Industrial Relations in China Ball of Confusion1 Dunlop, Slichter, Commons and other IR theorists have been referred to as focusing

g on the old labour economics identifying unions as having the economic goals of wealth redistribution, aggrandisement, and protection; and the political function of constitutional government in industry (Kaufmann, 2005). Dunlop rejected the classical economist argument that unions disrupt the wage market because he believed that no such perfect market exists (Kaufmann, 2002). He identified a system that includes external forces influencing three key actors labour, management, and the government. The key to Dunlops IR model, and what distinguishes it from economics, is that labour is not quantified as a commodity; rather the employment relationship is characterized as a complex social and economic interaction. Slichter (1935) observed that trade unions introduce civil rights into the workplace and fix wages. He saw trade unions as a positive force because collective bargaining contributes to the development of professional management by requiring planning efficiency and related skills demanded in a bargaining relationship (Slichter et. al., 1960). IR theory must be reconciled with the decline of organized labor across developed nations. Some reasons posited for the decline include government and employer hostility to unions, lack of interest by current generations and knowledge workers, outsourcing, the rise of free trade agreements, and the rise of human resource management as a substitution for employee representation. This sea change in environmental forces necessitates a reconsideration

The author benefitted from the review of earlier drafts and the insights of Sean Cooney, Associate Professor of Law at the University of Melbourne Law School, Manfred Elfstrom, Program Officer, International Labor Rights Fund, and K. Lesli Ligorner, Partner and Chair of the Paul, Hastings, Janofsky & Walker LLP Mainland China Employment Law Department.
1

Electronic copy available at: http://ssrn.com/abstract=1669316

of traditional IR theory. Thus, Lord Wedderburn (2008) identifies the rise of New Capitalism evidenced by: globalisation and the new information technology, capital inherently mobile, more complex, with massive accumulation, and power greater than Keynes or Marx could have imagined.

The decline of organised labour is coupled with a worldwide trend toward the traditional mainland European model wherein the national government plays a major role in setting workplace standards (Jensen et. al. 1999). A unique aspect of the mainland European IR model is cooperative labour-management efforts via legislated Workers Councils. However, this collaborative model has not saved the European workforce from the same fundamental shift in labour-capital power relationships and the quality of jobs (Blainplain, 2009). A related rise in national and local protective labour legislation increases the role of individual employment litigation. For example, in the U.S. unfair terminations are now recharacterised as unlawful discrimination based on a protected classification (religion, gender, pregnancy, age, race, disability, etc.), violation of other statutes (family and medical leave, workers compensation etc.) or retaliation/whistleblower lawsuits (for insisting on a legal right or exposing illegal employer conduct). One sees similar trends in the U.K. and elsewhere, with even the German IR system, with its co-determination culture, experiencing a rise in individual employment litigation. With this status quo foundation, this chapter will describe and contrast the newly developing employment relations system in one of the worlds fastest growing economies, China. The Chinese IR System

Electronic copy available at: http://ssrn.com/abstract=1669316

The word for China, zhongguo, means middle country or kingdom. Thus, the Chinese are often described as viewing a world centered on their Han Chinese culture. China is a nation of nationalistic, sometimes xenophobic attitudes (Guang, 2005). This is consistent with the Confucian value of love of country (ai guo) and the belief in cultural superiority (wenhua youyuegan). While the Chinese will complain about the dominant role of the Communist Party (Party), it is credited for Chinas economic prowess today. The Party uses Chinese patriotism to assist it in maintaining its power and is reported to sometimes influence anti-western fervor, including via the Internet, to serve its interests (Drake et. al. 2000). Many mistakenly believe that there is rigid Party control at the national level resulting in consistent standards and controls across the nation. In fact, China is a very large and diverse nation with inconsistent application of law and the molding of national law to local interests who appear more detached from central authority based on their distance from Beijing. The Chinese maxim The mountains are high and the emperor is far away is true today. Chinese harbor an ambivalent attitude to the west. While they admire the western development of wealth and material goods, their history includes domination and humiliation suffered at the hands of western powers. The Chinese psyche is that they will no longer be pushed around by the west and will return to their rightful historical place as the dominant Asian power. Given this nationalist orientation, resentment for past western treatment, and power of local officials, any foreign business operating in China cannot expect that the Chinese will yield to external pressure unless the Chinese perceive that this will serve their self-interest. National self-interest is primarily focused inward on Chinas needs and in maintaining social stability,
3

which is believed to be a real threat to the nation. One must never underestimate this overriding desire for social stability to ensure Party hegemony. Russell Leigh Moses, a Beijing-based political analyst comments The argument in policy-making circles where reform is concerned is how much more authoritarian should we be? not how do we embark on Western-style democracy (The Economist, 2010). The phrase harmonious society is used continuously by the Party, emphasized in the Five Year Plan, and found in major government communications and policies (Fan, 2006). Local or national government can impose its demands on an enterprise should it elect to do so. While the Chinese government gave major business incentives to foreign enterprises in earlier days, they are in a different bargaining position today and will avoid any public perception that they are being dictated to by western interests (Shambaugh, 2008). The Chinese Economic Miracle As China crossed the river while feeling the stones it considered other industrial relations models to find the best fit (Maurer-Fazio, 1995). In the past, Chinas IR system operated under the Leninist model (Guthrie, 1998). Trade unions in a post-revolutionary state were transmission belts for communication to the workers. State Owned Enterprises (SOEs) did not engage in a market based decision making process, maintained bloated payrolls and engaged in other conduct to serve the predominant interests of the Party (Ngok, 2008). Workers were not viewed as a commodity but rather as a political constituency, as represented by their dedicated star on the Chinese flag. Management sought to placate the workers as opposed to maintaining efficient production standards and costs. Management and workers were aligned more closely than one sees in capitalist models (Cooney et. al., 2007).

The work unit (danwei) provided all sustenance for the employee. This included housing, food markets, medical care, education, leisure activities, retiree care, social support and almost all other benefits. This model is known as the iron rice bowl. Beginning in 1979, the reforms initiated by Deng Xiaoping led to the unwinding of the inefficient SOE model. This included introduction of the individual labour contract. At first blush the guaranteeing of employment for a fixed duration and under terms that limit dismissal would appear a benefit for workers; however this began the eradication of the broader danwei rights. The worker was no longer afforded any protection beyond that provided for the term of engagement. Guthrie (2003) notes that Many of these changes in labor practices were not originally adopted with workers' rights in mind, but the unintended consequence of the changes has been the construction of a regime of labor relations that emphasizes the rights of workers. Like most change since the death of Mao, this change was gradual due to the interest groups within the Party who arguably have yet to form a consensus concerning the pace and extent of the opening up of the Chinese economy (Huang, 2000). A simplistic description of Party politics identifies one group in this internal debate as those who are descendents of the early Chinese leaders, a privileged class in China often derogatively described as princelings. This faction favors continuing economic growth, foreign direct investment, and the continuing growth of the developed east coast over the less developed west. The other faction is the Communist Youth League - a populist voice fighting for more equitable income distribution, agrarian rights, and worker rights. An early exception to declining labour conditions was the powerful political class of urban SOE workers who were the primary beneficiaries of the iron rice bowl; many continued to be protected from the harshness of the market into the 1990s (Solinger, 2009). In contrast, the
5

less politically influential workers outside of the SOE lived a distinctly inferior existence (Id. at p. 28). By 1997, the continuing losses of the SOEs combined with the Asian financial crisis caused mass layoffs in this heretofore protected class (Id. at p. 80-81). The successes of this socialist market economy have rapidly advanced the economic status of China, the nationalist pride of the Chinese people, and Chinas return to its rightful place in the world order. Individual and Collective Labour Contracts Under the Chinese Labour Contract Law Early labour contract laws were experimental and localized. They were followed by provisional regulations in the 1980s and then the first national law in 1994 (PRC Labor Contract Law, 2002). Wholesale violation of this new law was common. Particularly egregious issues included the failure to pay accrued wages to workers (wage default), failure to make social security payments, under the table employment, and the use of labour dispatch agencies (employment agencies) to avoid mandatory labour contract wage and social security obligations (Cooney et. al., 2007). This abuse occurred in the context of rising income gaps and continuing social protest over layoffs and wage defaults. Proposed changes to address these abuses were sent out for public comment and heavily debated. This debate was considered unprecedented. The U.S. Chamber of Commerce and the European Union Chamber of Commerce opposed provisions of the law that gave workers additional protection; they particularly opposed provisions that contemplated giving Chinese workers employment stability and the right to participative decision making (Feffer, 2006). In the midst of this national dialogue a news story broke concerning the enslavement of farmers, teenagers and child labourers in brick oven works in Shanxi province (Zhi, 2008; Ngok,

2008). This abuse, combined with abuse of migrant workers, provided the final political impetus for the current Labour Contract Law (LCL) which became effective on January 1, 2008. The expressed intent of the drafters of the LCL was to encourage longer term employment relationships, increase the presence and significance of trade unions in the workplace, and reduce the amount of discretion that employers may exercise in the workplace (Ligorner, 2006). These rights are opposite to the trends in the worlds external IR environment, indicating the unique internal issues of China. Chinese leaders appeared serious about the changes sought, noting that China sought to shed its sweatshop image by developing the law and protecting workers rights (Zhi, 2008). According to Bao Yujun, President of the China Society of Private Economy Research, Companies should regard the law as an opportunity to improve their management, capital-labour relations, and productivity. (Id.) Zhang Yansheng, head of the International Economic Research Institute under the National Development and Reform Commission stated China must upgrade its industries. The worlds factory should not be a packaging plant or a composing room with low-quality labourers. (Id.) The LCL is also consistent with Chinas Eleventh Five Year Plan, which calls for scientific development, a term encompassing consideration of employment and related social issues as well as economic growth; this is in accordance with the current Hu Jintao administrations commitment to putting people first (yiren weiben) (Fan 2006). The details of the LCL changes are beyond the scope of this article. They are a major legal shift on paper in favor of the worker. The changes make it difficult for an employer to avoid entering into a labour contract to keep workers off of the social security rolls or incur other legal obligations, creates essentially lifetime employment after ten years of existing service or after two labour contract renewals, attempts to end abuse by dispatch (employment) agencies,
7

and mandates a greater role for collective consultation/bargaining in the workplace. There are other changes that favor employees and unions and a few that favor management, such as the right to enforce covenants not to compete. Overall workers gain significant rights under the LCL. This ignoring of the world trends undermining the power of workers in favor of empowering workers underscores Chinas separate path under its socialist market economy, internal Party conflict, the recognized threats to social stability caused by the current IR system and related income gaps, and the governments overall inward focus. Todays Chinese worker is protected by a mandatory individual labour contract, a workplace collective consultation requirement, and often a collective labour agreement. The realities will be discussed later. The Actors Trade Union - ACFTU The Trade Union Law of the Peoples Republic of China (TUL) regulates unionmanagement relations (PRC TUL, 2001). Provincial and local law may add to but cannot conflict with this national law. The All China Federation of Trade Unions (ACFTU) is the exclusive peak trade union permitted by law. ACFTU is a quasi governmental social organization which seeks to further government objectives, promote economic development, and enterprise interests (Brown, 2010). The ACFTU Constitutions General Principles states that the ACTFU unions serve as a bridge and link between the Party and workers and an important social pillar of the state power and represent the interests of the trade union members and workers. (PRC TUL, 2001) The ACFTU is charged with ensuring the development of the skills and character of their members and with the arguably contradictory duties of protecting the overall interests of the
8

Chinese people while simultaneously advocating for the legitimate rights of workers and staff members (PRC TUL at Article 6, 7). Article 20 contemplates collective contracts. Where a labour dispute cannot be resolved the union may take the dispute to the Labour Arbitration Committee (LAC) with appeal rights to the Peoples Court. The trade unions role in a work stoppage is not to lead such activities but rather to partner with the management to resolve such work stoppages when they arise so as to ensure the normal order of production and other work as soon as possible. (PRC TUL at Article 27) Trade unions are required to participate in the conciliation of labour disputes (PRC TUL at Article 28). The trade union is also charged with the obligation to give a worker support and assistance if he has an individual LCL dispute that is taken to the LAC or Peoples Court (PRC TUL at Article 21). There exists a dual supervisory arrangement; ACFTU regional officials report to the ACFTU headquarters but have their performance evaluated by, and their dues income collected by, local government officials (Wang, 2008). Thus, regional government officials have great power over the unions. To the extent that a region is emphasizing economic growth through low cost disciplined labour there arises a conflict between the role of the regional ACFTU and its supervisory authority. An open issue is whether this structure will lead to liberalization through a transition to a corporatist model or is disorganized despotism (Wang, 2008). The ACFTU website advises the reader that it is engaged in a wide range of activities in furtherance of its statutory mandate (ACFTU website, 2010). The Chinese government refers to the IR model as tripartite (PRC Labor and Social Security in China, 2002). In fact, ACFTU weaknesses are well documented. Workers interests are often excluded from the tripartite system (Wang, 2008).
9

Recent research on the arbitration of LCL disputes in the city of Dalian, found no union assistance to the employee at any point in the dispute prior to arbitration or in the presentation of the case at arbitration (McDermott et. al. forthcoming). Rather, the sole union role was as a party on the tripartite LAC arbitration tribunal. This union failure to represent workers in contradiction of the legal mandate strongly suggests that the existence of labor law on paper does not comport with the reality of the workplace. In Shanghai, this author met with a union representative for a western company who also served as the Chinese plant manager (the first level of Chinese management). He appeared to be more of a Chinese management intermediary between non-Chinese speaking management and the workers than the representative of the proletariat. He explained his job as union leader was to ensure that Shanghai ACFTU directives were communicated. Thus, he showed a copy of a recent circular outlining safety measures to ensure workers do not get overheated in the Shanghai summer. He did not have any bargaining role, grievance adjustment role or engage in other activities one would associate with a union representative. It is not uncommon for the representative in the workplace to be the HR Director or other management agent. Moreover, they are often paid by the employer for their union service, an apparent conflict of interest. There is much speculation as to whether this old leopard can change its spots and become an effective voice for Chinese workers (Wang, 2008; Brown, 2010 at p. 44). The U.S. Change to Win coalition of trade unions, lead by the Service Employees International Union (SEIU), and the Brussels based International Trade Union Confederation (ITUC) have separately engaged in dialogue with the ACFTU to develop some influence in China.

10

The ACFTU has made highly publicized efforts to represent workers in high profile U.S. and European companies. These companies are generally treating their workers better than comparable Chinese employers, primarily by observing existing labour and employment laws as opposed to the Chinese employer model of honoring them in the breach. Western corporate attorneys and businesspersons in China complain that the Chinese enforce laws against foreigners while ignoring Chinese employers. Evidence of this is the governments effort to force collective labour contracts on major foreign employers such as Wal-Mart, McDonalds, and Yum Brands (KFC and Pizza Hut) (Brown, 2010). Some U.S. companies are now in the position of denying their U.S. based workers union representation while acceding to collective bargaining in communist China. In reality, labor relations in China is not comparable as the ACFTU is far from aggressive. In their first contract negotiations with Wal-Mart in the city of Shenyang, the ACFTU negotiated a weak labor agreement that Wal-Mart and ACFTU then sought to impose on all Chinese Wal-Mart stores without local bargaining. This failure to advocate for workers interests caused a well-respected Wal-Mart Chinese labor leader, Gai Haitao, to resign (China Labor News Translations, 2010). There are some reports that industry wide bargaining patterns are developing under the new LCL. (China Labor News Translations, October 2009) These patterns appear to be more attractive under the new LCL though they continue to be top down models driven by the government, employers, and the ACFTU and not by the employees. The ACFTU fails the traditional IR theory of the trade union as a political institution that advances the interests of the working class and challenges the existing political regime over wealth distribution and equality. Because of ACFTUs docility, it does not bring new ideas to the bargaining table or challenge management to plan better. There is little evidence that the
11

ACFTU has mobilized due to the new grant of powers in the LCL. There is no institutional voice for the working class of China, save the stock claim of every national government that it has the interests of workers at heart. In theory, there exist the seeds of evolution. At the same time, one hears anecdotal accounts of regional or local trade unions seeking to improve their services. This appears to be the hope of the SEIU and ITUC. A central challenge is whether grass roots successes can be used to build a labour movement that advocates for the working class within a zone of safety permitted by the Party. The ACFTU as a Government Actor The ACFTU is subordinate to the Party. At the local level, the ACFTU leaders may also hold other posts such as chair of the local economic development authority or other government office. The union official may be a key member of management in a local government owned enterprise or private business. This is the Chinese equivalent of the interlocking directorate and not the tripartism found in most noncommunist IR models. The Government as Actor - Determination of Remuneration and Working Conditions National and local governments set the wages, benefits, and other working conditions for much of the working class. National standards can also be adjusted at the provincial level to provide higher compensation in more expensive areas such as Shanghai. The government at the local level also plays a key role in setting terms and conditions of employment by deciding whether or not to enforce laws. Protective labor legislation can be compromised by 1) turning a blind eye to wage, safety, and other violations 2) permitting local authorities to relax hours of work and other legal standards to draw foreign enterprises into economic development zones by either exempting local law or by indifference and 3) corruption.

12

In Shanghai and Beijing, employers in 2008 were required to contribute local housing allowances of 7% to 10% due to the cost of housing. Price controls are also used. The government will also step in and issue price controls for certain items, particularly certain foods around holidays. These examples skim the surface of how national and local law sets many terms and conditions of employment and the Chinese workers standard of living. The New Actor - NGOs The ILO on the Ground The ILO describes itself as a tripartite UN agency that brings together governments, employers and workers of its member states in common action to promote decent work throughout the world (ILO website, 2010). It sidesteps the issues of a free labour movement and free collective bargaining in favor of engaging the Chinese government. The ILO disseminates labor standards and identifies nations compliance with these standards (ILO Report of the Committee of Experts, 2010). The Memorandum of Understanding between the ILO and China indicates that the ILO and China have the mutually agreed objectives and priorities of improving the key areas such as social security, labour contract law enforcement, and enterprise bargaining. The ILO has sidestepped the issue of the docility of the ACFTU in favor of engagement. This author observed that the ILO in Beijing possessed talented staff cognizant of the unique development of IR systems in Asia and elsewhere; thus deference was afforded to the Chinese IR development - tripartite model or not. More Aggressive NGOs Other NGOs tend to be more critical of current conditions in China. Thus, China Labour Watch, China Labour Bulletin, Students and Scholars Against Corporate Misbehavior, International Labor Rights Forum and National Labor Committee, inter alia, provide information
13

on what is occurring on the shop floor, legal system, and streets. They are also involved in various strategies that outreach to present Chinese labour activists filling a void left by the ILO and other more established NGOs. NGOs have been a source of pressure forcing companies to adopt corporate codes of conduct to address supply chain abuse; they also serve as monitors (Locke, 2007). Other NGOs engage the Chinese State, academe, SOEs and other cadre in a cooperative process, using cultural exchanges and training of mediators, arbitrators, SOE management and trade union officials. There is significant grass roots activity. Because China is still navigating its way with this socialist market IR system, and because of the tension within the Party as to the pace of economic development at the expense of workers, these exchanges are seen by NGOs as potentially productive opportunities to influence the development of labour conditions. NGO supported labour activists are visible. Some have been sponsored in visits to conferences abroad so that they can observe western labor movement strategies and develop relationships. These activists operate in a gray area alongside or outside of the role of the ACFTU. For example, some migrant workers bureaus have been shut down by the Chinese government only to reappear as new entities. IR System and Culture The enforcement of law can be placed under Dunlops concept of an IR systems culture and rules. This is a key problem area for China and is not limited to IR. Some of this flows from the destruction of the legal system during the Great Proletariat Cultural Revolution and also due to the structure of the Communist legal model. LCL Enforcement by the Labour Administration Department

14

The Chinese labor security supervision system was organized in 1993 (PRC Labor and Social Security in China, 2002). The Chinese government reports that it is increasing its enforcement of labour laws. By the end of 2007, there were 3,271 labour inspection agencies nationwide, employing over 22,000 full-time labour inspectors. There were over 1.6 million inspections; 409,000 complaints were processed. Inspection agencies issued orders to compel payment of back wages for over 7.91 million workers and closed down over 7,346 unregistered dispatch (staffing) agencies in 2007. Individual Litigation Vindication of LCL rights is done by filing a complaint with the local LAC. Like the LCL legal tradition, this is also a relatively new institution supporting LCL rights. A dispute can be mediated but if not resolved it is arbitrated before a tripartite panel. There is evidence that workers view arbitration as an effective tool for the resolution of individual employment disputes; Chinese workers are willing to engage in litigation to protect their rights. There is mixed research on the effectiveness of the LAC. (cf. Cooney, 2007, Halegua, 2008, McDermott, forthcoming, and Zhang, 2005). Collective Agreements Collective agreements within SOEs are usually pro forma and not the product of collective bargaining as that term is used outside of China. Clarke (2004) suggests this is in part due to a lack of experienced IR and HR. These mandated IR practices are legislated down from Beijing but there is a human capital gap (Clarke 2004 at 253-254). Thus, there is a lack of enterprise level bargaining custom as one would define bargaining in an adversarial IR model where the separate interests of capital and labor are recognized. As with the LCL and LAC, any critique of the current Chinese IR system must recognize its short history dating from the 1980s.
15

Continuing Social Unrest in the Chinese IR Model There is increasing social unrest attributed to the large income distribution gap (Wang 2008, Fan 2006). Large protests, defined as 100 people or more, occur on a regular basis. Labor issues are a common reason (Wedeman, 2010). This unrest is manifested in the filing of complaints at the LAC, wildcat strikes and street protests. Unrest is pervasive among migrant workers and extends to social conditions. For example, a dispute over registration for a temporary residency card by a migrant worker in Zhejiang province lead to a two day migrant worker attack on the local police station resulting in 23 arrests, destruction of six police motorcycles and injury to three officers (Shanghai Daily, July 15, 2008). According to Peoples Daily (August 19, 2009) Beijing's migrant workers, like those in other metropolitan cities, live in the lowest level of the society. Vulnerable to social injustice, they often have inadequate access to effective means to protect themselves. Workers also face wrongful detention and physical abuse from the police for failure to produce documentation that they are legally permitted in a particular area of China (Shanghai Daily, March 4, 2008). Labour dispute cases continue to increase. Statistics show 1.72 million labour dispute cases involving 5.32 million employees from 1987 to the end of 2005, with a growth rate of 27.3 percent annually (Peoples Daily Online, August 27, 2007). In Guangzhou, the largest city in Guangdong province (the worlds factory floor), LACs and courts are overwhelmed by labour disputes. The Arbitration Office of the Guangzhou Municipal Labour and Social Security Bureau said that the city currently has a backlog of more than 9,600 cases, some of which might not be settled until next September (Feng, 2009). A year after the enactment of the LCL enforcement was reported to be a continuing challenge (Beijing Review, December 26, 2008).
16

In 2009 over 50% of the Guangzhou civil docket involved labour contract or related disputes (Peoples Daily Online, September 15, 2009). Civil lawsuits involving labour contract law disputes rose from 2,070 in 2007 to 3,300 in 2008. More than 2,800 trials concerning the labour contract law were held in the first half of 2009 causing judges to work overtime to handle labour disputes. The Beijing Review reports much higher figures for Guangdong. Ling Qiman, Vice President of Guangdong Provincial Higher People's Court, stated that cases have soared. The court received nearly 40,000 new labour dispute cases in the first six months, up 158 percent from the same period in 2007 (Feng, 2009). Two other delta river regions, Shenzhen and Foshan have established specialized labour courts. The Beijing local government reported 52,000 labour disputes as of the fall of 2009, nearly twice as many as the prior year (Peoples Daily Online, August 12, 2009). This trend continues. The number of cases handled by Chinas courts increased another 10% in 2009, after nearly doubling the year before (China Labour Bulletin, March 11, 2010). These labour disputes threaten the social stability of the nation (Feng, 2009). All of these problems are fueled by a large income gap that has surpassed that found in the U.S.; 10% of Chinese owning 40% of the nations wealth (Fan, 2006). The gap is multifaceted with large regional inequality and a dualized labor market that includes a laborer wage hierarchy with lower wages paid to labor dispatch agency workers (usually migrants) versus local residents, often for the same jobs (Wang, 2008). For example, many of the Chinese automobile manufacturers use temporary workers from dispatch agencies as their core production workers (Zhang, 2008). Migrant workers also receive lesser benefits, are ostracized by local residents, unions refuse to represent them, employers force them to sign labour contracts with harsh fines and other punishments, and their wages are often not paid.
17

The income gap is often discussed in the Chinese press as a potentially explosive issue (China Daily, March 2, 2010). In March of 2010 the National Bureau of Statistics reported that the rural-urban income gap was the largest since Deng Xiao Pings 1978 opening up policy, with urban per capita net income of 17,175 yuan ($2,525) compared to 5,153 yuan in the countryside; this is an urban-to-rural income ratio of 3.33:1 (Id.). Similar to the West, this gap has been attributed to the low wages of the workers and the growing profits for management of SOEs, real estate companies, and private companies (Id.). This ever increasing gap has been troubling Chinas leadership and people for years. (Shanghai Daily, December 27, 2007; PRC Chinas Employment Situation and Policies, 2004). A Peoples Daily editorial argued that these income gaps hinder economic development and undermine societal harmony; it noted that President Hu Jintao called for an increase of income for low income workers, enlarging of the middle class, regulation and restriction of high income by taxation, a crackdown on illegal income (bribes etc.) to maintain social justice, and guaranteed cost of living allowances for the impoverished (reprinted in Shanghai Daily, October 26, 2007). Social Security As the Chinese government stripped workers of job security, it found that there was no existing social security system in place for what previously was provided in the SOE danwei model (PRC Labor and Social Security in China, 2002). Social security includes the pension rights of the laid off SOE employees and others forced to retire. By the late 1990s improved social security was necessary to avoid massive unrest among those who now found themselves unemployed (Solinger, 2009). Payroll taxes for social security benefits are high. The amount of the employers contributions is about 35% of the employees monthly salary and capped at three times the local average monthly salary; the employees contributions is about 11% with the same
18

cap. This cost encourages employers to circumvent the LCL in favor of under the table employment. While the LCL tightening on labor contract coverage addresses the governments need to tax hidden employment income for social security needs, social security issues contribute to the existing unrest in the Chinese IR system. PUTTING THE PIECES TOGETHER
Tosumup,weshouldarousetheinitiativeofourpeople.Aslongasweputtousethewisdomand intelligenceofthepeople,Chinahashighhopes. DengXiaopingInterview,November26,1979

IR System Similarities There are similarities between the external IR models and those in China. While trade unions have always been weak in China, developed nations appear to be retrogressing to a workplace where workers are losing or have lost their enterprise level collective power. These IR systems and China increasingly rely on a marginalized element of the workforce that does not enjoy the terms and conditions of employment of the mainstream citizens. Dispatch/Staffing agencies around the world are serving as intermediaries to enable dualized labor markets and casualization. Additional similarities include workers reliance on government legislation to establish and protect terms and conditions of employment; individual litigation is increasingly becoming the forum into which workplace injustice is channeled. In both China and in external IR systems, business views labor as a commodity. This classical economic view severely undermines the future of trade unionism in its current form. Thus, the IR systems theories of Dunlop, Commons, Slichter, and others are arguably less relevant or just not operative. A new view of IR may require incorporation of this commodity status. Under this new system, NGO advocacy and world trade pressures/disputes from mature
19

IR systems with traditional labor unions may be key influencers advocating for the rights of low wage laborers, primarily in manufacturing and related production in developing nations. Yet as China and other developing nations seek to develop a middle class the middle class is declining in mature IR systems. One questions how continuing commoditization will support these goals and whether there will be a convergence, equipoise, or need to redefine the concept of middle class across the world. IR System Differences There are also IR system differences. First, the Party controls the IR system. Labour law and unions are subordinated to the Party at the national and local government levels. Courts must consult with the Party before making any major legal decisions that are inconsistent with the Partys determination of the status quo. Chinese unions cannot advocate for income redistribution, political power, and equity outside of the Partys definition of these concepts. Second, China is increasing the individual and collective rights of its workers while seeking to expand its middle class. There is the trend toward stronger legal protect of the individual worker through mandatory LCL provisions. The Contradictions One can seize on any one aspect to argue that China is either bucking the external global IR system by enhancing the rights of workers or is at the heart of the problems with the commoditization of labour. To those who believe China is part of the problem one can point to unacceptable labour standards, massive wage default and fraud in the payment of workers wages, social security, wage and other discrimination against migrant workers; ineffective trade unions dominated by Party and employer interests, and the general sacrifice of the environment and workers rights at the altar of economic development.
20

On the other hand, Chinas IR model and the development of rule of law are works in progress. China has rejected bullying from external corporate interests in the development and implementation of its LCL.i Collective consultation/bargaining law is strong on paper and there are some reports of local trade unions and workers starting to engage in more effective collective consultations with employers and of industry wide bargaining. Employers are required to consult with the union or a bargaining committee of workers where no union is present. LACs and government labour inspectorates are improving their enforcement of LCL rights, steadily moving toward rule of law in the IR system. Thus, in theory, workplace democracy is being institutionalized by law in China and deinstitutionalized de facto in developed nations, particularly the U.S. Thus one is presented with confusing views. The Chinese IR system is continuing to unfold, along with its unique socialist market economy and its own unique model of rule of law. This developing Chinese style IR model includes the yin and yang of cooperation emphasizing harmonious relationships and violence where workers see no other choice. Scenarios of Future Direction of the Chinese IR Model Taylor et. al. (2003) discussed various possible outcomes for the Chinese IR system. They rejected the common Western convergence prediction whereby East Asian developed economies are comparators. They aptly noted the many differences in China including the role of the Party, regional complexity and related inequalities. Predictive scenarios included development into a pure capitalist model, revolutionary socialism, Singapore style authoritarian capitalism, Russian collapse, fulfillment of Dengs vision of a hybrid socialist economy, authoritarian capitalism with subordination of labor, liberal capitalism within a Dunlop style IR model, a Hong Kong style liberal capitalist model, Russian style crony capitalism, or complete
21

collapse. A key point was that the direction of this future change will be a function of the interaction between the Party and the workers. The Party seeks economic growth to maintain power and the workers who are squeezed by this growth seek better terms and conditions of employment; this is occurring in the context of a rapidly aging society. Thus, institutionalized conflict resolution arrangements will be needed to perpetuate the current model. It could be argued that the new LCL rights and the channeling of labor disputes to the LAC are two such changes that confirm Taylor et. al.s prediction of institutionalized conflict resolution. Here are some other possible future scenarios: Gradualism interrupted by social protest due to declining growth - The Chinese IR system will continue to mature along with rule of law. Enterprise bargaining and the enforcement of the labour contract will improve. However, when the economy slows down and does not deliver the necessary 8% annual growth, social protest may accelerate an aggressive implementation and interpretation of the existing labour law to increase worker power in the workplace. This scenario would occur with the ACFTU watching from the outside. This internalized conflict resolution arrangement sees the Party as flexible and adaptive, similar to the historical view of the development of capitalism. Gradualism interrupted by social protest alongside economic growth - This same scenario could occur if the economy continues to expand at 8% or more; however the income gap and related inflationary issues becomes so unmanageable that social protest leads to acceleration of the bargaining power of workers. Both scenarios assume the government is willing to cede some wage and benefit setting authority to the bargaining process. One commenter to this scenario, a western business person in Shanghai, noted that absent inflation it is not clear that the Chinese

22

working class consciousness abhors those with wealth as those on the bottom seek to reach this level a Horatio Alger predisposition. Chinese Socialist Market Economy Style Tripartism - The Chinese IR system will continue to mature and will naturally grow into a mature IR system with tripartite aspects within a Party system. The Party will cede significant central power to this decentralized wage setting process. There will be a market setting of wages by workplace collective bargaining in a Party system. Here rule of law in IR grows as does union skills with collective consultation. On the employer side, a cadre of HR and IR professionals will develop. This will occur consistent with the continuing reduction in the number of SOEs and the increasing growth of private entities. This direction assumes the continuing vitality of a Dunlop tripartite model as modified by Party hegemony. IR Protectionism - A dual system will continue where the Chinese government will insist on the application of labour laws to foreign entities while looking the other way for Chinese. This is consistent with the view of a nationalist, discriminatory, mercantilist like, global competitor. U.S. employers, for example, will find themselves engaging in collective consultation or bargaining with their Chinese employees while continuing to avoid such obligations at home. At some point this will cause a political backlash in the U.S. European business which is more comfortable with this cooperative, consultative process will have little inconvenience with such a model from a process perspective as long as at the end of the day they control the workplace. Large foreign employers with protected franchises will feel less pressure under such discrimination but smaller enterprises who must compete with Chinese enterprises will suffer from dual labor standards. The wild card is the enforcement of intellectual property law and covenants not to compete under the LCL and other law. Should this discrimination continue, the
23

costs of doing business in China will increase significantly. This in turn will lead to protectionist pressures from developed nations. The cynical view - China will continue to pass laws as window dressing with no underlying commitment to their enforcement. Those focusing on Chinese written laws and not the realities of the workplace will miss the continuing commoditization of Chinese labor, dualized labor markets with migrant worker abuse and the overall subordination of the rights of the Chinese working class to capital. This IR model serves the interests of crony socialist marketers who command an IR model that provides for the development of China at the expense of its working class. Under this scenario the Party is unwilling to recognize the need for meaningful institutionalized conflict resolution but rather uses a series of sops to manage but not change the income distribution gap and related social unrest. Alongside of this social injustice the environment of China will continue to be destroyed. The holistic change - Many have a sanguine view of Chinas future (Fallows, 2009). China will embrace progressive HR and IR practices with newly trained cadre. Chinas leaders will recognize that its current management culture of top down control with little tolerance for shared workplace decision making cannot nurture the knowledge worker and ensure the creativity needed to compete in the global marketplace. The era of serving as the worlds factory floor will transition to a more knowledge based economy. This will reduce the Chinese provision of economic rents to MNEs through the abuse of its environment and workers. These changes will ensure the realization of Deng Xiaopings dream of arousing the initiative of the Chinese people. The existing Chinese IR systems existing collaborative structure will be engaged. Topping Out or Japan Redux - While most experts concur that Chinas growth will be fueled for years to come by its domestic consumption, developing middle class and other growth
24

factors, a contrarian view argues that China is in a similar position to 1970s Japan, then commonly referred to as Japan Inc. A 1970 U.S. Central Intelligence agency report on Japan provides many observations that apply to todays China. Japan, then the worlds most dynamic economy had impressive economic growth over a prior 15 year period because the economy was catching up to the rest of the world (Central Intelligence Agency 1970). As with China today, the Japanese perception of national power was linked with economic strength. Similar national characteristics include the future decline of labor rate advantages alongside a more educated workforce seeking higher quality employment, government control of the banks for the benefit of close business allies, government support for business by price fixing, manipulation of mergers, production and market sharing; pork barrel spending and other conduct where individual business ambitions are adjusted to serve the greater good (Id.). Increasing wealth exposed inadequacies in social infrastructure causing political ramifications. In the Japan of 1970 and in todays China, new urban middle classes who have left their traditional values back in the village contribute to an erosion of paternalistic traditions; this is in the context of a transition from a rural-agricultural to an urban-industrial nation. Prolonged world recession and trade wars were envisioned as major threats to maintain this impressive Japanese growth. Todays China possesses a potpourri of similar complex challenges including regionalism, income distribution, regional power and income imbalances, the impact of the onechild policy including but not limited to a rapidly aging population; there is a lack of transparency in banking, government, law, and business that makes Japan Inc. of 1970 seem transparent. Will China top out in economic growth or can it maintain exponential growth? What challenges, including industrial relations, lie in this transition to an urban nation with modern
25

values? Can Party technocrats in Beijing centrally managing Chinas growth succeed where Japans Ministry of International Trade and Industry (MITI) stumbled? IR System Intersection With Education - The wild card in any of these scenarios is education. Technology, globalization, and wealth in todays China place the Maoist era as a historical blip in Chinas modern struggle to be free from outside domination. A new, independent China is here. For any of the positive outcomes above that grow China in a stable manner while increasing worker voice and initiative, a key factor is the Chinese education system. At present it does not support the development of critical thinking or other tools necessary for the developing knowledge worker; this prejudices productive workplace consultation and problem solving. This flaw, combined with the present workplace culture that stifles constructive disagreement and rewards avoidance of responsibility in favor of conformity, presents a major challenge to the necessary foundation for Deng Xiaopings vision of a socialist market economy. References: Blainpain, R. ed. The Modernization of Labour Law and Industrial Relations in a Comparative Perspective. Wolters Kluwer, 2009. Brown R. Understanding Labour and Employment Law in China, New York City: Cambridge University Press, 2010) at 44. Cooney S., Biddulph S., Kungang L. and Zhu Y. (2007). China's new labour contract law: Responding to the growing complexity of labour relations in the PRC 30 University of New South Wales Law Journal 786-801. Cooney, S. (2007), Making Chinese Labour Law Work: The Prospects for Regulatory Innovation in the Peoples Republic of China, 30 Fordham International Law Journal 10501097. Drake W., Kalathil, S., Boas, T. (2000). Dictatorships in the Digital Age: Some Considerations on the Internet in China and Cuba. iMP: The Magazine on Information Impacts, Carnegie Endowment for International Piece, http://www.carnegieendowment.org/publications/index.cfm?fa=view&id=531 (October 2000).
26

Fallows, J. Chinas Way Forward, Atlantic Magazine, April 2009, http://www.theatlantic.com/magazine/archive/2009/04/china-apos-s-way-forward/7331/3/? Fan, C. (2006). Chinas Eleventh Five-Year Plan (20062010): From Getting Rich First to Common Prosperity, Eurasian Geography and Economics, 47(6), 708723, 713. Feffer, J. (2006) Labour Rights in China, Institute for Policy Studies, http://www.fpif.org/articles/labour_rights_in_china (December 19, 2006) Feng, J. (2009), Explosion in Disputes, Beijing Review, January 22, 2009, http://www.bjreview.com/quotes/txt/2009-01/22/content_175400.htm Guang, L. (2005) Realpolitik Nationalism: International Sources of Chinese Nationalism, Modern China, 31 (4), 487-514. Guthrie, D. (1998). Organizational Uncertainty and Labour Contracts in China's Economic Transition Sociological Forum, 13 (3), 457-494. _________ (2003). The quiet revolution. Harvard International Review 25 (2), 48-53, at 51. Halegua, A. (2008). "Getting Paid: Processing the Labour Disputes of China's Migrant Workers", Berkeley Journal of International Law v. 26 254336. Huang, J. (2000). Factionalism in Chinese Communist Politics, New York: Cambridge University Press, 2000). Jensen, C.S., Madsen, J. and Due, J. (1999) Phases and dynamics in the development of EU industrial relations regulation. Industrial Relations Journal, 30(2), 118. Kaufman, B. (2005). What Do Unions Do?--Evaluation and Commentary. Journal of Labour Research, 26(4), 555-595. Kaufman, B. (2002) Reflections on Six Decades in Industrial Relations: An Interview with John Dunlop. Industrial and Labor Relations Review 55, 32448 Ligorner K. Lesli. (2006) China Matters, Paul Hasting Newsletter for Investing & Operating in the Peoples Republic of China, July 2006, pp. 1- 2. Locke R., et. al. Beyond Corporate Codes of Conduct: Work Organisation and Labour Standards at Nikess Suppliers, International Labour Review Vol. 146 (2007) (1-2), 21-37. Maurer-Fazio, M. (1995) Labour Reform in China: Crossing the River by Feeling the Stones. Comparative Economic Studies, 37(4), 111-123.

27

McDermott E. et. al. (forthcoming) Who Needs Your Help? The Effectiveness of Chinese Labour Contract Arbitration Without Union Assistance Journal of Labour and Industry Ngok, K. (2008). The Changes of Chinese Labor Policy and Labor Legislation in the Context of Market Transition. International Labor and Working Class History 73, (1): 45-64.

Slichter, S. Testimony. In National Labour Relations Board, Legislative Hearings on the National Labour Relations Act, 1935. Washington, DC: Government Printing Office, 1985, 88 95. Slichter, S., Healy, J., and Livernash, E. R., The Impact of Collective Bargaining on Management (Washington, DC: The Brookings Institution, 1960). Solinger, D. States Gains, Labors Losses China, France and Mexico Choose Liaisons, 19802000, (Ithaca: Cornell University Press 2009) at pp. 28-29. Taylor, B. Chang, K. and Li Q. Chapter in Industrial Relations in China. Northampton MA: Edward Elgar (2003), 228-229. Wang, K. (2008). A changing arena of industrial relations in China: What is happening after 1978. Employee Relations, 30(2), 190-216, 191. Wedderburn, L. "Labour Law 2008: 40 Years On." The Industrial Law Journal, 36.4 (2007): 397-424 Wedeman, A. Enemies of the State: Mass Incidents and Subversion in China Paper Presented at the annual meeting of the American Political Science Association, Toronto, Canada, September 2009, SSRN-id1451828 http://papers.ssrn.com/Sol3/papers.cfm?abstract_id=1451828## (accessed April 7, 2010). Zhang, L, (2008). Lean Production and Labor Controls in the Chinese Automobile Industry in An Age of Globalization, International Labor and Working-Class History, No. 73, Spring 2008, 24-44. Zhang, Y. (2005), Law and Labour in Post-Mao China. Journal of Contemporary China 14 (44), 525 -542 Newspapers and Periodicals: Feng, J. Explosion in Disputes, Beijing Review, January 22, 2009, http://www.bjreview.com/quotes/txt/2009-01/22/content_175400.htm (accessed November 28, 2009).

28

Fu, J. Urban-rural income gap widest since reform, China Daily, March 3, 2010, http://www.chinadaily.com.cn/china/2010-03/02/content_9521611.htm (accessed May 24, 2010). Li, X. (2008) Upset migrant workers attack police station, Shanghai Daily, July 15, 2008. Mayer, Brown JSM Newsletter, PRC Labour Law Bitesize, April 15, 2010. Shambaugh, D. Chinas Competing Nationalisms, New York Times, May 5, 2008 Wu, J. Rosy Statistics Mask Not So Pretty Picture, Shanghai Daily, July 31, 2007. Zhan, Y. NPC Representative To Speak the Truth, Shanghai Daily, March 4, 2008, p. A6. Beijing to establish office to resolve migrant worker issues, Peoples Daily Online, August 19, 2009, http://english.people.com.cn/90001/90776/90882/6733260.html (accessed November 28, 2009) Big Income Gaps Can Hinder Development, Undermine Harmony, Peoples Daily editorial, reprinted in Shanghai Daily, October 26, 2007. China Labor News Translations, Promising Wal-Mart Trade Union Chair Resigns Over Collective Contract Negotiations September 22, 2008, http://www.clntranslations.org/article/34/promising-wal-mart-trade-union-chair-resigns-overcollective-contract-negotiations (accessed April 23, 2010).
______TheWenlingModel:anexperimentintradewidecollectivebargaining,October21,2009, http://www.clntranslations.org/article/49/wenling(accessedMay27,2010).

China to enact law to deal with rising number of labour disputes, Peoples Daily Online, August 27, 2007, http://english.people.com.cn/90001/90776/6248381.html (accessed November 28, 2009). Chinese Lawmakers Call For More Special Court For Labour Contract Disputes, Peoples Daily Online, September 15, 2009 http://english.people.com.cn/90001/90776/90882/6749228.html (accessed November 26, 2009).

Income Gap Widens, Shanghai Daily, December 27, 2007, p. A7. Lay-offs alert Chinese labour authorities to unstable elements of job market, Peoples Daily Online, August 12,
29

Protection of Workers' Rights Urged, Beijing Review, December 26, 2008, http://www.bjreview.com/headline/txt/2008-12/26/content_172104.htm (accessed November 28, 2009) The Politics of Repression in China. What are they afraid of? The Economist, February 20, 2010, 37-38. Websites: All China Federation of Trade Unions website (2010), http://www.acftu.org.cn/template/10002/index.jsp (accessed January 2, 2010). China Labor Watch website, http://www.chinalaborwatch.org/ China Labour Bulletin website, http://www.clb.org.hk/ ____________Chinas labour dispute court cases increase by over ten percent in 2009, China Labour Bulletin http://www.clb.org.hk/en/node/100706 (March 11, 2010) (accessed April 7, 2010). National Labor Committee website, http://www.nlcnet.org/ Students And Scholars Against Corporate Misbehavior, http://sacom.hk/ International Labor Organization website (2010), http://www.ilo.org/global/lang--en/index.htm International Labor Organization (2010), 2010 Report of the Committee of Experts on the Application of Conventions and Recommendations http://www.ilo.org/global/What_we_do/InternationalLabourStandards/WhatsNew/lang-en/docName--WCMS_123515/index.htm International Labor Rights Fund website, http://www.laborrights.org Government Publications: Peoples Republic of China, Labor and Social Security in China, Information Office of the State Council of the People's Republic of China, April 2002, Beijing. ____________________Chinas Employment Situation and Policies, Information Office of the State Council of the People's Republic of China, April 2004, Beijing. _________________Trade Union Law of the Peoples Republic of China (Order of the President No. 62), October 27, 2001, http://www.gov.cn/english/laws/200510/11/content_75948.htm
30

United States of America, Central Intelligence Agency, National Intelligence Estimate No. 41-70 Japan In The Seventies: The Problem Of National Power, http://www.foia.cia.gov/browse_docs.asp (June 25, 1970). Academic Conferences and Presentations: Jiang J., The Recent Changes To Chinese Employment Laws: Are They Consistent With A View Of Declining Worker Rights Under Globalization, Labour and Employment Relations Association Annual Meeting, San Francisco, CA., January 3, 2009 citing Ministry of Human Resources and Social Security 2007 Labour and Social Security Development Statistics Annual Release 2007 , available at http://w1.mohrss.gov.cn/gb/zwxx/2008-06/05/content_240415.htm (accessed Dec. 15, 2008). Interviews
Deng X. We Can Develop A Market Economy Under Socialism, November 26, 1979, http://english.peopledaily.com.cn/dengxp/vol2/text/b1370.html

31