MNC’s PM system entails, as exempliﬁed by one manager: ‘I usually do not use the evaluation of objectives with numbers … it is really too difﬁcult … they don’t want to use the performance rating.’ Another Chinese manager using the performance rating system argued: ‘I let them set the number themselves … why should I be so hard on them … I think it is my job to take care of my employees and keep them happy.’ A similar approach was described by another Chinese manager: ‘I review the objectives face to face; most of the time I ask them about the score and they will suggest 5 although I will think it is 3. Usually we end up with something like 4.5 … make a compromise.’ Some expatriate managers indicated the differences between conducting the performance evaluation with their Chinese subordinates versus their expatriate subordinates: ‘well, I am really more lenient with the locals … I mean a 4 out of 5 for a local is not the same as a 4 out of 5 with an expatriate’. Moreover, the other expatriate manager continued, ‘this is really different with the Chinese, with expatriates you can actually suggest a 2 out of 5 but with the Chinese you can never have such a gap … you always end up with a 4 out of 5’.

7 Subsidiary managers’ style of implementing performance management The present chapter has until this point been concerned with describing how subsidiary managers implement elements of PM in MNC subsidiaries in China. Two categories of subsidiary managers are identiﬁed from the personal interviews and are labelled PM Style 1 and 2. The categories represent different subsidiary management styles for the implementation of central elements of PM for Chinese subordinates.

176 Standardized PM? A Study of JVs Table 9.2 Subsidiary manager PCN 1 PCN 2 PCN 4 HCN 3 HCN 4 HCN 5 TCN 2 HCN 1 HCN 2 PCN 3 PCN 5 TCN 1

Categorization of subsidiary managers’ PM style Objective setting

Performance feedback

High subordinate involvement in objective-setting process within PM discussion

Indirect and subtle performance feedback, use of performance rating

Low subordinate involvement in objective-setting; involvement in informal meetings of future actions and plans

Indirect and subtle performance feedback, performance rating not used

Subsidiary manager style

PM Style 1

PM Style 2

The styles are presented in Table 9.2. The next question is to analyse how the different PM styles are perceived by the subsidiary manager’s subordinates. Subsidiary managers’ subordinates Data from the subsidiary managers’ subordinates were extracted from the subsidiaries’ employee-attitude survey which was conducted August 1998. There were 134 respondents involved in this process. The respondents reported directly to the subsidiary managers and were identiﬁed through their cost centre. On average the subsidiary managers had 11 subordinates which whom to carry out PM discussions. The subordinates’ perception of the subsidiary manager’s implementation was measured with four items related to the objective-setting process and four items related to the formal and informal performance feedback process. Each item was rated on a 5-point scale where 5 indicates that the employee strongly agrees with the statement, and 1 that he or she disagrees with the statement. The items are available in Table 9.3. A T-test of variance was conducted in order to determine whether there were statistically signiﬁcant differences between subordinate responses related to PM Style 1 and PM Style 2. The results from the T-test statistics are available in Table 9.3.

Niklas Lindholm 177 Table 9.3

Chinese subordinates perceptions’ of PM style 1 and 2

Elements of performance management Performance Objectives I have a clear understanding of the goals and objectives of the organization I have a clear understanding of the goals and objectives of my department I have a set of performance objectives agreed with my manager I have a clear understanding of my job objectives Performance Feedback I understand how my performance is evaluated I think that my performance is evaluated fairly I get regular feedback on my performance from my immediate manger I get recognition for work done well from my immediate manager

PM Style 1 n = 73

PM Style 2 n = 61

t-value

4.71

4.14

4.200***

4.88

4.63

2.763**

3.93

3.48

2.269*

4.93

4.75

2.448*

3.73

3.22

2.360*

3.61

3.81

–1.072

3.48

3.07

1.824

3.75

3.63

0.664

*** p < 0.001; ** p < 0.01; * p <. 005.

8

Discussion and conclusion

The ﬁrst objective of this chapter was to describe how managers in MNC subsidiaries in China implement PM for their Chinese subordinates. The ﬁndings are discussed in relation to the elements of PM. Performance objectives for Chinese subordinates The ﬁndings indicate that more than half of the subsidiary managers employed a participative style of formulating performance objectives for their subordinates. When analysing the background of these managers it is interesting to note that the expatriate managers using PM Style 1 had less experience of working in the Chinese setting compared with the expatriates using PM Style 2. Similarly, on the part of Chinese managers using PM Style 1, it can be noted that these managers had little experience of implementing PM, and no experience in local Chinese SOEs, and hence of local practices of employee evaluation. As a consequence, it could be maintained that less experienced subsidiary

178 Standardized PM? A Study of JVs

managers employed a standardized style of formulating performance objectives since this was the practice that they were taught during their management training. However, the less participative (PM Style 2) style of formulating of performance objectives during the PM discussion adopted by some of the subsidiary managers may be related to characteristics of Chinese culture and leadership styles presented earlier. It seems that these managers had adapted their approach to the Chinese culture and local practices of objective-setting. As already indicated, this ﬁnding seems to be contingent on experience of working in the Chinese culture and previous experience in Chinese SOEs. When analysing the background of these managers it is interesting to note that the expatriate managers belonging to PM Style 2 had longer experience of working in the Chinese culture than expatriates using PM Style 1. In addition, the PM Style 2 Chinese managers also had previous work experience in Chinese SOEs. The process of communicating performance expectations outside the PM discussion itself, which was characteristic of PM Style 2, may be interpreted as evidence of the fact that these expatriate managers had gone through a process of experiential learning. The Chinese managers related to this style seem to have been rooted in their taken-for-granted views of how to set goals and objectives (Westney, 1993). PM Style 2 closely reﬂects the ‘express determination’ (bao jexin dahei) practices of Chinese SOEs, where the setting of goals and objectives takes place at the beginning of a project and where people or groups speak publicly of their own goals related to the fulﬁlment of that project or task (Li, 1992). These meetings may be linked both to the importance of face and the collective orientation of organizational life in China. Some scholars have in fact argued that employees rooted in the collectivist cultures may prefer to participate in objective-setting in an informal manner (Ramamoorthy and Carrol, 1998). Performance feedback and Chinese subordinates The ﬁndings presented in respect to formal and informal performance feedback show that a majority of the subsidiary managers interviewed had modiﬁed their way of conveying performance feedback. A few subsidiary managers maintained that they preferred not to use the performance evaluation process which entailed a rating of the attainment of pre-set performance objectives. The other category of subsidiary managers (those employing the performance rating), indicated a lenient style of conducting the performance evaluation, implying

Niklas Lindholm 179

that they ‘gave in’ to their subordinates by giving them higher ratings than appropriate, or by letting subordinates themselves conduct the evaluation. In addition, a few of the expatriate managers maintained that they were more lenient with Chinese subordinates as opposed to expatriate subordinates, thus showing that they wanted to maintain harmonious relationships which is of importance in the Chinese culture. As indicated by one expatriate manager: ‘You just can’t be too strict with the numbers … we have to reward the effort and spirit of trying to attain objectives, not the actual attainment.’ This ﬁnding also indicates an experiential learning process on the part of subsidiary managers, especially expatriate managers, implying a contemplated adoption of local Chinese practices of performance evaluation, traditionally entailing self-evaluations (Easterby-Smith, Malina and Yuen, 1995). In respect to informal performance feedback, the interviews indicate that a majority of the subsidiary managers employed an indirect and subtle style of conveying performance feedback during the PM discussion. However, some of the subsidiary managers preferred to convey performance feedback in the normal course of work in order to retain a good atmosphere during the PM discussion. This phenomenon reﬂects the complexity of conveying performance feedback to Chinese subordinates and is related to face and indirect communication patterns in China (Holton, 1990; Gao, Ting-Toomey and Gudykunst., 1996). This ﬁnding corroborates previous research which has shown that employees from collectivist cultures may prefer to receive performance feedback in an informal setting (Ramamoorthy and Carrol, 1998).

Conclusion To sum up, from a standardization versus localization perspective it is evident that regarding PM, some degree of localization of the standardized elements of PM has occurred in the MNC subsidiaries in China. The ﬁndings presented indicate that both expatriate and Chinese managers have modiﬁed and adapted their style of implementing PM for Chinese subordinates. This is in contradiction to previous studies on expatriate managerial behaviour which have shown that managers in foreign assignments typically apply the same management style in the foreign operation as in their home country, and do not adjust or adapt to local norms and practices (Selmer, Kang and Wright, 1994). The second objective of this chapter is to analyse how the subsidiary managers’ subordinates perceive the implementation of PM. The

180 Standardized PM? A Study of JVs

results from a T-test of variance (Table 9.3) indicate that there are signiﬁcant differences between PM Style 1 and PM Style 2 as regards setting performance objectives. Surprisingly, the results show that Chinese subordinates involved with PM Style 1 are perceived to have a clearer understanding of organizations, departments and the job’s performance objectives compared with subordinates on the receiving end of PM Style 2. In addition, the subordinates perceive that they have set their performance objectives in agreement with their manager. These ﬁndings contradict previous notions of Chinese subordinates preferring authoritarian manager/subordinate relationships which has been suggested by some scholars (Selmer et al., 1994; Gao, TingToomey and Gudykunst, 1996). These ﬁndings show positive effects of employing a participative management style during the objectivesetting process with Chinese subordinates in MNCs in China. This may imply that hierarchy is to a lesser extent important for Chinese subordinates in MNC subsidiaries, and that the ﬁndings reﬂect a general trend towards the more career-oriented individualistic values of the labour pool available to MNCs in China (Björkman, Lasserre and China, 1997). Nevertheless, these ﬁndings may be explained by the fact that the managers’ style of setting performance objectives may be contingent on the job experience of subordinates. It can be noted from Table 9.4 that the subordinates in receipt of PM Style 1 contain slightly more experienced employees as opposed to subordinates involved with PM Style 2. Consistent with previous research, managers with more experienced subordinates are likely to employ a more participative style of implementing PM as opposed to managers with little job experience (Greller, 1998). As regards the conveying of formal and informal performance feedback, it is possible to identify from Table 9.3 that there were signiﬁcant differences between PM Style 1 and 2 on only one item: how subordinates understood how their performance was evaluated. This ﬁnding seems logical due to the fact that the subsidiary managers related to PM Style 2 preferred not to use the performance rating within the PM discussion, and so the subordinates may not have understood against which criterion their performance was evaluated. To conclude, this chapter has analysed the implementation of central elements of PM by managers in MNC subsidiaries in China. Through personal interviews with these managers, two different styles of implementing PM for Chinese subordinates have been identiﬁed. The different styles have subsequently been evaluated by the Chinese subordinates in the MNC subsidiary. It has been shown that that

Niklas Lindholm 181 Table 9.4

Chinese subordinates’ job experience

Group

< 6 months

6–12 months

1–3 years

3–6 years

Total

PM Style 1 Count % within group

1 1.4%

13 17.8%

50 68.5%

9 12.3%

73 100.0%

PM Style 2 Count % within group

12 20.3%

7 11.9%

40 67.8%

13 9.8%

20 15.2%

90 68.2%

Count % within group % of Total

59 100.0%

9 6.8%

132 100.0%

100.0%

Chinese subordinates in MNC subsidiaries may prefer a participative style of setting performance objectives and an indirect and subtle style of receiving performance feedback in the course of their daily work. The ﬁndings demonstrate the advantage of studying the implementation of standardized PM in MNC subsidiaries at the individual level of analysis in order to a receive a more comprehensive view of whether or not standardized PM actually is implemented in the subsidiaries. The ﬁndings suggest that it is of importance to make a distinction between HRM policies and HRM practices in MNCs adopting global strategies. Whereas companies might ﬁnd it feasible to have companywide philosophies and policies, it seems that it is unavoidable that they are responsive to local conditions when it comes down to a practical level (Schuler, Dowling and De Cieri, 1993).

References Anderson, E. (1990) ‘Two ﬁrms, one frontier: On assessing joint venture performance’, Sloan Management Review, 31, 2, pp.19–30. Beechler, S. and Yang, J. Z. (1994) ‘The transfer of Japanese-style management to American subsidiaries: Contingencies, constraints, and competencies’, Journal of International Business Studies, 25, pp.467–92. Björkman, I. (1994) ‘Role perception and behavior among Chinese managers in Sino-Western joint ventures’, in S. Stewart (ed.), Advances in Chinese Industrial Studies, vol. 4, Greenwich, CT: JAI Press, pp.285- 300.

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Niklas Lindholm 183 Greenberg, J. (1986) ‘Determinants of Perceived Fairness of Performance Evaluations’, Journal of Applied Psychology, 71, 2, pp.340–42. Hofstede, G. (1980) Culture’s Consequences, Beverly Hills, CA: Sage. Hofstede G. (1991) Cultures and Organizations, Software of the Mind, Intercultural Cooperation and its Importance for Survival, New York: McGraw-Hill International. Holton, R. H. (1990) ‘Human Resource Management in the People’s Republic of China’, Management International Review, Special Issue, pp.121–36. Latham, G. P. and Wexley, K. N. (1994) Increasing Productivity through Performance Appraisal, New York: Addison Wesley. Laurent, A. (1983) ‘The Cultural Diversity of Western Conceptions of Management’, International Studies of Management and Organizations, 13, 1–2, pp.75–96. Li, J. (1992) ‘Management By Objectives and China’s Reform of the Employment System’, Advances in Chinese Industrial Studies, 3, pp.169–79. Lindholm, N., Tahvanainen, M. and Björkman I. (1998) ‘Performance Appraisal of Host Country Employee: Western MNCs in China’, in C. Brewster and H. Harris (eds), International HRM: Contemporary Issues in Europe, London Routledge, pp.143–59. Locke, E. A. and Latham, G. P. (1984) Goal Setting: A Motivational Technique that Works!, Englewood Cliffs, NJ: Prentice-Hall. Lockett, M. (1988) ‘Culture and the Problems of Chinese Management’, Organization Studies, 9, pp.475–96. Logger, E., Vinke, R. and Kluytmans, F. (1995) ‘Compensation and appraisal in an international perspective’, in A-W. Harzing and J. van Ruysseveldt (eds), International Human Resource Management, London: Sage, pp.145–55. Lu, Y. and Björkman, I. (1997) ‘HRM practices in China–Western joint ventures: MNC standardization versus localization’, International Journal of Human Resources Management, 8, pp.614–28. Mabey, C. and Salaman, G. (1995) Strategic Human Resource Management, Oxford: Basil Blackwell. McEvoy, G. M. and Cascio, W. F. (1990) ‘The United States and Taiwan: Two Different Cultures Look at Performance Appraisal’, Research in Personnel and Human Resources Management, Suppl. 2, pp.201–9. Mendonca, M. and Kanungo, R. N. (1997) ‘Performance management in developing countries’, in M. Warner (ed.) Comparative Management – Critical Perspectives on Business and Management, vol. IV. London: Routledge, pp.1209–33. Milliman, J. F., Nason, S., Lowe, K.; and Huo, P. (1995) ‘An Empirical Study of Performance Appraisal Practices in Japan, Korea, Taiwan, and the US’, Academy of Management Journal, Best Papers Proceedings, pp.182–6. Paik, Y., Vance, C. M. and Stage, H. D. (1996) ‘The Extent of Divergence in Human Resource Practice across Three Chinese National Cultures: Hong Kong, Taiwan, and Singapore’, Human Resource Management Journal, 6, 2, pp.20–31. Patton, M. Q. (1994) Qualitative Evaluation and Research Methods, 2nd edn, Newbury Park: Sage. Pucik, V. (1988) ‘Strategic Alliance with the Japanese: Implications for Human Resources Management’, in F. Contractor and P. Lorange (eds), Cooperative Strategies in International Business, Toronto, Ontario: Lexington Books, pp.487–98.

184 Standardized PM? A Study of JVs Ramamoorthy, N. and Carrol, S. J. (1998) ‘Individualism/Collectivism Orientations and Reactions Toward Alternative Human Resource Management Practices’, Human Relations, 51, 5, pp.571–88. Redding, G. and Wong, G. Y. Y. (1986) ‘The Psychology of Chinese Organizational Behaviour’, in M. H. Bond (ed.), The Psychology of Chinese People, Hong Kong: Oxford University Press, pp.267–95. Rheem, H. (1996) ‘Performance Management Programs’, Harvard Business Review, September/October, pp.8–9. Rosenzweig, P. M. and Nohria, N. (1994) ‘Inﬂuences on human resource management practices in multinational corporations’, Journal of International Business Studies, 25, pp.229–51. Schneider, S. C. (1988) ‘National vs. corporate culture: implications for human resources management’, Human Resource Management, 27, 2, pp.307–20. Schuler, R. S., Dowling P. J. and De Cieri H. (1993) ‘An Integrative Framework of International Human Resource Management’, The International Journal of Human Resource Management, 4, 4, pp.717–64. Selmer, J., Kang, I.-L. and Wright, R. P. (1994) ‘Managerial Behavior and Expatriate versus Local Bosses’, International Studies of Management and Organization, 24, 3, pp.48–63. Shenkar, O. and Zeira, Y. (1987) ‘Human resources management in international joint ventures: Directions for research’, Academy of Management Review, 12, 3: pp.546–57. Snape, E., Thompson, D., Ka-ching, Yan F., and Redman, T. (1998) ‘Performance appraisal and culture: practice and attitudes in Hong Kong and Britain’, The International Journal of Human Resource Management, 9, 5, pp.841–61. Sparrow, P. and Hiltrop, J.-M. (1994) European Human Resource Management in Transition, New York: Prentice-Hall. Vance, C. M., McClaine, S. R., Boje, D. M., and Stage, D. H. (1992) ‘An Examination of the Transferability of Traditional Performance Appraisal Principles Across Cultural Boundaries’ Management International Review, 32, pp.313–26. von Glinow, M. A. and Teagarden, M. B. (1988) ‘The transfer of human resource management technology in Sino–US cooperative ventures: Problems and solutions’, Human Resource Management, 27, pp.201–29. Waldman, D. A. (1997) ‘Predictors of Employee Preferences for Multirater and Group-Based Performance Appraisal’, Group and Organization Management, 22, 2, pp.264–87. Warner, M. (1995) The Management of Human Resources in Chinese Industry, London: Macmillan and New York: St Martin’s Press. Westney, D. E. (1993): ‘Institutionalization theory and the multinational corporation’, in S. Ghoshal and D. E. Westney (eds), Organization Theory and the Multinational Corporation. New York: St Martin’s Press, pp.53–76. Williams, S. (1991) ‘Strategy and objectives’, in F. Neales (ed.) The Handbook of Performance Management, Exeter: Short Run Press, pp.7–24. Yin, R. (1994) Case Study Research: Design and Methods, 2nd edn, Beverly Hills, CA: Sage. Zhu, C. J. and Dowling, P. J. (1994) ‘The Impact of the Economic System upon Human Resource Management in China’, Human Resource Planning, 17, 4, pp.1–21.

10 Work-Related Attitudes among Chinese Employees vis-à-vis ‘American’ and ‘Japanese’ Management Models Nailin Bu and Ji-Liang Xu

Prior to the introduction of the Dengist reform programmes, Chinese employees, especially those working for the SOEs, expected their enterprises to provide not only lifetime employment, but also welfare provisions including pensions, housing, paid sick leave, meal services, recreation facilities, healthcare, daycare and schools (Walder, 1986; Zhu, 1995). Despite the provision of such extensive beneﬁts, Chinese employees did not develop a very strong commitment to their enterprise, as reﬂected by their low level of work effort and productivity (Yeung and Wong, 1990; Stapanek, 1992). Additionally they, though eager to cultivate particularistic and clientelistic guanxi with their superiors in exchange for favours, were generally not disciplined by managerial rules and procedures, as indicated by a high rate of absenteeism and the frequency with which they ran personal errands during work hours (Walder, 1986; Beck and Beck, 1990; Stapanek, 1992). Creating a new system of management that would alter such unproductive attitudes and behaviours has clearly been one of the most important imperatives for China’s economic reform programmes in the industrial sectors (see Chapter 2). However, the speciﬁc substance of this new system of management remains an area of constant debate. On the one hand, China’s toplevel policy-makers appear determined to aim for a market-oriented management system which resembles that of the USA by introducing reform measures such as the enterprise contract responsibility system 185

186 Work-Related Attitudes among Chinese Employees

and the contract labour system (Howard, 1991; Child, 1994:293–301; Chan, 1995; Zhu, 1995). On the other hand, some scholars (such as Shirk, 1981; Chan, 1995) argue forcefully that an organization-oriented system of industrial management emulating that of Japan would be more appropriate for China because of the similarity between the two countries in terms of both cultural traditions and socio-economic systems. This chapter attempts to add to this debate by examining empirically Chinese employees’ attitudinal readiness for a transition to an American and/or Japanese model of management. The so-called ‘American management’ and ‘Japanese management’, as two distinctive ‘prototypes’ of management style, were conceptualized at a time when the overwhelming success of the respective economies had become evident. For the USA, such enormous success occurred within ﬁfteen years of the end of the Second World War. By the 1960s, the dominance of the American economy in the world had become undisputed. Because of such success, American management, commonly characterized by a strong market orientation and a highly legalistic approach (Cole, 1979; Sethi, Namiki and Swanson, 1984), was touted to be the embodiment of management excellence and was studied and copied around the world. Japan started to take off at the beginning of the 1960s, and by the 1970s the economic miracle of Japan had seriously challenged the dominance of the USA in the world economy and exposed some of the weaknesses of American management practices. Enthusiastically lauded as a key source of Japan’s economic success, Japanese management practices, characterized as being long-term oriented, team-based and paternalistic, became the subject of many inﬂuential studies (Dore, 1973; Cole, 1979; Ouchi, 1981; Pascale and Athos, 1981), which together gave meaning to the term ‘Japanese management’. It was also during these periods of peak performance, we infer, that the attitudes of American and Japanese employees best captured the respective value foundations of American and Japanese management. Therefore this study, in an attempt to explore the prospect of American and Japanese management practices in the present context of Chinese society, compares key aspects of current Chinese employees’ workrelated attitudes to those of American employees in 1960 and of Japanese employees in 1976. In particular, the comparative analysis focuses on employees’ expectation for job security and companyprovided welfare beneﬁts, their commitment to organization, their receptiveness towards the bureaucratic prerogatives of management, and their reverence for the personal power of managers.

Nailin Bu and Ji-Liang Xu 187

The attitudes of 169 non-managerial employees in China were assessed in late 1993 and early 1994 using the same questionnaire that had been developed and used by Takezawa and Whitehill (1981) in their study of American and Japanese employees. Chinese employees’ responses were then compared to those of their American counterparts in 1960 and of their Japanese counterparts in 1976 as reported in Takezawa and Whitehill’s study.

1

Development of hypotheses

In developing our hypotheses regarding Chinese–American and Chinese–Japanese differences in employee attitudes, we consider two forces that are known to inﬂuence workplace attitudes: the characteristics of cultural traditions and the characteristics of socio-economic systems. Although a country’s socio-economic systems reﬂect and shape its prevailing cultural beliefs in the long run, the socio-economic systems perspective is not superﬂuous because the dominant cultural beliefs of a society are not necessarily congruous with its socioeconomic systems at any given time (Lodge, 1987). Using both the culturalist and the socio-economic systems perspectives can enhance the explanation and prediction of attitudes and behaviours of a social group in a particular historical period (Child, 1981; Smith, Peterson and Wang, 1996). Expectation for job security and company-provided welfare Employees’ level of expectation for job security and company-provided welfare is likely to be positively related to their collectivistic tendency, referring to the extent to which one ﬁnds security and satisfaction in being identiﬁed with, and protected by, a larger community (Hofstede, 1980). According to Dunphy and Shi’s (1989) review of literature, both Mainland Chinese and Japanese measure moderately high on collectivism, while the Americans measure very low on the same dimension. It is therefore reasonable to expect, from a culturalist perspective, that Chinese employees’ level of expectation for community protection and support is as high as that of their Japanese counterparts, and much higher than that of their American counterparts. From a socio-economic systems perspective, American ﬁrms exemplify a market-oriented system of management where the overriding goal of a ﬁrm is to maximize returns on investment for shareholders. The Japanese system of management, often characterized as being organization-oriented, corporatist or clan-like, seriously takes into

188 Work-Related Attitudes among Chinese Employees

consideration the interests of all the organization’s stakeholders, including its employees. Valued employees in large Japanese companies are provided with long-term employment security, promotion opportunities and generous fringe beneﬁts in exchange for their lifelong loyalty and dedication (Ouchi, 1980; Dore, 1987; Chan, 1995). Guided by the ofﬁcially sanctioned ideological premise that workers are the ‘masters of the house’ (Nyaw, 1995), Chinese enterprises, especially the SOEs, have for decades provided absolute employment security to their employees, known as the ‘iron rice-bowl’. Furthermore, Chinese enterprises have also become the primary providers of welfare beneﬁts for their employees. These beneﬁts are even more extensive and unconditional than those provided by their Japanese counterparts. Considering both the culturalist and the socio-economic systems perspectives, we speculate that: Hypothesis 1a. The level of expectation for job security and company-provided welfare is higher among Chinese employees in 1993/94 than among their American counterparts in 1960. Hypothesis 1b. The level of expectation for job security and company-provided welfare is higher among Chinese employees in 1993/94 than among their Japanese counterparts in 1976. Commitment to organization As is suggested by Lincoln and Kalleberg (1990), employees’ level of commitment to organization is determined both by the extent of their emotional identiﬁcation with the organization and by the extent to which the socio-economic contexts encourage such commitment. The extent of an employee’s emotional identiﬁcation with an organization is by deﬁnition associated with his or her collectivistic tendency. This, however, does not by itself enable one to conclude that the collectivistic Chinese and Japanese employees are similarly more identiﬁed with their company than the individualistic American employees. For employees to be emotionally identiﬁed with their company, they must not only possess a collectivistic orientation but also view the company as one of their primary social groups. Unlike the Japanese, whose emotional connection with their company is intensive, the Chinese, whose primary social group is their extended family, are in general emotionally detached from non-kin social groups, such as companies (Redding, 1990; Whitley, 1990; Yeung and Wong, 1990).

Nailin Bu and Ji-Liang Xu 189

While the Chinese are emotionally less dedicated to their company than their Japanese counterparts, employees in the two countries confront quite similar systems of employment. In both countries, job mobility is severely restricted and long-term organizational attachment is generously rewarded through seniority-based pay, promotion systems and, in the case of China, company-provided housing (see Chapter 4) (Lincoln and Kalleberg, 1990; Yeung and Wong, 1990; Chan, 1995). In contrast, employment relationship between American employees and their organizations is primarily contractual, driven by market forces (Takezawa and Whitehill, 1981; Dunphy and Hackman, 1989). After examining both the cultural and systems antecedents to organizational commitment, we predict that: Hypothesis 2a. The level of commitment to organization is higher among Chinese employees in 1993/94 than among their American counterparts in 1960. Hypothesis 2b. The level of commitment to organization is lower among Chinese employees in 1993/94 than among their Japanese counterparts in 1976. Receptiveness towards the bureaucratic prerogatives of management Employees’ level of receptiveness toward the managerial prerogatives in directing and controlling business activities can be partially inferred from their general acceptance of power distance and their tendency to avoid uncertainty (Hofstede, 1980). Culturally, both the Mainland Chinese and Japanese measure moderately strongly on power distance and very strongly on uncertainty avoidance (Dunphy and Shi, 1989). The Americans, on the other hand, measure relatively weakly on power distance and moderately weakly on uncertainty avoidance (Hofstede, 1980). Since Chinese and Japanese employees culturally tolerate a large discrepancy in power distribution, they are likely to accept managerial authority more than American employees, who are culturally egalitarian (Dunphy and Shi, 1989; Lebas and Weigenstein, 1986). The fact that Chinese and Japanese employees have a strong tendency to avoid uncertainty (Hofstede, 1980) also leads to the conclusion that they would be highly receptive to managerial authority because it generates clarity and predictability (Dunphy and Shi, 1989). While both Chinese and Japanese employees are culturally highly acquiescent to hierarchical relationships, the legitimacy of management

190 Work-Related Attitudes among Chinese Employees

in China has been seriously challenged by the pre-reform ofﬁcial ideology that enterprise management should submit to the leadership of the Party and to the supervision of the Workers’ Congress (Kent, Lynn and Mailer, 1991). This said, management in Chinese enterprises, like their Japanese counterparts, still enjoys a non-adversarial relationship with labour organizations (see Chapter 6), which is generally not the case in the USA (Cole, 1979; Takezawa and Whitehill, 1981; Nyaw, 1995). Synthesizing the arguments from both the culturalist and socioeconomic systems perspectives, we expect that: Hypothesis 3a. The level of receptiveness toward the bureaucratic prerogatives of management is higher among Chinese employees in 1993/94 than among their American counterparts in 1960. Hypothesis 3b. The level of receptiveness towards the bureaucratic prerogatives of management is lower among Chinese employees in 1993/94 than among their Japanese counterparts in 1976. Reverence for the personal power of managers It has been suggested that Chinese and Japanese managers can expect deference from their subordinates to a greater extent than what can be expected by American managers whose power tends to be conﬁned to formally deﬁned areas (Takezawa and Whitehill, 1981; Pye, 1985; Boisot and Child, 1988). Many attribute this difference to the inﬂuence of Confucianism in both China and Japan, which advocates absolute loyalty from the inferior to the superior who in return patronizes the inferior (Pye, 1985). Although Confucianism was under severe attack by the Chinese government during the Cultural Revolution as being ‘feudalistic’ (Pye, 1991), the Confucian interpersonal relationship remains intact as much in China as in Japan. In fact, due to China’s socio-economic systems where employees depend heavily on their companies for so many of their lives’ necessities, Chinese employees’ motivation to nurture a paternalistic relationship with their supervisors may well exceed that of those in other societies heavily inﬂuenced by Confucianism (Walder, 1986; Ruan, 1993). We expect, therefore: Hypothesis 4a. The level of reverence for the personal power of managers is higher among Chinese employees in 1993/94 than among their American counterparts in 1960.

Nailin Bu and Ji-Liang Xu 191

Hypothesis 4b. The level of reverence for the personal power of managers is higher among Chinese employees in 1993/94 than among their Japanese counterparts in 1976.

2

Methods

The data discussed here includes survey responses from 169 Chinese male employees collected between late 1993 and early 1994 by the authors, and from 491 American male employees collected in 1960 and from 756 Japanese male employees collected in 1976 by Takezawa and Whitehill (1981). The survey questionnaire used by Takezawa and Whitehill (1981) in their investigation of employee attitudes in the USA and Japan was adopted in our data collection in China with one minor modiﬁcation. In Takezawa and Whitehill’s questionnaire reference was made to companies organizing activities such as baseball games. Considering Chinese employees’ unfamiliarity with baseball, we replaced this part of the question with a general reference to ‘recreation activities’. The English version of the questionnaire was translated into Chinese for the Chinese respondents. Table 10.1 lists the 20 speciﬁc issues investigated in the questionnaire survey. They covered four broad areas of employees’ work-related attitudes, including (1) expectation for job security and companyprovided welfare, (2) commitment to organization, (3) receptiveness towards the bureaucratic prerogatives of management, and (4) reverence for the personal power of managers. On each of the issues, respondents were asked to react to a hypothetical workplace situation by selecting one of the four alternative statements that they felt best reﬂected their view. For example, on Issue 10 (see Table 10.1) concerning whether or not employees ought to stay with the company even when a better opportunity arises elsewhere, respondents were presented with a scenario which read: ‘If you expect that your company will experience a prolonged decline in business, and if you can get a job with a more prosperous company, would you …’. The respondents were then asked to choose one of the four alternatives: (1) stay with the company and share whatever the future may bring because you have conﬁdence in management; (2) stay with the company provided management pledges to try to keep you employed though perhaps at reduced pay; (3) stay with the company provided management pledges to try to keep you employed and not reduce your pay; (4) leave the company and take the job with the more prosperous company.

73 77

3

45.5

III. Receptiveness towards the bureaucratic prerogatives of management 11. Management decisions should not be challenged 38.3

46

73.5

73.0

61

95.7

87

84

74.8

89.3

39

5.0

29 12

60

60.7

USA

20.4 66.2

II. Commitment to organization 6. Company is of central importance to employees’ lives 7. Employees ought to participate in after-hour socialization 8. Employees ought to strive to accomplish assigned tasks 9. The primary reason for working hard in a company is to fulﬁl the expectation of the important others 10. Employees ought to stay with the company even when a better opportunity arises elsewhere

I. Expectation for job security and company-provided welfare 1. Company ought not to lay-off employees even when business declines 2. Company ought not to dismiss incompetent employees 3. Company ought not to terminate the employment of those on long-term sick leave 4. Company ought to be responsible for employees’ housing 5. Company ought to provide ﬁnancial subsidies to employees with large families

China

26

95

80

96

73 53

89

99

89

51

52

Japan

Response percentagesa (%)

Chinese employees in comparison with American and Japanese employees

Work-related attitude

Table 10.1

22.91*** 9.41** 27.49***

6.93** 70.45*** 37.66***

9.97**

276.54***

56.92***

146.30***

3.85*

12.48*** 0.00

0.61

163.19*** 9.59**

114.52***

65.99***

4.70* 190.88***

3.81

China vs Japan

0.02

China vs USA

x2

192

Continued

69 41

21.0 24.0

22

48

52.7

63.6

90

62.6

19

95

93.9

66.4

12 55

USA

31.3 97.0

China

85

96

69

71

43

83

97

26 89

Japan

Response percentagesa (%)

40.56***

97.48***

116.20***

15.51***

137.49***

141.82***

114.57***

129.44***

4.71*

34.19***

66.25*** 1.01

3.80

1.91 10.05**

32.60*** 96.99*** 0.30

China vs Japan

China vs USA

x2

Note: The Chinese data were collected by the authors for the current study (N = 148 to 168 due to missing values), the US data were obtained from Takezawa and Whitehill (1981:200–19) (N = 491), and the Japanese data were obtained from Takezawa and Whitehill (1981:200–19) (N = 730 to 756 due to missing values). a Cells indicate the percentages with which choices made by the employees in the three countries fell in Set 1. * p < 0.05; ** p < 0.01; *** p < 0.001.

IV. Reverence for the personal power of managers 19. Manager ought to be treated with paternalistic reverence even in non-work related situations 20. Manager ought to be treated with paternalistic reverence even on non-work related matters

12. Unionization is unnecessary 13. Management ought to be empowered to introduce new technology 14. Management ought to be empowered to change work methods 15. Management ought to be empowered to evaluate and compare employee performance 16. Management ought to be empowered to determine the procedure for merit rating 17. Management ought to be empowered to make promotion decisions 18. Management ought to be empowered to enforce work rules

Work-related attitude

Table 10.1

193

194 Work-Related Attitudes among Chinese Employees

To examine the hypothesized Sino–American and Sino–Japanese differences in work-related attitudes, the four response alternatives under each of the 20 situations were classiﬁed a priori into two sets. Set 1 was designed to contain the response alternative(s) which indicate(s) a high level of expectation for job security and company-provided welfare, a high level of commitment to organization, a high level of receptiveness towards the bureaucratic prerogatives of management, or a high level of reverence for the personal power of managers. Set 2 contained the rest of the response alternatives. Referring again to the above example, Alternatives 1, 2 and 3 were classiﬁed as Set 1 while Alternative 4 was put into Set 2. We initially obtained responses from 344 Chinese employees and managers employed in a state-owned factory located in Shanghai. The data were collected with the endorsement and assistance of the factory manager, and all participants were assured of absolute anonymity. These factors probably helped us to obtain a 100 per cent response rate. To make our data comparable with Takezawa and Whitehill’s (1981) American and Japanese data, we used only the responses from nonmanagerial male Chinese employees in this analysis, which yielded a sample of 169. A majority (71.3 per cent) of the 169 employees were under 35 years of age, and slightly over half (56.3 per cent) were single. A total of 37.5 per cent received some forms of post-secondary education.

3

Results

For each of the 20 questions, the percentages of Chinese, American and Japanese employees whose responses fell in Set 1 were calculated and summarized in Table 10.1, which also reports the results of hypothesis testing. As indicated in Table 10.1, non-parametric 2 analyses were performed on each of the 20 questions, comparing the frequency with which Chinese, American and Japanese employees chose response alternative(s) indicative of a high level of expectation for job security and company-provided welfare, a high level of commitment to organization, a high level of receptiveness towards the bureaucratic prerogatives of management, or a high level of reverence for the personal power of managers. Expectation for job security and company-provided welfare As shown in Table 10.1, the testing of Hypothesis 1a, which predicted a higher level of expectation for job security and company-provided

Nailin Bu and Ji-Liang Xu 195

welfare among Chinese employees than among American employees, produced mixed results. As expected, Chinese employees’ level of expectation for company-provided welfare, including housing assistance for all employees and ﬁnancial subsidies for large families, was signiﬁcantly higher than that of American employees. Surprisingly however, no signiﬁcant difference was found between Chinese and American employees in their belief concerning the obligation of companies to guarantee job security when facing business decline. Also contradicting Hypothesis 1a, fewer Chinese employees than American employees held the view that companies ought to keep on incompetent employees or employees incapable of work due to chronic illness. Hypothesis 1b, which predicted a higher level of expectation for job security and welfare among Chinese employees than among Japanese employees, was clearly rejected. While Chinese and Japanese employees proved to be similar in their acceptance of workforce reduction in the situation of business decline, the former expressed a signiﬁcantly lower level of expectation that companies ought to continue employing incompetent or chronically disabled employees. Chinese employees’ level of expectation for employment beneﬁts, including housing assistance and ﬁnancial subsidies, was also lower than that of Japanese employees. Commitment to organization Hypothesis 2a, predicting a stronger organizational commitment among Chinese employees than among American employees, received minimum support. With the exception that more Chinese than Americans were in favour of participating in company-organized afterhours recreational activities, the former did not demonstrate a stronger devotion and attachment to their company than the latter. Speciﬁcally, compared with Americans, fewer Chinese regarded their company as being of central importance to them and fewer expressed willingness to stay with their company when a better opportunity arose elsewhere. No differences were uncovered between Chinese and American employees in their devotion to organizational tasks and in their primary motive for working hard in the company. In comparison with their Japanese counterparts, Chinese employees in general exhibited a lower level of organizational commitment, as predicted in Hypothesis 2b. Speciﬁcally, Chinese employees evidently attached much less importance to their company than their Japanese counterparts. Fewer Chinese than Japanese expressed dedication to the organizational tasks and more Chinese than Japanese cited individual-

196 Work-Related Attitudes among Chinese Employees

istic and materialistic reasons as the chief sources of their work motivation. Chinese employees were also more likely than their Japanese counterparts to leave their organization for better opportunities elsewhere. The only exception to the overall rejection of Hypothesis 2b was the fact that more Chinese employees than Japanese employees agreed that employees should participate in company-organized afterhours socialization activities. Receptiveness towards the bureaucratic prerogatives of management Hypothesis 3a, which predicted that Chinese employees’ level of receptiveness to management’s bureaucratic prerogatives would be higher than that of American employees, was only partially supported. As expected, Chinese employees expressed less desire to challenge management decisions or to unionize than American employees did. Chinese employees’ support for the authority of management to introduce new technology, consistent also with the prediction, was much stronger than that of American employees. However, Chinese employees’ views on the managerial prerogative to change work methods appeared to be rather similar to that of American employees, which was inconsistent with Hypothesis 3a. Furthermore, Chinese employees did not demonstrate a higher level of receptiveness to managerial authority in managing human resources than American employees, which also contradicted Hypothesis 3a. In particular, fewer Chinese than Americans accepted the legitimacy of management’s prerogatives to evaluate employee performance, to make promotion decisions and to enforce work rules. Chinese employees did not differ signiﬁcantly from American employees in their view of the authority of management to determine the procedure for performance evaluation. Our ﬁndings concerning Hypothesis 3b, comparing Chinese employees’ views on the bureaucratic prerogatives of management with those of Japanese employees, were also mixed. Contrary to Hypothesis 3b, more Chinese employees than Japanese employees agreed that management decisions ought not to be challenged and that management ought to be given the authority to introduce new technology and to choose speciﬁc methods of performance appraisal. Also inconsistent with Hypothesis 3b, Chinese and Japanese employees turned out to be similar in their views on the necessity of unionization and on the authority of management to change work methods. However, in support of Hypothesis 3b, Chinese employees were much less receptive than their Japanese counterparts to managerial prerogatives in the

Nailin Bu and Ji-Liang Xu 197

human resource areas including evaluating employee performance, making promotion decision and enforcing work rules. Reverence for the personal power of managers Hypothesis 4a, predicting that Chinese employees were much more deferential to their managers even in non-work related situations and non-work related matters than their American counterparts, was unequivocally supported. Chinese employees, for example, reported more willingness than American employees to offer a seat or assistance to their superior on a bus, and to approve of supervisors’ providing input on subordinates’ marital affairs. Compared with their Japanese counterparts, however, Chinese employees proved to be less reverent under those situations. Hypothesis 4b was thus rejected.

4

Managerial implications

The study’s ﬁndings regarding Chinese employees’ attitude towards the introduction of a ‘market’ mechanism in enterprise management is unexpected (c.f. Chapter 3). Chinese employees surveyed proved to be more supportive of ﬁrms’ need to adjust the size of their workforce as a means of pursuing their performance objectives than both American and Japanese employees. This willingness to forgo guaranteed lifetime employment is a drastic departure from the traditional ‘iron rice-bowl’ mentality which is known to have undermined China’s industrial performance for decades. The data do reveal, however, that Chinese employees, though much less protective of their entitlement to company-provided welfare when compared with Japanese employees, are still relatively more apprehensive about losing these beneﬁts when compared with American employees. This is not very surprising considering the fact that alternative social institutions for such welfare provisions are still in their infancy in China (see Chapter 12). These ﬁndings lead one to conclude that the market reform programme in China is likely to continue receiving broad-based support among the population. However, unless alternative venues for the provisions of social welfare are established and solidiﬁed, drastic cuts to the welfare functions currently carried out by the enterprises can, as is also suggested by Dodds (1996) and Warner (1995), result in widespread discontent and alienation among the employees. China’s recent initiatives, as outlined in the 1994 Labour Law, to start a comprehensive social security overhaul aimed at shifting the management of social welfare from enterprises to local and national governments (Josephs, 1995;

198 Work-Related Attitudes among Chinese Employees

Stevenson-Yang, 1996; Warner, 1996) are indications that the country’s leaders have taken note of the issue. Our study further reveals that Chinese employees’ commitment to their work organizations is much weaker than that of Japanese employees and, in some cases, is even weaker than that of American employees. This helps explain the difﬁculties encountered by the Chinese enterprises in elevating work motivation and labour productivity, despite the provision of generous fringe beneﬁts and the attempts at promoting ideological solidarity and organizational loyalty (Dunphy and Shi, 1989; Kent, Lynn and Mailer, 1991). One can speculate therefore that the ‘corporatist’ or ‘clan’ mode of management, which operates on the premise that, by sharing a collective commitment to the organization, employees are capable of regulating their own activities for the sake of attaining organizational goals (Dore, 1973; Ouchi, 1980), is unlikely to be effective in China’s enterprises at the present time. However, it can be argued that the difﬁculty in mobilizing organizational commitment in China is at least partially attributable to the historically high involvement of the government in the country’s work organizations, and hence is correctable. Since an enterprise prior to the reform had to surrender virtually all its proﬁts to the state and compensate its employees according to the wage standards set by the state, it is not surprising that Chinese employees could fail to perceive the linkage between their own interests and that of the enterprise (Sengoku, 1988; Fuller and Peterson, Chan, 1995; 1992). Furthermore, in attempting to mobilize absolute allegiance to the state, the Chinese government practically hinders the ability of the country’s enterprises to formulate their own unique corporate identities (Czarniawska, 1986; Dong and Guo, 1988; Dunphy and Shi, 1989; Yang, 1989; Kent, Lynn and Mailer, 1991; Chan, 1995). In contrast, Japanese companies, which are known for their exceptional success in implementing the clan mode of management (Cole, 1979; Dore, 1987), are not restricted from inventing the ‘Mitsui Man’, the ‘Toyota Man’ and their variants (Kent, Lynn and Mailer, 1991). It is to be hoped, therefore, that, as Chinese enterprises continue to be empowered to make strategic and operational decisions, distinctive corporate cultures may be cultivated in the future (Dong and Guo, 1988; Yang, 1989; Chan, 1995; Unger and Chan, 1995). We also ﬁnd a general acceptance among Chinese employees of the modern ‘bureaucratic’ mode of management (Weber, 1947; Williamson, 1975; Ouchi, 1980), in which productive efforts in the organization are regulated through clear lines of authority, unambiguous rules and

Nailin Bu and Ji-Liang Xu 199

standard control mechanisms. The bureaucratic mode of management, systematized in the West as the Weberian principle of bureaucracy, has served as the foundation of management to varying degrees in most modern work organizations around the world, including certainly those in the US and Japan. Our suspicion that managerial authority in China has been permanently undermined by the government’s insistence on Party leadership during the pre-reform years is not conﬁrmed. Chinese employees appear to understand at least as well as their American and Japanese counterparts the necessity for management to take charge of business operations (see Warner, 1995b). China’s reform initiatives in recent years to empower the enterprise management to make business decisions without interference from the state, the Party and other interest groups (Child, 1994:59–85; Zhu, 1995; Dodds, 1996) appear to have achieved some of the desired effects, as has also been observed by others (Child and Xu, 1991; Warner, 1995a). This general support for the bureaucratic prerogatives of management among Chinese employees should not be overstated, however. In fact, Chinese employees are shown to be rather uneasy about the unilateral rights of management to enforce work rules, to conduct performance evaluation, and to make promotion decisions. A plausible explanation for this inconsistency may be that the extent to which the principle of bureaucracy is endorsed in China varies, depending on the issues of concern. Although the authority of making operational decisions by the management has been, for the most part, accepted by the Chinese employees, the ofﬁcial ideology of the country still dictates that the working class, being the ‘master of the house’, should not be enslaved by the management (Nyaw, 1995). In fact, even today personnel matters in Chinese organizations are still to a great extent subject to the direction of the Party and the Workers’ Congress, which purport to represent the interests of workers (Child, 1994; Nyaw, 1995). Therefore the strong support among Chinese employees for the managerial prerogatives in operational matters may not extend to personnel matters, such as discipline and promotion of employees, which are much more politically and ideologically loaded (White, 1987). There is some indication that Chinese employees are prepared for a departure from the traditional ‘ﬁef’ or paternalistic method of management (Boisot and Child, 1988) where a manager is perceived as the patriarch whose power is unconstrained by rules and rationale. Chinese employees in our study show less receptiveness towards the paternalistic style of management than Japanese employees do. This is rather surprising considering the widely-shared belief that such a

200 Work-Related Attitudes among Chinese Employees

management style predominates in China and in Asian societies sharing the same cultural heritage with China, such as Hong Kong and Taiwan (Pye, 1985; Boisot and Child, 1988; Redding, 1990; Kent, 1992). A possible explanation may be that it is pragmatic consideration rather than internalized belief that motivates the overt compliance with ﬁef management by Chinese employees which one tends to observe. Indeed, the internalized beliefs of Mainland Chinese may have deviated from those of overseas Chinese because of the former’s experience during the 1950s with Soviet-style management, which emphasized formal rules and procedures (Dunphy and Shi, 1989; Child, 1994). The anti-Confucianism campaign in China during the 1960s and 1970s (Pye, 1991) may also have weakened the inﬂuence of paternalistic beliefs to some extent. One can therefore speculate that Chinese employees, if given the liberty, will support a system of organizational management that gives some deﬁnition to the boundary of managerial power. This argument ﬁnds support in the results of Sengoku’s study (1988) which reveals that, compared to their Japanese counterparts, Chinese employees express a stronger desire to speak up before important decisions are made. Similar ﬁndings are also reported in other surveys of Chinese employees and managers, in which ‘suggestion being heard’ or ‘consulted about important decisions’ are, among other things, ranked by the employees as the most important factors in their experience in the workplace (Vertinsky et al., 1990; Bu, Jennings and Xu, 1995). In conclusion, the results of this study appear to suggest that Chinese employees would, in general, welcome the introduction of a ‘modern’ management system in which managers are empowered to make business decisions but managerial authority is well deﬁned and properly constrained (see Warner, 1999). The reform programme in China aims primarily to establish an American-style market-oriented management system, and has been remarkably successful in undermining the ‘iron rice-bowl’ mentality and instilling strong pro-market attitudes among Chinese employees. We do not, however, advocate an immediate and complete ‘Americanization’ of the Chinese management system. In fact, our ﬁndings highlight the need to institute nonadversarial forms of employee participation, especially in matters directly affecting the employment conditions of workers. The establishment and perfection of a national social safety-net to prevent workforce alienation must parallel further cuts in employees’ company-provided welfare entitlement. While our data do not conﬁrm the widely perceived appropriateness of Japanese corporatist-style

Nailin Bu and Ji-Liang Xu 201

management in China, we do not rule out the potential effectiveness of some of the Japanese management techniques in Chinese enterprises as they are becoming increasingly autonomous. Finally, we must caution against overgeneralizing the ﬁndings. Respondents in this study, who were exclusively from Shanghai (one of the most afﬂuent and thoroughly reformed areas in China), are by no means representative of Chinese employees as a whole. Nevertheless, the attitude proﬁle of Shanghai employees in this study may foretell that of the whole country in the future as the reform measures become more broadly and deeply implemented and their generally positive effects become more widely felt across the country.

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202 Work-Related Attitudes among Chinese Employees Investigation into the Similarities and Differences in the Cultivation and Development of Enterprise Spirit)’ Shehui (Society), v10, pp.32–6. Dore, R. (1973) British Factory, Japanese Factory: The Origins of Diversity in Industrial Relations, Berkeley, CA: University of California Press. Dore, R. (1987) Taking Japan Seriously: A Confucian Perspective on Leading Economic Issues, London: The Athlone Press. Dunphy, D. and Hackman, B. K. (1989) ‘Locus of Control in Human Resource Management: A Comparison of the United States and China’, in A. Nedd, G. R. Ferris and K. M. Rowland (eds), Research in Personnel and Human Resources Management, Supplement 1, Greenwich, CT: JAI Press, pp.3–44. Dunphy, D. and Shi, J. (1989) ‘A Comparison of Enterprise Management in Japan and the People’s Republic of China’ in C. A. B. Osigweh (ed.), Organizational Science Abroad, New York: Plenum Press, pp.179–200. Fuller, E. and Peterson, R. B. (1992) ‘China and Taiwan: Common Culture But Divergent Economic Success’, in S. B. Prasad and R. B. Peterson (Eds), Advances in International Comparative Management, vol. 7, Greenwich, CT: JAI Press, pp.185–201. Hofstede, G. (1980) Culture’s Consequences: International Differences in WorkRelated Values, Beverly Hills, CA: Sage. Howard, P. (1991) ‘Rice Bowls and Job Security: The Urban Contract Labor System’, The Australian Journal of Chinese Affairs, 25, pp.93–114. Josephs, H. K. (1995) ‘Labour Law in a ‘Socialist Market Economy’: The Case of China’, Columbia Journal of Transnational Law, 33, pp.561–81. Kent, D. H., Lynn, M. and Mailer, A. (1991) ‘The Nettlesome Problem of PostSocialist Organizational Control: Linking Control and Culture’, in S. B. Prasad and R. B. Peterson (eds), Advances in International Comparative Management, vol. 6, Greenwich, CT: JAI Press, pp.143–58. Kent, D. H. (1992) ‘Power, Authority, and Economic Reform: The Changing Role of Supervision in the Chinese State-Owned Enterprise’, in S. B. Prasad and R. B. Peterson (eds), Advances in International Comparative Management, vol. 7, Greenwich, CT: JAI Press, pp.169–83. Lebas, M. and Weigenstein, J. (1986) ‘Management Control: The Roles of Rules, Markets and Culture’ Journal of Management Studies, 23, 3, pp.259–72. Lincoln, J. R. and Kalleberg, A. (1990) Culture, Control, and Commitment, Cambridge: Cambridge University Press. Lodge, G. C. (1987) ‘Introduction: Ideology and Country Analysis’, in G. C. Lodge and E. F. Vogel (eds), Ideology and National Competitiveness, Boston, MA: Harvard Business School Press, pp.1–28. Nyaw, M. K. (1995) ‘Human Resource Management in the People’s Republic of China’, in L. F. Moore and P. D. Jennings (eds), Human Resource Management on the Paciﬁc Rim: Institutions, Practices and Values, Berlin: Walter de Gruyter, pp.187–216. Ouchi, W. G. (1980) ‘Markets, Bureaucracies and Clans’, Administrative Science Quarterly, 25, pp.129–41. Ouchi, W. G. (1981) Theory Z: How American Business Can Meet the Japanese Challenge, Reading, MA: Addison-Wesley. Pascale, R. T. and Athos, A. G. (1981) The Art of Japanese Management: Applications for American Executives, New York: Simon & Schuster.

Nailin Bu and Ji-Liang Xu 203 Pye, L. W. (1985) Asian Power and Politics: The Cultural Dimensions of Authority, Cambridge, MA: Harvard University Press. Pye, L. W. (1991) ‘The Individual and the State: An Overview Interpretation’, The China Quarterly, 117, pp.443–66. Redding, S. G. (1990) The Spirit of Chinese Capitalism, New York: Walter de Gruyter. Ruan, D. (1993) ‘Interpersonal Networks and Workplace Controls in Urban China’ The Australian Journal of Chinese Affairs, 29, pp.89–105. Sengoku, T. (1988) ‘Zhongguo de Laodong Lilun – Zi Rizhong Gongren Yishi Diaocha’ (Chinese Work Ethics – From a Survey of Consciousness Among Japanese and Chinese Youths), Dangdai Qingnian Yanjiu (Contemporary Youth Research), 6, pp.22–30, and 7, pp.24–31. Sethi, S. P., Namiki, N. and Swanson, C. L. (1984) The False Promise of the Japanese Miracle, Boston, MA: Pitman. Shirk, S. L. (1981) ‘Recent Chinese Labour Policies and the Transformation of Industrial Organization in China’, The China Quarterly, 88, pp.575–93. Smith, P. B., Peterson, M. F. and Wang, Z. M. (1996) ‘The Manager as Mediator of Alternative Meanings: A Pilot Study From China, the USA and UK’, Journal of International Business Studies, 27, 1, pp.115–37. Stapanek, J. B. (1992) ‘China’s Enduring State Factories: Why the Years of Reform Have Left China’s Big State Factories Unchanged?’, in Joint Economic Committee, Congress of the United States (ed.), China’s Economic Dilemmas in the 1990s: The Problems of Reforms, Modernization and Interdependence, Armonk, NY: M. E. Sharpe, pp.440–453. Stevenson-Yang, A. (1996) ‘Re-Vamping the Welfare State’, The China Business Review, January–February, pp.8–17. Takezawa, S. I. and Whitehill, A. M. (1981) Work Ways: Japan and America, Tokyo: The Japan Institute of Labour. Unger, J. and Chan, A. (1995) ‘China, Corporatism, and the East Asian Model’, Australian Journal of Chinese Affairs, 33, pp.29–53. Vertinsky, I., Tse, D. K., Wehrung, D. A. and Lee, K. H. (1990) ‘Organizational Design and Management Norms: A Comparative Study of Managers’ Perceptions in the People’s Republic of China, Hong Kong, and Canada’, Journal of Management, 16, 4, pp.853–67. Walder, A. G. (1986) Communist Neo-Traditionalism: Work and Authority in Chinese Industry, Berkeley, CA: University of California Press. Warner, M. (1995a) ‘Managing China’s Human Resources’, Human Systems Management, 14, pp.239–48. Warner, M. (1995b) The Management of Human Resouces in Chinese Industry, London: Macmillan, New York: St. Martin’s Press. Warner, M. (1996) ‘Chinese Enterprise Reform, Human Resources and the 1994 Labour Law’, International Journal of Human Resource Management, 7, pp.779–96. Warner, M. (1999) [ed.] China’s Management Revolution, London: Frank Cass. Weber, M. (1947) The Theory of Social and Economic Organization, trans. A. M. Henderson and T. Parsons, 1st edn 1925, New York: Free Press. White, G. (1987) ‘The Politics of Economic Reform in Chinese Industry: The Introduction of the Labor Contract System’, The China Quarterly, 111, pp.365–89.

204 Work-Related Attitudes among Chinese Employees Whitley, R. D. (1990) ‘Eastern Asian Enterprise Structures and the Comparative Analysis of Forms of Business Organization’, Organization Studies, 11, 1, pp.47–74. Williamson, O. E. (1975) Markets and Hierarchy: Analysis and Antitrust Implications., New York: Free Press. Yang, M. M. H. (1989) ‘Between State and Society: The Construction of Corporateness in a Chinese Socialist Factory’, Australian Journal of Chinese Affairs, 22, pp.31–60. Yeung, A. K. O. and Wong, G. Y. Y. (1990) ‘A Comparative Analysis of the Practices and Performance of Human Resource Management Systems in Japan and the Chinese’, in B. B. Shaw, J. E. Beck, G. R. Ferris and K. M. Rowland (eds), Research in Personnel and Human Resources Management, Supplement 2, Greenwich, CT: JAI Press, pp.147–70. Zhu, Y. (1995) ‘Major Changes Under Way in China’s Industrial Relations’, International Labour Review, 124, pp.37–49.

11 Pay and Motivation in Chinese Enterprises Brenda Sun*

1

Introduction

Since the 1980s, pay-for-labour (anlao fenpei)1 has become an important concept in the distribution of income at the enterprise level. Wage reform in the late 1970s and throughout the 1980s was slow (see Laaksonen, 1988; Korzec, 1992). By the early 1990s, however, several signiﬁcant changes had occurred vis-à-vis matching rewards with skills and training, effort and productivity (Warner, 1995). Although the enterprise wage bill remains a contractual arrangement between the state and the enterprise, the latter is given a certain degree of autonomy in setting up its own payment system according to enterprise-speciﬁc circumstances (changqing) (see Naughton 1995). Since Chinese state enterprise workers were traditionally paid equally, the fundamental step in shunning the undesirable consequences of an unmotivated workforce is to install a competitive mechanism whereby wage differentials are created to reward those with greater contributions (see Takahara, 1992; Jackson, 1992; Hussain and Zhuang, 1994). Pay-for-labour is about rewarding contribution which is not necessarily accounted for on the job (as is typically the case for payfor-performance schemes in the West) (see Arnold et al., 1988; Dowling and Richardson, 1997). The concept of ‘pay for labour’ was taken up by the late Premier Deng Xiaoping at the State Council for the first time in March 1978 at the beginning of the economic reform. The aim for the introduction of pay-for-labour schemes is to motivate the workforce and increase productivity (Deng Xiaoping, 1979:101). Contribution among manual workers may generally refer to the skill required of and responsibility vested in a job, as may be manifest in the form of position and skill-based pay (gangwei jineng gongzi). Among professional 205

206 Pay and Motivation in Chinese Enterprises

and managerial staff, however, pay-for-labour schemes may involve incentive pay and performance bonuses that bear more of a resemblance to pay-for-performance schemes in the West (see Chapter 9). The scope and intensity of linking pay to contribution, be it in the form of position and skill-based pay or performance bonuses will determine whether the wage reform process is propelling the Chinese workforce toward an internal reward system that is driven by competition or constitutes only another form of need-based wage supplement. During the more mature stage of the wage reform, when the total wage bill of the state enterprise becomes more closely linked to enterprise performance, and personal income was in turn increasingly linked to contribution on the job, the term ‘labour’ has also come to mean individual contribution at the worker level, as may be measured by the state-recommended wage system of 15 technical grades (among many other alternative methods). In 1990, the state issued further guidelines on the enhancement of wage distribution along the ﬁner lines of position and skill levels (gangwei jineng gongzizhi). As the state continues to allow a high degree of autonomy in the actual formulation of internal wage policy and the administration of wages within the enterprise, the concept of contribution of labour (laodong gongxian) at the worker level may now translate not just into labour intensity or technical competency, but also job responsibility or performance. Whether ‘pay-for-labour’ (anlao fenpei) applies to pay according to a wage system that is differentiated only in terms of pre-determined skill level/work grade, or also embodies the concepts of responsibility or on-the-job performance (laodong biaoxian) is a matter of individual enterprise wage policy. Empirical work on the subject is represented by Groves et al. (1994), McMillan and Naughton (1996), Hussain and Zhuang (1994), Zhuang and Xu (1996), and You (1998). Past research on China’s wage reform has mainly focused on the assessment of enterprise performance following the introduction of various wage reform measures, a main feature of which is the revival of worker incentives. For example, McMillan and Naughton (1996) cited total labour productivity growth of an average annual rate of 4.5 per cent for a sample of 769 enterprises in four provinces (Sichuan, Jiangsu, Jilin and Shanxi) between 1980 and 1989, and claims a correlation between the strengthening of incentives and total factor productivity. However, it is not clear as to how far the incentives were actually strengthened, and the manner in which these incentives were distributed to have actually produced a positive effect on worker productivity (cf. Steers and Porter, 1991).

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In a similar survey of a sample of 800 SOEs for the period of 1986–91, Zhuang and Xu (1996) found that bonus payments have positive effects not only on the total factor productivity but also on proﬁtability, and that the additional proﬁts generated from the improved productivity are greater than the bonus payments. However, the issue of how many or which of the enterprises in the sample are actually distributing the bonuses as an incentive payment that is conditional upon contribution or linked to work performance is unknown. Indeed, as many enterprises have tended to pay equal (or almost equal) bonuses to employees, and bonuses have been rotated around different groups of workers each month to stress fair play (Warner 1995:133), it remains an open question as to how pay has been used to effectively motivate the Chinese workforce. Contribution of the study While previous empirical papers which seek to establish a link between higher pay and improved performance have almost always found a relationship with the direction predicted by motivation theories, none of them directly tests the fundamental motivation hypothesis that wage increases raise worker motivation (Levino, 1995). The strengths of this study stem from the unprecedented empirical approach in examining the direct relationship between pay and motivation in Chinese organizations. In this chapter, the effect of a pay-for-labour scheme versus that of an egalitarian pay scheme on work motivation is established in an explanatory framework based on the select components of the VIE and equity theories2 (see Vroom, 1964; Adams, 1965). The rest of this chapter is organized as follows: Section 2 describes the research setting and features of the two pay schemes. Section 3 reviews the research methodology and data collection. Section 4 outlines the research model. Section 5 presents the measurements of variables. Section 6 presents the empirical ﬁndings, and Section 7 concludes.

2

Research setting

JV subsidiaries of SOEs were chosen for the research on assessing the effectiveness of pay schemes because they play a crucial role in the process of wage reform. They are known to have installed some of the more innovative and bold market-oriented concepts in wage policy and administration and have typically inherited the ‘production

208 Pay and Motivation in Chinese Enterprises

backbone’ from a select, competitive portion of the workforce from the ‘mother factory’ (mutichang) of the SOE, at the time of writing. Organization of Plant 1 The organization of Plant 1 which features egalitarian pay is a mediumsized manufacturing JV in the FMCG industry. The production facility is an assembly line operation with advanced technology. The workforce comprised 800 workers, 360 of whom are administrative staff and 440 are assembly line workers and support staff. Of the latter category, which is the thrust of the sample population, 380 were on time rate and 60 on piece rate. One hundred and ﬁfty of the time-rate workers were on one-year ﬁxed contracts. These workers are considered the ‘production backbone’ of the enterprise and are offered medical beneﬁts. Two-thirds of this group have been with the mother factory ever since it ﬁrst went into production in 1990. The old-timers were recruited from the neighbouring rural area to build the factory from scratch in the mid-1980s and were then paid a mere monthly income of 40 yuan (US$5). The remaining 230 were ‘seasonal workers’ (jijiegong) who are mobilized during the peak production period between April and October. They are paid the same wages as the contract workers but are not given medical beneﬁts or guaranteed any base pay during the off-peak period. The egalitarian pay scheme In mid-1994, when the then four-year-old state enterprise joined forces with a foreign partner to set up a JV to raise capital for expansion, pay was doubled from 200 yuan (US$25) to 400 yuan (US$50). At the same time the former wage system – which consisted of 31 per cent base pay, 42 per cent allowances and 27 per cent bonuses – was transformed into a straight payment with no allowances or bonuses. The former scheme represents a form of position and skill-based pay (ganwei jineng gongzi) whereby workers in front line production typically made 5–10 per cent more than workers in secondary or support positions. Although the new pay level was and still is above the market rate in rural Beijing, there has not been any wage increment since 1994 due to poor enterprise performance. Previous wage differentials between workers no longer exist, save for a monthly seniority allowance of 25 yuan (US$3) for those who have served more than ﬁve years. Wages for supervisory and managerial staff were however, higher: 500 yuan (US$63) for the foreman, 700 yuan (US$88) for the supervisor, 900 yuan (US$113) for the manager, and 1500 yuan (US$188) for the assistant general manager.

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Organization of Plant 2 The organization of Plant 2 features a pay-for-labour scheme consisting of two small ‘sister’ establishments of a medium-size manufacturing enterprise in the same industry. The operation facility is compatible to that of Plant 1 in terms of production set up and level of technology. The enterprises are JV companies set up in 1994 between a 50-year-old state enterprise and a US Fortune 500 company. For the purpose of empirical analysis, the two enterprises are combined and presented collectively as ‘Plant 2’. There were 326 workers, of whom 30 were administrative staff, 60 salesmen, and 231 assembly-line workers and support staff. Except for the sales staff who were recruited from the external labour market, all other workers were transferred on a competitive basis from among the 3,000 staff of the mother factory of the SOE. 3 Except for the sales team, which is paid a combination of time and bonus rates, all workers are paid on time rate. All 326 workers were on labour contracts. The ﬁrst contract term was two years and the subsequent term ranges from two years for regular staff to indeﬁnite (lifetime) contracts for workers who have, according to the 1995 Provision of Labour Law served 10 years or more. About one-third of the workforce were on indeﬁnite contracts. Unlike the Plan 1 enterprise, there are no temporary or seasonal workers, at the time of writing. The pay-for-labour scheme The concept of ‘pay for labour’ dates from 1994 when the JV was ﬁrst set up. The wage level represents an average increment of 30 per cent over that of the mother factory. The major feature of the pay scheme is additional pay or bonuses for workers with a higher level of contribution, which is manifest specifically in the form of technical competency, labour intensity and sub-factory production targets. There are two wage components in the new pay plan for regular workers: a base pay of 370 yuan (US$46) and an additional production bonus which equals to 200 per cent of the base pay during peak production season and 100 per cent of the base pay during off peak. Bonuses in this sense are strictly speaking regular wage supplements contingent upon seasonal demand for the enterprise goods rather than upon the achievement of production targets or performance. As such, wage differentials among individual workers exist mainly on the basis of skill and position rather than on the level of production which is a given factor on the assembly line. According to the management, the wage differential between sub-factories responsible for different aspects of the operation is about 100 yuan (US$12.5), which

210 Pay and Motivation in Chinese Enterprises

is approximately 12.8 per cent of the average monthly pay. Within the same sub-factory however, the wage differential among workers of the same work group who are expected to be of compatible skill and position levels is minimal. (This may be understood to be a form of position and skill-based ‘pay for labour’ scheme the nature and justiﬁcations of which are not necessarily unique in the Chinese organization.) Base pay for managerial and professional staff is higher: 400 yuan (US$50) for the foreman, 500 yuan (US$63) for the supervisor, and 1200 yuan (US$150) for the manager. The salary of the assistant general manager (the highest ranking of Chinese staff) is conﬁdential. Sales staff get the same base pay as production workers but are also entitled to sales bonuses equivalent to up to 300 per cent of additional base pay. Pay for the latter group bears a closer resemblance to the concept of pay-for-performance schemes in the West by which workers are remunerated on the basis of individual performance. The current pay level is slightly above average in the city of Beijing, where the average monthly salary was 780 yuan (US$98) in 1996, according to the Beijing Labour Ministry. The wage is also relatively high among foreign JVs in the area. Similar to Plan 1 (egalitarian pay), however, there have been no wage increments in the past three years since the JV was set up, as the establishment has reportedly made marginal proﬁts and was forced to subsidize the loss-making mother factory operation.4 Unlike Plant 1 which has suspended all political indoctrination and social activities of the Party organization (dangzuzhi) within the enterprise, the Party organization in Plant 2 plays an active role in the moral education and social facilitation of the workers.

3

Research methodology and data collection

The research was carried out in 1997 at two Chinese enterprises which switched between egalitarian pay and pay-for-labour schemes, both as a result of the establishment of a foreign JV in 1994. The data were collected for both enterprises at a point when three full years had lapsed since the new pay scheme and JVs were introduced. The inquiry was conducted at a time when the focus of the wage reform was on the installation of position and skill-based pay as a basis of differentiating contribution, and when efﬁciency wages had become widespread among JV companies. Although it is acknowledged that a host of organizational changes had taken place since the transformation of the enterprises into modern, high-technology operations, the thrust of the data is on comparing the previous and new schemes, and on how the workers responded (particularly to the new one).

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The data used in the study were collected in the ﬁeld by the author by way of management and employee questionnaire surveys (see Oppenheim, 1992), as well as extensive discussions with the enterprise management and union leaders. The management questionnaires were used to solicit a standard, overall account of the enterprises and their pay schemes. The employee questionnaire was administered personally to batches of 250 and 300 workers of Plan 1 (egalitarian pay) and Plan 2 (pay-for-labour) respectively by the union leaders who commanded a high level of trust and respect among the workers. The fact that the research activity was endorsed and supported by the union leadership helped generate an exceptionally high response rate of 98 per cent for both samples. After deleting those observations with missing records, the actual data set used in the study is a balanced panel, consisting of 159 workers for Plant 1 (egalitarian pay) and 157 workers for Plant 2 (pay-for-labour), or a usability of 64 per cent for Plant 1 and 52 per cent for Plant 2. The combined data set includes a total of 316 workers from both samples and a total of 25,596 observations. Both sets of sample populations are representative of the enterprise workforce in demographic distribution.

4

Research model

One of the main purposes of the study is to identify the major independent variables so as to permit speciﬁc predictions to be made in the direction and strength of the change in motivation as a result of the installation of a new pay plan. In this study, pay is tested not as a hygiene factor per se as had been suggested by Herzberg, Mausner and Snyderman (1959), but as a source of both negative and positive work attitudes. The expectancy and equity theories are explored in this regard for the construction of a research model (see Vroom, 1964; and Adams, 1965). The instrumentality component is extracted as a ﬂagship variable of the expectancy theory to help explain the variation in the outcome measure of motivation as the concept directly tackles the wage reform principles of ‘more pay for more work’ (duolao duode) and ‘more work for he who is able’ (nengzhe duolao). Unlike in the West, questionnaire surveys are a novelty to Chinese workers. Since the workers had never before participated in a survey and the union leaders who helped monitor the relevance of the questionnaire contents to the research environment were concerned about the quality of the responses, the questionnaire was restricted to 80 items only (three pages). The research decision to leave out the valence component of the VIE theory is based on the assumption that workers

212 Pay and Motivation in Chinese Enterprises

are generally expected to regard additional reward in pay to be attractive since the living standards of manual workers are relatively low, with monthly average salary being 400 yuan (US$50) for workers at Plant 1 and 780 yuan (US$98) for workers at Plant 2, and consumer goods are in abundance (as compared to the period prior to the economic reform). In a similar vein of logic, the decision to exclude the expectancy component of the VIE theory is based on the assumption that signiﬁcant differences in the ability of individual workers or the support they receive in accomplishing their tasks are unlikely since the manual workers being surveyed are of a compatible skill level and operate on an assembly line on a collective basis. It is, however considered of critical importance to explore the concept of equity in the questionnaire as it deals directly with the wage reform guideline of ‘attention to fairness’ (jiangu gongping). As a matter of fact, it is not only the level of perceived equity that is considered important to the study, but also the way different workers may deﬁne fairness. For example, members of the workforce who were brought up with the traditional socialist indoctrination of egalitarianism may have learned to embrace the concept of fairness in a way that only makes sense to them: they may consider equal, undifferentiated pay to be ‘fair’ based on the traditional socialist income distribution concept of ‘to each according to his needs’. On the other hand, other (presumably younger and more ambitious) members of the workforce who are more exposed to the wage reform principles of ‘more pay for more work’ may regard the new income distribution policy of ‘to each according to his labour’ the proper deﬁnition of fairness in the setting of China’s unique ‘socialist market economy’ or ‘socialism with Chinese characteristics’. Acknowledgement of the conﬂicting notions of ‘fairness’ among the workers may help shed light on why an egalitarian (or pay-for-labour scheme) may drive motivation for some and inhibit motivation for others within the same organization or work group. The relationship between the outcome measure in the change of motivation and the explanatory variables of instrumentality and equity with the type of pay scheme as a control measure is expressed by the following equation: Change in Motivation = f (Instrumentality, Equity, Pay Scheme, Error Term) Here an attempt is made to particularly differentiate the concepts of instrumentality and equity. In the wage reform context two important issues are at hand. First, have the reform principles of ‘more pay for

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more work’ and ‘more work for he who is able’ been observed at the enterprise level or remain concepts to be only incrementally and experimentally digested by the socialist workforce? Second, has the reform guideline of ‘attention to fairness’ been taken seriously or is it only a myth 20 years on in the wage reform process? The fact that the enterprise manager has acquired increased autonomy in the design and implementation of the internal reward system may also give way to favouritism and subjectivity especially in the absence of an objective job assessment and evaluation system. In connection with the above, the measure of instrumentality in the questionnaire represents the worker’s acknowledgement of a systemic feature in the reward system whereby additional effort or hard work is to be recognized with additional pay. In other words, it deals with the policy or structural aspects of the pay system. From a different perspective, the equity factor is incorporated into the research model as an additional rather than an overlapping explanatory factor to the concept of instrumentality in the sense that it deals exclusively with the implementation aspects of the reward system. The perception of what is considered ‘fair’ to the individual worker is explored in the context where organizations are at the cross-roads of needbased pay and pay-for-labour.

5

Data and measurement of variables

In testing the research model, a total of 14 variables are created. They include six dependent variables which deal with the outcome measure in the change of motivation as a result of a new pay scheme, ‘chgmoti1’, two sets of independent variables, with two variables for the concept of instrumentality, ‘instrum2’, and six variables for the concept of equity, ‘equity3.’ The data represent normal distribution for both samples. Tables 11.1 and 11.2 summarize the means and standard deviations of all the variables for Plant 1 (egalitarian pay) and Plant 2 (pay for labour). Measure of change in motivation Change in motivation as a result of the new pay plan is measured by six items in the questionnaire. The question asked is as follows: ‘What impact do you think the current egalitarian pay (or ‘pay-for-labour’ in the case of Plant 2) has on the motivation of workers in terms of (a) attendance, (b) productive working hours (being a localized measure of ‘effort expended on the job’), (c) adjustment in symbolic effort (i.e. improvement in behaviour of showing up for work without actually exerting effort on the job: chu gong bu chu li), (d) participation

214 Pay and Motivation in Chinese Enterprises Table 11.1

Summary of statistics of basic data (Plant 1) Mean

Standard Deviation

Change in Motivation (‘chgmoti1’): Attendance Participation in overtime Co-operation Productive working hours Adjustment in symbolic effort Overall work motivation

2.9247 2.9310 3.0882 2.8162 3.0282 2.9553

0.8790 0.9033 0.6603 0.8526 0.9501 1.1603

Instrumentality (‘instum2’): Principle of ‘More Pay for More Work’ Principle of ‘More Work for the Able’

1.6700 2.1000

0.8500 1.0600

Equity (‘equity3’): In link (or no link) of pay to labour In execution of reward & punishment In implementation of job evaluation In results of job assessment In results of distribution of income In results of overall pay & labour issues

2.2609 2.6400 2.8200 2.6400 2.6300 2.3100

1.0699 1.1000 0.9000 0.8400 0.9600 0.9700

Table 11.2

Summary of statistics of basic data (Plant 2) Mean

Standard Deviation

Change in Motivation (‘chgmoti1’): Attendance Participation in overtime Co-operation Productive working hours Adjustment in symbolic effort Overall work motivation

3.2378 3.3750 3.3333 3.4348 3.2625 3.3926

0.8353 0.8742 0.7881 0.7140 0.8202 0.8421

Instrumentality (‘instrum2’): Principle of ‘More Pay for More Work’ Principle of ‘More Work for the Able’

1.9400 2.2200

0.8200 0.9100

Equity (‘equity3’): In link (or no link) of pay to labour In execution of reward & punishment In implementation of job evaluation In results of job assessment In results of distribution of income In results of overall pay & labour issues

2.7267 2.8400 3.0800 2.7000 2.4700 2.2900

1.0185 1.0600 0.9800 0.9100 0.9500 0.8100

Brenda Sun 215

in overtime, (e) cooperation, and (f) work motivation.’ The ﬁve-point Likert scale includes options ranging from one, ‘extremely negative’, to ﬁve, ‘extremely positive’. Under normal circumstances the design of direct questions is expected to capture the more visible effects in work motivation within the constraints of limited questionnaire space. However, instead of being asked how they personally responded to the situation, the respondents were asked how ‘the workers’ reacted to the situation. The question was worded in a general tone with the rationale that workers would feel more comfortable in providing truthful answers when referring to others than to themselves. It was also intended in the ﬁrst place to incorporate questions to gauge the more subtle and discreet behavioural indicators of motivation. Factor analysis of ‘chgmotil’ Factor analysis is conducted to ensure that all six variables measuring different dimensions of change in motivation group together as a coherent factor. Results of factor analysis for the samples conﬁrm that all six variables load together under one factor with a reliability alpha of 0.8174. The scale ‘chgmotil’, consisting of the variables, is then constructed. Results of the Independent Samples T-test indicate a difference in the means of the two samples at a 0.0001 signiﬁcance level with a mean of 2.9224 for Plant 1 (egalitarian pay) and a mean of 3.3418 for Plant 2 (pay-for-labour). In examining the frequencies of the outcome measure for each of the two samples, data for Plant 1 reﬂect the fact that the majority or 42.1 per cent of the 159 workers who responded to this group of questions perceived a somewhat negative impact of the change to egalitarian pay on work motivation, while 30.2 per cent perceived a somewhat positive impact and 27.7 per cent perceived ‘no impact’. Quite on the contrary, data for Plant 2 reﬂect that the majority or 59.2 per cent of the 157 workers who responded to this group of questions perceived a somewhat positive impact of the change to pay-for-labour on work motivation, while only 15.3 per cent perceived a somewhat negative impact, and 25.5 per cent perceived ‘no impact’. In other words, the measures for Plant 1 are skewed toward the negative end of the ﬁve-point scale, while those for Plant 2 are skewed towards the positive end. Measure of instrumentality The concept of instrumentality as a condition for workers to exert additional effort is measured by two succinct items in the questionnaire. The questions point directly to the workers’ assessment of the

216 Pay and Motivation in Chinese Enterprises

wage reform principles: ‘Do you think the principles of (a) ‘more pay for more work’ and (b) ‘more work for he who is able’ are being observed in the workplace?’ The ﬁve-point Likert scale includes options ranging from one, ‘not at all observed’, to ﬁve, ‘100 per cent observed’. Factor analysis of ‘instrum2’ Factor analysis is conducted to ensure that the two variables group together as a coherent concept for the effective measurement of instrumentality. Results of the factor analysis for the samples conﬁrm that the variables load together under one factor with a reliability alpha of 0.6264. The scale ‘instrum2’ consisting of the variables is then constructed. Results of the Independent Samples T-test indicate a difference in the means of the two samples at a 0.020 signiﬁcance level with a mean of 1.8872 for Plant 1 (egalitarian pay) and a mean of 2.0802 for Plant 2 (pay-for-labour). These ﬁndings are in line with the proposition that a pay-for-labour scheme which has more of a structural capacity to recognize additional effort with additional pay will be perceived to have a higher level of instrumentality for the workers involved. In examining the frequencies of the outcome measure for each of the two samples, data for Plant 1 reﬂect that an overwhelming majority, or 83.6 per cent of the 195 workers who responded to this group of questions, perceived a somewhat negative link between additional pay and additional effort, while only 16.4 per cent perceived a somewhat positive link. On a more encouraging note, data for Plant 2 reﬂect that a reduced majority (or 73.5 per cent of the 162 workers who responded to this group of questions) perceived a somewhat negative link between additional pay and additional effort, while an improved 26.5 per cent perceived a somewhat positive link. In other words, the measures for both Plants 1 and 2 are skewed towards the negative end of the ﬁve-point scale, with those of Plant 1 pointing towards a grimmer picture. Instrumentality and wage differentials In connection with the perceived link between more pay and more work, the issue of wage differentials is examined in the context of the two research samples. Workers in both samples were asked about the amount of monthly wage differentials. For Plant 1, the majority (or 36.9 per cent of the workforce) indicated that there was no wage differential, 7.4 per cent indicated that the differential was 10 yuan (US$1.3), while 23.9 per cent noted that the wage differential was between 11 and 25 yuan (US$1.4–$3.1). The remaining 31.8 per cent indicated they

Brenda Sun 217

thought the wage differential was above 25 yuan (US$1.4). For Plant 2, however, the majority (or 60.4 per cent of the workforce) said that there was a wage differential of more than 25 yuan (US$3.1) or about 3 per cent of average wage. Only 13.6 per cent indicated that there was no wage differential. When asked their opinion of the link between pay and contribution in skill and position, an overwhelming majority of 72.9 per cent indicated that it is ‘too little’ or ‘barely adequate’. Contrary to the wage differentials in Plant 1 which are understood to be a form of seniority supplement, the wage differentials in Plant 2 are based on skill and position and are more common among the workers. Results of the Independent Samples T-test also indicate a difference in the means of the two samples at a 0.001 signiﬁcance level with a mean of 2.51 for Plan 1 (egalitarian pay) and a mean of 3.37 for Plan 2 (payfor-labour), with one on the four-point scale being ‘none’ or no wage differential, two being 10 yuan or less, three being 11–25 yuan and four being more than 25 yuan. When asked their opinion about the link between pay and contribution in skill and position, the majority (73.3 per cent indicated that it is ‘too little’ or ‘barely adequate’. Although workers of Plant 1 do have a relatively ‘substantial’ differential, at least when compared to their counterparts in Plant 2, the former expressed the desire for wage differentials to be widened. This may be a result of heightened expectations with the pay-for-labour scheme. As a matter of fact, the expectations in this regard may be taken positively by the management and policy-maker as long as the workers accept that wider wage differentials have to be a consequence of additional contribution at work rather than a result of wage escalation in the state sector. Measure of equity The concept of equity as a condition for workers to be motivated to exert additional effort is measured by six items in the questionnaire. The questions asked are as follows: ‘Do you think the following are dealt with fairly in the workplace: (a) the fact that pay is linked (or not linked in the case of Plant 1) to labour, (b) execution of reward and punishment, (c) implementation of job evaluation, (d) results of job assessment, (e) results of distribution of income, and (f) results of overall pay and labour arrangements. The ﬁve-point Likert scale includes options ranging from one, ‘extremely unfair’, to ﬁve, ‘extremely fair’. Factor analysis of ‘equity3’ Factor analysis is conducted to ensure that the six variables measuring different dimensions of equity group together as a coherent concept

218 Pay and Motivation in Chinese Enterprises

for the effective measurement of instrumentality. Results of the factor analysis for the samples conﬁrm that the measures load together under one factor with a reliability alpha of 0.8296. The scale ‘equity3’, consisting of the variables, is then constructed. Results of the Independent Samples T-test indicate a difference in the means of the two samples at a 0.076 signiﬁcance level with a mean of 2.5276 for Plant 1 (egalitarian pay) and a mean of 2.6748 for Plant 2 (pay-for-labour). In examining the frequencies of the measure for each of the two samples, data for Plant 1 reﬂect that the majority (or 69.7 per cent of the 145 workers who responded to this group of questions) perceived a somewhat negative or low level of equity, while 30.3 per cent perceived a somewhat positive level. Data for Plant 2 indicate a reduced majority of 59.7 holding the perception of negative or low equity, with an encouraging 40.3 per cent holding the perception of a somewhat positive level of equity. Although the measure for both Plants 1 and 2 are skewed toward the negative end of the ﬁve-point scale, with those of Plant 1 pointing towards the more gloomy side, the 60/40 split between the negative and positive end of the scale for Plant 2 represents the judgement of a signiﬁcant number of workers that the wage reform guideline of ‘attention to fairness’ is indeed being followed at the enterprise concerned. The issue of whether or not the workers perceive equity in an exchange with the organization or in comparison with other workers would not have been a major issue for this study if it did not follow that the perception of equity might lead to a potential reduction in work effort, as proposed in Adams’ (1965) equity theory. In this connection, the issue of what is ‘fair’ is explored in a multiple-response question which asked the workers about their personal expectation of fairness. As shown in Table 11.3, the item which registered the most popular vote as a deﬁnition of fairness for both samples of workers is ‘higher pay for higher skill or contribution’. Interestingly, ‘equal pay for everybody’ is found to be popular among other employees, albeit in much smaller numbers.

6

Results and interpretations

The regression summary in Table 11.4 lists the estimates with and without the pay scheme as a control variable. With an R square of 0.190 at a signiﬁcance level of 0.0001, the results indicate that 19 per cent of the variation in the change of motivation level of workers can be explained by the concepts of instrumentality, equity and the type of pay plan.

• • • • • • • • • •

higher pay for higher skill or contribution equal reward for the diligent & equal punishment for the lazy equal pay for equal work higher pay for (more demanding) work positions equal opportunity to receive training equal opportunity to enter echelon of management cadres equal pay for everybody equal opportunity to be mobilized equal opportunity for allocation of housing equal opportunity to be granted honourable titles

86 72 58 37 36 29 27 20 20 20

Frequency Plant 1 75 48 38 31 8 6 19 6 3 8

1st or 2nd most critical concern

Deﬁnition of what is ‘fair’ in pay and labour issues among the Chinese workers

Your personal expectation of ‘fairness’ (multiple response question)

Table 11.3

66 59 40 28 33 22 20 23 21 16

Frequency Plant 2

60 40 29 23 12 6 13 10 8 4

1st or 2nd most critical concern

219

220 Pay and Motivation in Chinese Enterprises Table 11.4

Estimates of regression equations

Constant instrum2 equity3 Regression sum of squares (df) Residual sum of squares (df) F R R square

With pay plan dummies

Without pay plan dummies

1.875*** 0.127** 0.206*** 20.044 (3) 85.544 (254) 19.838*** 0.436 0.190

2.367*** 0.160** 0.216*** 11.057 (2) 94.531 (255) 14.913 0.324 0.105

Notes: (1) Figures in the table are standardised beta coefﬁcients. (2) *** denotes signiﬁcance level at 1%; ** denotes signiﬁcance level at 5%; df denotes the regression sum of squares and residual sum of squares with degrees of freedom. (3) All estimates are based on linear regression.

The preliminary ﬁndings of the regression, which mainly involves the instrumentality component of the Expectancy theory and the Equity theory (with pay scheme as a dummy variable), are as follows: Change of motivation = 1.875 + 0.127 Instrumentality + 0.206 Equity + 0.294 Pay scheme + Error term Although the explanatory power of the equation is somewhat limited, it does provide robust empirical support for the research model in explaining the change in motivation as a result of the wage reform.

7

Concluding remarks

In this study, based on a sample of 550 workers surveyed in 1997, the author has investigated the effect of the change from egalitarian pay to pay-for-labour as well as the return to egalitarian pay from payfor-labour on the motivation of workers at two separate Chinese enterprises. The study found reasonably strong evidence that the perceived instrumentality of additional pay for additional work as a structural component of the reward system improves work motivation, although perceived instrumentality is only marginally stronger among workers at the pay-for-labour scheme. The study also found a strong positive correlation between perceived equity and work motivation. Although variations exist among the workers in the deﬁnition of what is ‘fair’, the majority of workers in both

Brenda Sun 221

samples consider more pay for higher skill and contribution to be fair. The two major ﬁndings suggest that although work motivation is higher among workers at the pay-for-labour, the perceived link between pay and contribution is rather weak and needs to be further strengthened. The results are consistent with the rationale behind the wage reform which suggests that workers will be more likely to work harder if there is more money to be earned, and when equity is perceived in relation to the implementation of pay-related issues (cf. Chapter 10). These ﬁndings have both theoretical and policy implications. They show that the return to equal distribution from a form of differentiated pay, as illustrated in the case of Plant 1, could be demoralizing for the workers, even when the pay level was doubled. On the other hand, the change from egalitarian pay to pay-for-labour could be a source of work motivation, as illustrated in the case of Plant 2, provided that the perceived link between pay and contribution is strong and in the right places (for example, in skill and position levels versus personal performance), and that equity is perceived in the implementation of pay-related issues. The results suggest that although wage differentials among workers of the same position and skill levels under Plant 2 are relatively small or may even be considered ‘negligible’ in the West, the fact that pay is no longer absolutely equally distributed signiﬁes a determined departure from the traditional income distribution policy of pay-for-needs. Judged on the basis of the reform strategy of experimentation of incrementation, one may draw the conclusion that the reform is at least heading toward the right direction. Also these results suggest that wage differentiation on the basis of position and skill levels rather than job performance per se may be a more practical form of pay for labour in motivating the workforce as workers seem to be more receptive to differentials between people of different position and skill levels than between people holding the same position and skill levels. The ‘deepening’ of ‘pay for labour’ measures in this respect is expected to have a direct positive impact on improving the relatively low skill level of the state industry workforce. The concept of position and skill-based pay may make more sense, especially when the workers operate in a collective and controlled work setting which does not facilitate higher, isolated performance levels. In fact, the method of linking pay to labour on an impersonal basis may have helped to maintain or perpetuate social harmony in the workplace while making increased leeway for the novel concept of competition in the unique setting of a socialist market economy or ‘socialism with Chinese characteristics’.

222 Pay and Motivation in Chinese Enterprises

Finally, it must be reiterated that the results are based on a rather small sample of workers who represent a minute fraction of the 100 million Chinese workers. This means that we have to be cautious in interpreting the ﬁndings and should not take them as a description of the picture of the entire Chinese workforce. Nevertheless, the empirical ﬁndings do provide some evidence for the fact that the wage reform principles are and can be ‘percolated’ even at a 50-year old state enterprise, through the window of its JV.

Note * The author wishes to thank Dr Ray Richardson at the London School of Economics for his valuable professional support and guidance without which this study would not have been possible. 1 The income distribution policy of ‘to each according to one’s labour’ or as it is abbreviated in this chapter, as ‘pay for labour’ (anlao fenpei)) was vehemently adopted by Deng Xiaoping in the economic reform as a strategy to ‘unleash productivity’ (jiefang shenghanli) and improve the living standard of the masses. 2 VIE Theory (expectancy or instrumentality theory) which, when adapted to the context of the enterprise wage reform in China, hypothesizes that the following three conditions need to be satisﬁed for the individual to be motivated to work harder, i.e. he or she perceives/believes that (1) the additional reward for working hard is attractive (valence), (2) he or she is in possession of the potential, skills and support to achieve a higher level of performance when he or she exerts additional effort (expectancy), and (3) more effort will eventually result in more pay (see Vroom and Deci, 1992). 3 JV set ups in China typically mobilize the ‘cream of the crop’ among existing workers at the local Chinese enterprise or mother factory (mutichang) in establishing its own production workforce. Staff who are selected to join the JV have in principle met the stringent requirements in skills and work attitudes. 4 As explained by the factory manager at Plant 2 (JV of a Fortune 500 company), ‘Three hundred of us [at the JV] are here to shoulder up the burden of 3,000 at the mother factory.’ This is a form of inequity hardly known in the West.

References Adams, J. S. (1965) ‘Inequity in Social Exchange’ in Berkowitz, L. (ed.) Advances in Experimental Social Psychology, vol. 24 New York: Academic Press. Arnold, J., Copper, C., Robertson, I. T. (1998) ‘Approaches to Work Motivation’ in Work Psychology, 3rd edn. London: Financial Times/Pitman Publishing, pp.244–54.

Brenda Sun 223 Deng Xiaoping. (1979) Selected Works of Deng Xiaoping, vol 2, translated by The Bureau for the Compilation and Translation of Works of Marx, Engels, Lenin and Stalin Under the Central Committee of the Communist Party of China, Beijing: Foreign Language Press. Deng, Xiaoping. (1979) ‘Putting the Principle of Pay for Labour into Practice’ (jianchi anlao fenpei yuanze) in Deng Xiaoping Wen Xuan (Selected Works of Deng Xiaoping) vol. 2 Beijing: The People’s Press. (In Chinese.) Dowling, B. and Richardson, R. (1997) ‘Evaluation of Performance Related Pay for Managers in the National Health Service’, International Journal of Human Resources Management, 8: 3 June 1977, pp. 348–66. Groves, T., Dowling P. J., Hong, Y., McMillan, J. and Naughton, B. (1994) ‘Autonomy and Incentives in Chinese State Enterprises’, Quarterly Journal of Economics, 109, pp.183–209. Herzberg, F., Mausner, B., and Synderman, B. (1959) The Motivation to Work, New York: Wiley. Hussain, A. and Zhuang, J. (1994) ‘The Impact of Economic Reform on Wage and Employment Determination in Chinese Enterprises, 1986–1991’, Discussion paper EF. 12, STICERD, London School of Economics. Jackson, S. (1992) Chinese Enterprise Management: Reforms in Economic Perspectives, Berlin, New York: de Gruyter. Korzec, M. (1992) Labour and the Failure of Reform in China, New York: St Martin’s Press. Laaksonen, O. (1988) Management in China during and after Mao in Enterprises, Government, and Party, Berlin: de Gruyter. Levine, D. (1995) Reinventing the Workplace: How Business and Employees Can Both Win, Washington, DC: The Brookings Institution. McMillan, J., Naughton, B. (1996) ‘Reforming China’s State-Owned Firms’ in J. McMillan and B. Naughton (eds) Reforming Asian Socialism: The Growth of Market Institutions. Ann Arbor: The University of Michagan Press. Naughton, B. (1996) Growing out of Plan: Chinese Economic Reform 1978–1993, Cambridge: Cambridge University Press. Oppenheim, A. N. (1992) Questionnaire Design, Interviewing and Attitude Measurement, London: Pinter Publishers. Steers, R. M. and Porter, L. W. (1991) Motivation and Work Behaviour, New York: Hill. Takahara, A. (1992) The Politics of Wage Policy in Post-Revolutionary China, London: Macmillan. Vroom, V. (1964) Work and Motivation, New York: John Wiley & Sons, Inc. Warner, M. (1995) The Management of Human Resources in Chinese Industry, London: Macmillan and New York: St Martin’s Press. Zhuang, J. and Xu, C. (1996) ‘Proﬁt-Sharing and Financial Performance in the Chinese State Enterprises: Evidence from Panel Data’, Economics of Planning, 29, pp.205–222. You, J. (1998) China’s Enterprise Reform: Changing State/Society Relations After Mao. London: Routledge.

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Part III Emerging Trends

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12 Readjusting Labour: Enterprise Restructuring, Social Consequences and Policy Responses in Urban China Sarah Cook1

1

Introduction

China is in the midst of a major social transformation. In recent months, the attention of the media, researchers and policy makers has focused on what could be the greatest threat to social – and therefore political – stability since the demonstrations in Tiananmen Square in 1989.2 A principal cause of this social transformation is the changing place of labour in the ‘workers’ state’. Since 1949, state sector industrial workers have held a privileged position in China’s spatial and employment hierarchies. Protected by city residents’ registration (hukou), with access to urban amenities and social services provided by government or the work unit (danwei), they have been cocooned within an ‘iron rice-bowl’ system aptly described as a ‘mini-welfare state’. During the early years of reform, urban labour was relatively insulated from the dislocation associated with major structural change (West, 1997; Cook and Maurer-Fazio, 1999). In particular, the SOE sector, protected by state investment and ﬁnancial policies, reformed slowly and incrementally, and is only now beginning to feel pressures for more radical change. These pressures arise from the precarious state of China’s ﬁnancial institutions, mounting losses among enterprises, and consequently rising unemployment and growing numbers of workers suspended without pay. The retrenchment of workers from loss-making ﬁrms and the determination of the government to move 227

228 Readjusting Labour in Urban China

forward with enterprise restructuring is undermining workers’ privileges and exposing them to economic uncertainty and even poverty (see Chapter 3). Coinciding as these challenges do with the ﬁftieth anniversary of the founding of the People’s Republic in 1949, the Chinese government is particularly anxious to smooth the on-going transformation and to ensure that threats to social and political stability do not materialize. Now that the imperative of more fundamental enterprise restructuring is widely acknowledged, policies are being implemented which will bring about a radical restructuring of ownership and a redeﬁnition of the state’s role as provider of employment and welfare. As the basic unit of urban social organization – the danwei – is forced to change, visible contestation is occurring between workers and the state, and between groups of workers – state and non-state, rural and urban – over jobs, related beneﬁts and social protection.3 Workers themselves, while recognizing their privileged position within the system, believe that their contribution to the building of China’s industrial structure and socialist state entitles them to state-provided economic security, including housing, pensions and medical care, into old age (see Chapter 4). Their expectations of (and relationship with) the state, and perhaps their very identity as workers, are under threat. As the urban workforce is potentially the largest, most vocal and easily organized interest group to bear the negative social consequences of adjustment, the post-Deng leadership under Jiang Zemin and Zhu Rongji is faced with some of its toughest policy choices to date. This chapter reviews the policies which the Chinese authorities have formulated and are beginning to implement in response to the above challenges: the social consequences of enterprise bankruptcies and restructuring, growing numbers of unemployed and laid-off workers, and the emergence of urban poverty. My main objective is to provide an account of recent policy initiatives, to assess their progress to date, and to raise potential challenges for the future. The chapter is based largely on interviews undertaken in Beijing, Sichuan and Liaoning in 1998 and ﬁeldwork in several cities in early 1999, supplemented by a range of additional primary and secondary materials. 4 I ﬁrst describe the context of restructuring and its consequences for labour. I then examine the new systems of social protection and assistance being constructed through different modalities involving central and local governments, enterprises and ‘society’. The creation of alternative social security mechanisms is a critical endeavour in managing the revolutionary social transformation now under way which will involve

Sarah Cook 229

changing forms of legitimacy of the workers’ state, renegotiation of the responsibilities of the state and of the expectations and entitlements of key social groups, and reconstitution of the mechanisms through which these responsibilities and entitlements are deﬁned and enforced. If China can manage this social transformation, it may stand – in contrast to the experiences of social collapse of many transitional economies as well as other countries implementing economic adjustment programmes – as an alternative model of more socially responsible and institutionally sensitive adjustment.

2 Enterprise restructuring, unemployment and welfare The imperative to restructure It is widely feared that endemic problems within the SOE sector threaten to undermine the achievements of the past two decades of liberalization and growth (see Chapter 4). The declining competitiveness and increasing ﬁnancial losses of state enterprises mean that they can no longer provide guaranteed employment or fulﬁl the social obligations (provision of housing, health care, education, pensions and so on) long associated with the Chinese ‘work unit’. Furthermore, as SOE proﬁtability declines, so too does the revenue base of central and local governments, constraining their capacity to fulﬁl social welfare functions. Conditions which previously allowed enterprise restructuring to be delayed or postponed no longer exist. In particular, the shaky foundations of the banking system, coupled with a slowdown in growth in other sectors, mean that the economic cost of maintaining the current structure of industry and employment appears to be unsustainable. The Fifteenth Congress of the Chinese Communist Party in September 1997 undertook a renewed commitment to SOE restructuring, prioritizing it within its overall reform programme. Key elements of current policy involve diversiﬁcation of enterprise ownership through corporatization, mergers and acquisitions; facilitating bankruptcies among loss-making ﬁrms; reform of the banking, ﬁnancial and tax systems; and establishing a social security system independent of the enterprise. To address the latter, the Ministry of Labour and Social Security (MoLSS) was established by the National People’s Congress of March 1998 as a central body to co-ordinate reform of the segmented social security system (Leung, 1998). These reforms were ambitiously scheduled to take place over a three-year period from 1997 to 2000. The reform programme clearly illustrates the government’s awareness that successful restructuring can proceed only as part of an integrated

230 Readjusting Labour in Urban China

and comprehensive reform strategy, and only as fast as reforms in related sectors, particularly social welfare, will allow. The inter-relationship between the state industrial sector and the welfare of the urban population means that the success of enterprise restructuring has a critical bearing on urban welfare and social stability, while avoiding reform will lead to the continued escalation of bankruptcies and job losses, with inadequate mechanisms in place either for mitigating the social costs in the short term or for generating sustainable new employment for the longer term. The growth of insecurity The need for a pro-active approach towards social protection for workers during the transition is made both more necessary and more difﬁcult by the sheer numbers involved in the emerging labour market. At the end of 1997, China’s total economically active population stood at 705.8 million. Of 202.07 million urban employees, the state sector employed 110.44 million or 54.6 per cent, down from 78 per cent in 1978 (SSB, 1998). The proportion of new employees assigned to state sector jobs declined from 72 per cent in 1978 to 32 per cent in 1997 (SSB and MoLSS, 1998). The state is thus playing a less active role in the allocation of labour; none the less, state sector employment still accounts for the largest share of urban employees. The decline in the share of state employment reﬂects the change both in ownership and sectoral composition of employment. The early years of reform radically affected the rural labour force, with the rapid transfer of labour out of agriculture into the rural industrial sector and to the cities capturing the attention of policy-makers. Successful job creation in the rural sector, combined with the growth of rural and urban collective and private sectors, meant that new jobs outpaced population growth among those of working age. Many urban workers found jobs in the non-state sector, although they frequently retained some attachment to a state danwei in order to maintain associated beneﬁts. Tertiary industry, particularly prominent in the private sector, grew rapidly with the numbers of workers in the service sector exceeding those in the secondary sector for the ﬁrst time in 1994 and rising to 26.4 per cent by 1997 (SSB, 1998). Despite successful job creation, unemployment has increased rapidly since the 1980s. By 1997 the registered unemployment (shiye) rate had reached 3.1 per cent or 5.7 million workers, compared with 1.8 per cent in 1985. Real unemployment is much higher. According to ofﬁcial statistics, surveyed (as opposed to registered) unemployment stands at

Sarah Cook 231

9.8 million (SSB, 1998), with forecasts of 9 per cent unemployment for 1999 (SWB, 1998). Estimates of laid-off (xiagang) workers (that is, those retaining some attachment to their work unit) in 1998 ranged from 8 to 11 million. Including suspended workers and migrants would raise the unemployment ﬁgure possibly to between 15 and 20 per cent of the urban labour force. One source suggests that, in the absence of government support to enterprises, estimated urban unemployment would be 24 per cent (O’Leary, 1998:461). Of lay-offs among enterprise workers, those from SOEs represent 68.4 per cent of the total from all types of enterprise (Table 12.1). In response to fears of growing unemployment, job promotion was made a strategic task during the Ninth Five Year Plan (1996–2000) and included in national and local programmes of social and economic development. During the plan period, it was estimated that 54 million job opportunities had to be created to deal with the unemployment backlog from the past plan period (5 million), new labour force entrants (18 million), rural migrants (17 million) and those that will be displaced during the period (14 million). Of these 54 million seeking work in the urban sector, only 38 million were expected to ﬁnd jobs (UNDP, 1996). Targets were set to contain urban unemployment at 5 per cent, as well as to maintain the current level of trans-regional labour migration and progressively increase coverage of pension and unemployment insurance schemes in urban areas. Of the approximately 3.5–4 million state sector workers, and 5 million collective enterprise workers expected to be laid off each year, the government has now set a target to re-employ 50 per cent. In addition to the problem of unemployment, the Minister of Labour and Social Security, Zhang Zuoji, has identiﬁed two further priority concerns: the pension burden arising from an ageing population, and

Table 12.1

Number of enterprise and SOE lay-offs, 1995–97 (millions)

Year

Number of enterprise lay-offs (A)

A as % of total number of enterprise employees

Number of SOE lay-offs (B)

B as % of A

1995 1996 1997

5.51 8.92 11.5

4.8 7.3 –

– 5.42 7.87

– 66.5 68.4

Sources: Chen (1998); Li (1998); Muo (1998); SSB (1998).

232 Readjusting Labour in Urban China

the increasing gap between the demand for, and capacity to pay for, medical care. While pensions’ coverage among state sector workers is high, with over 30 million state and collective sector retirees covered, wider coverage remains patchy and low. As the state sector workforce contracts and the proportion of retirees increases, the pension burden will continue to grow, requiring an expansion of coverage, particularly in the private sector. The ratio of workers to pensioners in 1997 was 4.1:1 in SOEs and 4.4:1 among all participating enterprises, although with signiﬁcant regional variation depending on the industrial history and demographic proﬁle of the region, with the lowest being 2.1:1 in Shanghai. In cities such as Shanghai and the industrial north-east, these ratios impose an unsustainable burden on enterprises. With regard to health, the effective privatization of health services has made the affordability of health care a major concern for the urban population for whom current insurance is frequently inadequate to meet large expenses. This highlights a key area of vulnerability for redundant workers or those outside the state sector. As the provision and ﬁnancing of social assets, such as health and education facilities, is transferred from the enterprise to society, new issues of access and ability to pay become critical concerns. Loss of employment thus exposes the urban population to increased vulnerability along many dimensions, including the real risk of poverty. One impact of the erosion of job security and welfare provision is an increase in poverty and stagnating or falling living standards for some sections of the urban population, a phenomenon which has only recently been recognized by policy-makers (Cook and White, 1998; Zhu, 1999). Moreover, these problems give rise to tensions between population groups with access to different levels of social beneﬁt and support, such as unemployed collective and private sector workers with no insurance, and rural migrants. While the more privileged urban work force will have to accept greater risks and uncertainties in employment and also reduced beneﬁts, efforts to protect them will result in further entrenchment of inequalities, particularly between urban and rural labour. The process of transition from the existing enterprise-based system of welfare provision implies not only a change in industrial organization but a more fundamental transformation of social relations, including relationships between the enterprise and the state, between individuals and their community, and between employees and enterprise managers, and thus by extension the state. One aspect of this disruption to the networks of relationships and social capital embedded

Sarah Cook 233

in work units is expressed by laid-off workers who emphasize the social isolation and stigma of unemployment, 5 exacerbated by attitudes on the part of government which suggest that workers’ state-dependent mentality is a major barrier to their re-employment.

3

Reconstructing security: welfare after the danwei

To meet the dual challenge of establishing a competitive market-led labour system while guaranteeing equity and welfare through the social security system, the government has initiated new programmes to address these (actual or potential) problems. Four areas of policy are examined in the following section: ﬁrst, the policy framework established by the central government; second, provincial and municipal government policies towards social welfare and insurance on the one hand, and labour market development and employment promotion on the other; third, enterprise-based measures to assist laid-off workers during the transition period; and ﬁnally, social protection measures to provide an ultimate safety net for the urban poor. Some of these policies build on reforms since the mid-1980s; others are more recent initiatives. Policy innovations usually begin with pilot programmes implemented in selected regions which are subsequently evaluated and extended nationally; the models adopted thus reﬂect widespread experience within China as well as integration of lessons drawn from overseas practice. While it is too early to provide any comprehensive assessment of most of these programmes, progress and challenges will be discussed in the ﬁnal section. Central government: the policy framework The establishment of the MoLSS in March 1998 signalled the high priority given to welfare reform and to mitigating the social consequences of SOE restructuring (see Chapter 4). In parallel with the ambitious three-year programme for SOE reform announced in 1997, equally ambitious objectives have been set, building on developments since the mid-1980s, for strengthening the social security system. Previously deﬁned to cover areas of pensions, unemployment and health insurance, recent policy statements effectively expand social security to include re-employment and labour market services. To this end, central government restructuring during 1998 has included the establishment of new departments of pensions, unemployment and medical insurance within the MoLSS. These institutional changes will be reﬂected at provincial and municipal level within the next year. In the areas

234 Readjusting Labour in Urban China

covered by these departments, new regulations have been introduced in the past year or are in the process of being ﬁnalized. Key policy decisions setting the main directions for welfare reform and re-employment programmes include: (1) the separation of social assets (housing, schools, hospitals and so on) from the enterprise; (2) strengthening the social insurance system, including pensions, unemployment and medical insurance; (3) job creation, employment services and training; and (4) the establishment of transitional safety nets within the enterprise. Most of these are under way and are the responsibility of the MoLSS. A ﬁfth area, the establishment of a minimum safety net for the urban poor, is the responsibility of the Ministry of Civil Affairs (MCA). Together, these provide in theory a multi-tier system of welfare provision and social protection, from contributory social insurance to a universal minimal entitlement to relief. Local government: social welfare and insurance The ﬁrst two policy areas – delinking social assets and social insurance – are part of a longer-term programme to establish a social security system separate from the enterprise. A key component of enterprise reform involves the separation of social assets from the enterprise in order to increase competitiveness and efﬁciency. The reform of housing, for example, is towards commercialization and socialization of housing construction and provision, with incentives to encourage individuals to purchase property. Government policy on house construction and pricing falls into three categories: a private sector housing market for those who can afford property at commercial market prices; subsidies and allowances to wage earners in governmental organizations, institutions and enterprises to help them to buy their homes at around 50 per cent of market prices; and third, low-rent accommodation provided by the state to low-income households. As housing allocation is still semi-unit based, laid-off workers are poorly placed to improve their housing conditions. Education and health care facilities are generally being divested to municipal authorities. Typically, each work unit had a clinic or a hospital of its own (depending on the size of the unit) where employees received subsidized treatment; enterprise clinics would have a contract with an external hospital for treatment of more serious illness. While the basic facilities remain largely unchanged, the signiﬁcant change is the increased share of health care costs borne by the individual and the proliferation of diverse payment schemes on an enterprise basis. Health insurance reforms are now being designed to rationalize the

Sarah Cook 235

system and extend coverage, with the general direction being to establish a combination of personal accounts and social pooling for severe diseases. Insurance costs will be borne jointly by the individual and employer. With respect to education, many SOEs ﬁnanced afﬁliated primary and secondary schools (zidi xuexiao) for the children of their employees. Enterprise schools have experienced relatively less turbulence than housing and health care in the transition period, but are transferred to the local education authorities if the enterprise is in severe ﬁnancial difﬁculty. In such cases, however, this transfer may lead to a worsening of the school’s ﬁnancial and resource situation. All these reforms raise concerns about how to ensure access to and ability to pay for social provision once these services are no longer provided through the work unit. The second area of longer-term social security development is the social insurance system. Social insurance funds (including pensions, unemployment and health) on aggregate amount to approximately 30 per cent of the total wage bill, with extensive coverage in the state sector but relatively slow expansion to other sectors. In general pooling is at a municipal level, although there are plans to raise it to provincial level. By 1997, about 82.7 million enterprise employees, or 72.8 per cent of the state sector workforce, were covered by unemployment insurance, and around 2.6 million (or 50 per cent) of the registered unemployed received beneﬁts. Greater demands are now being made on social insurance funds to cover beneﬁts for laid-off workers, with combined employee and employer contributions recently raised to 3 per cent from the previous level of 1 per cent. Pension funds are a more serious problem in many areas, operating as essentially an unfunded ‘Pay As You Go’ scheme. In 1996, expenditures on pensions accounted for 66.7 per cent of total welfare expenses (Leung, 1998:481) and between 1990 to 1996 the average annual increase in pension expenses paid by SOEs reached 24 per cent. The ratio of employees to retirees decreased from 30:1 in 1978 to 6.1:1 by 1990, and have continued declining to close to 2:1 in some cities, particularly in old industrial centres. In Shenyang, Liaoning province, for example, with its declining state sector and a ratio of workers to pensioners of 2.1:1, accumulated funds have been exhausted. Currently total contributions to social insurance funds are 29.5 per cent of the wage bill (despite an ofﬁcial national limit of 20 per cent), of which 25.5 per cent is paid by the enterprise and 4 per cent by individual contributions. This is the highest level in the country but is still

236 Readjusting Labour in Urban China

insufﬁcient to cover current obligations which would require a payroll tax of 38 per cent. The central government has made some special allocations, including one of 8 billion yuan in December 1998 to support payments to pensioners and xiagang workers, but funds remain grossly inadequate. Serious obstacles to developing the social insurance system include fund management and system design, as well as ﬁnding ways of ﬁnancing current commitments. While the above measures can be seen as part of a long-term strategy to develop a sustainable, funded welfare and social insurance system independent of the enterprise, there are obvious transitional problems in moving to such a system. Immediate concerns include provision of alternative employment and guarantees of a basic living standard. The government has therefore recognized the need for transitional measures to assist the growing numbers of laid-off workers. These include training for new jobs, labour market services to assist in ﬁnding new employment, and provision of safety nets in the form of minimum living allowances. This support is organized through municipal level ‘labour market’ centres and through re-employment service centres within each enterprise. Local government: labour market services, re-employment and training The government recognizes that the rate of re-employment will be critical to the maintenance of social stability, and that this will depend in large part on the rate of job creation, particularly in the private sector. Measures to promote employment generation and new enterprise development include the commuting of tax and other obligations for new enterprises, incentives to existing employers to take on laid-off workers, and assistance to laid-off workers to start their own selfemployment activities. A key element of this has been the development of ‘labour markets’ or employment centres. These began on an experimental basis in 1993, but underwent rapid expansion during 1998. Municipal labour bureaus are responsible for providing labour market services, including information about and assistance in ﬁnding jobs, training (free to laid-off workers), and support in starting their own businesses. ‘Labour markets’ frequently have computer databases of jobs and of jobseekers, as well as computerized screens displaying job information. The objective is to provide information about vacancies, linking employers and potential employees through a variety of means including job fairs, and in some cases arranging interviews. They are often

Sarah Cook 237

organized at the municipal level in conjunction with ‘social’ organizations such as the women’s federation, the trade union or the youth league, who may provide a location and facilities. ‘Labour markets’ are one aspect of a broader ‘re-employment project’ initiated in 1993 in about 30 cities and expanded nationwide between 1996 and 1998. A series of re-employment channels have been developed to encourage and support enterprises and society in creating new employment opportunities (Wang, 1995:103–6) including: • policy and ﬁnancial support to Bureau of Labour and enterprises to set up labour service enterprises especially in the tertiary sector (kaifaxing anzhi); • encouraging surplus labourers to start their own private businesses and self-employment activities (zizhuxing anzhi). • arrangements to facilitate the movement and exchange of workers between enterprises (jiaoliuxing anzhi); • exploring new employment channels, such as labour export (to other regions or internationally), work in non-state enterprises and other full- or part-time jobs; • consolidating and developing training for re-employment, expanding vocational, technical and training schools (chubeixing anzhi); • implementing an early retirement policy. While some larger-scale employment creation initiatives are being piloted in speciﬁc cities, most municipalities have introduced a variety of incentive and beneﬁt schemes appropriate to the local situation. These general policies are implemented with regional variations according to local characteristics; for example, areas such as Liaoning with a heavy pension burden have disallowed early retirement, while areas with large inﬂows of rural labour such as Chengdu have introduced disincentives to employers to take on migrant labour. Speciﬁcally, Chengdu imposes an additional charge on the enterprise of 10 per cent of the average city wage for each rural resident employed. By contrast, certain fees are exempted if enterprises take on xiagang labour. A key component of the re-employment programme is training. In order to increase the capacity for re-employment, the government realizes that training for laid-off workers to update their skills is crucial. For this purpose, the MoLSS has recently set up a training programme with the target of providing training to 10 million laid-off workers over 3 years (1998- 2000: MoLSS, 1998; Chinabrief, 1998). This is provided

238 Readjusting Labour in Urban China

within China’s existing network of over 27 000 vocational training and adult education institutions which are reimbursed at minimal levels for providing free training courses to laid-off workers. Most courses are short (1–3 months), and in relatively traditional service areas: cooking, hairdressing and sewing, as well as computer training, and auto and electrical repair courses. There appears to be limited capacity or resources to undertake surveys to identify skills which might be in demand in the future and to adapt training programmes accordingly. An important component of the training programmes concerns fostering attitudinal change, engendering a more positive attitude towards the market economy and reducing reliance on the state; these attitudes are perceived by the government to be major barriers to restructuring. According to ofﬁcial statistics, of the 11.5 million lay-offs in 1997 only 4.8 million were re-employed. Those least able to ﬁnd new jobs are usually disadvantaged by age, skill and education level, and frequently are those denied education during the Cultural Revolution. Of the 5.34 million people not reemployed in 1996, 58.8 per cent had only attended junior middle school and 14 per cent only primary school. Only 2.3 per cent were college graduates (MoLSS, 1998; Xinhua, 1998). Trust and reemployment service centres Unlike the ofﬁcially unemployed, who break links with their enterprise and become the responsibility of the social welfare system, the laid-off (xiagang) workers remain attached to the enterprise. Regulations are in place to protect such workers. In September 1997 a document on Opinions on Establishing the System of Relief for State Enterprise Workers in Difﬁculties stipulated the criteria for relief, the raising and management of relief funds, and combining relief and re-employment. In May 1998 regulations were introduced, mandating all enterprises with laid-off workers to establish re-employment service centres (RSCs). Funded in principle in equal parts by the enterprise, government and social insurance funds, the centres provide employees with: • a monthly basic living allowance (approximately 75 per cent of the minimum wage); • information and support for re-employment and training; • continued payment of pension and unemployment insurance contributions. Started as an experiment in Shanghai in July 1996, the re-employment centres are intended as a transitional measure to last during the three

Sarah Cook 239

years of enterprise restructuring. At the end of this period, it is anticipated that they will be phased out and that all workers will seek employment through the market, and receive beneﬁts through the social security and relief systems (for which all urban residents will be eligible) in the case of unemployment or hardship. Workers are eligible for assistance from the RSCs usually for up to two years and then may receive social unemployment insurance for an additional two years (Liu, 1998). Major problems facing RSCs are the lack of funding and the low percentage of laid-off workers who have registered. As Table 12.2 shows, only 11.98 per cent of laid-off workers had registered in centres by the end of 1997. Bankrupt enterprises or those in serious ﬁnancial difﬁculties are generally unable to ﬁnance either their contributions to the social insurance funds or payments directly to workers, while local governments also face difﬁculties in meeting their obligations. Almost half of those laid off are unable to receive even a basic living allowance. In late 1998, Premier Zhu Rongji announced an additional allocation from the central government budget of 8 billion yuan to assist with these payments. In addition to these national policies, local regulations may stipulate that certain categories of people should be given preferential treatment. For example, Chengdu Municipal document no. 32 requires enterprises to draw up a plan for laying off workers, and states that both husband and wife cannot be laid off, and that if possible the disabled, family members of martyrs, and model workers should not be laid off. The ﬁnal safety net: minimum livelihood guarantee programme Urban poverty has emerged as a new phenomenon during China’s transition. China had maintained very low levels of urban poverty for

Table 12.2

1997

Number of laid-off workers registered in RSCs

Number of SOE lay-offs (A)

Number of SOE lay-offs in RSC (B)

B as % of A

Number of SOE lay-offs not in RSC (C)

C as % of A

6.34 million

760 000

11.98

5.59 million

88.17

Sources: MoLSS (1998:45); Xinhua (1998).

No. of RSCs

1333

240 Readjusting Labour in Urban China

a country with a large and rapidly urbanizing population. Until recently, tight restrictions on labour mobility limited the inﬂux of rural migrants common in other rapidly growing and industrializing economies, while the danwei system provided adequate guarantees for most of the urban population against falling into poverty. The rise in poverty is associated with job insecurity, together with periods of inﬂation which adversely affected the incomes of those on low ﬁxed incomes, such as pensioners and laid-off workers. Furthermore, the deterioration of SOE ﬁnances reduces government revenues so that subsidies to the urban population have been substantially eroded. These changes signal a new type of poverty – affecting people with the ability to work – which calls in turn for new policy responses. Previously the urban poor in China were viewed predominantly as those with no ability to work, no income source and no family or social support (the ‘Three Nos’) who fell outside the work unit system. Instead of work-related social security, ad hoc and short-term relief mechanisms provided them with minimal social assistance. Financial or in-kind relief was provided through the Civil Affairs system, local residents’ committees and other organizations which raised donations or provided practical assistance including trade unions, the women’s federation and the disabled peoples’ federation. In 1997, only 2.68 million people in urban poor households received such relief (SSB, 1998:793). During the past two years, attention has been called to the need to address a serious increase in urban poverty. Data on the incidence of urban poverty is limited and variable, but ofﬁcal statistical bureau data suggest an increase in the number of the urban poor to 15.3 million people in 1994, subsequently declining to 11.8 million by 1996. SSB surveys of urban prices and living standards have noted declining urban living standards. Based on their 1996 survey, they found that 37.5 per cent of urban households had experienced a drop in income in 1996, with 54 per cent of those in the lowest income quintile experiencing such a decline (see Table 12.3). In 1997, 60 per cent of the lowest quintile experienced an income decline, compared with 20 per cent in the top quintile, which represented a dramatic increase from 3.8 per cent in the previous year (Urban Survey Team, 1997, 1998). Clearly the greater insecurity arising from enterprise reform and unemployment has given rise to increased levels of deprivation. According to Zhu (1997), in 1996, no fewer than 84 per cent of the urban poor had experienced a job change or unemployment due to economic adjustment; about 40 per cent of these were employees of

Sarah Cook 241 Table 12.3 Households experiencing a decline on previous year’s income per capita by income quintile Income quintiles (% of households)

Total (100%)

1(low) (20%)

2 (20%)

3 (20%)

4 (20%)

5 (high) (20%)

1997 % of total 1997 % of q’tile 1996 % of q’tile

100% 39 37.5

30 60 53.7

29 53 –

16 33 –

16 39 –

9 20 3.8

Source: Urban Survey Team (1997, 1998).

state or collective enterprises. While a range of other factors determine whether individuals who lose their jobs fall into poverty, the link between poverty and unemployment is strong. Laid-off workers are more likely to have characteristics which make them vulnerable along several dimensions. Interviews with members of poor households in Shanghai in 1999 reveal that most of those laid off have at least one of the following additional problems: both members of a couple were laid off at the same time and have a school-age child; the person is a single parent supporting a child alone; one or both members of the couple suffer from an illness or disability with little prospect of re-employment; the individuals are in their mid-40s and were sent to the countryside during the Cultural Revolution, have low levels of education or skills, and in some cases may have returned without an urban residence permit. The ﬁrst agency to respond to the problem of growing urban poverty has been the MCA which started efforts to establish urban safety nets with experiments in Shanghai in 1993. These safety nets take the form of an allowance for all urban residents with per capita incomes falling below an established minimum level – the minimum livelihood security line (MLSL, or zuidi shenghuo baozhang xian) – to raise their incomes to the minimum level. The policy of setting MLSLs has expanded over the past ﬁve years with Shanghai setting the pace in this as in other areas of social welfare reform. It is ofﬁcially described as follows: ‘to map out a bottom line of living standards according to the lowest consumption level of local people and the ﬁnancial capability of the local government’ (State Council, 1997). The programme is also being pioneered by the MCA in rural areas, thus extending to the rural population the principle of a universal entitlement to social assistance. By

242 Readjusting Labour in Urban China

January 1997 MLSLs had been established in 375 cities and towns, representing 47.6 per cent of all cities, with implementation of the programme started in 317; of prefectural level cities, 56.3 per cent had established an MLSL system (MCA, 1998). As of mid-1998, MLSLs varied widely – from about 90 yuan to over 200 yuan per month – according to local living costs in particular cities, and they may even vary within cities. Assistance has been primarily targeted at the growing new poverty groups such as laid-off and unemployed workers and retirees without full pensions, but also include the existing poor such as those unable to work due to disability and older people without support. In Shanghai at least, ﬁnancial assistance has been complemented by assistance in kind (for example, sugar, edible oil and rice). In most cities, funding is the critical problem and is probably the major issue over which negotiation takes place in actually establishing the lines which must balance the objective of achieving a minimum living standard with the capacity of the local government to pay the beneﬁts. Dependence on local government ﬁnancing or contributions from enterprises reinforces regional differences in urban poverty, with more deprived regions having less capacity to fund the programme. While on the one hand the MLSL represents a shrinking of the urban welfare system to a minimal means-tested beneﬁt, at the same time it embodies a major conceptual shift from the granting of short-term relief to individuals with speciﬁc ‘needs’, or lacking certain capabilities, to providing a universal entitlement to social assistance (in cash or kind) on a regular basis to anyone falling below a minimum living standard. As such, it represents the ﬁnal state-provided safety net for those lacking employment and family support.

4

Concluding remarks

The Chinese government, at central and local levels, has made rapid progress in the adoption and implementation of innovative solutions to the social problems emerging in the context of enterprise restructuring. These solutions combine both transitional measures to mitigate short-term consequences, and a long-term strategy for replacing workunit based welfare provision with a social insurance system. Despite the evidence of progress, there is a general acknowledgement that it is beyond the resources of local governments to deal adequately with a problem of this size. The central government sets the general policy framework, which is then adapted and implemented as appropriate to

Sarah Cook 243

local conditions; however, funding is primarily the responsibility of local government. Given the lack of resources, it is apparent that, whereas the authorities are providing a framework for support, the responsibility is ultimately being placed on ‘society’, individuals and families to adapt to the new competitive market economy and to provide for their own employment and welfare. Transitional measures are designed to tide workers over to a situation where the government will play a smaller role. In the meantime, despite huge efforts, and various types and levels of support and safety nets, severe hardship will hit a signiﬁcant proportion of workers and their families, with the impact varying by individual characteristics and by location (see Chapter 13). Particular attention thus needs to be given to identifying and assisting those most vulnerable during the period of adjustment. From the perspective of urban residents, several levels of social protection are in theory available to them, some designed as transitional mechanisms during the period of enterprise restructuring while others are intended to develop into stable systems of social security and assistance. What is being established is a series of gradually reducing social support mechanisms (see Wong, 1998). For those either short- or longterm unemployed, these levels of support pass from enterprise-based assistance, through social insurance beneﬁts, and ultimately to the MLSL. Table 12.4 summarizes information on unemployment and layoffs, the available levels of beneﬁts, and those eligible for (or receiving) beneﬁts in two provincial capitals (Chengdu in Sichuan and Shenyang in Liaoning). These data, obtained during interviews with various government ofﬁcials, provide a good indication of the variation in numbers involved and levels of beneﬁt received. Clearly those workers laid off from state enterprises are privileged within this scheme, with preferential access to higher levels of transitional beneﬁts (via the enterprise RSC), and to labour market and reemployment or training services. Those previously in private or collective employment are comparatively disadvantaged, often having to pay for access to labour market services or training, and having limited (if any) access to social insurance beneﬁts. Rural migrants lack eligibility even for the Minimum Livelihood support programme. The potential thus exists for rising tensions between groups of workers over their differential treatment by the system, with the entrenchment of old (rural–urban) divisions and the creation of new divisions within the urban population. From an institutional perspective, moral hazard problems exacerbate the funding problems in implementing this system. Each level, facing

244 Readjusting Labour in Urban China Table 12.4

Unemployment and lay-offs in Chengdu and Shenyang, 1998

Urban labour force, of which SOEs

Sichuan province: Chengdu

Liaoning province: Shenyang

1.5 million 800 000

1.7 million 970 000

Unemployed (eligible for beneﬁts)

30 000 (8 800)

25 000

Xiagang (laid-off) of which: from SOEs re-employed in 1998 still looking for work % women received beneﬁts

60 000

331 000

– – – 43% 30 000

230 000 194 000 137 000 53% c. 70 000

Beneﬁts (RMB/month) Minimum wage Xiagang allowance Unemployment beneﬁt Minimum living allowance

190 142.50 133 120

– 210 170 150

RMB = Renminbi.

difﬁcult expenditure choices, will potentially fail to fulﬁl obligations knowing that there is a lower level from which the intended beneﬁciaries can draw support. Thus much of the burden arising from lack of ﬁnance or other problems at the enterprise and social insurance level may ultimately fall on the MCA system. Given the minimal level of support provided through the MLSL programme, urban poverty and deprivation will at best be temporarily relieved, but will not be reduced. In moving from an enterprise-based system to a social system of welfare provision, new issues are emerging concerning the professionalization of social workers and others involved in the provision of beneﬁts. Whereas the interface between client and provider was to some extent personalized through the work unit system, now these relationships are more distant and impersonal. Assessment of an individual’s need and eligibility for beneﬁts is no longer based on direct knowledge of their circumstances. These issues highlight other dimensions of the social transformation taking place. The more personalized work unit structures were part of the broader system of social organiza-

Sarah Cook 245

tion and control. Recognizing the wider challenges raised by the breakdown of the danwei system, the Chinese authorities are initiating new programmes of community construction (shequ jianshe) based around the urban residents’ committees. While still in the early stages, this may prove an interesting experiment in establishing alternative forms of urban community structure, on the one hand potentially providing new channels for the expression of residents’ interests to government authorities and the state (see Chapter 14), and on the other playing a pivotal role in the identiﬁcation of, and delivery of assistance to, those who face particular hardships and vulnerability in a more marketdriven environment.

Notes 1 The author is grateful to Wang Lu and Jenny Edwards for excellent research and secretarial support. 2 See, for example, coverage in the Far Eastern Economic Review, Saywell (1999), Wilhelm (1999). 3 For example, demonstrations by unemployed or xiagang workers are reported almost daily in the media. 4 The Interviews in Beijing, Chengdu and Shenyang were undertaken during a UK Government Department for International Development SOE reform appraisal mission in December 1998, while interviews with laid-off employees in Shanghai, Changchun and Beijing were funded by UK Government Department for International Development as part of the IDS Poverty Research Programme. 5 This emerged strongly in focus groups and interviews with laid-off women workers, February to March 1999.

References Chen, Q. (1998) ‘The Number of Laid-off Workers in Urban Enterprises Increase Substantially’ (in Chinese), China Labor, 1, p.44. Chinabrief (1998) ‘Labour comes unstuck’, Chinabrief, 1, 1 (May), pp.9–11. Cook, S. and Maurer-Fazio, M. (1999) ‘Introduction’, in The Worker’s State Meets the Market: Labour in China’s Transition, Special Issue of Journal of Development Studies, 35, 3, pp.1–15. Cook, S. and White, G. (1998) ‘The Changing Pattern of Poverty in China: Issues for Research and Policy’, IDS Working Paper, 67, Brighton: Institute of Development Studies. Leung, J. (1998) ‘Social Security Reforms: A Long and Winding Road’, China Review, pp.479–99. Li, J. (1998) ‘How to View Employment Situation in our Country?’, China Labor, 4, p.4. Liu, G. (1998) ‘The policy of re-employment centre must be adhered to’ (in Chinese), China Social Insurance, MoLSS, Issue no. 12, pp.22–3.

246 Readjusting Labour in Urban China MCA (1998) China Civil Affairs Yearbook, 1998, Beijing: MCA. MoLSS (1998) ‘Statistical Surveys of Migrant and Laid-off SOE Workers’ (in Chinese), China Labor, 6, p.45. Muo, R. (1998) ‘Analysis of Employment Situation in 1998’ (in Chinese), China Labor, 6, p.41. O’Leary, G. (1998) ‘Labour in Transition’, China Review, pp.456–78. SSB (1998) China Statistical Yearbook, China Statistical Publishing House. SSB and MoLSS (1998) China Labour Statistical Yearbook, China Statistical Publishing House. State Council (1997) ‘Announcement of the establishment of a national minimum livelihood System for urban residents’, State Circular No. 29. SWB (1998) ‘FE/3402 G/7’, 5 December. UNDP (1996) ‘Urban Employment Promotion’, Project Document, October. Urban Survey Team, SSB (1997, 1998) China Price and Urban Household Survey Statistical Yearbook, China Statistical Publishing House. Wang, Y. (1995) ‘Implementing Re-employment Projects, in MOL and Central TV Station’, 15 lectures on social insurance system, China Labor, pp.103–6. Wilhelm, K. (1999) ‘Cover Story: China’, Far Eastern Economic Review, 18 February, pp.10–16. Wong, L. (1998) Marginalization and Social Welfare in China, London: Routledge. Xinhua News Agency (1998) ‘Reemployment Project’, Internet. Zhu, L. (1999) ‘Safety net and poverty alleviation programmes in the economic transition of China’ Paper presented at the International Conference on Economies in Transition at the Turn of the Century, Macau Institute of European Studies. Zhu, L. (1997) ‘Poverty alleviation during the transition in China’ (mimeo), Chinese Academy of Social Sciences.

13 From Client to Challenger: Workers, Managers and the State in Post-Deng China Jackie Sheehan

1

Introduction

This chapter looks at how workers in China’s SOEs have responded to the changing nature of those enterprises during the reform period since 1978, and in particular examines the causes of the rising incidence of labour unrest among SOE employees in the second half of the 1990s, as drastic restructuring of the state sector begins to take place and unemployment reaches its highest levels in China for decades. Protests over lay-offs, bankruptcies and unpaid pensions and wages have already reached the stage where parts of the present reform programme are threatened with delay as local and national governments seek to contain workers’ resentment. Yet, as will be seen below, sometimes these efforts to mollify workers succeed only in further stoking their anger at what they perceive as patronizing and token concessions which do not address their most important concerns. SOE workers have conventionally been viewed as a very privileged group within Chinese society, an elite section of the workforce amply compensated for its still relatively low wage levels by the beneﬁts of the ‘iron rice-bowl’ system of life-long job security and enterprise provision of social welfare (see Chapters 2 and 3). Lack of labour mobility and dependency on the enterprise for such things as subsidized housing, medical care, children’s schooling and so on in turn have been identiﬁed as the major factor in SOE workers’ relative political docility and loyalty to the ruling CCP, at least up until the end of the 1980s. ‘Organized dependency’, whereby workers were enmeshed in a 247

248 From Client to Challenger Post-Deng

network of individual patron–client relationships in the workplace, has been seen as a successful means of preventing disgruntled workers from resorting to any form of organized, collective resistance in most circumstances (Walder, 1986:11). This view clearly has some basis in fact, as the largest, best-resourced and most prestigious SOEs were until the second half of the 1980s the least likely to experience major unrest among their workforces compared with all other enterprises. But the beneﬁts of the ‘iron rice-bowl’ were always deliberately limited to a minority of the industrial workforce as a whole (White, 1989:159–60; Sheehan, 1998:98–9), with often much less generous beneﬁts on offer in the far more numerous small and medium SOEs; the latter therefore could not necessarily count on such docility from their workers. The general view that the Chinese industrial workforce has been notable for its passivity and the ease with which it could be controlled has in any case been challenged by other accounts which stress the relative frequency of unrest among Chinese workers and note the involvement of SOE workers in periodic protest movements that have questioned the legitimacy of the party which claims to rule in their name (Davis, 1988; Chan, 1993; Perry, 1994; Perry and Li, 1997; Sheehan, 1998). Even with reference to the pre-reform period, the depiction of SOE employees as a favoured elite unwilling to bite the hand which fed it was somewhat one-sided, and since 1978 the steady undermining of the ‘iron rice-bowl’ as reform has progressed has further reduced the effectiveness of what was never a completely reliable method of containing workers’ grievances and assertions of collective interest (see Chapters 2 and 3). The recent outbreaks of unrest, moreover, are not simply the reaction of a previously privileged group to the loss of its exclusive beneﬁts. Some SOE workers now explicitly reject the enterprise-based paternalism of the past, rather than campaigning for its reinstatement, and instead are organizing independently to press demands for the legal rights which they feel are due to them now that they have found themselves in an insecure, quasi-capitalist employment relationship in their enterprise. These legal rights include the right to adequate welfare and pensions and the right to organize their own trade unions.

2

Reform and workers in the 1989 Democracy Movement

Before focusing on the most recent phase of SOE reform, we turn ﬁrst to an examination of workers’ responses when the CCP government ﬁrst expressed its intention to end the ‘iron rice-bowl’ in the late 1970s

Jackie Sheehan 249

and early 1980s. Given the early success of the agricultural reforms in boosting rural incomes, workers had high expectations of substantial material beneﬁts from the urban reforms, expectations which were deliberately encouraged by the authorities (Yang, 1989:55). Workers also anticipated a marked improvement in enterprise management (Sheehan, 1998:196), the incompetence of which they saw as being at least as important a factor in low industrial productivity as their own much-criticized job security and egalitarianism (White, 1987:379). Yet alongside these positive expectations, the fear of a return to the pre1949 era of high levels of job insecurity and unemployment also became evident at an early stage. However, workers’ misgivings about reform were much more than simple opposition to a change in the nature of the Chinese enterprise which would rob them of their material privileges. Workers have not in fact at any stage been opposed to reform as such; they of all people have been very well aware of the many problems within state-owned industry in China and of the need for signiﬁcant change to improve efﬁciency and raise productivity. Rather than seeking to preserve the old system for its own sake, they have opposed corruption and perceived unfairness in the conduct of the reforms and increased inequality and economic hardship for workers’ households as a result of reform; and they have also consistently objected to the assertion that the blame for the poor performance of state-sector industry should be laid at their door. Throughout the reform period the government has stressed the old, egalitarian ‘eating from one big pot’ mentality of the ‘iron rice-bowl’ employee as the main or even the sole cause of China’s low labour productivity (Howard, 1991:94; Sheehan, 1998:197). But while the state-controlled press presented the excessive job and wage security of the ‘iron ricebowl’ as a distortion of socialism, SOE workers themselves persisted in viewing it as perhaps the only unequivocal achievement of the prereform era, and certainly the feature of that era which had most value to them. By the end of the 1980s, job insecurity had emerged as the workers’ main worry in the new economic environment, despite the very slow implementation of measures such as the introduction of contract labour (Walder, 1987:41; Wilson, 1990:50; Warner, 1995:61), with a ‘job security panic’ (Walder, 1991:478) developing across virtually the whole of the state-sector workforce, not just the minority actually affected by the introduction of ﬁxed-term contracts (see Chapter 6). This new perception of insecurity, together with concerns that stagnating wages were being overtaken by high urban inﬂation, in large part

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accounts for the willingness of so many workers to support and participate in the student-initiated Democracy Movement in the spring of 1989. But another factor which must be taken into account is the extent to which workers felt their social and political status to have fallen as a result of the reforms. Measures such as the introduction of the Factory Director Responsibility System (FDRS: Chevrier, 1990; Child, 1994:66) and the general emphasis on increasing the power of top managers at the expense of workers, the workers’ congress, the ofﬁcial trade unions, and even the enterprise party branch, severely eroded any sense workers had previously had of being ‘masters of the enterprise’ in any real sense. The danger that the FDRS would undermine the (in any case inadequate) machinery of democratic management in Chinese enterprises had been recognized at the time the system was introduced (Sheehan, 1998:200–1), but nothing was done to prevent this outcome, and by 1989 the labour-movement press was comparing highly centralized management under the FDRS to the Soviet-inspired ‘one-man management’ of the early 1950s (Workers’ Daily, 27 June 1989). The contracting-out of enterprises to managers for ﬁxed periods also contributed to workers’ perceptions of themselves not as employees of the state with the political status which went with that, but simply as hired hands, wage-labourers with no stake in the enterprise beyond ‘working for the factory director’, whom they had come to perceive as in effect the ‘owner’ of the enterprise (Wang and Wen, 1992:265–6). Where contracting-out decisions involving their own enterprise were announced to workers on the evening news without any prior consultation, this could only increase their sense that they were being treated as part of the ﬁxed assets of the establishment which management could dispose of as it pleased. To workers, it seemed that there had been a ﬁnal breach in the social contract which had offered them security of employment, a minimum standard of living and a limited say in management in exchange for tolerating low pay and not organizing independent unions. This breach of an implicit industrial and political bargain thus left workers in a much more unambiguously antagonistic relationship vis-à-vis management and state authorities. Their increasingly frequent response to this shift in the months leading up to the 1989 Democracy Movement was the use of the strike weapon and selforganization (although these types of action were by no means as rare before the late 1980s as is often supposed: Sheehan, 1998), and the movement itself saw the widespread formation of autonomous workers’ organizations explicitly intended to play a political role

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beyond the enterprise as well as defending workers’ interests within it. SOE workers, including some from several of the largest and most prestigious enterprises in the country, took a particularly prominent part in the movement in 1989, although the CCP has consistently sought to downplay or deny this (Hassard and Sheehan, 1997:85–6; Sheehan 1998:211–2, 219–21).

3

Workers and enterprise reform in the 1990s

So already in the Democracy Movement of 1989, workers had manifested ‘a growing desire … to be treated as full citizens’ (Walder and Gong, 1993:28–9), declaring that ‘we are not prison labourers who happen to live in society, but legal citizens of the republic’ (Mok and Harrison, 1990:118). They also showed clear signs of perceiving themselves to be in much the same position vis-à-vis enterprise management as employees in privately-owned establishments, which in turn they saw as giving them the right to form completely independent organizations through which to defend their collective interests against those of SOE management (see Chapter 3). These trends only intensiﬁed as the 1990s progressed, and particularly since the long-anticipated announcement came in September 1997 at the Fifteenth CCP Congress that henceforth only about 500 of the largest and most strategically signiﬁcant SOEs would be kept in long-term state ownership, with the rest allowed to close, merge or go bankrupt as the market dictates. The unprecedentedly large-scale lay-offs from SOEs which have already begun have only reinforced the view of many SOE workers that they have become the main losers in the reform process to date. The level of job insecurity which brought workers on to the streets during the late 1980s and in the 1989 Democracy Movement pales into insigniﬁcance compared with the plans of many large SOEs to shed up to 50 per cent of their workforces by 2000 (Kuehl and Seiraczki, 1995:75; Hassard and Sheehan, 1997:92). The high incidence of unrest among former and current SOE employees in the last years and months of the 1990s should not therefore come as any surprise, and neither should the fact that protests are frequently accompanied by calls for independent unions. Downsizing in SOEs Managers in the state sector have been charged by the government with the responsibility of avoiding widespread unrest among workers through the careful preparation and conduct of lay-offs, and this is a

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responsibility which the top management of the largest SOEs generally take very seriously. They also in most cases have the beneﬁt of a level of resources which enables them to ‘make the channel before the water comes’; in other words, to prepare or facilitate acceptable alternative destinations for redundant workers before the latter are actually forced out of the SOE workforce. Many large SOEs have established internal labour markets to provide retraining and redeployment for surplus workers, and have also set up a range of service-industry sub-companies to absorb redundant labour, as well as offering incentives for early retirement or voluntary severance in the form of start-up funding for small businesses (see Chapter 12) (Morris et al., 1998). However, these SOEs have also set themselves deadlines by which very large reductions in the workforce must be achieved (and Premier Zhu Rongji’s insistence on a 2000 deadline for ‘turning round’ all SOEs is constantly repeated in the press), so that even here it will not be possible to avoid compulsory redundancies for much longer. The largest SOEs are by no means immune from unrest over job losses, unpaid wages and pensions and so on in any case (South China Morning Post, 10 December 1997), and large-scale compulsory lay-offs can only be expected to add to the discontent. The situation is already much more serious, though, for small and medium SOEs, many of which have long been running at a loss. Levels of unrest, sometimes involving violence, have been highest among the downsized workers of these companies. The smaller and less prosperous SOEs lack the resources to cushion the blow of redundancy for workers, as well as often not being able to afford the necessary employer’s stake which would enable their workers to participate in pilot social-insurance and pension projects, for example. They are more likely to be declared bankrupt or taken over by more successful ﬁrms at very short notice, often with no consultation with the workforce whatsoever, leading some workers to speak of East European-style ‘shock treatment’ (China Labour Bulletin, 1998) as they are thrown out of work without warning to ﬁnd they have only very limited and patchy access to welfare provision to keep them from poverty. The lack of consultation or even information about these vital decisions seems to be an important factor in prompting workers to take their protests to the streets around the plant or to surround local government ofﬁces in an attempt to force the authorities to talk to them. It has probably not helped the situation that the usual mechanisms for consultation within the enterprise, the Workers’ Congress and the trade union, (never particularly effective even in the pre-reform era), have been

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thoroughly undermined by the reforms’ tendency to stress managerial prerogative above all else. In many cases, managers who have grown accustomed to exercising unchallenged authority do not merely neglect consultation with workers, but are actively hostile towards it (Warner, 1995:130). It is very noticeable, too, that areas pushing ahead fastest with a programme of small and medium SOE bankruptcies, such as Sichuan province in the south-west (South China Morning Post, 16 September 1997), have been experiencing particularly frequent and widespread protests by the workers affected (Sheehan et al., 1998:16–17). Thus the post-Fifteenth CCP Congress policy of freely allowing SOE bankruptcy, merger and takeover would seem to be a recipe for increased labour unrest nationwide. Rights, not charity Even where SOE workers accept the need for restructuring involving lay-offs, there is no acceptance that it should be carried out regardless of the impoverishment of workers who cannot rely on regular receipt of beneﬁts, pensions or emergency cost-of-living allowances from the local government. To demonstrate the extent of the economic hardship caused by the lay-off policy, ﬁgures from the SSB indicate that 39 per cent of urban households experienced a drop in income during 1997, mainly because of the impact of lay-offs and unemployment, and to the 15 million laid off in 1997, a further 11 million were predicted to be added by the end of 1998 (China Labour Bulletin, 1998c). Around 53 per cent of urban households below the ofﬁcial poverty line contained a member who had either been made redundant or who, although technically still employed, was not actually working and thus was only receiving a fraction of normal wages. Even those still employed and working normally can go unpaid for months at a time (Sheehan, 1996:555). It is important to remember, therefore, that workers are not simply complaining that a very comfortable economic position has got a bit less comfortable; real hardship has been caused by the scale of the lay-offs since the beginning of 1997. It is also true to say, though, that former SOE workers do feel keenly the loss of their previous social and political status, especially where the ‘loyal pioneers of building socialism’ in the old heavy-industrial heartland have been reduced to hawking goods on the city streets, the sort of work previously the preserve of poor migrants from the interior provinces (Schueller, 1997:105). But besides this loss of face, the ‘new poor’ (South China Morning Post, 11 April 1997) of laid-off SOE workers now have genuine worries about ﬁnding the money for family medical bills,

254 From Client to Challenger Post-Deng

children’s schooling, and even putting food on the table, and for many this is the ﬁrst time in their lives that they have experienced this level of insecurity (Wang, 1993:156). Discontent and unrest in the last years of the 1990s reached such a level that an ofﬁcial response to head off outright rebellion had to be made. Ofﬁcial statements well into 1997 continued to emphasize the unfortunate necessity of throwing large numbers out of work, urging those affected to change their ideas about their entitlement to employment and the type of job they could expect (South China Morning Post, 19 September, 16 December 1997). But since then, much more stress has been laid on making proper provision for unemployed workers in terms of beneﬁts and retraining opportunities, and on offering emergency assistance to households who cannot make ends meet. However, some of the efforts of managers, the ofﬁcial trade unions and local government representatives to express sympathy and offer practical help to impoverished workers have only provoked further anger among the recipients of these gestures. The presentation to workers of food parcels and cast-off clothing by the ofﬁcial ACFTU has recently been characterized as: a nauseating and clumsy combination of propaganda and almsgiving, increasingly resented by workers who feel that they deserve more than charity. The answer to unemployment is real training for real jobs, not charity from government ministers seeking photo opportunities in ﬂeeting and stage-managed visits to the homes of the poor. (China Labour Bulletin, 1998b) Besides televised aid visits to workers’ homes (Schueller, 1997:105–6), other charitable gestures have included collections for needy workers as winter approaches, with collection points for warm clothing, food and cash donations set up outside a number of public buildings in Beijing in 1997, including outside the Ministry (now the Bureau) of the Metallurgical Industry (South China Morning Post, 21 October 1997). Visits to workers’ homes to offer aid to the needy have a long history in China, going back to the 1950s, but were even then viewed with suspicion by workers who saw them as little more than a public-relations gesture which did not solve the underlying problems they faced (Sheehan, 1998:58–9). They are even less well regarded by many workers now, as the Democracy Movement theme of the need for enforceable legal rights, rather than paternalistic beneﬁts which can be bestowed or withheld at the whim of the authorities, has returned to

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prominence in the last few years. Again casting themselves as the main victims of reform, SOE workers point to the sweeping changes which have been made in China over the past 20 years and increasingly express the view that measures such as the establishment of a nonenterprise-based welfare system and other legal protections for workers could and should have been possible as part of this wholesale restructuring of Chinese society and the economy. They reject the argument that there is no money to fund such projects, insisting that it is rather a question of the government’s priorities (China Labour Bulletin, 1998b). It is certainly noticeable that during the reform era the passing of laws which do offer some degree of protection for workers’ interests, such as the Labour Law and the Enterprise Law, has lagged far behind the establishment of a centralized, disciplinarian and uncommunicative management style on the shop ﬂoor. While it is mostly the foreign-invested manufacturing operations around the SEZs (see Chapter 3) which have become notorious for their harsh, almost militarized style of management and abuse of workers’ rights (Chan, 1991, 1996), SOE management has also been inﬂuenced to a certain extent in the same direction, with the work system in one SOE recently observed as featuring ‘quota increases and speed-ups; longer working hours; the adaptation of “socialist labour emulation” to production for proﬁt; new draconian controls over labour attendance; and the use of monetary sanctions and penalties to control labour’ (Zhao and Nichols, 1996:1). This has been a steady trend for years, since the early 1980s in areas such as the south-east which were pioneers of the urban reforms, so that the passing of the Labour Law in 1995, asserting for the ﬁrst time in law that workers were the true masters of the enterprise, could have little effect against such a well-established trend of power being concentrated in top management’s hands while workers felt themselves to have been reduced to the status of hired labour. In their demand for legal rights rather than paternalist gestures, restive workers are mirroring developments in oppositional political movements in China, and the legal line of argument is one which could prove extremely difﬁcult for the government to deal with given its own recent rhetoric on the importance to successful reform of the rule of law. The impact of corruption With reference to the 1989 Democracy Movement, Walder noted that corruption and inﬂation then ‘had the effect of politicizing workers’ dissatisfaction’ (Walder, 1989:34) with the impact of economic reform.

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A decade later, the issues of corruption and unemployment are playing a similar role. Corruption is generally acknowledged to be widespread in China at present, with the government itself running a high-proﬁle national campaign against graft and taking pains to publicize cases where ofﬁcials have been caught and convicted of corruption offences. It is impossible to know how much corruption is occurring in the present phase of state-enterprise restructuring, but there is certainly considerable scope for it, as companies are merged, taken over or declared bankrupt in increasing numbers and assets disposed of at very short notice with minimal public debate or information about the process. What is most striking, though, is that corruption is now almost universally suspected by workers in decisions about the fate of their enterprises. Here again the almost total lack of advance warning, let alone consultation, with the workforce before such decisions are announced can only add to suspicions that the decision-makers have something to hide. Corruption is also frequently suspected where factories are still in operation and goods are leaving the warehouse, but workers are told there is no money for wages, as in the following case from Hunan province: At our factory, we went to the union because we haven’t been paid for two months … The answer we got from the union guy was: ‘Even the union funds haven’t been paid, go and see the manager.’ So we went to the boss and he said: ‘The factory doesn’t have any money at the moment. As soon as we have the cash, we will deﬁnitely pay the wages.’ … These answers don’t add up. We are still clocking on every day, production is going on as normal, and the warehouse certainly isn’t crammed full with unsold goods. So how come there is no money? (China Labour Bulletin, 1998d) It is possible in the present economic climate that goods leaving an SOE’s warehouse are being dumped on the market at prices which earn the enterprise little or no proﬁt; SOEs in the building materials, metallurgical, machinery, textiles and petrochemicals industries, among others, were eventually warned about such dumping by the government (South China Morning Post, 25 September 1998). It is also quite possible that in this and many other cases, any money which is coming in to the enterprise is needed to cover outstanding loans or other liabilities and cannot be spared even for basic wages. But although workers accept indebtedness as a common reason for the closure of SOEs or the failure to pay wages, they tend to blame the

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extent of the debt itself on previous mismanagement and corruption at the top (China Labour Bulletin, 1998d), still seeing management misconduct or incompetence as the root of the problem. While only a few documented cases of this type have been given prominence in the state-controlled media (South China Morning Post, 22 July, 26 September and 4 December 1997), there is a much more general and widespread tendency among the state-sector workforce to see corruption and mismanagement as the main and most plausible explanations when the closure of an enterprise is announced or when wages go unpaid, and this only enhances the animosity already evident between managers and workers. The CCP government’s own statements about the dangers of corruption in the process of state-enterprise restructuring add credence to workers’ suspicions. Both decisions about the closure or merger of SOEs (and the establishment of the share-holding system in SOEs) have been identiﬁed as areas where particular care must be taken to guard against corruption (South China Morning Post, 8, 18 September 1997). In recent years, measures have been adopted to prevent the improper disposal by managers of SOE assets, something which was often a problem under the Contract Responsibility System in force across much of stateowned industry from the early 1980s until 1995 (Chen, 1995). Under the new Modern Enterprise System and Group-Company System reform programmes, managers are now explicitly charged with increasing or at least maintaining the value of state assets as part of their contracts of employment (Hassard and Sheehan, 1997:93). But during 1997 corrupt disposal of assets was highlighted as the major factor in the bankruptcy of a textile factory in Shanxi, where 5400 workers had gone unpaid for more than a year (South China Morning Post, 26 September 1997). Workers’ own statements now frequently refer to managers having enriched themselves through the illicit disposal of state assets, often while their own wages were being paid irregularly or not at all, and then leaving the SOE to its fate and moving on unscathed to another post (South China Morning Post, 18 November 1997, 8 and 29 September 1998; China Labour Bulletin, 1998b), seeing this as a universal pattern. Again, ofﬁcial warnings and measures taken to guard against this type of action tend to be taken by workers as conﬁrmation of the scale of the problem. The asset-disposal form of corruption acts as a politicizing factor in workers’ discontent in a speciﬁc way, helping to reinforce the impression among many workers that SOE managers in the late 1990s are in effect the ‘owners’ of the enterprise, or at least can behave as if they are, like the boss of a

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loss-making factory who, in the eyes of the workers, had ‘sold off the machinery and equipment as if he had opened the factory himself and it all belonged to him’ (China Labour Bulletin, 1998) Thus an element of class-based animosity enters into workers’ attitudes to enterprise restructuring, adding to the politicizing effect of the whole issue of ofﬁcial corruption.

4

Conclusion

The scale and conduct of the present round of SOE workforce reductions has brought about an increased incidence of unrest, strikes and other protests among the workers affected. Protests are becoming so common in some areas of China that a Politburo Standing Committee member was reported to have returned from a tour of the provinces complaining that he had frequently been unable to use the main entrance to local government buildings because of ‘the almost daily occurrences of jobless workers and destitute pensioners laying siege to the headquarters of provincial and municipal administrations’ (China Labour Bulletin, 1998a). The level of unrest has even begun to hinder the implementation of other major reform measures, such as the end of subsidized housing (South China Morning Post, 2 July 1998). The CCP leadership clearly takes the present trend of frequent labour unrest very seriously, at one point rating it the third most worrying threat to stability in China after the activities of separatists in the Muslim northwest of the country and the Tibetan independence movement, with the formation of independent workers’ organizations cited as a particular cause for concern (South China Morning Post, 1 July 1998). Although in some cases concerned managers at large SOEs have slightly extended their deadlines for achieving workforce reductions1 so as not to aggravate the situation further, small and medium SOEs are mostly pressing ahead regardless. In addition to the post-Fifteenth CCP Congress policy of leaving most SOEs to their market fate, the ﬂooding during the summer of 1998 produced further industrial casualties in the shape of ﬂood-damaged small SOEs judged to be too inefﬁcient, polluting or loss-making to be worth repairing or rebuilding, which were instead to be closed down (China Business Weekly, 13 September 1998). The use of service sub-companies to absorb unemployed SOE workers has been successful up to a point, but many of these companies have been reported to be losing money themselves, and there are concerns about market saturation (South China Morning Post, 6 January 1998). Thus, this major method of dealing with potentially restive surplus

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labour is looking problematic as a sustainable solution to the problem (see Chapter 12). Neither is the diversion of redundant SOE workers into self-employment without difﬁculties: it is striking how often in recent reported instances of unrest, including many where violent clashes with police are alleged to have occurred, taxi and pedicab drivers have been involved, many of whom are former SOE employees. Some municipal governments have a policy of reserving a certain proportion of the restricted number of taxi licenses for laid-off SOE workers (South China Morning Post, 7 May 1997), but street protests have occurred where attempts have been made to tighten up licensing procedures or to increase the fees payable by drivers to the local authorities (South China Morning Post, 5 and 8 December 1997, 7, 26 and 30 September 1998). The SOE background of these drivers seems a plausible explanation for their very frequent resort to street protests: already among the obvious losers in the reform process, they do not take kindly to any further ofﬁcial action which makes it more difﬁcult for them to earn a living. Accusations that ‘a small group of people’ incited disgruntled drivers to cause trouble in an incident in Shaoguan, Guangdong province, seem to indicate an attempt at independent organization in this instance of unrest among former SOE employees (South China Morning Post, 30 September 1998). It is all the more troubling for the CCP government that SOE workers’ protests in the late 1990s were increasingly both politicized and organized. The belief that independent unions are the only means by which workers’ interests can be protected in the new, insecure environment brought about by reform is now more widely held among workers than at any time since 1949. In addition to efforts to form autonomous organizations or to propagate the idea of doing so, a number of workers have also recently attempted to stand as candidates in local people’s congress elections on a platform of workers’ rights and/or proper, legally-guaranteed provision for laid-off workers (South China Morning Post, 7, 22 and 26 September 1998). These local elections have repeatedly served as a focal point for unrest and pressure for political reform in China during the post-Mao period, perhaps most notably in the autumn of 1980, when many worker-activists involved in the Democracy Wall Movement stood (or attempted to stand) for election as a way of publicizing their views and highlighting the gulf between the citizens’ rights laid down in the Chinese constitution and local authorities’ actual response to any challenge from outside the party establishment (Sheehan, 1998:189–92). This type of legal or constitutional challenge to the CCP government is much more difﬁcult for the

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authorities to deal with than a disruptive street protest which can be categorized as selﬁsh and misguided trouble-making, and it also poses the threat of a link between restive workers and other oppositional political movements in the PRC which are increasingly resorting to the same legalistic tactics (see Chapter 14). As well as calls for and attempts to organize independent unions, there have also been moves by workers towards the formation of independent watchdog organizations to monitor and combat ofﬁcial corruption (South China Morning Post, 25 September 1998); sometimes the same activists are involved in both independent union-organizing and anti-corruption groups (China Labour Bulletin, 1998f). Ofﬁcial corruption is routinely spoken of wherever SOEs are failing to pay wages or being closed down, and workers’ allegations about the privileged, secure and luxurious lifestyles of corrupt managers and ofﬁcials (South China Morning Post, 8 September 1998; China Labour Bulletin, 1998e) bear a striking resemblance to similar accusations made by worker-activists during the 1978–81 Democracy Wall Movement and the 1989 Democracy Movement (Sheehan, 1998: 159–60, 213–14). The politicizing role of corruption-related grievances even extends to the inadequate provision of welfare for laid-off workers, with the ofﬁcial warnings issued against the misappropriation of funds intended for the unemployed (South China Morning Post, 20 June 1998) giving credence to protesting workers’ suspicions that money intended for them is being improperly diverted (South China Morning Post, 17 July 1997). Again, precedents can be found for this type of suspected corruption as a trigger for labour protest, going back to the 1950s (Sheehan, 1998:59–60). At the time of writing, most incidents of protest and self-organization by workers can still be described as local, sporadic and short-lived, albeit increasingly common; the police generally move swiftly against anyone involved in what might develop into an illegal organization, and since independent trade unions are never allowed to register with the local authorities (such registration being a requirement of all organizations in China), they are all de facto illegal. But the corruption issue and the emergence of class-based animosity towards the managerial ‘owners’ of SOEs give an important and explicitly political dimension to the general discontent now evident among present and former SOE employees. As more join the ranks of the unemployed and those not receiving regular wages, it is very likely that the activists who are pushing the cause of independent unions most strongly will ﬁnd a large and ready audience for their views, creating the potential for

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another serious crisis in the CCP government’s troubled relationship with the industrial workforce.

Note 1 Information from author’s interviews with SOE managers, July 1998.

References Chan, A. (1991) ‘PRC workers under “capitalism with Chinese characteristics”’, China Information 5, 4, pp.75–82. Chan, A. (1993) ‘Revolution or corporatism? Workers and trade unions in postMao China’, Australian Journal of Chinese Affairs, 29, pp.31–61. Chan, A. (1996) ‘Boot camp at the shoe factory’, Washington Post, 3 November. Chen Derong (1995) Chinese Firms between Hierarchy and Market, London: Macmillan and New York: St Martin’s Press. Chevrier, Y. (1990) ‘Micropolitics and the Factory Director Responsibility System, 1984–1987’, in D. Davis and E. Vogel (eds), Chinese Society on the Eve of Tiananmen, Cambridge, Mass.: Harvard University Press, pp.109–33. Child, J. (1994) Management in China During the Age of Reform, Cambridge: Cambridge University Press. China Business Weekly, dates in text. China Labour Bulletin (1998a) ‘Labour action: Nationwide’, China Labour Bulletin, 42 (May–June). China Labour Bulletin (1998b) ‘Protesting against poverty’, China Labour Bulletin, 42 (May–June). China Labour Bulletin (1998c) ‘Welfare: More poor people’, China Labour Bulletin, 42 (May–June). China Labour Bulletin (1998d) ‘Letter from Hunan’, China Labour Bulletin, 43 (July–August). China Labour Bulletin (1998e) ‘On closures, corruption and unemployment’, China Labour Bulletin, 43 (July–August). China Labour Bulletin (1998f) ‘Trade unionist detained following house search’, China Labour Bulletin, 43 (July–August). Davis, D. (1988) ‘Patrons and clients in Chinese industry’, Modern China, 14, 4, pp.487–97. Hassard, J. and Sheehan J. (1997) ‘Enterprise reform and the role of the state: The case of the Capital Iron and Steel Works, Beijing’, in A. Bugra and B. Usdiken (eds), State, Market and Organizational Form, Berlin: Walter De Gruyter, pp.73–103. Howard, P. (1991) ‘Rice bowls and job security: The urban contract labour system’, Australian Journal of Chinese Affairs, 25, pp.93–114. Kuehl, J. and Sziraczki G. (1995) ‘Employment restructuring at micro-level: Results of the Dalian pilot enterprise survey’, in Lin Lean Lim and G. Sziraczki (eds), Employment Challenges and Policy Responses: Chinese and International Perspectives, Beijing: ILO, Area Ofﬁce, Beijing, pp.59–81. Mok Chiu Yu and J. F. Harrison (eds) (1990) Voices from Tiananmen Square: Beijing Spring and the Democracy Movement, Montreal: Black Rose Books.

262 From Client to Challenger Post-Deng Morris, J., Hassard, J. and Sheehan, J. (1998) ‘Muddling through the wreckage: State-owned enterprises and the economic reform process in China’, Keele–China Management Centre Working Paper 2, University of Keele. Perry, E. J. (1994) ‘Shanghai’s strike wave of 1957’, China Quarterly, 137, pp.1–27. Perry, E. J. and Li Xun (1997) Proletarian Power: Shanghai in the Cultural Revolution, Boulder, CO: Westview Press. Schueller, M. (1997) ‘Liaoning: Struggling with the burdens of the past’, in D. S. G. Goodman (ed.), China’s Provinces in Reform, London: Routledge, pp.89–121. Sheehan, J. (1996) ‘Is there another Tiananmen uprising in the ofﬁng?’, Jane’s Intelligence Review, 8, 12, pp.554–6. Sheehan, J. (1998) Chinese Workers: A New History, London: Routledge. South China Morning Post, dates in text; Internet edition used unless otherwise stated. Walder, A. (1987) ‘Wage reform and the web of factory’, China Quarterly, 109, 22–41. Walder, A. (1991) ‘Workers, managers and the state: The reform era and the political crisis of 1989’, China Quarterly, 127, 467–92. Walder, A. (1986) Communist Neotraditionalism, Berkeley, CA: University of California Press. Walder, A. (1989) ‘The political sociology of the Beijing upheaval of 1989’, Problems of Communism, 38, 5, pp.30–40. Walder, A. and Gong Xiaoxia (1993) ‘Workers in the Tian’anmen protests: The politics of the Beijing Workers’ Autonomous Federation’, Australian Journal of Chinese Affairs, 29, pp.1–29. Wang Xiaodong (1993) ‘A review of China’s economic problems: The industrial sector’, in R. V. Des Forges, Luo Ning and Wu Yen-bo (eds), Chinese Democracy and the Crisis of 1989, Albany, NY: State University of New York Press, pp.149–60. Wang Zhuo and Wen Wuhan (eds.) (1992) An Evaluation of Guangdong’s Opening and Reform (Guangdong gaige kaifang pingshuo), Guangzhou: Guangdong People’s Press. Warner, M. (1995) The Management of Human Resources in Chinese Industry, London: Macmillan and New York: St Martin’s Press. White, G. (1987) ‘The politics of economic reform in Chinese industry: The introduction of the Labour Contract System’, China Quarterly, 111, pp.365–89. White, L. T. III (1989) Policies of Chaos: The Organizational Causes of Violence in China’s Cultural Revolution, Princeton: Princeton University Press. Wilson, J. (1990) ‘Labor policy in China: Reform and retrogression’, Problems of Communism, 39, 5, pp.44–65. Workers’ Daily (Gongren Ribao), dates in text. Yang, M.M. (1989) ‘Between state and society: The construction of corporateness in a Chinese socialist factory’, Australian Journal of Chinese Affairs, 22, pp.31–60. Zhao, M. and Nichols, T. (1996) ‘Management control of labour in state-owned enterprises: Cases from the textile industry’, The China Journal, 36, pp.1–21.

14 China’s Developing Civil Society: Interest Groups, Trade Unions and Associational Pluralism Suzanne Ogden

An analysis of the relationship between associations and civil society in China requires an understanding of three categories of factors and how they interact.1 First, there are global factors common to most countries regardless of their developmental level, such as the increasing importance of technology and the specialization of knowledge and interests. Second, there are factors shared by many developing countries, such as democratization and the decentralization of state control. And third, there are factors speciﬁc to China, such as the role of the family and traditional Chinese culture. This study treats the development of associations both as the result of increased specialization and the arrival of the information age in China, and also as the cause and the effect of increasing democratization and economic decentralization. It also examines the form and behaviour of China’s associations as they are modiﬁed by Chinese traditional culture. Although this chapter focuses almost solely on China, ideally it will provide a basis for future comparative studies. A pluralistic political system empowers individuals and groups by allowing the expression of multiple perspectives and the balancing-out of conﬂicting interests. Political pluralism does not, however, necessarily require the existence of multiple parties since other institutions and channels can present these different political interests and demands. Whether in well-established democratic states or in states inching towards democracy, then, political parties are not as important as they once were in representing the people’s interests.

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Even in countries long governed by an authoritarian political system, citizens today ‘are less likely to identify so closely with partisan symbols or ideologies, and defend a much more variegated set of interests’ (Schmitter, 1992:160). In part, this reﬂects growing awareness by citizens that they can act collectively without participating in a political party. This is not to say that political parties in the end relinquish control to interest groups, as ultimately political parties still represent the various interest groups and social classes in the government. Nevertheless, interest groups and social movements have far more power to inﬂuence policies and to act autonomously than in the past (Schmitter, 1992:160). The highly specialized legal and technical knowledge required in today’s complex world is in large part responsible for this shift in the locus of power. In most developed countries, experts not only can be, but must be, called in to solve problems; and special interest organizations, which become expert in the intricacies of their own issues and objectives, are responsible for representing their constituencies’ interests on major economic, social, political and cultural issues. For example, in the USA, many political pressures come from outside political parties and shape the parties’ policies. Interest groups, social movements, associations, lobbies and think tanks have all gained salience in recent decades. Much of the legislation before Congress is the result of these various groups, not political parties as formal organizations, persuading members of Congress to consider particular policies. Legislators listen to them not just because they represent powerful groups within the society, but also because they understand the highly technical issues involved. From taxation, roads, dams, medical technology, pollution and banking policies, to housing, trade issues, control over food and drugs, and insurance, legislators need to know both what their constituencies want and how legislation will affect those interests. Specialized interest groups have, therefore, added their voices to those of government and party ofﬁcials, and are signiﬁcantly increasing their input into decision-making in those areas which affect them. With the rapid development of science, technology, commerce and communication, together with increasingly complex societal and economic arrangements, party politicians are unable to keep up with the intricacies of the problems their societies face. In a simpler world, party politicians were better positioned to handle the totality of issues facing their country. Today that is hardly the case, and it is no less true for a rapidly developing and increasingly complex China than for the more developed countries of the world.

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Thus, in China, the days of ‘red over expert’ (in which the individual with strong political credentials rather than the knowledgeable person was likely to control organizations) are long gone. The mainstay of the government’s policies is no longer rooted in ideology but in pragmatism; and those people rising to the top of organizations must be expert at their increasingly complex and demanding jobs. China now has more than 200 000 interest groups and professional associations from the local to the national level. These represent constituencies as diverse as commercial entrepreneurs, lawyers, doctors, women, businesspeople, importers and exporters, accountants, consumer protectionists, environmentalists, trade groups, shareholders, parent-teacher associations, artists, sports clubs, television and movie producers, computer groups, qigong practitioners, dancers, workers, musical societies, religious groups, retired workers, sportsmen, industries, and anti-tax groups. There are even voluntarily organized associations for leisure activities, although the state’s (ineffective) policy is to prevent them from becoming too powerful by discouraging ‘the formation of transunit and transregional recreational organizations’ (Wang, 1995:169). Interest groups and associations in China may be divided into three types: those that assist the state by consulting with it, and by regulating their membership to conform to state policies; those that represent their members’ interests in a way that challenges state policies or state control; and those that do both. Those that assist the state are less a part of ‘civil society’ than those that simply represent their members’ interests. But in China, more often than not, associations both assist the state and challenge the state. For example, in 1995, China’s 90 000 lawyers founded a national association, the All-China Lawyers’ Association, which functions in both roles. Ofﬁcially an autonomous organization, its members voted to replace those association ofﬁcials appointed by the Ministry of Justice with new elected ofﬁcials. They have also set up other legal organizations to protect the rights of ordinary citizens who are believed to have been treated unfairly by government (Pei, 1997:43). The association also functions in the role of an interest group representing the sector interests of its members. In particular, it tries to protect the legal rights of lawyers which have allegedly been violated by the state. In this role it acts as an advocate of special interests, which may put it in a more adversarial relationship with the state. On the other hand, the state consults the All-China Lawyers’ Association concerning legal issues the government is addressing. In this respect,

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the association functions in the role of assisting the state for the good of the entire society (Chinese Law Society, 1998:623–4). The Chinese Law Society was also created by the Ministry of Justice. It conducts research into criminology; and when the National People’s Congress decided to modify the Criminal Code in 1996, the Society did research on draft laws establishing principles such as equality before the law, determining sentencing by law, and repealing the counterrevolutionary court. It then offered advice on these topics to the relevant legislative sub-committees. The Chinese Law Society has branches at every level of government, under which it has also set up specialized legal research societies: for example, the Jurisprudence Society focuses on the basic conditions for the rule of law, and the relationship between the rule of law and the socialist spiritual civilization. The Civil Law and Economic Law Societies focus on making uniform contract laws, and improving the law concerning foreign-invested enterprises. The Procedural Law Society focuses on improving the criminal law, and on the problems in implementing civil procedural law (Chinese Law Society, 1998:621–2). Many interest groups form part of associations organized and controlled by the state, such as the Women’s Federation and the Communist Party Youth League. But some of these associations are fully interchangeable with government agencies. For example, the All-China Federation of Sports is the same as the State Sports Bureau, except in name. The same is true for the Environmental Health Association, which is run by a government agency of the same name at every level of government. In Chinese jargon, it is ‘one institution, two names’ (yitao jigou, liangkuai paizi), and the same person may even direct both. In the case of the Shanghai Municipal Environmental Health Association, it has a technical consulting department, and it helps carry out a governmental programme to eliminate matong, the wooden bucket toilet widely used in Shanghai (Ma and Liu, 1993:142). Others, although organized by the state, are able to carve out an autonomous area of action in which the state does not intervene. This is particularly true of the tens of thousands of associations that represent interests at the local level. The overall decentralization of control that has accompanied economic liberalization has been responsible for much of the growth of this sort of autonomy. Even when there is an overlapping leadership of the association and the government agency, it does not necessarily mean that the government completely controls the association. It is also the way in which the association may inﬂuence the government (Zhu, 1997:191–4).

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Ironically, the CCP’s penchant for organizing people taught them organizational skills that they now use in the non-governmentdirected public sphere, and sometimes for the purpose of pressuring the government to change policy (Wasserstrom and Liu, 1995). Minimally, individuals with common interests can work through these organizations to protect their members’ interests within the framework of existing law and regulations. To put it in the vocabulary of Western social science, the Chinese use organizational skills acquired from training by the state and CCP to articulate their interests and aggregate their demands through associations established by the state. In 1996, for example, urban neighbourhood associations joined forces to stop local noise pollution emanating from portable stereos blasting on the streets and pavements where thousands of Chinese couples learn ballroom dancing, and where old ladies are doing ‘fan dancing’ to the clashing and crashing of cymbols, tambourines, gongs and drums. Beijingers who were unable to sleep through the racket worked through their urban neighbourhood associations to force the government to pass a noise ordinance that lowered the decibel level allowed on streets by public performers. In turn, the fan dancers and the ballroom dancers organized and petitioned the local ofﬁcials to protect their ‘right’ to express themselves through dance in the streets, some of the few public spaces available to them in a crowded urban environment (Ogden, 1996). Although these were voluntarily-organized informal associations, they served the purpose of expanding the public space of civil society.

1 The increasing role of pragmatism and expertise in China’s development of interest groups The tendency to organize around issues and interests in China today is more than a reﬂection of the decline of the role of communist ideology in shaping policy: it also reﬂects the state’s assertion of highly pragmatic concerns in policy-making, and the desire of distinct constituencies to fall in line with, and take advantage of, the state’s approach to issues and policy. Although China has never been homogeneous and uncomplicated, it is considerably more heterogeneous and complicated now than it was before 1980. Today’s China has far more diverse needs and interests to be represented than previously, and specialized associations and interest groups serve the need of articulating these interests. They result from social development and the growth of social autonomy and independence.2

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In today’s world, interest groups and corporatist associations are arguably more effective instruments for representing a variety of particularistic collective interests than are political parties. As just noted, China’s more pragmatic government actually seeks input from interest groups and professional associations to help shape policy and advance the goals of modernization. As has often happened in other Communist Party systems (Schmitter, 1992:163), China has prohibited competition from other political parties but it has tolerated, even encouraged, interest groups and associations, especially those that represent relatively narrow concerns or localized issues. The result of the government gradually delegating its control to associations in the 1980s and 1990s is that those associations have become better positioned to represent their constituents’ interests; this sometimes puts them in an adversarial relationship with the government. An additional perspective from which to view the state’s creation of associations is that it is the way to control people in the context of an inadequate legal system and the destabilization brought about by economic liberalization. Associations which encourage members to obey regulations actually help the government control society, and protect society from its own worst members; but self-regulation works best through organizations that represent their members’ interests. For example, the National Association of Science and Technology established a set of ethics for governing publications concerning science and technology. They prohibit plagiarism and copyright violations. It is in the interests of the members and the state to have such regulations, but it was left to the members of this association to write them (Jin, 1999). Whether or not China has more than one major party may, then, be less important than that interest groups and associations continue to thrive and to expand their channels for making demands on the government, even as they assist the government in regulating their memberships. In short, the ﬂourishing of interest groups and associations in China today represents the triumph of pragmatism over ideology, and of pluralism (if not multi-party rule) over a monolithic one-party state.

2 China’s state and society as interdependent, not confrontational China’s state and society are not, then, clearly distinct and autonomous spheres. On the contrary, they are interlinked, and often utilize each other to their mutual beneﬁt. In the traditional patriarchal

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Chinese concept of the empire, a view which has carried over to the present-day conception of the state, the state is responsible for the welfare of its citizens. Familial and political authority have generally not been differentiated. The foundation of the state is the family, and the state is the ruler’s household (Ogden, 1974). The Chinese people expect that, in return for their loyalty to the state, it will take care of them: it will ﬁnd work for them, assign housing to them, provide health-care and education, and in general attend to their needs. It is a perspective which encourages dependency on the state, assumes a paternalistic role for the state, and allows the patriarchal state to control its citizenry. The patriarchal state is, in short, a state responsible for its citizens. In turn, Chinese citizens have obligations (yiwu), not as individuals, but as members of society: obligations to obey ofﬁcials and state policies, and to take care of the family. One could say that the result of this political culture has been to make it difﬁcult for the Chinese state and society to function as separate entities; for unlike the West where civil society preceded the formation of the nation-state, with the latter evolving from the former, a strong centralized state long preceded any efforts to introduce elements of a civil society in China. Thus, China’s centralized state is in a better position than many other states to shape and even control the development of civil society. Moreover, as will be discussed below, the emphasis in Chinese culture on the family interferes from the bottom up with the creation of a public sphere. Both the state’s authority and the centrality of the family are, however, being challenged and disturbed by the economic and political reforms which have led to the state’s partial abdication of its role as caretaker of the Chinese people. This erosion of controlling authority at both the top and the bottom, combined with a better-educated youth who are more assertive in demanding their rights, and a large number of retired or idle workers and ofﬁcials who use their residual power to start and run associations (Structural Transition Project Team, 1998:10–11), has in turn led to the creation of signiﬁcantly greater public space.

3

Corporatism

Corporatism may exist in any system, whether communist party-led or liberal democratic. This institutional form is chosen by governments which prefer to deal with interests and sectors that are organized and co-operative instead of with the more competitive and conﬂictual types of interest-group organization found in many liberal democratic

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states. The main purpose of state corporatism is ‘a goal-oriented harmony, orchestrated to serve a national mission’, such as modernization and economic development. The corporatist model has been adopted in Japan and Great Britain, as well as in other more liberal democratic states at various times in their history. There it is known as ‘societal corporatism’, a term suggesting that the associations’ leaders are responsible to their members rather than the state. In more authoritarian states, such as Taiwan and South Korea, however, it is known as ‘state corporatism’, suggesting that the responsibilities of the associations’ leaders tilt more in the direction of the state (Unger and Chan, 1995:31–2; Unger, 1996:795–6). Corporatism in socialist states, however, might better be described by the term ‘socialist corporatism’, to reﬂect the sorts of modiﬁcations made to accommodate a socialist context for corporatism (Pearson, 1994:33). In its ideal form, state corporatism is a system wherein the state recognizes only one organization at the national level as representing the interests of all those in its constituency. The state itself establishes almost all these associations, and membership may be compulsory for all those in the relevant constituency. There are, however, numerous exceptions to compulsory membership, especially for associations and societies that represent the equivalent of hobbies, charitable or support groups. Thus, such groups as the Cooking Association, the Japan Society, the Stamp Collectors’ Association, the Flower Potters’ Association (perhaps more enterprises than individuals are in it), and the Anti-Cancer Support Association would be joined only if a person found that group’s activities useful. So it is not required that someone who collects stamps joins the relevant association, but, on the other hand, a philatelist cannot start an organization which competes with the ofﬁcially organized one. Another type of exception would be those organizations which have strict requirements for membership. For example, membership in the All-China Writers’ and Artists’ Federation (which has branches for the various ﬁelds, such as drama, literature, music and so on) is considered a privilege, and certain beneﬁts, such as funds for travel, come with membership.3 Those who choose not to join may be less under the thumb of the Party, but they also do not get the privileges of members. At the provincial, county and local level, every organization that covers the same area as a national organization should be just a lower branch of the same organization. In other words, there cannot be two competing organizations in one locality representing, say, textile manufacturers or health care or photography. Examples would be national

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or ‘peak’ associations for education, wildlife protection, health and religion, associations for scholars in various ﬁelds of studies, charities, a business association, a women’s federation and an association for children’s welfare (Unger, 1996:795). This fact should not, however, obscure the point that in large cities such as Shanghai there may be a Photographers’ Society in each and every district of the city, and each may have a completely different relationship with the state. An example of an unofﬁcial organization is a group of artists which formed the Beijing Yuanming Garden Arts Village in 1990. It was banned in 1995. In abandoning the iron rice-bowl lifestyle and household registration for that of an artist colony in unregistered residences in north-western Beijing, they had sought freedom from ofﬁcial control over their artistic expression.4 ‘Peak’ associations maintain a degree of autonomy from the state, but they do not (that is, they are not meant to) challenge the authority of the state. Indeed, they are created in large part to prevent more autonomous groups from arising to capture the interests and the members of these particular sectors. The state insists that these associations exercise sufﬁcient control over their members to implement state policies. In addition, the national ‘peak’ association, or its lower branches, may not only become involved in policy-making, but may also be asked to take responsibility for helping to implement the government’s policy (Unger and Chan, 1995:30). China learned the basics about corporatism from the Soviets, although more recently it has been learning to understand it theoretically through writings in the West. (The Chinese have translated some of the literature on corporatism in China written by Western Sinologists and others, including many referred to here, such as Chan, Pearson, White, Schmitter and Solinger: Zhang, 1998.) China’s national objective of promoting growth, socialism and security assumed that ‘leaders and led, management and workers’ would share a common mission in one large harmonious whole (Unger and Chan, 1995:37). It did not provide for the possibility of a serious conﬂict of interests between leaders and led, or between labour and management (see Chapter 2). At the time liberalization began in 1978, in fact, there were only 103 national associations. Further, most areas in which associations were organized were ‘politically safe’ areas, such as in the natural sciences and engineering, health, education, and recreation; and even they engaged in few, if any activities (Pei, 1998:290–1). This model seemed to work in the early years of Communist Party control and a command economy; but as a result of the post-1978

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economic reforms, the intention of which was to decentralize power and release the productive energy of the country, the existing peak associations were inadequate to cover the newly emerging sectoral and private interests. So the Chinese government created more corporatist structures. Since 1989, China’s Registration Regulations of Social Organizations have adamantly prohibited more than one national association from representing any one sector’s interest, so in theory the state may exercise substantial control over each association (at least at the national level). In 1998, these regulations were revised, and the new Provisional Registration Regulations of Non-Enterprise Units Established by Society required all associations to re-register. The State Council then cancelled, merged and/or re-organized many of these associations. Associations should function as the ‘transmission-belts’ between state and society, although this more accurately describes the relationship of the state with the old-style pre-reform ‘mass’ (qunzhong) organizations than with the associations of the reform period (see Chapter 3). Today’s interest groups and associations have had control delegated to them by the state and may be highly autonomous as long as the state is satisﬁed with their activities and role. The state’s relationship to these groups is, then, not predicated on the relinquishing, lessening, or even (strictly speaking) the ‘decentralization’, of control. Instead, the relationship is based on more effective control of society through the delegation of authority to associations. This, of course, is where the state faces a dilemma, for in order for associations to perform the roles the state has assigned to them, it has to tolerate the aggregation and the articulation of members’ interests, which may be opposed to those of the state. Today, China has associations for ever more narrowly deﬁned interest groups: the handicapped, associations for providing support to migrant workers, support groups for divorced women, for abused women, and for those with terminal illnesses, self-help groups, associations to ﬁnd children and women who have been abducted, legal aid societies, associations for single people, and thousands of others. By 1998, the government claimed that 200 000 ofﬁcially-registered ‘mass organizations’ existed, but some believe there are at least that many unregistered associations. In any case, just because an organization is registered does not mean it is a puppet of the state (Forney, 1998:10–11). The many women’s groups that have sprung up at the local level, for example, have stepped in to help women deal with the decline in their social position and economic opportunities because of

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the sexism accompanying economic liberalization. In doing so, they cut into the territory of the Women’s Federation, which is more under the control of the state (White, Howell and Shang 1996). The fact that China limits any particular sector or interest group to forming only one national association makes the rapid growth of associations since 1978 even more phenomenal, for it reﬂects just how diverse China has become. Alternatively, one could argue it reﬂects how the Chinese are redeﬁning themselves. Instead of seeing themselves as divided up into a mere 100 or so national associations, as they did in 1978, liberalization allowed them to see themselves as so complex that they needed hundreds, indeed thousands, more national associations. What may be just as important as autonomy when measuring the strength of civil society is the membership of the associations. As Pei Minxin has concluded from his study of Chinese civil associations, those with a high number of corporate members (largely state-owned units) may have a lower degree of ‘civic density’ because such associations are most concerned with the interests of its group members, not the ‘civic needs’ of individual members. At the national level, associations tend to have more group members, but at each lower level (moving down to the provincial, municipal and county or district associations), individual memberships become increasingly dominant. Similarly, certain types of organizations (such as business and trade associations at the provincial and national levels) tend to have more (and sometimes exclusively) corporate members, while at lower levels they have more individual members; and other types of associations, such as those in the arts, education and health tend to have largely, or exclusively, individual members. Finally, Chinese civic associations tend to have relatively small memberships. Civic associations with larger memberships and larger numbers of individual members tend to be concentrated in China’s more developed areas, particularly in the cities (Pei, 1998:296–8, 306–7). Unlike the approach to state corporatism followed in Japan, Taiwan and South Korea, the Chinese government has delegated the state’s control (and particularly the CCP’s role in that control) over the economy and society to private enterprises and associations. This is because China’s reform programme, which gave new weight to efﬁciency and proﬁts, required the state to focus less on control and more on the release of the creative energy of the individual. In doing so, the state hoped that private enterprises would spring up and would be able to absorb many of those who became unemployed when the

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SOEs rationalized their workforce, or shut down completely (Xiao, 1998). While the initial step in moving towards corporatism was to assign associations to the control of relevant bureaucracies, over time these associations have increasingly ‘begun taking on an identity as sectoral representatives somewhat separate from the state’ (Unger and Chan, 1995:38–9). The result is organizations that are at least minimally, and sometimes almost completely, independent of state control. Associations in China thus span the range from state-controlled to fairly autonomous (Pearson, 1994, 1997; Shue, 1994). Because the state already has its hands full, and because most associations are not threatening to the state, it may even choose to encourage substantial autonomy. An exception would be trade unions which, before they were brought under the state’s control in the 1950s, and again since the rise of Solidarity in Poland in the 1980s, have been seen as a potential threat to CCP rule. But the state has even come to see trade unions in certain types of enterprises (such as foreign-funded ones) as valuable to its stability and strength. The regional and local branches of national associations tend to push for greater autonomy in their operations. In general, they favour the promotion of their own local interests, regardless of the preferences of the national association. The leadership of these lower level associations are under signiﬁcant pressure from the enterprises and constituencies they oversee to lobby on their behalf at both the local and the national level. Furthermore, they want to protect regional and local resources from the state above, while at the same time trying to control resources from being destroyed by the enterprises under their control at the local and regional levels. In this respect, China’s state corporatist associations are slowly moving away from being under state control and towards becoming ‘societal corporatist’ associations (Unger and Chan, 1995:39–40). In short, much like the gentry of imperial China, who became the ofﬁcials assigned by the central government to govern locally, the loyalties of leaders of associations have become confused, torn, and even turned upside down; for they recognize that if they do not promote their constituents’ interests, they will be frustrated and angry. The potential result will be a local membership that neither respects nor obeys their leadership, and an association which therefore does not effectively perform its role of either representing or regulating its members. A good example of an organization whose leadership is torn between loyalty to the centre and concern for the association’s well-being is the

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Individual Business Association (or Self-Employed Labourers’ Association: Geti laodongzhe xiehui). It was established by the government in 1986, is strictly controlled by the Bureau for Industry and Commerce, and has compulsory membership for all individual petty entrepreneurs who obtain business permits. Upon getting the permit, they are automatically enrolled in the Self-Employed Labourers’ Association. Further, their leadership is picked by the government, and their operations are heavily subsidized by the government (Unger and Chan, 1995:39–40). Members include those who operate stalls or carts, as well as those who have small family craft or service businesses such as repair shops and small restaurants. By the end of 1992, the national Self-Employed Labourers’ Association had close to 25 million members, all of whom were ofﬁcially licensed (Pearson, 1994:44–5; Unger, 1996:796–8). However, in spite of membership being compulsory, the fact is that many small entrepreneurs operate without a permit and thus do not join the association. This no doubt reﬂects the questionable legality of their enterprises as much as it does a desire not to be under the thumb of the government. Since ‘civil society’ is made up of that part of society which is both non-governmental and non-familial, its development in China is impaired by the continued emphasis within society on the family. Indeed, most of the self-employed are running family businesses. As in places such as southern Italy (Putnam, 1993), and as in so many developing countries, the Chinese have always shown a preference for businesses based on family ties, especially in the countryside. In the cities, businesses may be extended beyond the family on the basis of guanxi, personal relationships which are themselves often based on family ties. Rarely, however, have the Chinese been able to move beyond such personal ties to allow for the employment of outsiders, which has kept the size of Chinese businesses small by comparison with those in the West. As Francis Fukuyama has put it, they are not able to develop ties of ‘trust’ beyond the family and personalistic connections. By contrast, in the West, ‘trust’ (which is more reliant on contracts and the law) makes the building of large non-family corporations possible (Fukuyama, 1996). For the many petty entrepreneurs and workers in the cities who have come recently from the countryside and lack guanxi in the cities, the Self-Employed Labourers’ Association offers a sort of organizational guanxi (Nevitt, 1996:35). But at this point in history, unofﬁcial associations, based on the province and even the town from which migrants hale, are well-established in the cities. While migrant entrepreneurs are

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often exploited by these maﬁa-like organizations, they also provide the essential guanxi to get them started in a new city. Somewhat ironically, then, entrepreneurs in China, because they lack the state support offered by a danwei and need to pay taxes and apply for licenses and permits, as well as generally rely on the services (security, sanitation, transportation, and so on) provided by the state sector, must deal with local government ofﬁcials much more frequently than those living in the cocoon of the state-owned danwei. This need to interact with the government is making entrepreneurs far more politically active and causes them to band together to press their concerns collectively. Indeed, although it was the government itself which insisted that all entrepreneurs and independent businessmen join a state-run association, those associations have turned out to be powerful lobbying organizations which represent the interests of China’s new business class. Meanwhile, entrepreneurs, much like the employees of a danwei, continue to ﬁnd developing ties with local ofﬁcials through banqueting, the provision of goods and services, and gift-giving essential to their success in business (Shi, 1997). In short, neither Communist ideology nor an authoritarian state can explain why China does not fully embrace a ‘civil society’. What is missing in the explanation is China’s culture, with its strongly authoritarian strains. Culture is deeply embedded in China’s institutions, and in the family, which tends to be distrustful of all those outside the family and favours the promotion of family members above all others, regardless of competence, fairness or even legality: Chinese Confucianism … does not legitimate deference to the authority of an all-powerful state that leaves no scope for the development of an independent civil society. If civil society is weak in China, that weakness is due not to a statist ideology, but rather to the strong familism that is basic to Chinese culture, and the consequent reluctance of the Chinese to trust people outside of their kinship groups. (Fukuyama, 1995:28; emphasis added) Thus, those who think political reform alone will bring democracy to China are overlooking the critical role of the family and culture in maintaining an authoritarian and patriarchal system in China. Thus, while interference by the state through corporatism may cut into civil society from the top down, perhaps even more important is the family closing in on civil society from the bottom up; for families, in order to protect their businesses against the intervention of the

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state, use bribery to cultivate guanxi with local ofﬁcials. Through the cultivation of corrupt relationships between entrepreneurs and the state, the state becomes a rent-seeker, and in exchange, allows the family-run enterprises to make a proﬁt. It may appear that a civil society is developing, but actually the corruption of ofﬁcials by individual entrepreneurs impedes the development of a true public space that could be called ‘civil society’. Alternatively, families and clans may even resort to forming underground (‘black’) societies (heishe) and use illegal methods, including violence, to protect and advance their businesses (Xiao, 1998; Xiong, 1999). Therefore, Chinese culture, because of the distorted manner in which the emphasis on the family gets played out in China, and because of the culture’s emphasis on the authority and dominant role of the state, bears some responsibility for the difﬁculties civil society has had in developing in China. Until associations can prove they are effective in protecting the interests of individual members, it will not be surprising if the family-run enterprises continue to count on the culturally reliable technique of corrupting ofﬁcials to get what they want. For such reasons, some Chinese argue that rounding up all the businesspersons into associations that represent their interests but also control them is essential if society is to be even partially protected against China’s more rapacious entrepreneurs. All too many simply do not obey the law. Whether it is those who acquire marble for sale by using dynamite that decimates the side of a mountain into thousands of useless fragments, entrepreneurs who whip up cosmetics in the kitchen sink that cause serious rashes to those who use them, ﬁshermen who use dynamite to ﬁsh, in the process killing tens of thousands of ﬁsh that are too small to eat, or entrepreneurs who sell defective or illegal products, Chinese society seems to need the state to exercise control. In short, associations are not just useful for aggregating and articulating public (and private) interests. They are also useful for the society to be protected against the worst abuses of the unharnessed individual, for associations do not merely help expand the ‘public space’ of civil society; they also help control those who really need to be controlled (Nevitt, 1996:30; Professor XX, 1998). Looked at from a different perspective, then, associations bring an order which society both needs and wants. By providing both order and articulating their interests to higher authorities, then, the Self-Employed Labourers’ Association serves the interests of both civil society and the state. The Association’s

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ofﬁcials really do want the petty entrepreneurs to do well, as the growth of the private sector under their supervision enhances their ofﬁcial status (Unger, 1996:801), while at the same time increasing ﬁnancial support for the local government (Oi, 1992; Nevitt, 1996:37–38). Whether in work units or associations, we see the patriarchal elements of traditional Chinese cultural perspectives emerging. For example, Jonathan Unger’s study of the Self-Employed Labourers’ Association in Chaoyang District, Beijing, notes that the Association’s ofﬁcials treat the stall vendors and petty entrepreneurs as ‘children in need of protection from others’ and, even more frequently, ‘as juveniles needing a ﬁrm guiding hand’. They are viewed ‘as dangerously unanchored in society,’ and the role of the Association is to control them (Unger, 1996: 801). In addition to setting up the Self-Employed Labourers’ Association, the state also encourages them to organize themselves (Unger, 1996:801). The state’s purpose in doing this is not, of course, to set up an organization that will give it trouble, but rather one which will link up with the state. The assumption is that both state and society beneﬁt from this link. The association will represent its members’ interests, but at the same time the association will help enforce the state’s policy and regulations as they relate to the association. While at times the state control element may seem to outweigh the autonomy of the association,5 the general trend in China seems to be in the other direction, at least in those periods when the state is less anxious about the control issue. Thus local association branches tend to support their members’ objectives, such as to demand some of the beneﬁts available to workers in state-owned danwei, or a better wholesaling network, or broader access to municipal services, or protecting them from unregistered entrepreneurs, and even defending their members against the interests of the state at higher levels. For example, the Self-Employed Labourers’ Association is responsible for assisting the Tax Bureau to determine the taxes to be paid by each private enterprise; but according to Unger’s study, the Association ofﬁcials are unlikely to do anything that would negatively affect their relationship with the entrepreneurs in their association, such as helping the Tax Bureau collect taxes. The balance between the state’s control and an interest group’s autonomy is likely to be even more in favour of the latter in smaller cities and towns, where there are fewer powerful state ofﬁcials in charge of associations than in Beijing. The balance also favours the autonomy of an association whose members are powerful in their own right, such as is the

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case with the All-China Federation of Industry and Commerce. Its members are large, wealthy and powerful businesspeople and businesses who voluntarily join the Federation, and the Federation’s board is comprised of businesspeople, not ofﬁcials (Unger, 1996:802–11).6 The ambivalent relationship between associations and the state exists in part, then, because local associations do have local government ofﬁcials on their boards. Local government ofﬁcials often see it as in their interest to promote local entrepreneurs in order to enhance economic development, regardless of whether they pollute the environment, produce dangerous or defective products, destroy scarce resources, or do little to fulﬁl the state’s objectives. In short, there is collusion between the state and civil society, with both sides hoping to gain something from it. As Wank (1995) concludes from his study of Xiamen City, efforts by some organizations to inﬂuence state ofﬁcials may not necessarily come at the expense of state power. In some crucial respects, various associations, particularly those of private businesspeople, may actually enhance the power of local ofﬁcials. This is because, as a result of economic decentralization, local ofﬁcials control the allocation of resources and have the power to use regulations to beneﬁt business enterprises. The end result is that private actors, such as businesses, work in an alliance with the state at the local level in order to enhance their autonomy vis-à-vis the central state (Wank, 1995:70): that is, the growing autonomy of ‘civil society’ is not that of autonomous private citizens or enterprises, but private citizens or enterprises in collusion with the lower levels of the state bureaucracy to promote their interests vis-à-vis the upper levels of the state. If civil society is deﬁned as that part of society which is not governmental or familial or individual (that is, private), then governmentsponsored, organized and ﬁnanced associations are not necessarily the sort of organizations that constitute elements of ‘civil society’. Nevertheless, some of them are rapidly evolving into organizations that operate autonomously from the government and are responsive to constituent interests. This seems to be what the Chinese government leadership wants. For example, the Chinese government established certain national associations, such as the two federations of associations that replaced China’s industrial ministries when they were abolished in 1993, and the 14 corporatist industrial associations that replaced Shanghai’s 14 industrial bureaus when they were abolished in 1992. The state’s purpose was to replace entire governmental sections which were based on ministries and bureaus that reﬂected the state’s ownership of the industries, with corporatist associations that will

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reﬂect the concerns of a privatized sphere within each industrial sector. These associations are intended to take on the responsibilities for their own sector’s welfare, thereby undermining top-down state corporatist control (Unger and Chan, 1995:42–3). The state went even further with the National Association of Light Industries, which it then broke down into some 50 corporate associations to represent the specialized interests of the many industries under each. These sub-associations are one step futher from the reach of the state. The picture presented here, then, is a steadily larger and more complex chessboard of associations which press for the collective interest of their constituents. As in any ‘civil society’, China’s associations are pursuing public interests through the aggregation and articulation of their needs, ideas and concerns, but they are simultaneously satisfying private interests. This is conspiciously true for businesspeople and workers, but it is equally true for, say, environmentalists (Wenhui bao, 1999) or consumers’ rights groups.7 Some of the sectoral interests pursued by associations and interest groups springing up in China may, moreover, be in serious conﬂict with the overall good of the society. Thus, although a ‘civil society’ is supposed to be publicly, not privately oriented, there is inevitably some fallout for the private sphere. In short, the corporatist associations that are proliferating in China are becoming increasingly like institutions of civil society as traditionally envisioned in liberal democratic societies. Residual state control over China’s associations leaves something to be desired. But, even associations and interest groups in Western society are not perfect in their contributions to a civil society. As Benjamin Barber notes: by deﬁnition all private associations necessarily had private ends. Schools became interest groups for people with children (parents) rather than the forgers of a free society; churches became … special interest groups pursuing separate agendas rather than sources of moral ﬁber for the larger society … voluntary associations became a variation on private lobbies … ‘Even environmental groups were necessarily just another ‘special interest group’ pursuing their own special interests ‘in competition with the special interests of polluters’. (Barber, 1995:28) Still, China’s broad collection of ofﬁcial and unofﬁcial associations at national, regional and local levels are providing an increasingly strong institutional framework for representation of constituencies and

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specialized interests that are different from those of the state. They are seeking ‘concessions, beneﬁts, policy changes, relief, redress, or accountability’ from the state. In doing so, they are steadily eroding the heavy hand of a centralized state. As in other civil societies, moreover, at the same time that they are cutting away at the state’s authority, they are not standing in opposition to it. Thus, China’s asssociations provide the Chinese people with opportunities to inﬂuence the state, especially at the local level. And, in so doing, associations provide them with an alternative to political parties for disseminating new ideas and for articulating, aggregating and advancing their interests. Finally, they also provide a training ground for new political leaders (Diamond, 1994:6–8, 10–11). Peasant associations Peasant associations were ﬁrst created by the CCP in 1921, and they became a major organizational basis for revolution in China. After the founding of the PRC, and particularly with the formation of the people’s communes as the structure for integrating the state with the society in rural China in 1958, the government decided that the peasants no longer needed to organize into associations as their interests were identical with the state’s interests, so the peasant association was abandoned (Zhu, 1997:118–19). Rural reforms and the introduction of the market economy since 1979 have, however, generated considerable discussion about reinstituting the peasant association. One argument is that, because peasants are now ‘independent producers’, their interests can no longer be assumed to be identical with those of the government. They therefore need an intermediary to regulate their relations with the government, and with the market. For its part, the government would itself beneﬁt from an intermediary association (whether national, regional or professional) between it and the peasants to which it can delegate many of its functions, and which would help aggregate and articulate peasant interests. This peak association would form an unbrella over the nearly one and a half million specialized peasant associations which have developed to address the sectoral interests of the peasantry. But the government has not really paid enough attention to the peasantry, and has by default allowed the peasantry to organize as they please (Zhu, 1997:118–19). One result has been the re-emergence of ‘black societies’, unofficial (and illegal) organizations which engage in activities such as smuggling or take the law into their own hands to advance the ‘interests’ of their members. They are usually rooted in clans or religious

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cults. It would, however, be wrong to conclude that they form a part of ‘civil society’ as their activities are largely for private gain. Trade unions Like so many of China’s associations, the government’s willingness to negotiate with more autonomous workers’ associations arose from changes in the labour market occurring as a result of economic decentralization. The proposition that the dismantling of the institutions of a command economy may help create a favourable environment for the growth of civil society (Rose, 1994:23) is aptly illustrated in China’s labour sector. There the state has created associations to represent independent, self-employed entrepreneurs coping with the conditions of a developing, non-state-owned, market economy, but it has also encouraged trade unions to harness unorganized, and potentially dangerous, workers. The greater autonomy accorded to trade unions, however, illustrates the need for the state both to negotiate with and to control organized, and potentially dangerous, workers in the state-owned sector. Like peasant associations, trade unions in China provide an example of the complex evolving relationship between the state and a developing associational society. They also reﬂect the shift during the reform period away from the view that the interests of the party-state and the workers were identical, and therefore that workers did not need autonomous organizations to represent their interests vis-à-vis stateappointed management in SOEs. By the 1990s, this view had changed, and state control and dominance over labour unions gradually relaxed to the point that unions could successfully negotiate for improved working conditions and welfare beneﬁts for workers vis-à-vis the state.8 In fact, workers felt they really had to ﬁght for their rights with management because, as a result of economic reform, the state-party management of enterprises was replaced by a management-responsibility system. The new managers were under contracts with the state that pressured them to increase productivity and proﬁts even at the expense of the workers’ interests. Faced with the end of the ‘iron rice-bowl,’ and with it the possibility of unemployment and the elimination of pensions, workers began to demand greater organizational autonomy vis-à-vis their new managers (see Chapters 2, 3 and 6). The state was caught in a bind: it wanted management to move enterprises into proﬁtability, but it could not risk millions of workers taking to the streets to protest about working conditions. The result was that the state turned to the trade unions to resolve the conﬂicts workers had with management (Zhang, 1997:128, 133–4).

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The government also realized, as a result of the workers’ efforts to create autonomous workers’ unions during and after the Tiananmen Square demonstrations of 1989, that it needed to accede to some of the demands of an increasingly anxious and unhappy workforce to avoid continuing labour unrest. In short, the Party needed the support of the unions at the same time as it wanted to control them.9 After 1989, the CCP and the unions developed a symbiotic relationship, wherein the trade unions would continue to support the Party in exchange for their having greater input into policy-making and greater negotiating power in the enterprise (Ng and Warner, 1997:57–8). From the perspective of the ACFTU, the economic reforms that have threatened the workers’ well-being brought it into conﬂict with the state. Under pressure from the workers, and for its own survival as a major bargaining unit in the state’s structure, ACFTU sought to represent workers’ interests and to attain organizational autonomy by confronting the state. Thus ACFTU’s bargaining on behalf of the workers should be viewed as a ‘pragmatic’ policy to maintain its power as a major national ‘peak’ association. It was created by the state yet bargains on the workers’ behalf ‘against’ the state (Jiang 1996). Workers who bring grievances against state enterprises to labour arbitration have a better than 50:50 chance of winning their cases (Ng and Warner, 1997: Table 4.1).10 Further, factory trade unions may now acquire independent corporate legal status, and have a far better chance of winning a case against the state, a state-owned factory, or even a privately-owned factory, if they have applied for such status. This status makes unions legally equivalent to factories: a factory may not, for example, treat the trade union’s fund as part of the factory’s own property. China’s trade unions now use trade union laws passed by the National People’s Congress for arguing their legal cases (‘Progress …’, 1997; Qin, 1997:30–1).11 This is another indication of the growing power of workers vis-à-vis the state, and of the willingness of the state to negotiate with workers who have been treated unfairly within a legal framework. In short, the state has recognized the power that workers have to challenge the Party-state, and it is trying to work with the associations which represent workers to avoid conﬂict and maintain stability. Two of the major results of the shifting relationship between the state and this corporate association were the Regulations of the Minimum Wage in Enterprises and improvement of miners’ safety, and the 1994 Labour Law, which it took ten years for ACFTU to negotiate with the government. The Labour Law led to the initiation of the ﬁve-

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day working week in January 1995, a ‘quid pro quo’ for ACFTU agreement to lay-offs of redundant workers necessitated by economic reforms (State Council, 1997:33–4). The Labour Law gave trade unions in enterprises the right to oversee the labour contracts within their respective enterprises, and to intervene to protect the workers’ interests if employers cancelled or broke contracts without justiﬁcation. Additionally, trade unions represent workers in negotiations and dispute mediation with management concerning wages, vacations and labour safety, as well as in such matters as workmen’s compensation and insurance (Zhang, 1997:140). The Labour Law also gave workers the right not to work (essentially, to go on strike) if the workers’ safety was at risk, and required that foreign-invested enterprises allow trade unions to be established (Howell, 1998:161–2). Thus, in the 1990s, ACFTU changed from a ‘top-down’ transmissionbelt to a two-way transmission-belt, from the old Maoist style of a ‘mass organization’ created by the state for the purpose of controlling all individuals and organizations in particular sectors (see Chapter 3), to an organization that, although it still functions to carry out state-assigned objectives, also pushes for its own independently-determined objectives. Like so many organizations in China, ACFTU has been forced to ﬁnd much of its own ﬁnancing. As a result, ACFTU, which had been dependent on state revenues and (inadequate) dues from its membership, has become involved in raising money to pay for the increased welfare beneﬁts for workers that it had promised. ACFTU (that is, trade unions at lower levels within the ACFTU) now runs its own enterprises to increase its ﬁnances. By the end of 1995, ACFTU’s 138 000 enterprises generated an income of 45 million yuan. Of the total, 67 000 were economic enterprises, and most of the rest were in the service sector. Employing more than one million workers, they are considered ‘collectively-owned enterprises’ (Ng and Warner, 1997:57–8). This has produced the paradoxical situation in which workers have become managers of workers; and in which a reputedly state-run organization, ACFTU, which was originally created in order that the Party-state could control China’s workers, now runs its own enterprises, which are neither state-owned nor statecontrolled. Overall, ACFTU has greater autonomy from the state as a result of its greater ﬁnancial independence. Equally important is the increased control the memberships of some local trade union associations now exercise over their own ofﬁcials. For example, in many of the trade unions at the enterprise level in the city of Qingdao, enterprise trade union presidents are no longer appointed. Instead they are directly elected by workers in the enterprise. Further,

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because the Party was, under the management-responsibility system, removed from administrative affairs, and because workers are almost solely interested in material beneﬁts, not ideology, Party committee leaders are essentially ignored (Zhang, 1997:138–9). As the government has steadily decentralized and rationalized administration, bureau-level trade unions have been eliminated in some cities. Trade union federations of local level trade unions in enterprises that fall within the same industrial sector have emerged in their place in such broad sectors as chemicals, light industry, textiles and heavy machinery. These federations are far more autonomous from state control than were their smaller isolated predecessors. And, of course, their larger size makes them far more powerful vis-à-vis both enterprise management and the state (Zhang, 1997:139).12 Trade unions in foreign-funded enterprises Economic liberalization has also led to dramatic changes in ownership forms, as well as in the categories of workers in China: migrant labourers, workers in foreign enterprises, and TVE workers were added to the categories of peasants and workers in SOEs. No organization, however, was representing these new categories of labourers (Howell, 1998:152). For example, some 20 million new workers in TVEs were recently peasants tilling the soil; and some 15 million workers are now employed by foreign-funded (FFEs) and private enterprises, not by SOEs. They have become a source of discontent and industrial action since, not being workers in a state-run enterprise, and without an ofﬁcial union to negotiate for them, they face problems of late payments of their wages, job insecurity (most being hired on short-term contracts), appalling working conditions and inadequate housing (see Chapters 3 and 6) (Ng and Warner, 1997:53). At the level of local governments in particular, the desire to attract foreign investment has tended to outweigh any concerns government ofﬁcials might have for protecting and advancing workers’ interests, for local ofﬁcials do not want workers to make demands which drive foreign investment out of their locality. However, while foreign business people (most of whom are Hong Kong or Taiwanese entrepreneurs) do introduce efﬁcient capitalist-style management in China, their enterprises (often in the form of sweat-shops) are not known for progressive labor practices. Workers in the more than 120 000 FFEs 13 are, in fact, far more likely to suffer from exploitative labour practices than the workers in China’s SOEs. A study of Qingdao’s FFEs, for example, noted that they did not pay overtime for working extra shifts,

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did not provide safety equipment to workers, did not sign contracts with workers that speciﬁed their terms of employment, and even revived once-common practices of corporal punishment and personal humiliation (including strip searches) as methods by which to control workers. Of course, these kinds of practice tend to anger workers and, because FFEs have no Party committees to discipline workers, labour militancy against management was far more likely to occur in them. Thus, it was in the state’s interest to set up trade unions to act as mediators in the foreign-funded companies (Zhang, 1997:143–5). Since trade unions have been established in the foreign-funded sector, most labour disputes with management have occurred in those enterprises not having trade unions. In part, the success of trade unions in the foreign-funded sector may be attributed to the fact that, although they were originally established by cadres from local Party committees or high-level trade unions, their leadership soon came to be elected on an annual basis by their own union memberships. Because these unions no longer have Party committees, and can sometimes enlist the support of the local government in its disputes with management, their union leadership has gained signiﬁcant autonomy from the Party and the state to negotiate with management. Generally this pleases the state, as it helps stabilize labour–management relations in the potentially explosive foreign-funded sector (Zhang, 1997:143–5).14 In short, the development of more associations in the labour sector, many of which are almost completely autonomous from the state, has not necessarily been confrontational with the state. Indeed, the state sees their development as essential to cope with the problems introduced with economic liberalization. Thus, even the Chinese state has viewed this advance of civil society as a non-zero-sum game, in which both the state and the society win (see Warner, 1999). Associations for enterprises with foreign investment In addition to establishing trade unions in some FFEs, in 1987 the Chinese government established the China Association for Enterprises with Foreign Investment (CAEFI) as a national or peak association, with 40 sub-associations at levels below the national level. Members are usually groups (that is, the enterprises themselves), not individuals, and most individual members are Chinese, not foreign. At the national level, CAEFI has deep ties with the Chinese state, especially with MOFTEC. At lower levels, however, it is often local ofﬁcials who have founded the associations. At both the national and local levels, the association is ‘primarily self-funding’, although some of the start-up costs

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for CAEFI were paid for by MOFTEC. The high level of self-funding does not, however, necessarily translate into greater autonomy. Further, at both the national and branch levels, CAEFI has an ‘interlocking directorate’ of ofﬁcials from MOFTEC (or retired from MOFTEC), and CAEFI managers. Many Chinese managers in the foreign enterprise sector, however, do not regard CAEFI as ‘a serious channel through which to make suggestions or have complaints redressed’. But, without these personnel links with the government, it might be considerably more difﬁcult for CAEFI to achieve such objectives as attracting more foreign investment and functioning generally in the way a chamber of commerce might do in a capitalist state (Pearson, 1994:37–8). Further, CAEFI associations do challenge the state’s authority over FFEs, especially at the local level where local government ofﬁcials interfere with their operations, and they frequently win. Finally, although these business associations have a foot in both the state and private sector, they are successfully pushing for greater autonomy, especially at the local levels where the foreign enterprises are actually located. Nevertheless, because the CAEFI associations are made up of businessmen who beneﬁt from many of the state’s policies to promote a strong business environment today, they are in general not ‘anti-statist’ in their orientation (Pearson, 1994:39–42). In short, the efforts of CAEFI associations to become more autonomous need not be viewed as fundamentally conﬂictual or adversarial by the state. Altogether, then, China has gradually introduced conditions under which workers have gained the right to negotiate with their employers, regardless of whether they are private, collective, foreign or state employers (see Chapter 6). Still, labour disputes and demonstrations go on. By 1993, China had reported 12 358 labour disputes, an increase of 50 per cent over 1992 (Pei, 1997:20). In turn, the new forms of employers – private, collective, TVEs, and FFEs – have also gained more autonomy from the state. Like the workers, their relationship with the state is often one of mutual advantage. Unofﬁcial, underground workers’ organizations Some of China’s workers in non-SOEs where no trade unions exist are joining unofﬁcial or underground workers’ organizations. This is particularly true in the Free Enterprise Zones in the coastal areas, where workers feel they are being exploited by foreign-run companies; but it is also true for workers hired by Chinese entrepreneurs. In addition, unofﬁcial and underground unions are organizing workers to protest against economic reforms that adversely affect workers’ beneﬁts in state

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enterprises. Workers have even hired gangsters to take care of their grievances with exploitative managers. Unemployed workers, laid off due to economic reforms, are joining underground workers’ organizations (see Chapter 13). These unofﬁcial organizations use far cruder tactics than do branches of ACFTU, including violence against employers and destruction of employers’ property (White, 1995:29–32).

4 Problems for democracy created by a multiplicity of associations As Diamond has persuasively argued, the proliferation of interest groups is not necessarily a sign of a ‘civil society’ or a more democratic society (Diamond, 1994:5, 15). Focusing exclusively on the development of civil society may, in fact, distort our understanding of democratic change in China. ‘Societal autonomy’ (that is, the proliferation of genuinely autonomous associations) ‘can go too far … even for the purposes of democracy’. Associations in civil society must have limits on their autonomy: A hyperactive, confrontational, and relentlessly rent-seeking civil society can overwhelm a weak, penetrated state with the diversity and magnitude of its demands, leaving little in the way of a truly ‘public’ sector concerned with the overall welfare of society. [Civil society] must be autonomous from the state, but not alienated from it. It must be watchful but respectful of state authority. (Diamond, 1994:14–15, emphasis added) The view that a weak state is not the best breeding ground for a true civil society is exempliﬁed by Russia, where the weakening of state institutions has signiﬁcantly thwarted the creation of a civil society. If state institutions wither too quickly, it may actually hinder the growth of a strong civil society. The presence of a decrepit state structure – one whose ofﬁces can be bought or coopted by private interests – engenders patterns of interest organization that deviate sharply from those associated with a normal civil society … The organizations of civil society must enjoy independence from the state in order to function normally, but state institutions also must possess a degree of autonomy if they are to respond to demands in a manner that encourages pluralist competition. (Fish, 1994:32)

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In Russia, the 70-year-old legacy of socialism, and the replacement of a fairly strong state with a web of interpersonal networks dedicated to their own interests and not to those of the greater society, have truly been detrimental to the development of a civil society beneﬁcial to democratization (Fish, 1994:41). In short, a multiplication of interest groups, especially if they are of the ‘rent-seeking’ sort, do not add up to a true civil society. Instead, the state may be weakened by them, but in a way that beneﬁts the rent-seekers rather than the associations on which a civil society is built. Similar conclusions concerning this seeming paradox, that a strong civil society needs a strong national government, have been reached by those who have studied European history. In early modern England, ‘the evolution toward a strong, coherent central state was as critical for the emergence of the institutions of a civil society as the growth of an ideology of individual rights or the increase of nonstate associations’ (Davis, 1995:17, note 27). By contrast, the ability of Shanghai’s bourgeoisie in the early twentieth century to turn increased associational autonomy ‘into a viable civil society’ suffered as much from ‘the weakness of the central state’ as it did from its own weakness as a class. Thus, neither a totalitarian nor an anarchic system provides a satisfactory environment for social forces to mobilize. Both are hostile to the development of the institutions that comprise a civil society, and the public sphere cannot take root (Davis, 1995:17, note 28, emphasis added). The competition among interest groups to affect policy may not necessarily beneﬁt the whole society, or it may beneﬁt only the most powerful constituencies represented by interest groups. And, because the most powerful interest groups are likely to be funded by the wealthier segment of society (or large numbers of not so wealthy people, such as retired persons, or trade unions), the interests of individuals unable to organize into a powerful association will tend to be neglected. Thus, the already dominant class (or interests) will tend to become even more powerful. Moreover, for individuals and groups still burdened by many of the practices and institutions of an authoritarian society, which require negotiating complex bureaucracies in order to obtain licences, permissions, resources and access, it may be difﬁcult to participate effectively in an emerging pluralistic society. It may turn out that ‘informal collusion or clientelistic connections’ work better than organizing interest groups and associations (Schmitter, 1992:169, 172).15 If state institutions in today’s China become so weak that they are corrupted by the particularistic interests of powerful associations, are

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overwhelmed by them, or alternatively, are unable even to offer protection to nascent associations, the proliferation of associations will not necessarily lead to a more democratic system. Thus, the development of too many associations ﬁghting for their own interests without strong state institutions still in place to protect collective societal interests may hinder China’s democratic development. Only a strong state can avoid the corrosive impact of the uncontrolled expression of narrowly-based constitutent self-interests through competing associations, associations which have no loyalty to the state as a collective whole. By contrast, a strong state (which is willing to relinquish strong centralized control over the society) has a potentially protective role in helping build a civil society. A strong state can act to protect weaker associations against more powerful associations, thereby maintaining some degree of social equilibrium and order. In China’s case, its state institutions may be disintegrating faster than new ones are being constructed to replace them, and society is becoming increasingly ungovernable (Pei, 1997:48). Indeed, the less able the government is to control China, the less likely it is that it will tolerate the growth of a pluralism that further undermines its control. Nevertheless, the state may have enough residual control to give China a better long-term chance of developing democracy than Russia and the former Soviet republics. China’s associations which have large memberships are becoming increasingly effective politically, while those Chinese with narrower concerns are still inclined to work more on the basis of family ties and ‘relationships’, (guanxi established through patterns of favours, giftgiving and banqueting) than they are through interest groups (unless, that is, the interest at stake is so broad that one individual’s efforts at guanxi would be ineffective). Further, interest groups and associations, like virtually all organizations in China, are being forced to turn increasingly to private ﬁnancing; and this is necessarily leading to the wealthier organizations having more clout. Thus, in the stand-offs between environmentalists and private entrepreneurs in business associations, the power of the purse held by the business associations is often dispositive. The problem is aggravated by the fact that local leaders responsible for both business development and for implementation of environmental controls tend to favour business because of the tax revenues generated by business for the locality. In some cases, however, the pressures from environmentalists on the government have led to serious action, such as the shutting down since 1996 of hundreds of small paper-producing factories that had proliferated once free enterprise was allowed (‘Analysis of Sustainable Development’, 1997).

Suzanne Ogden 291

To summarize, the Chinese government may ofﬁcially reject ‘peaceful evolution’ towards civil society or, perhaps better stated, towards ‘associational pluralism’, yet this appears to be what is happening, and with the support of the state. To the degree that the whole political and social system can tolerate this dramatic challenge to its control structure, the development of these many associations and the creation of a civil society will beneﬁt the Chinese people and advance democracy. So far, the institutions and associations that are being created as part of China’s civil society are not fully autonomous. But autonomy may turn out to be far less important to China’s democratic development than whether China’s corporatist associations contribute to stability or instability (cf Perry and Selden, 2000). The power of associations and interest groups and their effect on the development of civil society in China today China today still maintains controls over associations and interest groups, and still has adequate state power to resist their demands if they push beyond their narrow sectoral interests to challenge overall state control. But, in general, as long as associations and interest groups do not publicly oppose the government in their activities or statements, the state seems unworried about the details. On the contrary, the state sponsors efforts by associations to address the problems created by economic reform. This is particularly noticeable in the modern enterprise sector, where entire ministries have been transformed into associations. Similarly, various economic sectors, such as the automobile sector, and the bank and ﬁnancial sector, have been encouraged to move together into horizontal associations (Li, 1987:23–5). The language still used by both the government and such associations and interest groups is, of course, that the associations are advancing the interests of their own clientele in order to serve the goals of the Party and state (cf. Chapter 2). Thus Shanghai’s Brain Olympics Association was established to ‘advance the four modernizations’ by training students to go to the International Brain Olympics Contest. Shanghai’s Cooking Association was established for ‘supporting reform and the open door policy, and abiding by China’s laws’ to unify all the city’s cooks in spreading the art of Chinese cooking abroad. It also publishes a bimonthly magazine, and sponsors exhibits and workshops. The Rural Enterprises Association promotes ‘spiritual civilization’ by supporting basketball, soccer, chess, ﬁlms, singing and karaoke among its members. All academic and research societies, from Futurology, Family Planning,

292 China’s Developing Civil Society

Qigong, Fishing Economics, The Dream of the Red Chamber (Hong Lou Meng, a famous novel) and Food Therapy Research Associations to Playwrights’, Musicians’, Film Producers’, and Calligraphers’ Associations have in their mission statements the aim to ‘support the four principles’, ‘the open door policy’, and ‘the two 100’s’. (‘Let a hundred ﬂowers blossom, let a hundred schools of thought contend’.) The Leprosy Prevention Association ‘upholds the four basic principles’ by eliminating leprosy within this century. And the Association for Eliminating the Four Pests (mice, mosquitoes, ﬂies and cockroaches) also exists ‘to uphold the four basic principles’ by uniting, organizing and co-ordinating all technical forces and contributing to the ‘four modernizations’ by safeguarding people’s health. In 1982, this association established a company in Pudong District (the Shanghai Health and Pest Prevention Company) which provides consulting, processing and marketing services and sells pesticides (Ma and Liu, 1993:108–74). It is, in short, the money-making arm of the association. The jargon notwithstanding, the importance of these changes for civil society are real. As Nevitt concluded from his study of associations for entrepreneurs and businesses in Tianjin: It seems that in the Chinese context a civil society may not develop separate from and in opposition to the state but rather in the niches and spaces that the state leaves open, and that it will grow in response to opportunities deliberately engineered or accidentally created by the state. And, in turn, such a civil society may make demands upon the state – not to undermine or weaken it but to constrain its behavior in some circumstances and to endorse and support it in others. (Nevitt, 1996:43)

Conclusion Thus, any simplistic view of ‘civil society’, in which individuals and associations must be seen as fully independent of, and even in opposition to, the state ignores the subtle and complex intertwinings in China. Economic liberalization in the last 20 years has created a new role for associations, and a friendlier environment for the evolution of civil society (see Lane and Luo, 1999). Ultimately, it has turned out to be in the state’s interests to create still more associations, and to give greater autonomy to certain associations, while at the same time maintaining tight control over others which it fears might go too far in undermining the state’s power. In addition, the state’s control is being

Suzanne Ogden 293

eroded by other forces set in motion by economic liberalization, forces whose interests are not aggregated and articulated by ofﬁcial associations, and forces which are also not in the best interests of a developing civil society or associational pluralism. It is not easy to know just how much state control is good for the development of China’s public sphere. Like all societies, China continues to wrestle with the proper balance between autonomy and control. If associations become deeply institutionalized, the state may not be able to confer and retract power and responsibilities at will.

Notes 1 I am indebted to Fang Cheng for his comments on an earlier draft of this chapter. 2 Another perspective on why interest groups are being formed in China is that a large number of retired or idle cadres still remain energetic and want to retain their social status, as well as their inﬂuence over political and economic policies. So they are establishing all kinds of academic, economic and professional groups, or are appointed by the state to head them. The leaders in power today, being the former subordinates of these retired cadres, cannot prevent them from doing this. Instead, they cater to the requests of their former superiors! (Li, 1997). This view is conﬁrmed by Margaret Pearson, who found retired ofﬁcials on managing boards in her own 1994 study of socialist corporatism in foreign enterprises (Pearson, 1994:38). It is unlikely that a retired or idle worker would, however, have as much power or inﬂuence as someone who still possesses all the perquisites of ofﬁce. 3 The Writers and Artists Federation is truly controlled by the Party, and it reports directly to the Department of Propaganda. If the writing, production or art of a member is unacceptable to the Party branch within the Association, the member might have his or her privileges removed, but rarely more (McDougall, 1999). 4 At the time the organization was banned, it had 215 artists (Jin, 1996:72–3). 5 Unger notes how the Industry and Commerce Bureau, under whose aegis the Self-Employed Labourers’ Association falls, forced members of the association to do its bidding at such times as 1993, when Beijing was being visited by the head of the Olympics Committee to consider the city as the site for the year 2000 Olympics (Unger, 1996:801). 6 Nevitt’s study of the Self-Employed Labourers’ Association and the All China Federation of Industry and Commerce in Tianjin arrived at similar conclusions about the latter, but found that the Self-Employed Labourers’ Association did little to advance the interests of the petty entrepreneurs (Nevitt, 1996:30–1). 7 The name of the magazine Zhongguo zhiliang wan li xing (Quest for Product Quality in China) is also the name of the consumer rights organization, which is very inﬂuential in China. It sends out teams to investigate consumer complaints concerning product and service quality, but also deals with broader issues of criminality, such as swindling (Xiong, 1999).

294 China’s Developing Civil Society 8 The term ‘negotiate’ is used not in the sense that China’s trade unions come to the bargaining table with independent status and power in some sense equivalent with the government’s. Rather, the government has had to make concessions to the trade unions because of its need to placate disgruntled workers who threaten to strike, demonstrate and cause major societal upheaval unless some of their demands are met. Because of the extraordinarily large numbers of workers angered by the negative effects of economic liberalization on them, the government cannot simply use force to maintain order; it must also make concessions. Hence ‘negotiations’. 9 Ironically, the 1989 demonstrations illustrate the frequent overlap between the ofﬁcial and the unofﬁcial, making it difﬁcult to discern to what degree an association is truly autonomous from the state. For example, during the 1989 Tiananmen demonstrations, workers joining the Beijing Workers’ Autonomous Union were required to be regular employees in one of the city’s state-controlled work units, in spite of the fact that the whole purpose of developing an independent unit was to protest to, if not against, the state. The same was true for the more than 20 autonomous workers associations that sprouted in 19 of China’s provinces at that time (Perry 1995:317). 10 Settlement of Labour Disputes Accepted and Handled by Labour Arbitration Committees in the PRC (State Statistical Bureau, 1995). 11 Other regulations, such as the Regulation of Minimum Wages in Enterprises, also now provide a basis for workers bringing legal action. 12 Based on Zhang’s study of trade unions in two cities, Weifang and Chanzhou. 13 As of April 1995, more than 240 000 foreign-invested enterprises had been approved, of which at least half were already operational (Howell, 1998:150). 14 Zhang is drawing these conclusions from his study of the establishment of trade unions in the foreign-funded sector in Qingdao in 1993–94. 15 Illiya Harik notes that in Arab countries, their ‘most “modern” associations – business groups, labor unions, professional and intellectual societies – show little or no interest in democratization’ (Harik, 1994:48; emphasis added).

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296 China’s Developing Civil Society O’Leary, G. (ed.), (1998) Adjusting to Capitalism: Chinese Workers and the State, Armonk, NY: M. E. Sharpe. Pearson, M. M. (1997) China’s New Business Elite: The Political Consequences of Economic Reform, Berkeley: University of California Press. Pearson, M. M. (1994) ‘The Janus Face of Business Associations in China: Socialist Corporatism in Foreign Enterprises’, The Australian Journal of Chinese Affairs, 31 (January), pp.25–46. Pei, M. X. (1998) ‘Chinese Civic Associations: An Empirical Analysis’, Modern China, 24, 3 (July), pp.285–318. Pei, M. X. (1997) ‘Racing Against Time: Institutional Decay and Renewal in China’, in W. A. Joseph (ed.), China Brieﬁng: The Contradictions of Change, Armonk, NY: M. E. Sharpe, pp.11–49. Perry, E. J. and Selden, M. (2000) [eds] Chinese Society: Change, Conflict and Resistance, London: Routledge. Perry, E. J. (1995) ‘Labour’s Battle for Political Space: The Role of Workers’ Associations in Contemporary China’, in D. S. Davis, R. Kraus, B. Naughton and E. J. Perry (eds), Urban Spaces in Contemporary China, University of Cambridge Press, pp. 302–25. Professor XX (July 1998) Fudan University, Shanghai, conversation. ‘Progress in the Cause of Human Rights in 1996’, (1997) Xinhau yuekan (New China Monthly), May. Putnam, R. (1993) Making Democracy Work: Civic Traditions in Modern Italy, Princeton: Princeton University Press. Qi, H. C. (1997) ‘From Concept to Social Action: The Green Movement in China’, China Strategic Review, II, 3 (May/June), pp.39–49. Qin, X. C. (1997) ‘How Can the Funds of a Trade Union Be Forcibly Transferred?’, Legal Herald (Fazhi daokan), 5, pp.30–1. ‘Regulate Various Social Relationships in Accordance with the Law: China Launches Legal Service Telephone Line’, (1999) Shidai chao (The Tides of Time), Beijing, 27 (January). Rose, R. (1994) ‘Rethinking Civil Society: Postcommunism and the Problem of Trust’, Journal of Democracy, 5, 3 (July), pp.18–30. Schmitter, P. C. (1992) ‘Interest Systems and the Consolidation of Democracies’, in G. Marks and L. Diamond, (eds), Reexamining Democracy: Essays in Honor of Seymour Martin Lipset, London: Sage Publications, pp.156–81. Shi, T. J. (1997) Political Participation in Beijing: A Survey Study, Cambridge, MA: Harvard University Press. Shue, V. (1994) ‘State Power and Social Organization in China’, in J. Migdal, A. Kohli, and V. Shue (eds), State Power and Social Forces: Domination and Transformation in the Third World, New York: Cambridge University Press, pp.65–88. Solinger, D. J. (1992) ‘Urban Enterpreneurs and the State: The Merger of State and Society’, in A. L. Rosenbaum (ed.), State and Society in China: The Consequences of Reform, Boulder, CO: Westview Press. State Council Information Ofﬁce (1997) ‘The Progress in China’s Human Rights’ Cause in 1996’, Xinhua yuebao (New China Monthly), 5, pp.33–4. State Statistical Bureau, et al. (compilers), Zhongguo Shehui Fajan Zhiliao: Zhiguan, Keguan He Guoji Bijiao (Data on the Development of Chinese Society: Subjective, Objective and International Comparisons) (Beijing: China Statistical Publishing House), December 1992.

Suzanne Ogden 297 Structural Transition Project Team (1998) ‘Medium and Short-Term Trends and Problems in the Structural Transition of Chinese Society’, Strategy and Management (Zhuanlue yu Guanli), Beijing, 30 (May), pp.1–17. Unger, J. (1996) ‘“Bridges”: Private Business, the Chinese Government and the Rise of New Associations’, The China Quarterly, pp.795–819. Unger, J. and Chan, A. (1995) ‘China, Corporatism, and The East Asian Model’, Australian Journal of Chinese Affairs, 33 (January), pp.29–53. Wang, S. G. (1995) ‘The Politics of Private Time: Changing Leisure Patterns in Urban China’, in D. S. Davis, R. Kraus, B. Naughton and E. J. Perry, (eds), Urban Spaces in Contemporary China: The Potential for Autonomy and Community in Post-Mao China, Cambridge: University of Cambridge Press and Woodrow Wilson Center Press, pp.149–72. Wank, D. L. (1995) ‘Private Business, Bureaucracy, and Political Alliance in a Chinese City’, Australian Journal of Chinese Affairs, 33 (January), pp.55–71. Warner, M. (1999) [ed.] China’s Managerial Revolution, London: Frank Cass. Wasserstrom, J. N., and Liu, X. Y. (1995) ‘Student Associations and Mass Movements’, in D. S. Davis, R. Kraus, B. Naughton and E. J. Perry (eds), Urban Spaces in Contemporary China: The Potential for Autonomy and Community in Post-Mao China, Cambridge: University of Cambridge Press and Woodrow Wilson Center Press, pp.362–93. Wenhui Bao, Shanghai, 26 January, 1999. White, G. (1995) ‘Chinese Trade Unions in the Transition from Socialism: The Emergence of Civil Society or the Road to Corporatism?’, Working Paper No. 18, Institute of Development Studies, University of Sussex. White, G., Howell, J. and Shang, X. Y. (1996) In Search of Civil Society: Market Reform and Social Change in Contemporary China, Oxford: Clarendon Press. Xiao, S. (1998) ‘Reconstructing China’s Civil Society’, unpublished paper, Zhongnan University of Finance and Economics, Wuhan. Xiong, F. (1999) ‘Analysis of Consumer Complaints in 1998 Received by This Periodical’, Zhongguo Zhiliang Wan Li Xing (Quest for Product Quality in China), 73 (January). Zhang, J. (1998) Fatuan Zhuyi: Jiqi yu Duoyuan Zhuyi de Zhuyao Fenqi (Corporatism and its Major Differences with Pluralism), Beijing: China’s Social Science Publishing House. Zhang, Y. Q. (1997) ‘From State Corporatism to Social Representation: Local Trade Unions in the Reform Years’’ in T. Brook and B. M. Frolic, Civil Society in China, Armonk, NY: M. E. Sharpe, pp.124–48. Zhu, G. L. (1997), Dangdai Zhongguo Zhenfu Guocheng (Government Process in Contemporary China), Tianjin: Tianjin People’s Publishing House, pp.191–4.

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Index Abbreviations xii ACFTU (see also trade unions) 7, 19ff, 34ff, 49ff, 102ff, 283ff, 247ff, 263ff, 281ff Acknowledgements xi All-China Federation of Trade Unions see ACFTU All-China Lawyer’s Association 12, 265 Age 120, 130 American management 185ff Americanization 200 Anglo-American collective bargaining 112 Asia, East 13, 100 Asian authority-pattern 45ff Asian joint ventures 45ff Associational pluralism 11, 263ff Authority 120 Banking 78ff Bargaining see collective bargaining Beijing 11, 144, 170, 245 Big business, Chinese 5 Board appointments 154 Bolsheviks 23 Breaking the three irons (pou santie) 25ff Bureaucracy 29 Case-study enterprises (in Shanghai) 80ff Changchun 245 Chanye guanxi (industrial relations) 17ff Chengdu 237, 245 China, urban 227ff Chinese Communist Party (CCP) 20ff, 229, 247 Chinese employees 185ff, 47ff Chinese enterprises 34ff, 57ff, 77ff, 205ff, 247ff

Chinese industrial relations 15ff, 77ff, 205ff Civil society, China’s developing 263ff Class struggle 104 Collective bargaining, Chinese 100ff, 107 Collective consultation 39ff Collective contracts (jiti hetong) 100ff, 105, 110 Collective enterprises 29 Command economy 4 Compensation (see also ﬁnancial rewards and pay) 131ff Computers 84 Commitment 188ff Common values 86 Contextual factors 133 Contingency model 132ff Contributors, notes on xiii Corporate training 128 Corporatism 269ff Corruption 255 Cultural revolution 4, 103 Culture, Chinese 126, 167ff Customer focus 86 Daguo fan (eating out of one big pot) 119 Daiye (waiting for employment) 25 Daiwa Bank 98 Dangan (personnel ﬁle) 28 Danwei (see also work-unit) 3ff, 185ff, 227ff, 247ff, 228 Democracy Movement (1989) 248 Deng Xiaoping x, 3, 24, 25, 100 Dengist Party-state 37 Differentials, wage 88, 205ff Diffusion, HRM 135 Education 62ff, 64 Egalitarianism 120, 130 Employee commitment 90ff, 185ff 299

300 Index Employment relations 77ff, 86ff Enterprise law (1988) 39 Enterprise reform 27, 78, 227ff, 247 Enterprise restructuring 227ff, 229 Equity capital 141 Equity theories 207ff Establishment method 133 Europe, Western 143ff European companies 134 Expatriate managers 133ff, 142ff Face (mianzi) 120 Factor analysis 215ff Financial rewards (see also pay) Finland 136 Fixed assets 139 Flexibility 77ff French JV 132 Full-time ofﬁcials 92

131

Ganbu (cadre) 25 Germany 45 Gong (public mindedness) 19 Gonghui (trade union) (see also ACFTU) 20ff Gongren (working people) 18ff Grievance procedure 92 Guangdong Province 46ff Guangzhou 46ff Guilds (hanghui) 19 Guomindang (KMT) 17, 23 Hetong (contract) 100ff Hierarchy 35 Hong Kong 45, 136, 144 Housing 62ff Human resource management (HRM) 7, 24, 42, 100ff, 117ff, 119ff, 122, 163ff Hukou (residence permit) 101 Individual labour contracts (geren hetong) 100ff, 105, 249ff Industrial markets 142 Industrial relations, Chinese 15ff, 39ff, 77ff, 92, 100ff, 247ff Insecurity 230 Interest groups 263ff International business 117

International joint ventures 117ff Iron chair (tie jiaoyi) 22, 57 Iron rice-bowl (tie fan wan) 3ff, 6, 21, 57, 119, 227ff Iron wage (tie gongzi) 22 Issues 140 Japan 8, 17, 24, 101, 108, 143, 186ff Japanese management 81ff, 96, 185ff Job creation 203 Job security 22, 187, 233ff Joint ventures, Sino–foreign 117ff, 139ff, 156ff, 163ff Julebu (club) 20 Korea, South 24, 46 Key appointments 140ff, 147ff Key positions 159 Labour insurance 66ff Labour law 26, 51ff, 105ff, 197 Labour management relations, Chinese (also industrial relations) 77ff, 82 Labour management system, Chinese 18ff Labour market 101, 230ff Labour market services 236ff Language, Chinese industrial relations 17ff Laodong guanxi (labour relations) 17ff Laogang (working labourers) 17, 50 Laozi guanxi (labour–capital relations) 17ff Levers of control 160 Liberation [1949] (jiefang) 20ff Liaoning Province 11 Life-time employment see iron ricebowl Likert scale 213 Linguistics 15ff Local v. global 117ff Local government 234 Management ideologies 39ff Managerial implications 197 Managerial philosophies 90

Index 301 Managerial prerogative 89ff Managerial training 90 Managerial workplace 139ff, 161 Managers, Chinese 9, 247ff Manchuria 4, 21, 101 Manufacturing 80ff Maoist 34, 36, 38, 43, 82 Marxism 18, 21 Marxist-Leninist 103 Mass organizations 104 Measurement of competitiveness 84 Medical facilities 62ff, 64, 68 Microeconomic workplace regulation 105 Ministry of Labour and Social Security 72, 104, 231, 233ff Ministry of Foreign Trade and Economic Cooperation (MOFTEC) 117ff Mobilization 104 Motivation and pay 10, 205ff Multinationals (MNCs) 9, 117ff Needham, J. 19 New technology 85 Nomenclature 24 Obligations 269 Old-age pensions 66ff, 232ff Open Door 24 Origins, Chinese industrial relations 15ff Overseas banks 85ff Parent organizations 117 Party Secretary 35ff Party-State 52 Pay 205ff Pay-for-labour (anlao fenpei) 205ff Peasants’ Associations 281 Pensions see old age pensions Pension pools 67ff People’s Daily 29 Performance appraisal 129ff Performance feedback 168ff Performance management, standardized 9, 163ff Performance objectives 173 Periphery 37

Personal power of managers 190 Personnel department 122ff Personnel management (renmin guanli) (see also HRM) 113, 118ff, 122 Pluralism, associational 11, 263ff Pluralist norms 107, 113 Poaching, employee 89 Political regime 36 Pragmatism 267 Privatization 52 Probationary period 86 Production, labour 35 Proﬁtability, enterprise 60 Promotion 130 Protection, workers’ rights 35ff Provision, social 58ff Qiye (enterprise) 18 Quality concerns 84 Quality control 83ff Quality responsibility 82 Quality, workforce 90 Questions, housing 62ff Recreation activities 191 Recruitment 126 Redistributive relationship 36 Re-employment centres 65ff, 236ff Regions 274 Regulations, labour 44 Renli guanli (personnel management) 28 Renli ziyuan guanli (Human Resource Management) (see also HRM) 28 Renmin ribao (see People’s Daily) Sample population 211 Seasonal workers 208 Safety-net 239ff Selection 88ff, 126 Self-employed Labourers’ Association 275ff Seniority 119 Shanghai 8, 51, 144, 194, 232, 241, 245 Shanxi province 257 Shekou 48 Shenyang 235, 243ff

302 Index Shenzen 46, 48, 51, 78ff Shiye (unemployment) 26, 65, 230 Sichuan Province 206, 253 Sick leave 185 Social norms 163 Social responsibilities 61 Social role of Chinese enterprise 57ff Social security 58ff, 227ff, 247ff Social welfare 66ff Socialist market economy 97 Soviet model 21, 29, 34, 200 Special Economic Zones (SEZs) 25, 26 Stalinist-Confucianism 30 Standardized performance management 163ff State Council 49 State-owned enterprises (SOEs) 57ff, 89ff, 185, 227ff, 247ff Subsidiary managers 166f Surveys, questionnaire 210 Tables, list vii Taiwan 24, 118, 270 Taylorism 27, 82 Teamwork 82ff Technology 95 Technology transfer 143 Theorists, industrial relations 107 Third World 77 ‘Three irons’ 25ff, 29 Tiananmen Square 13, 27, 282 Tibet 258 Trade unions, Chinese (see also ACFTU) 19ff, 34ff, 49ff, 102, 247ff, 263ff, 281ff Training 80, 127f Training institutes 127 Tripartitism 48ff Type, company 81 Unambiguous rules 198 Uncertainty 189 Unemployment (see also shiye) 42, 69, 227ff Unemployment insurance 69 Unilateral management rights 199 Unionization (see also ACFTU) 196

Unitarist regime 107, 109 Unrest and resistance, worker 48ff, 108, 248, 258ff Urban poverty 10 United Kingdom 28 United States of America 185 Value-added 60, 78 Values 30 VIE (Expectancy or Instrumentality theory) 207, 222 Vietnam 47 Wage determination 60, 107 Wage haggling 114 Wage share 106 Wei Jianxing 110 Welfare beneﬁts 106 Work ethic 35 Work organization 96 Work relationship 35 Work unit see danwei Worker and employment system 17ff Workers’ states 34 Workers’ Congresses 27, 39ff, 93ff, 105, 110 Workplace reforms 114 Workplace relations 34ff, 102ff Workplace stability 111 Workplace union 112 Work council, European 110 World Bank 62 Xaihai (‘jumping into the sea’) Xiagang (laid-off) 65ff, 231ff Xiamen 279 Xue tu (apprentices) 19 Yizhang zerenshi (one-man management) 23 Yunyong (applications) 16 Zhang Zuoji 231 Zhongghua (China) 20 Zhu Rongji (Premier) 42, 239, 241 Zhuhai 48 Zhuren (masters) 5

29