The Labor of Reform in China

Mary Gallagher, Ching Kwan Lee and Albert Park

As globalization expands international trade and investment and the scope of global production linkages, the experience of labor in different parts of the world has become increasingly interdependent. With the world’s largest labor force of over 700 million workers and one of the world’s fastest growing economies over the past two decades, China is a critical site for determining world labor outcomes. Its own workers are going through a challenging period of painful restructuring of state-owned enterprises and growing competition from imports as China meets its World Trade Organization commitments to open up trade. Through its international linkages China affects the situation of labor in many other countries throughout the world.

China’s transition from central planning to market-driven policies has had a profound influence on the way labor is valued, and in a short time has radically altered the way in which work is obtained and experienced by millions of Chinese citizens. These changes have created numerous challenges for China’s leaders to design and implement appropriate labor-related laws and policies, and to promote greater flexibility in the labor market on the one hand while safeguarding the welfare of workers and their families on the other. The decision to move forward with privatization and restructuring of state-owned enterprises has led to massive layoffs, double-digit unemployment, and the shattering of lifetime guarantees of employment and worker benefits. Events have unfolded quickly. Many reforms have been passed, but implementation has been uneven and in many cases remains poorly understood.

On March 21-22, 2003, the International Institute’s Advanced Study Center (ASC), the Institute of Labor and Industrial Relations, and the Center for Chinese Studies convened an international conference on The Labor of Reform: Employment, Workers’ Rights, and Labor Law in China. The two-day conference brought together top experts from China, University of Michigan scholars, and other leading academics from the U.S., Europe, and Australia, to discuss in depth the rapid transformation of China’s labor market, the conditions facing Chinese workers, and the responses of government workers to recent changes. Attendees also included representatives from the World Bank, the State Department, non-governmental organizations such as Amnesty International, labor unions, and workers rights organizations, as well as numerous interested faculty and students from the University of Michigan community. University of Michigan co-sponsors of the event included the William Davidson Institute, the Center for European Studies, the Center for International and Comparative Law, the Center for International Business Education, the Institute for Research on Women and Gender, the Institute for Social Research, the Latin and Caribbean Studies Program, the President’s Advisory Committee on Labor Standards and Human Rights, Rackham Graduate School, the School of Public Health, the School of Social Work, and the Vice President for Research.

The conference drew upon the substantial expertise of University of Michigan faculty, who worked together to organize the conference. Mary Gallagher (political science) whose forthcoming book Contagious Capitalism: Globalization and the Politics of Labor in China examines how foreign direct investment (FDI) reshaped relations between urban workers and the Chinese state, is spending the 2003-2004 academic year in Shanghai as a Fulbright visiting scholar to conduct research on labor dispute resolution in China. Ching Kwan Lee (sociology) has conducted hundreds of interviews with urban Chinese workers and has written extensively on labor and gender in China. She is currently working on a book manuscript entitled In the Twilight of Socialism: Trajectories of Working Class Lives in Reform China. Albert Park (economics) recently collaborated in the China Urban Labor Survey, a large-scale survey of urban workers in five Chinese cities aimed at studying the effect of recent economic restructuring on employment, wages, and benefits of urban workers. The three of us are editing a volume on labor issues in China that will build upon the presentations and discussion at the conference. The conference organizing committee also included labor experts Larry Root and Ian Robinson of the Institute of Labor and Industrial Relations and Jinyun Liu of the Institute for Social Research, Siobán Harlow of ASC, who has a strong interest in occupational health issues, and Ada Verloren (also of ASC). The conference thus drew together participants from departments and schools across the university, and so epitomized the advantages, even necessity, of taking a multidisciplinary approach to understanding complex policy issues and global challenges.

Many of the challenges of labor reform in China are related to the growing marketization of labor services as China continues its transition from plan to market. Labor has changed from being a political status in a planned system of distribution into an input to production that is exchanged in the marketplace. The market can bring with it new opportunities and incentives, especially for those who are industrious and productive. However, Karl Polanyi, the famous Austrian economic historian and sociologist, has pointed out that labor is a fictitious commodity, a full commodification of which would destroy human life itself. As a result, society always responds with self-protection. In China, we can see such a response coming from both the state and society. In tandem with market reform, new or revised labor legislation has been promulgated during the past two decades, such as those concerning employer relations, trade unions, occupational safety and health, and social security. However, implementation of the laws has not always been effective. Even as they take advantage of new economic and social opportunities of the market, workers themselves also pursue coping strategies to limit the destructive effects of “commodification.” Collective mobilization and resistance by workers have evolved around new legislation and dispute resolution mechanisms. Mutual assistance within families and communities allows workers to survive while participating in the uncertain market economy.

By changing the structure of opportunity and rewards in society, the emerging labor market also has produced new patterns of economic and social attainment and inequality. Wages and employment patterns provide the main benchmarks for measuring such inequality. Cleavages based on region, urban versus rural residence, and gender are all important dimensions of new social and economic stratification.

Transformation of Chinese labor is shaped by and is shaping globalization from above as well as from below. Chinese labor has become an integral part of global production processes not just for traditional low-end products such as textiles and toys, but also for high-end electronics and semiconductors. At the same time, China has become a new site of activism for the transnational civil society and labor movements, posing unique challenges for the implementation of international labor standards. Finally, as noted earlier, Chinese labor conditions have potential ramifications for labor in other developing countries.

These themes of marketization versus self-protection, changing inequality, and global linkages recurred in many of the presentations and discussions during the conference. After welcoming remarks by Michael Kennedy, vice provost and director of the International Institute; Lawrence Root, and Siobán Harlow, the conference began with opening addresses by Kenneth Lieberthal, William Davidson Professor of Business and Professor of Political Science at the U-M, and Ping Huang, deputy director of the Institute of Sociology of the Chinese Academy of Social Sciences. These speeches provided a broad picture of the challenges facing labor in light of China’s political challenges and its continued structural transformation that is moving millions of rural laborers into the cities.

The first topic engaged by the conference was to better understand Chinese labor laws and their implementation. Appropriately, top Chinese experts were invited to give presentations to explain the current situation with respect to specific laws and policies. Junlu Jiang, chairperson of the Committee on Labor and Social Security Law of the All China Lawyers Association, discussed the history of labor rights and the Labor Law of 1995. Tongqing Fing, vice president of the China Labor Institute of the China Federation of Trade Unions, discussed the Trade Union Law of 2001. Zhi Su, deputy director general of the Ministry of Health’s Department of Health Legislation and Inspection, discussed recent occupational safety and health legislation. Keyong Dong, dean of the School of Public Policy at Renmin University, discussed the challenges facing China’s social security (pension) reforms.

The presentations highlighted the fact that China has passed many model laws and regulations to protect the rights and welfare of workers, often strongly influenced by laws adopted in developed countries. But the discussion showed that in each case, implementation was far from ideal. Labor rule of law can be viewed as part of a larger project of rebuilding state legitimacy by transforming an ideology-driven state into a law-governed state. The Chinese leadership also realizes that the law is indispensable for creating a welcoming environment for investment and for managing social conflicts and maintaining social and political stability. However, local governments have been given wide-ranging autonomy and have focused on rapid economic development, which gives them little incentive to protect workers' legal rights. This tension between center and local can help explain the passage of new legislation, on the one hand, and its poor implementation, on the other, as well as significant differences in local labor regulations across different regions. Nonetheless, the law remains important because it arms workers with a justification for their grievances, which, even if frustrated by employers and local governments, workers can still voice on the street or in appeals to upper level governments, which do, on occasion, intervene on the side of workers.

The next set of presentations focused on critical dimensions of China’s labor force structure, shedding light on how reforms have affected different groups of Chinese workers. Presentations by economists Albert Park and John Giles (Michigan State University) described recent patterns of wage inequality and employment during the period of economic restructuring. China has seen a dramatic increase in urban wage inequality in the past decade, much of it attributable to growing regional differences and rising wage differentials associated with differences in educational attainment. Recent restructuring has produced massive layoffs, forced early retirements, and double digit unemployment in most Chinese cities. These shocks to employment have hit older workers, women, and less educated workers particularly hard. Such workers have been more likely to lose jobs and less likely to find new ones. Shocks to worker benefits (e.g., health insurance coverage; arrears in wage, pension, and health care reimbursement) have also been widespread, especially those related to health benefits. The government’s safety net programs—subsidies for laid off (xiagang) workers, unemployment subsidies, and the minimum living standard program, have reached large numbers of dislocated workers, but most unemployed workers still receive no public subsidies and so rely primarily upon private means of support, especially the income of other household members.

Next, a set of presentations examined specific dimensions of inequality and differences in the treatment of workers: ownership, region, urban versus rural, and gender. Mary Gallagher (political science) of the U-M, in a paper coauthored with Juan Chen and Lyric Chen, explained how use of the legal system to settle labor disputes was much more common in foreign and non-state firms than in state-owned enterprises, and documented significant differences in legal mobilization of workers across different regions and firms. Jean-Louis Rocca (history and political science) of the Paris School of Political Science described differences in the labor systems in different parts of China. For example, among private firms in southern China, working conditions are harsh, but in more state-led economic systems such as that is the northeast, workers have greater but eroding status. Xiaogang Wu (sociology) of Hong Kong University of Science and Technology pointed out how the hukou system remains an important barrier to labor market integration. Yongping Jiang (sociology) of the Women’s Studies Institute of China described recent trends that are deleterious to women, including targeting of women in layoff decisions and a revival of traditional gender roles.

To give participants a better sense of the everyday reality of workers’ lives, the conference next invited several presentations on workers’ experiences, based on in-depth observation and interviews. Eileen Otis (sociology) from the University of Califonia at Davis, discussed how female identity is fostered by employment practices in international hotel chains in China. Tiantian Zheng (anthropology) of Yale University discussed migrant women workers’ survival strategies and marginalization in the sex industry. Daniel Buck (geography) of Oxford University discussed how the situation of laborers in rural enterprises in the Shanghai area was affected by growing market competition and network linkages that embedded rural enterprises in larger production systems. Another invited paper by Sian Victoria Liu (anthropology) of the University of Chicago (circulated but not presented) examined how communities responded to the difficulties faced by unemployed workers in Beijing. These papers provided vivid details of everyday lives that lent a sense of immediacy to important points that had come up earlier in the conference related to gender differences, rural-urban differences, and the challenge of new unemployment.

The final part of the conference turned to the global implications of China’s labor reforms. Ching Kwan Lee and Mark Seldon (sociology and history) of Binghamton University summarized some of the main themes to emerge from the conference thus far, and tried to frame these issues in a global context. Next, presentations by Ian Robinson (political economy) of the U-M; Huberto Juarez Nunez (economics) of the Benemerita Autonomous University of Puebla, Mexico; and Bama Athreya, deputy director of the International Labor Rights Fund, discussed the implications of labor conditions in China for labor in other countries. All three speakers noted the widespread perception by observers in other countries that China’s low wages and lack of labor standards has made China extremely competitive in attracting foreign investment and winning export markets, and that this has been used by employers in other countries to put pressure on labor to make concessions to enable firms to survive and remain competitive. This is particularly true in Mexico, where the China threat has been openly cited by employers and the government to bring labor into line. Athreya, who spent several years in Indonesia conducting research, noted that following renewed enforcement of labor laws in Indonesia, Nike began shifting its production to China. U.S. labor strongly advocates inclusion of labor standards in free trade agreements to ensure that trade is fair.

A Friday evening panel separately addressed the challenges of defining and enforcing corporate labor standards in China. Panel speakers included Todd McKean, former global director of Nike’s Labor and Environmental Compliance Department; Boy Luthje of the University of Frankfurt; Kaiming Liu, executive director of the Institute of Contemporary Observation, a Chinese NGO which focuses on labor issues in China; and Anita Chan of Australia National University. The presentations showed that while definite progress has been made in promoting labor standards by some foreign companies in China, there remain a host of problems driven fundamentally by the desire of firms to minimize operating costs. Chan’s study found that Taiwanese managers treat Chinese workers much more harshly than they treat Vietnamese workers, and she suggested that this difference is related to government attitudes, worker awareness of their rights, and China’s resident permit system that makes migrants vulnerable to coercive measures.

The argument that China is leading an international “race to the bottom” elicited contentious debate. Economists have generally dismissed the logic of such arguments. They point out that real wages and incomes have increased significantly during the reform period (but unevenly over time); that low real wages in China may simply reflect China’s large labor supply rather than oppression by employers; that for most rural laborers a job as a migrant, especially in foreign enterprises, usually represents a substantial increase in wage compared to agricultural work in the countryside; that excessive zeal in enforcing labor standards may improve the welfare of workers with jobs, but like a minimum wage lead employers to reduce the total amount of employment; that China still accounts for modest shares of international trade; and that China’s success in drawing FDI has more to do with aspects of the production and marketing environment (labor quality, infrastructure, large market, stable political and regulatory environment, attractive policies toward FDI) than just cheap labor. Recent arguments that Chinese imports put American workers out of work are similarly misguided, economists say, given that China still accounts for a relatively small share of U.S. imports and the labor-intensive goods exported by China are not those that would ever be produced by American workers. The effect of Chinese trade on workers in other developing countries is harder to quantify.

On the other hand, earlier presentations demonstrated that China is still struggling to enforce basic health and occupational safety standards and labor unions or other formal means of collective bargaining are unavailable to Chinese workers. Proactive labor leaders frequently have been persecuted or jailed. Undoubtedly, important work remains to be done to create institutions and policies that give voice and legitimacy to the legitimate interests of China’s workers.

Concern about the circumstances facing Chinese labor will undoubtedly motivate continued discussion and debate among those who care about the welfare of China’s millions of workers, the success of China’s economic reforms, and China’s influence on the global economy. The conference on The Labor of Reform: Employment, Workers’ Rights, and Labor Law in China was organized to systematically analyze the issues affecting Chinese labor from multiple disciplinary perspectives and to examine these issues in the context of China’s unique historical, social, political, and economic situation as well as from a comparative, international perspective. All participants benefited from seeing alternative viewpoints of the challenges facing labor in China. By including government officials from China and representatives of international organizations and NGOs, the conference also informed the views of those engaged in policy dialogue and real-world advocacy. It thus helped realize President Mary Sue Coleman’s vision of the University of Michigan as a university of the world actively engaging issues of global policy importance.***

Mary Gallagher is assistant professor of political science, Ching Kwan Lee is associate professor of sociology and Albert Park is associate professor of economics at the University of Michigan.

The Journal of the International Institute, Vol. 11, No. 1, Fall 2003.

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