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).


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


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’


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


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’


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


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


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;


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


(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


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,


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):


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


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


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


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


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


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’.


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


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


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

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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


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

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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,


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.

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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


(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


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

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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


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

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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


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.


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).

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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

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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.


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.

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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


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

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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.


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

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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


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


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-


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


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.


Part II Empirical Studies


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,


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.


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.


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


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,


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.


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).


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


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


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


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


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


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


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


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.


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,


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

Sek Hong Ng and Malcolm Warner 101

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

102 Industrial Relations vs HRM

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


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).


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


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.


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,


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


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.


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


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.


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.


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


(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.


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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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

118 Local or Global? HRM in China

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

Ingmar Björkman and Yuan Lu 119

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


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


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


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


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


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


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).


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


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.


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


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


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


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).


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).


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-


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.

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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).


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

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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


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:


• • • • • • • • • • • • •

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.


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.


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


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


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.


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


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


(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


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


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

Changing Workplace Relations in the Chinese Economy

Changing workplace relations in the Chinese economy (Studies on the Chinese Economy)

Chinese Economy in the 1990s (Studies in the Chinese Economy)

The Chinese Economy After WTO Accession (The Chinese Economy Series)

Restructuring the Chinese City: Changing Society, Economy and Space

Immigration in a Changing Economy

Innovative Reward Systems for the Changing Workplace

Innovative Reward Systems for the Changing Workplace

Latino Culture: A Dynamic Force in the Changing American Workplace

Russo-Chinese Energy Relations: Politics in Command

Linux in the Workplace

Tuberculosis in the Workplace

Linux in the Workplace

The Political Economy of Workplace Injury in Canada

Chinese-Soviet Relations, 1937-1945: The Diplomacy of Chinese Nationalism

Honesty in the Workplace

Investigations in the Workplace

The Globalization of the Chinese Economy

Britain at Work: 1988 Workplace Relations Survey

The Changing Global Economy (Global Connections)

Political Economy and the Changing Global Order

Political Economy and the Changing Global Order

Workplace Vagabonds: Career and Community in Changing Worlds of Work

The Changing Face of Chinese Management (Working in Asia)

The dragon millennium: Chinese business in the coming world economy

The Dragon Millenium: Chinese Business in the Coming World Economy

The Chinese Communist Party in Reform (Routledge Studies in the Chinese Economy.)

The Chinese Economy: Transitions and Growth

The Chinese economy: fighting inflation, deepening reforms

The Non-Profit Sector in a Changing Economy

Changing Workplace Relations in the Chinese Economy