Effects of China’s growing labor unions on your company

By Staff

Worker unionization has dramatically increased in China since the beginning of 2007. Chinese domestic companies and foreign-invested companies operating in China are both feeling the effects, but in different ways.

Some Chinese firms turn to union mediators to help deal with a growing number of worker strikes, while many foreign-invested companies are being pressed by the Chinese government to open their doors to government unions.

Throughout 2008, as Chinese firms and union officials have begun to take innovative approaches to handle worker unrest, foreign companies now wonder if they will have to follow in lockstep.

Unionization status

A few years ago, the state-sponsored All-China Federation of Trade Unions (ACFTU), the umbrella union for the entire country of China, called for all foreign-invested companies in China to recognize its unions by the end of 2008, claiming it would ‘blacklist’ and take legal action against any foreign firms refusing to allow unionization.

As of the beginning of 2009, according to official reports, 313 labor unions have been set up in 83% of multinational corporations’ China headquarters. The future of those companies that have not yet complied remains uncertain.

Historically, because government officials and corporate managers had a common interest in keeping production levels high, there was little official support for dissatisfied workers. China’s state-owned companies had unions under ACFTU, which as a government-affiliated body…is more interested in enforcing worker discipline.

As private industry displaced state-owned companies, it seemed China’s unionization declined.

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Although the ACFTU is now attempting to reestablish itself in private industry, government ties make it difficult for ACFTU to bring skeptical workers into the fold.

The Trade Union Law of the People’s Republic of China, last amended in 2001, covers both foreign and domestic companies, and states that unions should be set up in companies having at least 25 employees.

In companies with fewer than 25 employees, a representative may be elected to work with employees on various labor issues. However, union representatives are not always working on behalf of the best interest of Chinese workers. “The union can be useful to workers when it comes to handling small, practical matters. For example, if there’s a death in a factory, the union representatives will go to the funeral and disperse money to the family”, says Mrs. Wang, a worker recently laid off from an electronics manufacturing factory serving the aerospace industry located in Chengdu, Sichuan. “However, when it comes to bigger issues that can lead to protests, the union follows the lead of the government”, she adds.

The law also requires unionized companies with 200 to 500 employees to have at least one full-time union official, adding one more official for each additional 500 employees. Even with this ratio of worker to representation official, it can still be difficult for the voice of the worker to be heard.

“Union representatives tend to be very alienated from workers, as they don’t work in the factories”, says Wang. “The union doesn’t encourage protesting, and it will not take sides outright in a protest”, she adds.

Foreign companies are also required to pay 2% payroll dues for unions, which can add up to millions of dollars in additional costs.

Foreign companies have also complained about the government not investing enough in social security premiums, which have become an increasingly great cost to them.

China’s recently revised Labor Contract law, requiring contracts for all workers, took effect on January 1, 2008. Paired with the unionization effort, some foreign firms have reported increased labor costs of 20% to 40%.

However, although unionization can be costly, many large companies have worked with the ACFTU and the government to bring about a more stable working environment, and had few labor problems as a result.

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Generally, action by the ACFTU and the government has focused on ending particularly exploitative labor practices, the type which foreign-invested companies should already be avoiding because these cost companies high turnover and other problems.

Unions and the media

Over the past few years, compulsory unionization of foreign-invested companies in China has often occurred only after the media released exposés detailing labor law violations, salary disputes, and substandard working conditions which can lead to improvements all around.

“If the media reveals a problem, the government must follow-up with the factory. For example, if a worker goes to the hospital and doesn’t earn enough money to pay for treatment, the media can report on these kinds of cases”, says Wang.

Before 2008, many companies were accustomed to disregarding even basic Chinese labor laws without facing significant consequences. Since China’s new Labor Contract Law, there has been more enforcement of labor laws as a whole with companies being advised to bring themselves into compliance.

Foxconn Technology Group

Foxconn Technology Group, a Taiwanese corporation best known for producing iPods for Apple, provides an example of how negative media publicity has forced upgraded compliance and unionization.

The electronics manufacturing services (EMS) company was forced to unionize in China in light of bad publicity.

In early 2007, a Foxconn subsidiary with more than 200,000 employees unionized after two years of opposing the Shenzhen city union’s organization efforts.

Before Foxconn unionized, a local newspaper accused it of forcing workers to stand for 12-hour shifts. Foxconn then became embroiled in a defamation lawsuit with the newspaper. In the end, both sides agreed on a settlement, but only after unionization had gone through.

Without such media reporting, labor and union officials would not have been able to intervene as they did. Therefore, it is vital for foreign-invested companies to avoid practices that can lead to public embarrassment and government action.

Simply allowing official unions to form and complying with the basics of labor laws is generally enough to end government pressure.

Worker activism

The ACFTU still does not authorize strikes, and except in cases of high-profile pressure aided by the media, ACFTU officials rarely pass on worker demands to management.

In short, unionization with the ACFTU does not necessarily mean increased worker activism.

It should also be noted that in China, unionization does not just impact labor relations, but also government relations. Letting in an ACFTU union is one way for companies to signal goodwill and to build more rapport with the Chinese government, which can be beneficial.

However, there are some indications that this situation may also change.

The traditional, laid-back approach by union officials is now shifting as unionized workers in domestic Chinese companies have begun to try mediating disputes through their official union. The case of striking taxi drivers in western China illustrates this emerging trend.

‘Strikes are officially illegal’

In November 2008, a new wave of worker unrest began when 8,000 taxi drivers struck in Chongqing, a large metropolis in western China. Strikes followed throughout the country in various industries.

Strikes do take place in China, but historically most strikes were quashed when government arrested the leaders and suppressed media coverage. Strikes are officially illegal, and never led by ACFTU-affiliated official unions, but instead by informal worker leaders.

Since then, the government has been increasingly amenable to allowing worker protests to proceed, as long as there are no political connotations. In the case of the taxi driver strike, the government actually encouraged the ACFTU to form connections with the strike leaders so it could effectively mediate the dispute. This represented a new approach to worker actions rarely seen before.

If this experimental use of intermediaries to conduct actual labor-management negotiations becomes more common, there could be room for genuine autonomous worker representatives to fill the leadership vacuum when the ACFTU fails to engage with management on workers’ behalf. However, so far, official unions and the ACFTU remain non-confrontational most of the time.

Most foreign-invested companies in China need not worry about brewing worker unrest akin to the taxi drivers’ case. Such unrest in Chinese companies is not likely to be copied at foreign-invested companies unless laws are blatantly violated and such practices are exposed.


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Worker action is generally more likely at firms that hire large numbers of unskilled workers (especially in labor-intensive industries like textiles and toys), and at firms that use highly exploitative practices. Such companies are more often Chinese and not Western-invested.

As organized labor becomes more prominent in China’s private sector, it may eventually become necessary for foreign-invested companies to build bridges between the ACFTU and striking workers. But for now, this has not happened.

The best strategy for Western employers in China is to make sure their operations are fully compliant with all labor laws and that their employees are treated in accordance with basic good practices – given contracts, paid on time, etc.

Although unions have increased costs for foreign-invested companies in China, many still find the country to be a cost-effective location to do business.

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