Changes in labor organization and regulation in China are providing a unique perspective on China's systematic move up the production ladder and its embrace of higher-skilled industries.

In a landmark agreement, employees of a Wal-Mart outlet in Shenyang, capital of Liaoning Province in northeastern China, last week signed a collective labor contract with the retailing giant. Under the agreement, employees' salaries will be raised by an annual rate of 8 percent in 2008 and 2009, and standards for minimum pay, paid vacation, social security and overtime pay were agreed to. The International Labor Rights Fund (ILRF) Blog has hailed the contract as a stepping stone for Walmart's ongoing labor organizing efforts in China (as well as for its influence on the All China Federation of Trade Unions), the successes and challenges of which China Labor News Translations have been documenting at length.

The ILRF Blog has pointed to draft labor regulations proclaimed in Shenzhen in June as evidence of the persisting trend towards collective bargaining and legislation in China; and this trend, in turn, as an indication of China's growing conviction that it must move up the production ladder, focusing on higher-skilled industries - or be stuck forever competing with its poorest neighbors for the cheapest manufacturing orders.

The IHLO (Hong Kong Liaison Office for the international trade union movement) in June investigated the impact of the Labor Contract Law in the preceding six months of implementation, and concluded that the real impact of the new law has not been its negligible overall impact on labor costs, but rather the way it makes it harder for companies to avoid paying benefits to their employees or to circumvent implementing existing labor legislation. And this encapsulates government policies aimed at transforming China's traditional reliance on low-cost labour and labour-intensive industries to the development of higher-value industries. This process requires companies to invest in employee training, and makes it harder to routinely flout labor regulations. With such incremental developments, the organizational and regulatory outlook for labor in China provides ongoing insight into more long  term transformations in the Chinese economy.

Less enthusiastic job-hunters turned up at Guangzhou, capital of Guangdong, for the city's first labor fair after the beginning of the lunar year. From China Daily,

...the job-seekers gathered there appeared not be as enthusiastic as their counterparts of years past. For the first time, the number of job-hunters fell far short of the number of vacancies advertised at the fair: 4,000 versus 7,000...

- which really disappointed employers who could only raise their salary standards 13% (on average to 1,160 yuan or $155 a month) compared to previous years. (Come to think of it, this is almost exactly how much I receive as monthly stipend as a scholarship student in China).

Yet trade unions and government officials in Guangdong have pointed out that wages in Guangzhou have failed to keep up with inflation and the overall growth rate of industrial output, and need to be increased further. Does this mean, the China Labour Bulletin wonders,

that Guangdong's trade union and labour officials are now determined to take their responsibilities seriously, and defend the rights and interests of workers in the province? Crucially, Guangdong union officials have now acknowledged that the most effective way to protect wage levels and ensure regular payment is through direct negotiations between labour and management.

Yet only time will tell, they conclude, as the actions of trade unions over the coming years will indicate whether developing collective bargaining at the grassroots level will make enterprise-level unions genuine representatives of workers' rights.

Some workers in Guangzhou, however, are wondering whether their jobs are even worth it. From Tim Johnson at China Rises (blocked on mainland China), three U.S. researchers who spent time querying 634 factory workers outside Guangzhou railway station before the spring festival found underlying concerns not only about low wages and poor working conditions but also about whether it was worth the effort at all. Suppliers desperately need to improve job satisfaction in China, the researchers concluded (I noticed though seemingly universally disparaging comments on the China Rises site to the research mentioned in the posting).

A recent article from AP (via Herald Tribune, see also China Law Blog's downplaying response) suggests that, due to pressures of regulation and rising costs for energy, materials and labor, China's economy is set to lose its claim on cheapness. Similar echoes from Frank Langfitt at NPR outlining the pressures faced by shoe, furniture and other manufacturers and smaller factories generally in China, and FT.com about the plight of Changdeng Shoe Company in Guangdong, whose company compound recently became a ghost town as the company folded in the face of

...a survival-of-the-fittest struggle affecting primarily smaller factories in relatively low-tech, labour-intensive industries...

Lastly, some hyperbole from the China Economics Blog (blocked on mainland) who quotes an article from the Peterson Institute claiming  that, without anyone noticing, the capitalists have upended the People's Republic by effecting a significant redistribution of income away from workers. This might be, they say, the mother of all redistributions. According to a few Berkeley economists, between 2002 and 2005 the share of economic output going to workers decreased by about 8 percentage points, from about 50% of GDP to 42%.

It is clear that capitalism, the CEB posting infers,

now has China in its icy grip.

I myself am overjoyed that it seems we might be in for a nice mild spring in the north of China this year round.

China's strength lies in its workers. Millions of migrants leave their homes and villages to work in factories and cities at low wages, for long hours, making the products that are snapped up and sent to every part of the globe. It is an unbeatable process that has been instrumental in catapulting China to the verge of superpower status as the 21st century unfolds. Most of these workers can expect to see their families only once a year, when they have to brave the spring break rush, which FT.com depicted on Thursday as the world's largest human migration (bigger even than the Islamic Hajj pilgrimage). Yet the worst snow and ice storms in 50 years have played havoc with China's power grid and transportation network, meaning that millions of migrant workers in southern Guangdong province greeted the start of the year of the rat still away from their homes. Desperate to relieve the strain on the country's rail network, the Chinese government attempted to entice workers to cash in their tickets and return to their factories for the holiday. Overworked, underpaid, and now even deprived of their holiday, China's migrants can take a bow.

In the face of such challenging conditions Chinese labor organization is politically weak and largely unorganized; the most explosive labour grievance in China, however, is simply not getting paid. Workers will endure very demanding conditions and the lack of independent unions, as long as they get paid, yet rampant problems of nonpayment of pensions and wages have led to persistent unrest among migrant workers. In its 2007 report on the Workers' Movement in China for 2005-2006, The China Labour Bulletin concluded that

China's workers' movement in 2005-2006 was characterized by continued disputes and protests by urban workers laid off from privatized former SOEs and also predominantly by migrant workers in the private sector... [T]he inability of the government and unions to enforce the law or effectively implement their own policies meant that the lives and working conditions of workers across the country for the most part failed to improve; indeed for many workers, the situation worsened... For migrant workers employed in the private sector, disputes and protests arose largely from specific and blatant violations of their rights. The single most important cause of labour disputes in this period was the failure of management to pay wages on time. Often an entire factory could go for months on end without being paid, and this led to widespread strikes, protests and street blockades.

Interestingly, Ching Kwan Lee* contended that although Chinese workers are aware of their common predicament and aspire to legal rights as citizens, they find the public identity of the "unprivileged masses" the most empowering and effective:

[T]he mode and logic of worker activism in China deviate from what are conventionally conceptualized as class citizenship struggles. Chinese workers' cellular activism is predicated not on horizontal social solidarity or the idea of a judicial, rights-bearing, individual subject, but on the moral and economic entitlements of the subordinate masses in a hierarchical political community led by the central state authority. As disadvantaged masses, workers want more, not less, state intervention and regulation to restrain the market.

Eventually China's seemingly endless supply of migrant labourers willing to work for long hours and low pay (and without even Spring break holidays) will recede. In fact, China Success Stories has listed rising labour costs as a major reason why souring from China will be more expensive in 2008, and FT.com on Tuesday quoted the chief financial officer of Hasbro (the world's second largest toymaker) saying the company expected a 14-15% increase in the costs of made-in-China products in 2008 due to higher labour-, commodity- and currency costs.

So at least China's migrants are getting a bit more pay, IF they get paid at all.  


* Ching Kwan Lee, "Made in China": Politics of Labor, Law and Legitimacy, Woodrow Wilson International Center for Scholars, Asia Program Special Report, No. 124, September 2004. (link)       

The Central Economic Work Conference closed in Beijing on Wednesday with headlines proclaiming that the 'ten-year prudent' monetary policy will be replaced by the 'tight one' in 2008. The current 'prudent' policy itself replaced the 'proactive' policy in 2005. Amid familiar fears of 'overheating,' China's economy has been running at 11.5% year-on-year growth in the first nine months of 2007, and the annual consumer price index was estimated to stand at about 4.5%, overrunning the warning threshold by more than 1%. The conference identified five major problems in the national economy, starting with 'overheating' and inflation concerns, to a weak agricultural sector and difficulties with energy conservation and emission reduction, and ending with welfare issues.

So with the economy frequently showing signs of overheating, how long can China's phenomenal growth rates continue? Moreover, while low labour costs have undoubtedly been China's trump card in capturing world markets, how long can this advantage persist with labour costs likewise creeping upwards?

One study (see reference 1 below) conducted this year examining the impact of market access and internal migration on average provincial manufacturing wages in 29 Chinese provinces between 1997 and 2004 found that provincial wages increased by about 15% per year (or 130% over the 7 year period), corresponding to 'common shocks possibly like total factor productivity growth and national rise in prices.' Internal migration, the study found, has slowed down wage growth by only 2% per year.

The question is really how China can keep increasing the competitiveness of its products and maintain its export growth, and factors such as low wages, a favourable exchange rate and the flow of foreign direct investment have all played their part in fuelling China's growth. Yet according to a study (2) assessing the causes for China's competitiveness, China's pool of cheap and increasingly mobile labour means competitiveness based on low wages will persist for 'quite some time,'  and Chinese producers are becoming much more proficient in enforcing world requirements for quality and product design, partly facilitated by the inflow of foreign direct investment and entrepreneurship. In effect, the study suggested, with China's enormous rural population and increasing number of 'floating' urban workers, 'it will be many years before the supply of low-cost unskilled labour runs out.'   

(1) De Sousa, J; Poncet, S, How are wages set in Beijing?, CEPII, No. 2007 - 13.   

(2) Adams, FG; Gangnes, B; Shachmurove, Y; Why is China so competitive? Measuring and Explaining China's Competitiveness, 2006.