As Jonathan Adams from Newsweek notes, despite its adherence to Communist ideals, China has never been known as a bastion of workers’ rights. However, the situation has begun to change this year with passing of the new Labor Law. In line with its provisions, the ACFTU (All China Federation of Trade Unions) that serves as a government endorsed umbrella for the world’s largest trade union organization, is currently implementing a mass unionization initiative. Thus, the unions’ significance is likely to grow in the coming years, which should be taken into account by any company doing business in China.
As a result, foreign enterprises are pressured by ACFTU to allow their workers’ engagement in grassroots level trade unions. ACFTU’s move is likely to sow discontent among foreign entrepreneurs as the regulations stipulate that companies should set aside a minimum of 2 percent of their payroll for union activities. Still, the unionization process has progressed steadily. Most large foreign corporations, such as Wal-Mart, KFC and McDonalds, despite initial resistance, have eventually cooperated with ACFTU and currently over 80 percent of these companies’ Chinese employees are involved in trade unions established under the auspices of ACFTU. However, small-scale enterprises specializing in low value added commodities may face a severe burden of union activities and worker benefits costs and may even end up shifting their production out of China.
Foreign corporations choose to respond to ACFTU’s initiative for several major reasons. First, despite its vastness, Chinese trade union organization is quite docile. Unlike their counterparts in Western Europe, Chinese trade unions do not encourage workers to strike. Rather, they serve as a regulatory mechanism to control unrest outbreaks and a platform for civilized dialogue on employees’ rights. On the contrary, companies that attempt to resist face strikes and pickets, endless audits, tax examinations and even accusations of the law breach. Second, there are certain positive incentives for employers to cooperate, such as the ability to influence who their union chairman will be, and some negotiating leverage on the 2 percent payroll “tax” to the national union. Finally, the new law does not only stipulate workers’ rights, but also facilitates mass layoffs and caps severance pay for executives. Particularly, bankruptcy and production difficulties are listed as possible rationales for layoffs. In this case, however, American businesses should be aware of possible domestic repercussions that their engagement with ACTFU may entail. For instance, Wal-Mart was very proactive in unionizing its Chinese stores, but now faces criticism from organized labor advocates in the US for depriving its American workers of what it allowed the Chinese employees.
The Chinese side upholds that unionization is in the best interests of both employers and employees. According to ACFTU, the overarching goal is to build a more harmonious society with more equal distribution of wealth. Protests against low wages and poor working conditions have become more frequent in the last decade and the new law is supposed to address these pressing issues. More specifically, ACFTU looks to promote a collective contracts system to provide legal avenues for worker rights protection. Additionally, ACFTU intends to foster communication channels between companies and employees and instill workers’ greater interest in company’s success. At the same time, the underlying objective to further strengthen Chinese Communist Party control of the unions is also quite obvious from the mere fact that ACFTU officials stated that union chairmen should be “politically aware” and that 85 percent of chairmen are also “leading members of the Party organization”.
Given the circumstances mentioned above, most American companies resent coercive methods ACFTU employed to fulfill the unionization task. Yet they choose to cooperate because they realize that obeying authorities is a precondition for the normal business operation. Although foreign corporations do not oppose unions per se, they fear that the Chinese government may use unions to dictate its terms to business. On the other hand, some companies, such as Wal-Mart, seize the opportunity to cooperate with the authorities hoping that it will give them a hedge against competitors.