Globalisation and Employment Relations in China

By John Dudovskiy

employment relations The People’s Republic of China has an area of 9.6 million square kilometres which comprises over 1.35 billion population (China country profile, BBC, 2011). Rapidly deviating from the centrally-planned economy the country had adhered to for several decades, and embracing the elements of free market economy, China is seen by many as an emerging superpower able to compete with highly developed countries in the global marketplace (Lou and Wang, 2009).

Interestingly, the current dynamic of employment relationships in China somehow resemble the second industrial revolution in Europe that has commenced at the second half of the 19th century. Specifically, the common features include harsh working conditions, impaired employee rights, underdeveloped employment laws, migrant labour, high employee turnover etc.

However, while the second industrial revolution in Europe has been caused by the introduction and perfection of mass production and production line, in the case of China the current dynamic of employment relationships is caused by the increasing forces of globalisation in general, and China’s accession in WTO in particular.

Employment relations can be defined as “a contractual relation in the framework of which one party (the employee) undertakes to perform dependent work personally for wages for the other party (the employer)” (Barancova and Olsovska, 2011, p.73). The most common legal characteristics of employment relationship include: a) the type of personal obligation; b) the subordination of employee in personal and economic levels; c) payment of wages; and social character.


The Impact of Globalisation on Employment Relations in China

Generally, the major impacts of globalisation on employment relationships in China include the introduction of labour contract system, employee wage system changes, marketisation of social security, changes in labour rights, changes in corporate culture in China, and changes in labour union legislation.


The Introduction of Labour Contract System

The introduction of labour contract system in replacement of life-long employment in China can be considered as a direct result of the influence of globalisation in the country’s employment relations system. The disadvantages of life-long employment system that include overstaffing, lack of employee motivation, and low level of productivity became evident and contract based employment system has been found as the most suitable alternative.

Initiated in 1983 as experimentation the labour contract system was made into an official law in 1986. The conditions imposed to ‘contract system employees’ stated that “the contract must be for at least one year and had provisions covering major topics of probation, job requirements, working conditions, remuneration, discipline, and penalties” (Ali, 2005, p.4)

However, the introduction of labour contract system in China has failed to regulate employment relations with the high level of effectiveness to match highly developed countries. The explanation offered by Ngok (2008) about this mismatch contains the following four points:

First, the supply of labour in China greatly exceeds the demand, thus compromising the bargaining power of employees. In other words, according to Ngok (2008) in some cases the requirement of employees for a written labour contract might be associated with the risk of losing the job. Moreover, “the rise of China as a ‘world factory’ further signifies a new century of surplus labour drawn from rural China to fuel the global economy” (Murphy, 2009, p.154).

Second, there is some inefficiency and ambiguities associated with labour contracts under the Labour Law that create potential for employers to abuse the law for their own benefits. For example, there is no deadline imposed for employers to get the contract signed for a newly recruited employee and there is no provision for severance payment (Yu, 2008).

Third, local governments fail to implement factory inspections with a due level of appropriateness. This is associated with the obsession for growth by local government officials, and this also explains negligence of despotic production regime in some occasions, as well as, abused rights of employees.

Fourth, there are only mild punishments for employers for violations of the labour contract. For instance, “according to the Labour Law (Article 98), the employer who revokes labour contracts or purposely delays the conclusion of labour contracts is only ordered by labour administrative departments to make corrections and pay compensation for any losses that may have been sustained by labourers” (Ngok, 2008, p.55).

To summarise the point it can be stated that one of the most significant impacts of globalisation on employment relations in China relates to the introduction of labour contract system to replace the traditional lifelong employment system. However, the labour contract system is not being facilitated in China in a proper manner due to a set of reasons specified above.


Employee Wage System Changes

There are contradicting viewpoints regarding the impact of globalisation on employee wages in China. On one hand, there are supporters of Heckscher – Ohlin model and Stoper – Samuelson theorem according to which “integration into the world economy is expected to increase the relative return to unskilled labour, which is a relatively abundant factor in developing countries” (Han et al, 2011, p.2). In other words, according to supporters of this viewpoint the level of wage inequality reduces in developing countries and the level of employee wages increase as the level of their openness to the world economy increases. At the same time, it has to be stressed that “even when the Chinese company is profitable while the foreign company is not, Chinese employees are generally paid less than their overseas counterparts and the usual compensations and benefits that international employees enjoy are often far out of the reach of Chinese employees” (Yeung et al, 2011, p.104).

They also state that the external forces of globalisation, such as reducing economic distance, mobility of resources etc. create effective opportunities for employment generation. Moreover, China’s increasing per capita income as a result of increasing level of openness to the world economy has been mentioned in order to justify the argument for increasing level of wages because of globalisation. Specifically, it has been stated that “China’s per capita income at market exchange rates is $1,700, but estimates of its per capita income adjusted for the cost of living are four times higher , at $7,200” (Venables and Yueh, 2006, p.11)

On the other hand, there is a range of empirical studies that reveal rises in inequality of wages as a result of increasing level of integration of developing countries into the world market.

Specifically, according to Global Labour Strategies Report (2008, p.15) as taken from People’s Daily Online “the average income of urban residents was 2.57 times that of rural residents in 1978, but the gap expanded to 3.22 times in 2005. In particular, the gap has widened markedly sine 1997”

Furthermore, significant changes in employee wage systems in China can also be considered to be resulted from the globalisation. It is important to note that employee wage systems changes have been introduced in China mainly during the course of the last two decades in order to introduce wage disparities for employees (Shue and Wong, 2007). The main rationale for the reform has been perceived as linking performances of individuals with the performance of enterprises.


Marketisation of Social Security

Perceived to be resulted partially from globalisation the marketisation of social security implies increasing the level of economic opportunities and economic security of the citizens of China at the expense of their welfare protection (Chan et al, 2008). Considered to be an important economic reform, marketisation of social security implies the transformation of the food guarantee to the food market, the change of the job guarantee to the job market, public health-care and education becoming semi-commercial, the reforms of the welfare housing to the housing market etc. (Guan, 2009).

The marketisation of social security in China has its implications in employment relations as well. Specifically, as employee welfare protection from the state weakens the level of employee dependency on the employer increases. This may compromise the bargaining power of employees, at the same time when strengthening the position of employers in employment relationships.


Changes in Labour Rights 

There is a popular opinion that globalisation has negatively affected in employee rights in China.  Moreover, “according to the FLA (2005), China has the worst record on wage and hours violations as regulated by national law and codes of conduct when compared with nearly all other Asian countries” (World Bank, 2009, p.38).

The current state of labour rights in China can be best illustrated by mentioning an incident involving Ramatex, a multinational textile and garment manufacturing corporation that supplies leading brands such as Puma, Adidas, Nike, Sears, etc. According to the Global Labour Strategies Report (2008) a newly independent African country Namibia won a tender in order for the Ramatex factory to be set up within the country which would create jobs for 8,000 local employees.

However, Ramatex recruitment requirements in Namibia included young single women to pass pregnancy tests and to cover the expenses of the test. Moreover, there were the cases of Namibian labour laws being violated, workers being abused in various manners, as well as, the cases of unfair dismissal frequented which resulted in strikes and intervention of various non-government organisations.

Global Labour Strategies Report (2008) informs about the final outcome of the incident that involved Ramatex factory being shifted to China. While there were no changes in Ramatex principles of dealing with employees, surprisingly there were cases of employees striking in Ramatex factory in China, despite the fact that working conditions were very poor and employee rights were abused in various manners (Global Labour Strategies Report, 2008).

However, a range of relevant laws and regulations have been introduced by Chinese government in order to address the issues associated with the management and protection of labour rights. For instance, such regulations as Labour Disputes Reconciliation Regulation (1993), Special Regulation on Minimum Wage (2004), Regulations on Employment Services and Management (2008) and others have been initiated with the aim of addressing the issues associated with labour rights, although the level of effectiveness of these regulations, as well as, the level of their implementation remain to be major targets for criticisms from various non-government organisations.


Changes in Corporate Culture in China

Another substantial impact of globalisation to employment relations in China has taken place through changes in corporate culture of Chinese enterprises. Diller (2010) defines corporate culture as the way things are done in specific organisations. Corporate culture in China has been traditionally associated with the principles of loyalty and obedience. However, according to Yue (2008), due to the impact of globalisation corporate culture in Chinese organisations is changing to adopt the values of individualism and personal competitiveness within organisations to a certain extend.

Joint-ventures play an integral role in the transformation of corporate culture in Chinese companies. Specifically, a common HR practice in joint-ventures involves an appointment of overseas managers, usually from western countries in a senior – level management position within a joint-venture company in China. These top level managers from developed western countries may choose to adhere to the principles of convergence in their management of the joint-venture, i.e. the context of the joint-venture business may be decided to operate independently from the context of the national and traditional corporate culture in China and it may even predominate over them.


Implications of Globalisation on Labour Unions in China

Changes in trade union laws in China can be specified as an additional impact the increasing forces of globalisation have had on employment relations in China. Namely, as an indirect implication of globalisation, the 1992 Trade Union Law has been amended by the Standing Committee of the National People’s Congress in its 24th meeting on October 27, 2001 into the “Resolution on the Revision of the Trade Union Law of the People’s Republic of China” (Fung et al, 2006)

The major points related to the amended version of the new Trade Union Law can be summarised into the following three points:

First, it is stated in the new Trade Union Law that “labour relations shall be coordinated through negotiations on an equal footing and a collective contract system and that a tripartite negotiation system be instituted for handling labour relations” (Trade Union Law 2001, Articles 6, 20, and 34, in Fung et al, 2006, p.117).

Second, new Trade Union Law introduces the type of welfare regime and social security system that fundamentally deviates from the communistic, centrally – planned economy principles to resemble the analogue of welfare regime and social security system of highly developed market economies.

Third, the circulation of the new Trade Union Law lays legal foundations for “micro-corporatist” social security system. Moreover, according to the new labour union law “if the enterprise decides on ‘major matters’ such as business management and development, it is required to listed to the union’s opinions, thereby strengthening the say of labour in business decisions” (Brooks and Tao, 2003, p.17).

Additionally, it worth to be mentioned that “in China, the formal ‘representative function’ of the unions, according to the Labour Law, is supplemented by the union-guided Workers’ Representatives Congress” (Barry and Wilkinson, 2011, p.197)



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