Lots of labor stories in the news these days, the two most popular being Foxconn’s wage hikes and reorganizations, and Honda’s repeated strike problems with its China labor force. It’s enough to make one think that collective bargaining is gaining the upper hand in China and that a golden age of workers’ rights is coming soon.
Think again. The reason why wages are going up and the demands of labor are being listened to is a congruence of labor market forces, legal reform and government policy. Whether labor becomes more organized in the future is another question entirely, the answer to which is quite elusive.
So why are we seeing more activity in recent months? First, the relatively new labor law is just now settling in, at least psychologically:
In mid-2008, China introduced a labor law that allows workers with grievances to file complaints and opens a new mechanism for mediation. Publication of the law probably made workers more aware of their rights, experts said. (Washington Post)
The law became effective in 2008, and we’ve seen an increase in labor disputes as a result. However, this kind of legal reform takes time to filter down to the rank and file and to influence workers when they renegotiate agreements.
Second, China’s demographics are finally starting to kick in, and the long-term trend is overwhelmingly in favor of labor:
“This is the thin end of a very long wedge,” said Arthur Kroeber, managing director of GaveKal-Dragonomics, a research firm. He said the number of 15- to 24-year-olds in China is set to fall by one-third over the next dozen years, from 225 million today to 150 million in 2022.
Kroeber noted that as the number of young workers declines, the number of factories needing laborers has increased rapidly. “This is the beginning of a long process in which bargaining power is going to shift from the company to the workers,” he said.
We’ve already started to see some labor shortages in certain areas, including Shenzhen. The trend is predicted to continue and become more common in other parts of the country.
Third, unlike in past years when Beijing’s foremost concern was economic growth, the current policy favored by Hu Jintao and Wen Jiabao places a premium on addressing the income gap via several policy tools, including wage increases.
After years of focusing on luring foreign investment, Chinese government officials are now endorsing efforts to improve conditions for workers and raise salaries. The government hopes the changes will ease a widening income gap between the rich and the poor and prevent social unrest over soaring food and housing prices. (New York Times)
It certainly looks as though conditions have shifted in favor of labor, and yet I’m still sticking to my above statement that we are not about to witness a glorious new age of labor rights in China. The reason is that the gains we’ve seen this year have been limited to things supported by the government, like higher wages, while the individuals responsible for obtaining these concessions have not exactly been hailed as working class heroes.
The leaders of the strikers at the Honda parts factory were allowed by local government agencies and other authorities to stage a fairly aggressive strike for higher wages, which they did receive from Honda management.
But their movement appears to have been put down quickly: Some of the strike organizers, including Tan Guocheng, a 24-year-old worker from Hunan, were fired for causing the unrest at the factory, according to Tan, who spoke on the phone with The Wall Street Journal.
A Honda spokesman confirms that Tan and another strike leader were fired on May 22 but says the reasons were unrelated to the strike.
While things are looking up for labor, therefore, gains will be limited. This will not provide any solace for industry, of course, which is looking at rising costs. For enterprises in labor-intensive sectors, some hard choices will have to be made.
Moves on wages made by Foxconn, KFC, and Honda are already reverberating through the country, emboldening labor negotiators and causing some firms to consider quitting the Mainland altogether.
Companies who refused to raise salaries have started looking at alternative business operations, with some planning to move manufacturing to inland cities where cheap-labor is available.
A recent survey conducted by the Federation of Hong Kong Industries (FHKI) showed that among 80,000 Hong Kong-invested companies, 37.3 percent of them plan to move from the Pearl River Delta, and 63 percent are thinking of moving away from Guangdong province.
A significant rise in wage demands might also lead to new business models for foreign enterprises, or rather a return to corporate structures that were once thought inferior. For example, after China’s foreign investment laws were liberalized after WTO entry, many investors eschewed the use of joint ventures, preferring the control of wholly foreign-owned enterprises.
JVs have made somewhat of a comeback in the past few years, due in part to China’s aggressive industrial policy, and the trend may continue and deepen with pressure from labor.
[A]t the engine-gear factory in Foshan, near Guangzhou, whose workers went on strike in mid-May and agreed to resume work last week, initial settlement efforts by Honda weren’t effective because the company could not identify the leaders of the walkout. And the leaders they eventually did identify did not necessarily represent the whole group of strikers.
The senior Honda executive said he is not necessarily advocating that every foreign company doing business in China find a local partner, but there are clear benefits in having local help in “connecting with young workers,” he said.
Power is shifting from management to labor, but not in the traditional sense as experienced in the West. This leaves two open questions:
1. Will a more powerful work force also lead to a push for real collective bargaining, and if so, will the government relent at some point and allow real organized labor?
2. If rising costs drive some companies out of China, will this negative outweigh the positive aspects of rebalancing the economy and narrowing the income gap?