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Experimentation and Decentralization in China’s Labor Relations Eli D. Friedman Cornell University, [email protected]

Sarosh Kuruvilla Cornell University, [email protected]

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Experimentation and Decentralization in China’s Labor Relations

Abstract In this introduction to the special issue ‘Changing work, labour and employment relations in China’, we argue that China is taking an experimental and decentralized approach to the development of new labor relations frameworks. Particular political constraints in China prevent interest aggregation among workers, as the central state sees this as posing a risk to social stability. Firms and local governments have been given a degree of space to experiment with different arrangements, as long as the categorical ban on independent unions is not violated. The consequence has been an increasingly differentiated labor relations landscape, with significant variation by region and sector. We note some countervailing tendencies towards re-centralization, but emphasize that this phenomenon remains largely confined to the municipal level. The five articles in this special issue address different aspects of both experimentation and decentralization in labor relations.

Keywords China, collective bargaining, labor relations, strikes, unions

Disciplines Collective Bargaining | International and Comparative Labor Relations | International Business | International Economics | Labor Economics | Unions

Comments Required Publisher Statement © SAGE. Reprinted with permission. All rights reserved. Final version published as: Friedman, E., & Kuruvilla, S. (2015). Experimentation and decentralization in China’s labor relations. Human Relations, 68(2), 181-195. DOI: 10.1177/0018726714552087

Suggested Citation Friedman, E., & Kuruvilla, S. (2015). Experimentation and decentralization in China’s labor relations[Electronic version]. Retrieved [insert date], from Cornell University, ILR School site: http://digitalcommons.ilr.cornell.edu/articles/934

This article is available at DigitalCommons@ILR: http://digitalcommons.ilr.cornell.edu/articles/934

Experimentation and decentralization in China’s labor relations

Eli Friedman Cornell University

Sarosh Kuruvilla Cornell University

Abstract

In this introduction to the special issue ‘Changing work, labour and

employment relations in China’, we argue that China is taking an

experimental and decentralized approach to the development of new

labor relations frameworks. Particular political constraints in China

prevent interest aggregation among workers, as the central state sees

this as posing a risk to social stability. Firms and local governments

have been given a degree of space to experiment with different

arrangements, as long as the categorical ban on independent unions is

not violated. The consequence has been an increasingly differentiated

labor relations landscape, with significant variation by region and

sector. We note some countervailing tendencies towards re-

centralization, but emphasize that this phenomenon remains largely

confined to the municipal level. The five articles in this special issue

address different aspects of both experimentation and decentralization

in labor relations.

Keywords: China, collective bargaining, labor relations, strikes, unions

The changes in work, labor and employment relations in China that are

the subject of this special issue must be viewed against the broader context of

economic reform. Over the past 35 years, China’s approach to economic

reform has been marked by a high degree of experimentation and

decentralization. As has been well established in the literature, China began

moving away from central planning of the economy in the late 1970s, and

allowed for a variety of initiatives with market reforms to develop in the

provinces. This resulted in experiments with decollectivization of land (Unger,

2002), the emergence of market- oriented but collectively owned ‘town and

village enterprises’ (Naughton, 1994; Walder, 1995), fully private firms (Liu,

1992; Nee and Opper, 2012; Tsai, 2007), and spatially circumscribed special

economic zones. If regions proved successful, their ‘models’ could be promoted

throughout the country. The central state has proven willing to relinquish quite

a bit of control over local governments during this process, as long as such

autonomy is oriented towards increasing economic growth. The consequence

is that China’s economy has become increasingly differentiated throughout the

reform era.

Our argument is that the state is taking a similarly experimental,

gradualist and decentralized approach to reform of the system of labor

relations. Perhaps there is nothing surprising about this. Indeed, highly

differentiated labor relations institutions would seem to be the corollary of a

highly differentiated economy. A unified approach would be unable to

accommodate the requirements of a hugely diverse set of employment

relations that vary widely by region, sector, workforce composition and form of

ownership. And yet there is a key distinction with the process of economic

reform: on the one hand, decentralization of economic decision-making has

created a space where private capital is meaningfully autonomous from the

central state - if, importantly, remaining deeply integrated with local

governments. Private firms (both domestic and foreign) are not integrated into

a hierarchical organization that extends all the way to Beijing.1 On the other

hand, the All-China Federation of Trade Unions (ACFTU) - the only legal repre-

sentative of labor - is integrated into a hierarchical national organization. The

ACFTU is formally subordinate to the Communist Party and has long been used

by the state as an instrument of ensuring political control in the workplace. The

central government is keen to allow for experimentation in labor relations (the

ACFTU, for example, has been asked to organize all workplaces and to bargain

collectively in order to contain industrial unrest), but with the important

proviso that independent forms of worker organization are banned. In this

sense, labor relations reform has proceeded, but it faces greater constraints

than has been the case with economic reform. It is within this political frame-

work that employers, unions and governments largely at the municipal level

have been trying new approaches to regulating employment. Thus, whereas

capital has been granted meaningful autonomy, labor at the local level

continues to operate with constrained autonomy. The consequence of this

asymmetric politics is that diverse efforts to rationalize employment relations

have rarely been successful.

Finding a new approach to regulating employment is an increasingly

pressing issue from the perspective of the central government. Politically,

worker unrest has been growing for many years (Chan, 2010; Chan and Pun,

2009). Although numerous wildcat strikes, road blockages and occasional riots

do not yet represent a major challenge to political stability (Lee, 2007), the

state has been unable to reduce ‘depoliticized’ worker insurgency (Friedman,

2014b). Reform in employment relations is also necessary for economic

reasons. At the level of the firm, incredibly high rates of turnover and severe

labor shortages have come to be one of the key limits on future growth. The

inability to retain a stable workforce has pushed employers in the industrial

centers in coastal areas to look further afield - either to China’s interior or

overseas (Zhu and Pickles, 2014). At the national level, the central state has

espoused the goal of economic rebalancing, that is, making household

consumption, rather than state-driven investment, the key engine of economic

growth. China’s household consumption as a share of GDP is only 38 percent,

compared with the USA, which clocks in at 70 percent and is significantly less

than the approximately 60 percent in countries such as Brazil, France, Germany

and India. Such a rebalancing involves major policy challenges in a number of

arenas, including higher wages and an expansion of social services, both of

which are likely necessary to foster increased domestic consumption (Chamon

and Prasad, 2010). In other countries, particularly the USA, a rationalization of

employment relations played a key role in the movement from unregulated

capitalism to a Fordist model of high consumption. These factors explain the

central state’s granting of constrained autonomy to experiment with labor

relations reforms.

Each of the articles in this special issue addresses a different aspect of

labor relations in China. In so doing, they make important contributions to our

overall argument about experimentation and decentralization in employment

relations and regulation in China. We briefly introduce the articles below and

will subsequently integrate their findings into building our argument.

Gallagher et al.’s article (2014; this issue) focuses on the government’s

efforts in the legal arena, particularly with respect to labor law. They find that

although the government and local labor bureaus are increasingly concerned

with enforcement of the 2008 Labor Contract Law, there is substantial

variation in actual enforcement across regions and across different provisions

of the law. In his article, Chung (2014; this issue) tries to explain why there are

differences in enforcement of different legal provisions by highlighting that

successful enforcement is a function of both top-down as well as bottom-up

pressure from a variety of social actors, whose interests diverge on different

aspects of the law. Compliance is better, he argues, when the interests of

different actors converge. Variation in enforcement is one significant aspect of

the decentralization that is one of the core arguments of this article. Frenkel

and Yu (2014; this issue) highlight how young workers are increasingly aware of

their legal rights, and hence constitute some pressure for better enforcement,

but also to increased labor unrest. Finally, in the absence of an effective labor

relations framework in many places, managers have been taking matters into

their own hands. Although representing very different sorts of approaches,

both the ‘humanized management’ discussed by Choi and Peng (2014; this

issue) and the unfree labor of student interns in Smith and Chan’s (2014; this

issue) article are unilateral responses by management to ongoing instability.

This introduction provides an overview of the development of labor

relations in China to serve as a framework for understanding these important

contributions. Additionally, we will discuss some developments that have not

been covered. Particularly notable is that none of our contributions pay

significant attention to the trade union or recent collective bargaining

initiatives (which figure prominently in our introduction). Although there have

been some important developments in this realm, most scholars remain pes-

simistic about the capacity of the ACFTU given its fundamental weakness.

Nonetheless, it is noteworthy that different models of trade union activity have

proliferated around the country, and there is certainly important diversity.

Below, we outline the diversity of reforms that employers, unions, local

governments and civil society actors are pursuing in contemporary China. After

a brief overview of the primary sources of employment instability in China, we

will proceed to analyze three spheres of reform: (i) legal, (ii) unions and

collective bargaining and (iii) managerial strategy. In each section we will draw

on the articles in this special issue, highlighting the ways in which they demon-

strate the experimentation and decentralization that have been the hallmarks

of labor relations reform in China.

Labor market instability

The Chinese labor market, characterized by significant oversupply

during the 1990s, is currently witnessing unprecedented instability, with acute

labor shortages, rising industrial conflict and high levels of turnover.

Labor shortages

A key change during the decade of the 2000s has been the transition

from a labor surplus economy to one dominated by labor shortages (Golley and

Meng, 2011). As the market economy expanded in the 1980s, private

employers in coastal regions enjoyed a seemingly limitless supply of low-cost

migrant labor. However, by the late 2000s, it became clear that a structural

shift in the labor market was under way. As early as 2004, employers along the

coast had begun to report shortages. Although 20 million migrants in the

export-processing sector were thrown out of work by the economic crisis in

2008, tight labor markets re-emerged almost immediately thereafter. The

emergence of labor shortages in rapidly growing inland regions provides

further evidence that a structural shift is developing.2

A number of reasons have been advanced for this labor scarcity. First,

and obviously, shortages are a function of the rapid growth of the Chinese

economy. However, arguably the seeds of the shortage were planted much

earlier by China’s birth control policy, which has reduced the number of people

entering the labor market. In addition, there has been a major expansion of

tertiary education, so more young people are choosing to go to college rather

than into factories. Ma and Adams (2013) note that the number of people

enrolling in higher education programs increased from 2.2 million in 2000 to

over 6.6 million in 2010. A further explanation is the stated preference of

employers for young migrant workers rather than older ones (Ma and Adams,

2013).

An important cause of the labor shortage is reflected in the differences

between the younger generation of rural migrant workers and earlier

generations. Young migrant workers are not only better educated and no

longer satisfied with menial labor, few having worked on a farm, but they are

also motivated more by their own career advancement and individual interests.

This is in marked contrast to the first generation of migrant workers, who

typically saw their time in the city as a brief interlude to save some money

before returning to the village. What is more, younger migrants put a premium

on social justice and fair treatment, which the Chinese government’s extensive

legislative changes that protect and increase workers’ rights (described below)

have facilitated to no small extent. As such, when confronted with the

sweatshop conditions of standard factory work, this new generation tends to

‘vote with their feet’, or they are more inclined to raise disputes or engage in

strike activity. Frenkel and Yu (2014; this issue) persuasively argue that the new

generation of migrant workers can no longer be described as members of an

‘underclass’ and are not significantly different in their work orientation and

strategies for work-life improvement than regular workers.

Yet another reason for the labor shortage has been the

institutionalized discrimination against migrant workers as a result of the

hukou system (the system of household registration originally introduced by

the Communist Party in 1958 to regulate movement of people between rural

and urban areas). Given that migrant workers who work outside their hukou

area do not automatically qualify for a range of benefits, they are less likely to

work in the cities, and more likely to seek work in their home provinces. This is

especially true given recent reforms to agriculture that provide an incentive to

move back (Zhan and Huang, 2013), as well as the movement of employers

from the coastal cities to more inland locations in search of cheap and less

scarce labor.

The net impact of this demographic shift from labor surplus to labor

scarcity is a steady decline in China’s working age population. According to the

Chinese National Bureau of Statistics, the working age population was 972

million in 2012, a decrease of 3.45 million over the previous year. And it is

predicted that this number will decline to 870 million by 2050. The core group

of industrial workers (ages 25-39), born during the middle of the one child

policy, will decrease even more rapidly. Das and N’Diaye (2013) estimate that

China’s excess supply of labor peaked in 2010 (after the financial crisis) and has

declined rapidly since then, suggesting that China will reach the Lewisian turn-

ing point by 2020 (Das and N’Diaye, 2013).

In the short run, as Gallagher (2012) argues, the labor shortage has

created volatility in the labor market, and enlarged the economic and political

space for Chinese workers. On the one hand, it has increased their bargaining

power, and workers have increasingly resorted to strikes and protests. On the

other hand, workers are more likely to move from company to company in

search of better wages and working conditions, resulting in high attrition. And

rising worker protests have motivated the state to enact more protective labor

legislation. We turn to these two issues in turn.

Attrition

The labor shortage is reflected in increased attrition, as workers use

‘exit’ in the absence of adequate ‘voice’ mechanisms. Although turnover rates

vary across different sectors and industries, the average national turnover rate

is about 20 percent (Wong, 2011). The range is much larger, however.

Anecdotal evidence suggests that attrition is a severe problem in private

export-oriented firms, whereas state-owned enterprises (SOEs) maintain a

relatively stable workforce.

Voluntary attrition has a number of causes. Job-induced physical stress

and injuries are a significant reason why people leave their jobs, and the

working conditions and long hours at China’s sweatshops are well documented

in the literature. Mandatory overtime has also been cited as a reason for

turnover, although migrant workers are frequently willing to work overtime

given the low base wages and lack of alternative ways to spend time in factory

dormitories. As the effects of the labor shortage are felt, manufacturers are

increasingly demanding excessive overtime hours to meet production targets,

which workers are increasingly refusing. In addition to long hours, low wages

and wage arrears are also significant drivers of turnover. Although minimum

wages have risen steadily since 2004, many employers have not been paying

the minimum stipulated in provincial legislation, and the problem of unpaid

wages continues. Dangerous or unhealthy working conditions, the poor quality

of factory dormitories and meals, and the high rents of factory-subsidized

housing further spur workers to vote with their feet. Many authors (e.g.

Elfstrom and Kuruvilla, 2014) highlight increased worker intolerance of the

autocratic and ‘militaristic’ management practices of Chinese manufacturing,

and the need for better treatment and respect from management. The

institutionalized discrimination against migrant workers via the hukou is also a

key cause of attrition. The inability to get benefits at their place of employment

means that workers who wish to have a family are often forced to return to the

village. Also, workers with rural hukou are more likely to be employed as

temporary workers.

The high levels of worker turnover in China are clearly exacerbated by

the labor shortage. Workers are aware that alternative employment

opportunities are abundant and are willing to use exit for even minor changes

in working conditions and wages. Clearly, attrition is a key issue for employers.

In a survey of manufacturers from Shanghai, 34 percent cite poor employee

retention as the top issue in 2007 and 2008. Elfstrom and Kuruvilla (2014)

report an interview from an apparel manufacturer who notes ‘turnover has

increased to 20 percent from zero “back in the day”’. The instability caused by

such high levels of turnover can be quite disastrous for employers. Okudera

(2011) reported an unexceptional experience from the Pearl River Delta:

At an electronic parts factory in Dongguan, Guangdong province,

operated by a Japanese company, more than half of the workers quit

within six months. The factory has to hire about 400 new workers

every month to maintain a workforce of 4,200.

Thus, labor shortages and attrition cause substantial labor market instability,

but instability is also increased by labor unrest, to which we turn to next.

Industrial conflict

Industrial conflict has been rising. So-called ‘mass incidents’ (public

protests about a variety of issues, including, but not limited to, labor issues)

have risen steadily from 9000 in 1994 to 87,000 in 2005, the last time the

government released such figures. The government does not publish statistics

about employment-related strikes. Most current estimates are drawn from

news reports or independent reports by activists, and hence are not

completely reliable, but such data are indicative of protest trends. Elfstrom and

Kuruvilla (2014) report 435 industrial actions between January 2008 and 31

March 2012. They find that strikes and protests by workers are distributed

throughout China, that there have been several well publicized strike ‘waves’

that suggest some degree of coordination, and that strikes are more common

at foreign-owned companies. Given their method of data collection, their

estimates of the numbers of strikes are at best a gross under-estimate of the

true picture. Their data, however, are consistent with data reported by China

Labour Bulletin (a Hong Kong-based non-governmental organization [NGO]).

Elfstrom and Kuruvilla argue that there has been a change in the

causes of strikes in China. Whereas prior literature noted that strikes were

largely ‘defensive’ in nature (to uphold existing rights and benefits), they find

that strikes are increasingly ‘offensive’, that is, for improvements in pay,

working conditions and increased respect in the workplace. For example, 102

out of 435 strikes were for increased wages and benefits. The huge strike at

Yue Yuen in April 2014 indicates that migrant workers have moved beyond

simple wage demands and are increasingly concerned with social insurance

(including pensions). This is a significant departure from just a few years ago.

It is important to put worker strikes in a larger context, that is, they are

part of a general increase in worker militancy and wider variation in worker

tactics. Thus, workers use ‘exit’ as opposed to ‘voice’, and engage in everyday

acts of resistance such as ‘shirking’ or ‘holding back’, as well as increased

aggression and violence. Workers continue to take advantage of legal options

through the dispute settlement process and, particularly in the Pearl River

Delta, they increasingly rely on emergent institutions such as labor NGOs. In

contrast to Lee’s (2007) characterization of early Chinese protests as being

strikes of desperation (by state-owned workers who have lost their jobs) and

protests of discrimination (by migrant workers who work under sweatshop

conditions without benefits), Elfstrom and Kuruvilla suggest that the current

generation of strikes indicate that workers are using their improved bargaining

position to go on the offensive.

Why has worker militancy increased? Certainly, pervasive labor

shortages have increased workers’ leverage, and workers are now more aware

of their rights. Although local governments continue to view strikes with

hostility, and frequently resort to coercion, higher levels of the state may be

somewhat more supportive. Rising wages and increased domestic consumption

is in line with the central government’s wishes to ‘rebalance’ the economy, so

they may provide tacit support (e.g. by allowing media coverage to continue) if

workers can capture their attention. Finally, there may be a learning process at

work in which younger workers see that striking is the most effective way to

have their grievances addressed.

Legal experiments

In this context of labor shortages, rising expectations of migrant

workers and increased disputes, strikes and protests, the Chinese state has

enacted several new laws that seek to strengthen individual worker rights,

enhance employment security, reduce informal employment and widen access

to social insurance. A number of new laws have been put in place since 2008,

including the Labor Contract Law (2008), the Labor Dispute Mediation and

Arbitration Law (2008), the Employment Promotion Law (2008) and the Social

Insurance Law (2011). Gallagher et al. (2014; this issue) describe the various

provisions of the laws, and argue that China’s labor regulations would now

rank third amongst the Organisation for Economic Co-operation and

Development (OECD) countries in terms of Employment Protection Legislation

‘strictness’. What is notable about these legislative efforts is that, by and large,

they endow workers with an increasing array of individual rights in the absence

of collective rights - necessarily implying a high degree of decentralization in

implementation.

Gallagher et al. (2014; this issue) argue that these laws have improved

several aspects of employment relations in China. They document a significant

increase in formal employment, with more workers now having written

contracts, although there is variation across provinces and between urban and

migrant workers. Increased formality in employment has also increased access

to social insurance generally, although access remains a major problem for

migrant workers. Whereas pension insurance coverage for urban workers

increased to 88.5 percent, it was only 22.2 percent for migrant workers. This,

they argue, is largely owing to the hukou policy, that is, migrant workers

themselves do not wish to participate in social insurance schemes from which

they themselves will not benefit, given concerns about portability. However,

the recent Yue Yuen strike suggests that there are a significant number of

employers that are reluctant to provide social insurance even if migrant

workers demand it.

Yet, despite the positive impact the law has had for some workers,

there is major variation across region and sector, and widespread violations

remain. Enforcement is highly decentralized, and local administrations have re-

written or passed regulations, a process Kuruvilla et al. (2011) term

‘loopholization’, in order to attract foreign investment and enhance local

competitiveness. Employers have evaded the law through the use of labor

dispatch agencies, that is, through labor subcontracting. Although the

government has recently revised the Labor Contract Law to close this loophole

via restricting the use of ‘dispatched’ or ‘agency’ labor to only 10 percent of the

workforce, it is likely that compliance will continue to be uneven.

There are some areas in which enforcement has been somewhat more

effective. Chung (2014; this issue) points to the importance of non-state actors

such as labor NGOs, legal aid centers and other social organizations in the

enforcement of labor law. His argument is that a bottom-up approach to labor

law enforcement, with workers and non-state actors working together, is more

effective than the traditional top-down method, but if NGOs are key actors in

the multi-stakeholder approach that he identifies, there will continue to be

major geographic unevenness. NGOs are highly concentrated in the Pearl River

Delta, with a smaller number in the Yangzi River Delta and Beijing. Such a

bottom-up approach to enforcement is necessarily highly decentralized, as

labor NGOs are subject to extremely constrained autonomy and are not

allowed to organize nationally (Franceschini, 2014). To the extent that civil

society plays a role in setting labor standards, we will likely see increased

diversification of conditions.

Although much attention has focused on national-level laws, provinces

and municipalities have also been experimenting with a variety of

arrangements. As was the case with marketization in the 1970s and 1980s,

Guangdong province has been the most experimental. The ‘Regulations on

Democratic Management’ were first drafted in 2008, then shelved as a result of

the economic crisis, and finally resuscitated in the wake of a major strike wave

in the summer of 2010. The regulations would have created a system for

workers to demand collective negotiations and to elect their own

representatives. However, after facing fierce resistance from the Hong Kong

Chamber of Commerce, the draft regulations were once again shelved. In late

2013, Guangdong proposed a somewhat different legal framework for

collective negotiations. This time, however, the conditions were less favorable

to workers. Labor NGOs and scholars were almost unanimously opposed to the

draft regulations, as many feared it would result in criminalization of strike

activity that had become somewhat tolerated. Employers, too, expressed

opposition out of concern that employees would put forth excessive demands

in collective negotiations. At the time of final writing (October 2014), a revised

version of the law has just been published. The law requires employers to

accept collective negotiations if demanded by more than half of the workforce.

However, concerns remain about whether enterprise unions will be able to

effectively represent workers.

Given that Guangdong has experienced severe instability in labor

relations, it is likely that the province will continue experimenting with

institutional responses. Although the central government has been tolerant, it

seems unlikely that they will be able to contain basic rights such as collective

bargaining and legal strikes to specific provinces in the long term given the high

mobility of migrant workers.

Collective bargaining experiments

In recent years, trade unions have made major efforts to move beyond

a strictly welfarist function (Yang, 2013) to try to represent workers in

collective negotiations. As collective negotiation has received greater support

from the central state and national union leadership, there has been a

continuous effort to ensure a high level of decentralization. The ACFTU has

consciously undermined the power of the nationally organized industrial

unions in favor of regionally based federations. Because industrial unions do

not mirror the Party structure, the fear is that if given greater leeway in

representing workers, they could serve as a potential independent base of

political power and would therefore threaten stability. Thus, most

experimentation with collective negotiation has been at the firm level.

Increased experimentation with sectoral bargaining has emerged, but it has

been almost entirely restricted to the municipal level (see below for a notable

exception). Also, negotiations have been largely restricted to wages, with

issues such as benefits, hours, seniority structures, workplace rules and other

topics still determined unilaterally by management.

As with all economic endeavors in China, local governments have

played a major role in promoting collective negotiation. Although in many

places this has been restricted to cliched rhetoric about ‘harmonious labor

relations’, some governments have been more active. One recent example

comes from the Binhai New District in Tianjin, where the district government

has provided material incentives to private firms. Since 2011, firms have been

able to receive a subsidy equivalent to 15 percent of the total increase in wage

bill that comes about through collective negotiation (Gongren Ribao, 2013).

The government has provided subsidies to more than 1000 firms employing

nearly 300,000 workers. Although this approach is still exceptional, it suggests

a possible alternative for local governments looking to raise wages outside of

the crude lever of minimum wage regulations.

Frequently the most effective collective negotiations come as an ad

hoc response to wildcat strikes. As is well known, there are no independent

unions or right to strike in China, so management frequently has little incentive

to take negotiations seriously. But in the wake of autonomous worker-led

strikes, these dynamics change, and the union often intervenes as an

intermediary to negotiate a settlement (Chen, 2010). This was particularly

apparent during the major strike wave in the auto industry in 2010 (Butollo and

ten Brink, 2012). Although serious concerns remain about the sustainability of

bargaining arrangements, there was greater space for successive rounds of

wage negotiations in some of the firms that experienced strikes, particularly

the heavily publicized

Nanhai Honda plant (Chan and Hui, 2012; Friedman, 2013). Given that

there is no right to strike in China, this approach to collective negotiation will

necessarily remain reactive, ad-hoc and highly localized.

Although decentralization has been the unmistakable trend over the

past 30 years, recently there have been some countervailing tendencies

towards modest centralization. This has been particularly apparent in the

sanitation industry in Guangzhou, which after being radically marketized and

decentralized after WTO entry in 2001 experienced ongoing strike waves

(Friedman, 2014a). Another highly publicized effort in Wuhan led to city-wide

bargaining in the food and beverage industry, and the final agreement claimed

to cover 450,000 employees. Even more surprising, in early 2014 the Financial,

Commercial, Light Industry, Textile and Tobacco Workers’ Union, China Cuisine

Association and China Hotel Association announced they had successfully

negotiated the ‘2014 Food and Beverage Industry Wage and Benefits

Guidelines’. This was the first time such an agreement was reached at the

national level, and it included guidelines for base wages, wage increases,

benefits and job training, in theory covering 22 million employees (Gongren

Ribao, 28 January 2014). With enforcement tenuous to non-existent, it is

certain that these guidelines are of little consequence for most of China’s food

and beverage workers. Nonetheless, the guidelines represent an important

political development and, perhaps, recognition of the limits of

decentralization. It is also worth emphasizing that this agreement remains

highly exceptional, and nearly all efforts with sectoral bargaining continue to

appear at the municipal level.

Managerial experiments

Human resource management (HRM) has changed dramatically in

China over the past 30 years - and even in the past five. From the 1950s until

the 1980s, employment in SOEs was characterized by the ‘iron rice bowl’ of

lifetime employment. Managerial actions were explicitly politicized, and while

there was essentially no labor market, enterprise cadres maintained a great

deal of unchecked authority over their employees (Walder, 1983). The basic

features of this system were unchanged in the early phases of reform (during

the 1980s), but were now joined by alternative approaches in the burgeoning

private sector. Foreign-owned firms in the special economic zones of the south-

east were characterized by a lawless environment and coercive management

practices (Chan, 2001). In the small domestically owned private firms of

Zhejiang, on the other hand, a roughly egalitarian collectivist approach

predominated (Chen, 2008), and there was little differentiation between

management and employees (indeed, workers were often drawn from

extended kin networks). Only one decade into the reform process, China’s

managerial landscape had already become highly diversified.

More recently, managers have been using a variety of strategies to

respond to the challenges posed by high turnover, labor conflicts, increased

labor costs and the changing legal environment. One trend that appears across

various forms of ownership and sectors of the economy is the increased use of

labor subcontracting - frequently referred to as ‘dispatch labor’ in China. In

large, part this has been a response to the higher cost of dismissal imposed by

the Labor Contract Law, and indeed the number of dispatch workers in China

grew from 27 million before the law was enacted to 60 million in just three

years (Jingji Guancha bao, 2011). It appears as if SOEs have in fact been most

aggressive in expanding the use of dispatch labor, with some firms relying on

dispatch agencies for up to two-thirds of their workforce (Wang, 2012).

Managers have been attracted to dispatch labor because of the enhanced

flexibility, reduced costs and ability to skirt regulations relating to social

insurance, non-fixed-term contracts and severance pay. As noted above, the

Ministry of Human Resources and Social Security recently put into effect the

‘Provisional Regulations on Dispatch Labor’. Among other features, the

regulations ban firms from hiring more than 10 percent of their workforce from

dispatch agencies. With a two-year grace period, it will be of great interest to

see how various types of firms respond to these regulations.

On the other hand, it has been private firms that have been more

enthusiastically expanding their use of student or intern labor. As argued by

Smith and Chan (2014; this issue), this represents a new form of ‘constrained

labor’ in China. It is highly constrained in the sense that technical school

students are frequently not given any choice over whether they will take an

internship or where they will be placed, and they are not allowed to negotiate

over the terms of employment. Because completion of the internship is

required for graduation, this form of labor violates the basic principle of free

labor. Although there are no comprehensive studies on the expansion of

student labor, anecdotal evidence suggests that this has been particularly

pervasive in light manufacturing. In particular, Foxconn has come under fire for

its pervasive use of forced student labor (Chakrabortty, 2013). Student labor is

a clear attempt to stabilize the migrant workforce in the face of massive and

seemingly unsolvable labor turnover and shortage.

A final approach - and one that has certainly been incorporated with

the above methods - is an attempt to construct less coercive means of

management. Official trade unions have long advocated a paternalistic form of

management, as embodied most clearly in the slogan of ‘harmonious labor

relations’, but recent indications suggest that firms are changing their

management styles of their own accord. Choi and Peng (2014; this issue) argue

that, in their research, ‘humanized management’ was a conscious response to

a tightening of the labor market in the Pearl River Delta. Indicating ACFTU

support for this approach, the official Workers’ Daily reported positively on the

method of ‘using feelings to retain people’ among small enterprises in Zhejiang

province (Gongren Ribao, 12 February 2014). Even Foxconn, best known for its

harsh and militaristic style of management, turned to a softer approach

following the string of worker suicides in 2010. In addition to holding rallies

adorned with banners reading, ‘care for and love each other’ (BBC, 2010), the

company hired teams of mental health counselors. As Choi and Peng (2014;

this issue) suggest in this issue, it is not clear that rhetorical shifts in the

absence of significant material improvements will be sufficient to stabilize the

workforce. Nonetheless, it is clear that both managers and the state have been

promoting a variety of paternalistic approaches to HRM.

Conclusion

We have argued that China is taking an experimental and decentralized

approach to the construction of new labor relations regimes. The articles in this

volume exemplify experiments and developments in China. Although there

have been a number of important national-level legislative reforms, the state

has largely prevented the emergence of any regional - let alone national -

efforts. As a result, much of the action has taken place at the municipal or

enterprise level. Despite the admiration with which Chinese unionists

frequently speak of Northern European-style centralized bargaining, in practice

they have pursued a highly decentralized approach. ‘Experimental’ here refers

to the fact that the central state has been tolerant of regional unions and

employers trying out a variety of different approaches to stabilizing labor

relations.

Nonetheless, it is important to emphasize that this experimentation

takes place within clearly demarcated political boundaries. First, and probably

most importantly, is that workers do not enjoy freedom of association. Thus,

employees are still confined by the conservative and generally ineffectual

ACFTU, which remains subordinate to management within the firm. Second,

there is no right to strike. Under such conditions, employers have little incen-

tive to take negotiations seriously, and there is plenty of evidence to suggest

that little substantive bargaining occurs. Of course, strikes do happen all the

time - but typically workers must strike simply in order to get management to

the table. Third, any kind of cross-enterprise organization that involves workers

is likely to be shut down by the government for fear of fomenting social

instability. Given these constraints, efforts by the state and union to institu-

tionalize robust labor relations will continue to face major challenges - and,

indeed, wildcat strikes are often still the most effective way for workers to

have their grievances addressed.

Finally, we would like to reemphasize and problematize countervailing

trends towards increased centralization. In a number of industries and regions

around the country, the state and union appear to be moving away from the

extreme individualization that characterized most of the 1990s and 2000s.

Even if collective negotiations are expanding only at the enterprise level, this

represents an increase in centralization over the purely individual bargaining of

the laissez faire labor market. These tendencies might, somewhat awkwardly,

be thought of as ‘decentralized centralization’, in the sense that this

centralization rarely extends beyond the enterprise or municipality. Inevitably,

movements towards centralization will bump up against the state’s political

concerns about interest coordination and aggregation. In this sense, we see an

emergent tension between the imperatives to institutionalize an effective

system of labor relations, on the one hand, and the state’s political

commitment to atomization of society on the other.

The articles in this special issue represent starting points for a number

of promising avenues of research inquiry. First, we are in need of more

comprehensive studies of legal enforcement and implementation. Especially

important here would be regional and sectoral comparisons, such that we have

a clearer understanding of how national-level legislation is instantiated in a

variety of contexts. Second, studies of turnover could help clarify how

managers and local governments have responded to persistent labor short-

ages. We do not have a solid understanding as to why China has such high

levels of labor turnover, or what sorts of approaches might stabilize the

workforce (short of unfree labor). Third, how have changes in the dynamics of

labor protest affected labor relations? Will increased interest-based demands

as well as non-wage demands result in more substantive collective

negotiations? Finally - and we believe this is applicable to all the above - what

are the implications for labor relations of the massive inland movement of

labor and capital? How will social, economic and political conditions in China’s

central and western provinces impact the development of labor relations? This

will likely be the major story over the next decade, and thus far we are sorely

lacking in strong empirical analyses of this new frontier. Looking further into

the future, we will need research that examines the effect on labor markets

and labor relations of a number of recently announced proposals, including

changes to the birth control policy, reforms to the hukou system for smaller-

and medium-sized cities and a rise in the retirement age. Regardless of the

outcomes, we expect that experiments with labor relations frameworks will

continue to proceed in a largely decentralized manner.

Funding

This research received no specific grant from any funding agency in the public,

commercial, or not-for-profit sectors.

Notes

1. It should be noted that many of these firms do have Chinese

Communist Party branches. Nonetheless, there is little

evidence to suggest that the central Party leadership is actively

involved in shaping investment or managerial decisions within

private firms.

2. For example, Sichuan province, historically a labor-exporting

province, reported 1.5 positions for every job seeker following

Chinese New Year, 2014. See Zhong Xin She, yong- gonghuang

cong yanhai xiang neidi manyan, zhaogong qiuzhi liangnan

quyu changtai, 13 February 2014.

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Eli Friedman is Assistant Professor in the Department of International and

Comparative Labor at Cornell University’s Industrial and Labor Relations (ILR)

School, USA. He is the author of Insurgency Trap: Labor Politics in Postsocialist

China, published by Cornell University Press (2014), and his peer-reviewed

articles have appeared in ILR Review, Theory and Society, British Journal of

Industrial Relations and Mobilization, among others. [Email:

[email protected]]

Sarosh Kuruvilla is currently Professor of Industrial Relations, Asian Studies and

Public Affairs at Cornell University, USA and Visiting Professor of Employment

Relations at the London School of Economics, UK. [Email: [email protected]]