Manajemen | Fakultas Ekonomi Universitas Maritim Raja Ali Haji 2002 3
OWNERSHIP CHANGE AND RESHAPING OF
EMPLOYMENT RELATIONS IN CHINA:
A STUDY OF TWO MANUFACTURING
COMPANIES
FANG LEE COOKE*
T
he need for China to survive and to compete in the rapidly globalising world
economy has never been so compelling as in the past decade. Reforming state-owned
enterprises (SOEs) has thus been at the top of the Chinese government’s agenda since
the mid-1990s. This has led to the emergence of new patterns of enterprise ownership
and consequently new employment relations which are distinctively different from those
in the traditional SOEs. This paper explores the ways key elements of employment
relations may have changed as a result of ownership change; why the trade unions have
failed to perform adequately, and what the impact has been on workers of the new form
of employment relations. In this paper, the term employment relations is used to include
a broad range of issues which fall within the scope of analysis of both traditional fields of
industrial relations and human resource management. In particular, aspects of employment relations such as recruitment, pay, training, work reorganisation and the role of
the trade unions are explored.
As a nation, China’s need to survive and to compete in the rapidly globalising
world economy has never been so compelling as in the past decade. By the end
of the last century, reforming and revitalising the outmoded state-owned enterprises (SOEs), which made up over 50 per cent of its GDP and employed the
majority of its workers, was at the top of the Chinese government’s agenda as
part of its social and economic reform. In the process of this reform, millions of
workers were laid off from their life-long jobs and from the only company they
had ever worked for, and thousands of formerly SOEs changed ownership to
private-owned, joint venture or employee share-ownership. This dramatic change
has fundamentally altered the nature of employment relations once characterised
by central planning, low pay, low productivity, slow pace of work and relatively
harmonised labour-management relations in which employees had no real voice
in the business but could expect to be relatively well looked after. The mass change
of ownership from the former SOEs has resulted in the national systems of
employment relations losing much of their distinctive character on the one hand,
* Lecturer in Employment Studies, Manchester School of Management, UMIST, PO Box 88,
Manchester M60 1QD, UK. Email: fang.l.cooke@umist.ac.uk The author would like to thank the
two anonymous referees for their helpful comments on the earlier draft of the paper.
THE JOURNAL OF INDUSTRIAL RELATIONS, VOL. 44, NO. 1, MARCH 2002, 19–39
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while creating a context for the reshaping of new employment relations at enterprise level on the other. As Kochan (1996) identified, the critical human resource
(HR) challenges facing firms in China are liberalising the labour markets, and
decentralising management authority without disintegrating into civil and political unrest. Yet few in-depth micro-level investigations such as well-informed case
studies have been carried out, to explore in what way changes are happening and
the impact of these changes on the workers.
This paper explores, through in-depth case studies of two small and mediumsized manufacturing companies in southern China, in what way the workers’ terms
and conditions and their wider experience of work may have changed (often for
the worse) as a result of ownership change; why trade unions have failed to perform adequately in the new context of employment relations; and what the impact
has been of the new form of employment relations on workers. The term employment relations is used in a broad sense in this paper to cover a broad range of
issues which fall within the scope of analysis of both traditional fields of industrial relations and human resource management. In particular, aspects which are
central to the domain of employment relations such as recruitment and promotion, pay, training, work reorganisation and the role of the trade unions are
explored.
CHANGING
CONTEXT OF INTERNATIONAL EMPLOYMENT RELATIONS
The nature of employment relations is determined by the relative power of
capital and labour, and the interactions between employers, workers, their collective organisations and the state. In recent years, new forms of international
competition aided by rapid technological innovations and adoption, and reduced
barriers to cross-border trading have significantly altered not only the ways individual organisations and nations arrange their production systems, business strategies and organisational structures, but also the power base from which individuals
and their representing bodies respond to the changes at workplace, industry and
national level. This phenomenon has captured the attention of scholars of industrial sociology. Notably, Piore and Sabel’s influential thesis The Second Industrial
Divide (1984) and Kochan et al.’s work The Transformation of American Industrial
Relations (1986) have been a source of on-going debates concerning the development of new management approaches to industrial relations and production
systems. Amongst other issues, both books ‘raised troubling questions about the
future of trade unions, suggesting that unless unions took account of these developments their future viability was doubtful’ (Kitay 1998: 3). While the debate
goes on as to whether employment relations have been transformed and to what
extent new models of employment relations are emerging in the Western industrialised countries and the newly industrialised Asian-Pacific nations over the last
two decades, recent social and economic reforms in China have certainly brought
profound consequences for its employment relations, particularly in the formerly
state-owned enterprises.
Traditionally, the SOEs in China which employ the majority of the workforce
have been the patrons of the workers’ welfare. It was the state employer’s responsibility to provide wide-ranging and far-reaching workplace welfare and benefits
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which included medical care, housing benefits, pensions and jobs for spouses and
workers’ school-leaver children to name but a few (Cooke 2000). In the communist system, in which labour and capital are supposed to share the same interests, trade unions in the SOEs in China play only a welfare role under the
leadership of the Communist Party. They carry out this function effectively by
acting as a ‘conveyor belt’ between the Communist Party and the workers in the
enterprise (Hoffman 1981). Under the new ownership form, the welfare role
of the state has largely disappeared and the harmonious management-labour
relationship has been replaced with one which is characterised by conflicting interests, rising disputes and increasing inequality in contractual arrangements between
management and labour. For example, in a survey of over 3000 workers conducted in 1998 in Sichuan Province on their perception of labour-management
relations, 21.6 per cent of the workers felt that the relationship was good, whereas
11.3 per cent considered it reasonable, 19.7 per cent thought it average, and
47.4 per cent voted poor. For those who felt that relations were poor, 22.1 per
cent believed that management was abusing disciplinary procedures; 27.4 per cent
felt that their managers were autocratic; and 42.6 per cent considered that the
distribution system was unfair (Lu 1999).
According to the Labour Law (Chapter 1, No. 7), ‘Trade Unions shall represent and protect the legal rights and interests of workers independently and
autonomously and develop their activities according to the law’. However, trade
unions in China have not been able, for various reasons, to take up an independent bargaining role to protect the welfare and interests of the workers in a style
more commonly found in the Western economy, even though this role of the
trade unions is clearly defined in the Labour Law implemented in 1995 in China.
Some trade union officials took pride in considering themselves the representatives of the enterprises. Some even confronted workers on behalf of the management during the handling of labour-management disputes, forgetting that they
should be representing the workers’ interests instead (e.g. Lu 1999; Sheehan
1999).
The formal national union structure in China goes back to the early 1920s
with the setting up of the All China Federation of Trade Unions (ACFTU) in
1925 in Guangzhou. The current structure of Chinese trade union organisation
has not changed drastically since 1949 (Warner 1990). The types of unions have
remained roughly the same, although there has been an expansion of union
membership as urbanisation has drawn more workers into industry (Ng & Warner
1998). Drawing their membership from all sorts of occupations and sectors including manual and non-manual workers in factory, hospital, school and university,
the trade unions do not have any distinctive ‘trade’ characteristics, as they all
belong to the same ‘father’: ACFTU (see Table 1). The formal ‘representative
function’ of the unions is supplemented by the trade union-guided Workers’
Congress which is a new organisation formed by workers’ representatives (Zhu
1995). The Workers’ Congress has been given the legal right to:
deliberate such major issues as the policy of operations, annual and long-term plans
and programmes, contract and leasing responsibility systems of management; it
may approve or reject plans on wage reforms and bonus distribution as well as on
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Table 1
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Basic statistics on trade unions in China
Year
No.
No.
No.
No.
OF
grassroots unions
workers in China
trade union members
full-time union officials
1980*
1985*
1990*
1996*
376
74 482
61 165
243
465
96 430
85 258
381
606
111 569
101 356
556
586
111 814
102 119
605
*All figures in thousands.
Source: China Statistics Year Book, 1997.
important rules and regulations; it may decide on major issues concerning workers’
conditions and welfare; it may appraise and supervise the leading administrative cadres
at various levels and put forward suggestions for awards and punishments and their
appointment and approval; and it democratically elects the director (Liu 1989: 5–6).
SMALL
AND MEDIUM-SIZED
SOES
IN
CHINA
Small and medium-sized SOEs are chosen for study here because they occupy
the gap between large SOEs and non-SOEs. They lack the advantages of either
the former: having large-scale, advanced technology, higher level of technical
skills, favourable policy, or the latter: autonomy of decision-making and hence
flexibility in the market competition. The small SOEs are in the most disadvantaged position in the market, their organisational system incomplete and their
technology management backward. As market competition intensifies, the problems facing these small enterprises become more pertinent. Many of them have
been making a loss in recent years. According to Liu (1997), 24 000 SOEs made
a loss in 1994. Of these, 19 700 were small and medium-sized enterprises, i.e.
82 per cent of the total loss making firms. In 1998, China’s legions of small and
medium-sized SOEs were told to fend for themselves, as part of the Prime
Minister Zhu Yongji’s initiative of reforming the SOEs (The Economist, 13 June
1998). Many were forced to wean themselves from the state abruptly. Reform
seemed to be the only way out, and (partial) privatisation and employee-share
ownership appeared to be the favoured choice.
On the other hand, small and medium-sized SOEs do have an advantage in
the process of reform, compared with the large SOEs. They have relatively small
capital assets and debts, a clear ownership relationship, they find buyers and contractors more easily, and have far fewer accessories that come with the enterprise, unlike the large enterprises which carry with them a miniature society
consisting of school, clinic, entertainment club, shops, restaurant, police station
etc. (Cooke 2000). These small enterprises are also less constrained by the
traditional command system. They are more independent and can change their
products or services more rapidly. But much depends on the leadership quality
of the senior manager(s). Equally, intervention from the state is limited when
these enterprises change ownership or reform their HR policies, because the possibility and the impact of labour unrest will be limited. While attention from the
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state is heavily involved in overseeing a smooth reform of large enterprises in
order to minimise the risk of social upheaval, workers in small enterprises are
largely left to their own devices in their battles with management. Managers
in these enterprises have stronger powers not only to ‘hire and fire’ but also to
reorganise work and to determine pay levels and other HR policies.
RESEARCH
METHODOLOGY
This research is a pilot study of a larger scale project on changing employment
relations in the (former) SOEs in Guangdong Province funded by the Provincial
Government. An in-depth case study approach was adopted for the research in
which two manufacturing companies (BeerCo and MotorCo) were investigated.
Both are located in a medium-sized industrial city in Guangdong Province in
southern China. The two companies have changed ownership from SOE to a
joint venture (BeerCo) or an employee share ownership (MotorCo), with the
former a flagship company of the city and the latter a pretty much averageperformer. As the pseudonyms suggest, BeerCo produces a range of beer
products while MotorCo manufactures a series of small electric motors for construction and production equipment.
While the choice of the size (small and medium-sized) of the case study-firms
has a strong rationale as explained earlier, the choice of these two particular manufacturing firms is more opportunistic. As any (Western) researchers, government
officials and business people who have experience of dealing with matters in China
will know, ‘guanxi’, or a network of personal relationships is very important in
getting anything done. Many China scholars also view ‘guanxi’ as a deep-seated
cultural fact of Chinese society (e.g. Bian 1994; Yang 1994, Ruizendaal 1995;
Tsang 1998; Guthrie 1998; Gamble 2000; Glover & Siu 2000; Tung & Worm
2001). In general, academics in China do not have much bargaining power in
negotiating research access with business organisations, which do not have a
tradition of supporting social science research either in the form of surveys or
case studies. Gaining access at a meaningful level is not easy without ‘guanxi’,
and even if access is granted the interviewees may not be inclined to reveal a true
picture but repeat well-rehearsed official lines. The emphasis on hierarchical
structure in Chinese society also predetermines that access negotiation takes place
at a higher end of the management level of the two parties in order to give face
to the company’s high ranking officials and to stress the high profile of the
research. BeerCo and MotorCo were therefore chosen specifically because a
personal relationship at the higher end of the hierarchy already existed.
Although the existence of the personal relationships prior to the conduct
of the research has been advantageous to the research team in providing preunderstanding and understanding of the case study firms (Gummerson 1991),
the researchers were aware that they should not allow this to limit their perspectives. Rather, they should draw upon such insight and expand it independently by demonstrating theoretical sensitivity or flexibility of mind (Gummerson
1991).
The fact that all researchers can speak the local dialect (Cantonese) also
enhanced the effectiveness of the interviews in that no translation was required,
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a process through which the subtlety of local meaning may be lost. More importantly, the interviewees were more receptive to the researchers because language,
at least in China, serves not only as a means of communication but also as ‘a hallmark of local identity’ (Ruizendaal 1995: 4).
Over 20 formal interviews were carried out, in addition to informal conversations, with senior managers, middle managers, trade union officials, supervisors
and shop/office-floor staff between September 1999 to June 2000. Six interviews
(one director, two managers and three workers) were conducted in MotorCo and
the rest were with BeerCo. An open-ended, semi-structured interview technique
was employed so that new avenues which presented themselves in the course of
discussion could be followed up. Interviews with the shop/office-floor personnel
typically lasted about 45 minutes. Interviews with the managers normally lasted
much longer (between one and three hours). Company documents such as
policy statements and training plans were obtained, but the more sensitive
documents, for example the exact amount of pay received by individual managers
or workers, were not disclosed for tax reasons. Follow-up interviews were made
in April 2001 to capture any changes relevant to the research that may have taken
place since the first round of interviews.
BACKGROUND
INFORMATION OF THE CASE STUDY FIRMS
Beer brewing in China is a booming, but at the same time highly competitive,
industry. The total beer output of the country rose from 690 000 tons in 1980
to over 15 million tons by 1995, rendering China the second largest beer producing country after the United States with an increasing variety of products (see
Wang 1998 for more details of the industry). The growing industry is, however,
completely unplanned and uncoordinated, packed with ever emerging small plants
of low production capacity (with the average at below 22 000 tons) at township
level which are swamped by a few superpower foreign plants. For example, in
the 1980s there were over 2000 breweries producing nearly 1500 brands of beer
products (Wang 1998). By 1990, the number of breweries had fallen to about
800, and only 550 of them still survived in 1999. In 1995, the total sale volume
of the five top home-grown breweries made up only 12 per cent of the market,
whereas the top seven American breweries in China took 75 per cent (Wang 1997).
According to the Third Industry Census in 1995, the total production capacity
of the industry by the end of 1995 was 22.53 million tons, but only 73.5 per cent
of that capacity was utilised. By the beginning of 1996, the top ten breweries in
the world had all found willing brewery partners in China to set up jointventure businesses. Most of these joint ventures have provided opportunities
(funding and technology) for the breweries (many of them originally owned by
the local government) to expand the scale of production and upgrade product
quality (Gu 1997). BeerCo is one of the larger units and is included in the top
50 breweries in the country and the best in Guangdong Province, a prosperous
province in southern China.
Similarly, market competition in the motors industry has been intensive. Since
the early 1990s, the motor product market has been facing a steady decline as a
result of the slack market in construction equipment. Supply exceeded demand
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which has led to intensified sales competition and price cuts. In 1996, the average price of motors was reduced by 20 per cent which was continued by another
10 per cent in 1997 and a further 12 per cent in 1998 (Yuegang Xinxi 1999). Again,
the product market has been dominated by a few large and strong players.
MotorCo does not even feature in the market. It survives on marginal businesses.
BeerCo
BeerCo was formed in 1987 as an SOE (see Table 2). The enterprise made heavy
losses from day one until 1995 when a series of organisational changes including management and departmental restructuring began to take place. The main
reason for its loss making was poor sales which severely restricted the output of
the plant. For example, the production target was 30 000 tons when BeerCo was
formed, but this target was not reached until 1995. Prior to that, production had
been lingering below 20 000 tons. In 1996 the local government decided to change
its ownership status from a SOE to a joint venture (with Hong Kong investment)
in an attempt to improve its competitiveness. It was thought by the BeerCo management and workers that a joint venture would bring in much needed external
investment which would double the financial base of BeerCo so that it would
have more capacity to operate in the competitive brewing industry. However,
the joint venture turned out to be a transfer of ownership instead of a capital
injection, in which 51 per cent of the shares were transferred to a Hong Kong
investment company. The ownership transfer took place in early 1997 and the
Hong Kong Partner invested in a new production line for BeerCo. When BeerCo
was first set up, there was only one semi-automatic production line with a
production capacity of 60 000 tons per year. Since the introduction of a fully
automatic production line from Germany in 1997 (in production in 1998),
BeerCo’s total annual production capacity has increased to 150 000 tons. Its beer
products consistently met the ‘excellence’ grade of the national quality standard.
In 1999, BeerCo was accredited ISO 9002 by the state quality authority after
nearly two years’ preparation. The production target for the year 2000 was
100 000 tons, but much depends on BeerCo’s ability to sell. The reason for the
Table 2
General information on BeerCo and MotorCo
Former ownership
New ownership
Ownership change
No. of employees (2000)
Quality initiatives
Product market
Customer base
BeerCo
MotorCo
State-owned
Joint-venture (state &
Hong Kong)
1997
680
ISO 9002 accreditation
Upper end of the market
National but mainly
regional
State-owned
Employee ownership
1998
160
ISO 9000 application
Lower end of the market
National but mainly
regional
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under-performance of sales is local protectionism and geographical monopoly
which prevail in the beer product market in China. With a local consumption
of only 20 000 tons, the sales team has to work very hard to promote their
products to a wider geographical area.
Working on a round-the-clock shift system, BeerCo had a workforce of 680
people in June 2000. The total income (cash and material in kind) of the BeerCo
employees has always been high by China’s standards even when it was making
a loss. On average, the ordinary workers earned 26 000 RMB (about US$3130)
in 1999 while managerial and professional staff were on 35 000 RMB (about
US$4220). It was speculated that senior managers were on a much higher rate
of pay but the figure was unknown.
MotorCo
MotorCo is a relatively small (by Chinese standards) manufacturing company
established in 1974. In April 2000 it had 160 working employees and another
130 retired employees. MotorCo has long been a poorly-managed and unprofitable company whose employees have been on low pay for workers in an SOE.
In 1998, MotorCo changed ownership from a state-owned limited company to
an employee share ownership limited company. The Managing Director owned
36 000 shares, directors owned 16 000–30 000 shares each, middle managers and
professionals owned 10 000–15 000 shares and the ordinary workers owned
2500–6000 shares each. A ‘one share one vote’ system was adopted for the
decision making process which ‘enables the workers’ participation in the management of the Company’. In principle, the Managing Director and other directors were to be ‘elected’ by shareholders.
MotorCo has three types of customers. Its major customers are individual businessmen who often cannot pay cash for the products they purchase and to whom
large motor manufacturers are not prepared to sell their products. The second
type of customer is the network associates of the Managing Director to whom
he sells the motors with extensive guarantees. The Managing Director himself
takes handsome commissions from these sales. The third type of customer is large
companies which have cash flow difficulties but need the motors to continue their
production. So MotorCo only makes a small margin of profit on the product it
produces and sells. It is an exploitation of workers who are on piece work
with a low wage compared with their counterparts in the developed areas, for
example the Pearl River Delta area near Hong Kong. In the Pearl River Delta
area, ordinary motor workers are paid 800–1000 RMB (about US$96–120) per
month while workers in MotorCo with the same level of skills and producing
the same type of motors will only be paid 450 RMB (about US$54) per month.
The top level of managers (with the exception of the Managing Director) earn
only 600 RMB (about US$72) per month. The Managing Director indirectly
profits from the workers’ low pay. Furthermore, in China, sale is often not dependent upon quality of the product but upon personal relationships (guanxi). This
has a negative effect on the quality of the raw materials purchased. Most firms
face cash flow problems (known as ‘triangle debt’). Cash payment is required for
high quality materials. Therefore, many firms can only purchase second-rate
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materials for their production which in turn affects the quality of the products
they turn out.
MotorCo has been producing a series of motors which, according to new motor
authority regulations, were to be phased out in the near future. The Company
makes a few high quality motors and changes their nameplates quarterly to deal
with the quality inspection from the state authority. MotorCo was only operating at half of its production capacity due to poor sales of standard products and
lack of orders of specified products. The level of technical competence of the
staff is generally low. The Manager of the Technical Department came from an
apprentice background and has limited theoretical knowledge. On the other hand,
the young graduates recruited in recent years have theoretical knowledge but lack
practical experience. There is no apprentice training scheme. Not surprisingly,
MotorCo does not have any business strategy, long-term planning, or even a plan
for the following year. Research and development is unheard of. The Managing
Director just ‘plays it by ear’. His directorship was a five-year contract. ‘If everything was smooth, then he would continue for a second term. If not, he would sell everything, make a profit and run’ (The Production Manager). In the absence of strong
leadership, a long-term business strategy and a skilled workforce, MotorCo is
incapable of designing and producing new products which are competitive in the
market place.
RESHAPING
OF EMPLOYMENT RELATIONS UNDER THE NEW FORMS OF
OWNERSHIP
Unbound from the detailed control of the state, both BeerCo and MotorCo management now have much greater autonomy in the operation of their business,
including the freedom of making decisions in recruitment, pay and dismissal etc.
Although managing by the rules and regulations remains largely the norm, the
change of ownership of BeerCo and MotorCo has brought major changes to issues
such as recruitment, training, promotion, pay, work organisation, and the role
of the trade unions and Workers’ Congress. These changes are a somewhat mixed
blessing for the workers (see Table 3).
Recruitment and promotion
Prior to ownership change, BeerCo had to recruit local school leavers and
people who had connections with the local authority, since the local authority
had a responsibility to provide jobs to school leavers and nepotism has been common in the recruitment of new employees (Warner 1993; Lu 1996, Cooke 2000).
In the past three years, BeerCo has been able to recruit good quality university
and polytechnic graduates as technicians and skilled workers. Many of them have
been promoted to managerial and supervisory positions. In the early stage of the
joint venture, the Hong Kong Partner had brought in a team of key personnel
to head each department of BeerCo. Control was tight with strict rules and
regulations covering all sorts of issues. However, this untrusting style has not
been well received and the Hong Kong managers have failed to settle in to the
posts. Most of them have since left and workers from BeerCo have been promoted. Only the Finance Department remains in the charge of a Hong Kong
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Table 3
Employment relations in BeerCo and MotorCo before and after ownership change
BeerCo
before
Local school leavers
Some
100%
Company pension
Welfare house purchase
Yes
90%
Social and welfare
State cadres
Annual meeting
Suggestion box
Loss-making
State employee status
Grade wage and bonus
Nepotism
Minimum
100%
Company pension
Welfare house purchase
Yes
95%
Social and welfare
State cadres
Annual meeting
Suggestion box
Break-even
Collective contract
Position and competence
wage
Nepotism
Minimum
Partial
State pension insurance
No
No
0%
Non-existent
Ex-state cadre managers
Non-existent
Suggestion box
Break-even
I N D U S T R I A L R E L AT I O N S
Recruitment
Training
Sickness benefit
Pension
Housing benefit
Trade union recognition
Trade union membership
Role of trade union
Management structure
Workers’ Congress
Employee involvement
Performance
Collective contract
Position wage and
bonus
University graduates
Increased
100%
State pension insurance
No
Yes
90%
Social and welfare
Joint-management
Not met for 2 years
Suggestion box
Profit-making
after
OF
State employee status
Basic wage and bonus
before
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Employment contract
Pay system
MotorCo
after
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manager. The Company has now established a policy of flexibility in promotion
which replaced the seniority system traditionally adopted in Chinese organisations. Those who are seen as capable of new responsibility will be promoted
and those who are considered ineffective in their leadership will be demoted. This
new policy has brought some resentment from the older workforce as the majority of the newly promoted are those who are relatively young with higher qualifications and more updated skills and knowledge. Resentment of the new
promotion system also came from sidelined managers and supervisors, many of
whom are ex-army or ex-rural cadres of an older generation who owed their positions more to their personal ties or political standing than to their expertise in
industrial management (Sheehan 1999).
The change of ownership in MotorCo has not improved MotorCo’s ability to
recruit high quality graduates from good universities. University graduates are
unwilling to come to MotorCo because of its low pay and unhealthy prospects
as a firm. Those who came would only stay temporarily, using MotorCo as a
stepping stone to a better job elsewhere. Others came as a result of nepotism,
carrying its own inherent disadvantages.
Training
Since the change of ownership, BeerCo has invested heavily in training its (production) workforce at different levels. Each person has to spend 100 hours on
training each year. The objective of increased training has been to enhance the
managerial staff’s management skills and the workers’ production-related skills
and general education level. Two universities were given contracts to provide management training (e.g. supervisory skills) for (potential) managers and supervisors,
professional and technical training (e.g. accounting and finance, food chemistry,
laboratory analysis) for professionals and technicians, and further education (e.g.
literacy and numeracy) for the shop/office-floor employees. Production efficiency
and health and safety have also been important elements in the training. In addition, IT skill training has been available for all levels of employees should
they want it. The training courses were repeated the following year to reinforce
memory. In addition to in-house training, core members of staff were sent to the
manufacturers for training when new packaging equipment was purchased. They
then trained their colleagues. Most of these training activities have been carried
out in the workers’ own spare time. According to the workers interviewed, most
of the training has been a useful addition to their skills and knowledge. Training
was particularly welcomed at the managerial and supervisory level. However, work
re-organisation and intensification since the introduction of the second production line has made the trainees too tired to attend the courses or reduced their
motivation to learn after they have been removed from the post for which they
had been receiving training.
At MotorCo, there has rarely been any formal training for years, a situation
which continues after the ownership change. The absence of product and process
innovation and the static workforce have not helped to create a demand for training either, although this could be argued the other way around. In an attempt to
boost public relations, the Managing Director decided that MotorCo should apply
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for ISO 9000 accreditation. A consultancy agency was contracted in to prepare
the documentation for MotorCo. The preparation of the documentation has had
no real impact whatsoever (e.g. training) on the workforce other than as a
public relations exercise for the Company. The consultants go to one firm and
prepare the documentation for the firm and then sell it to another firm. The
Manager of the Technical Department commented, ‘ISO 9000 looks good on
paper but not in practice’. Three managerial staff were sent on an internal assessors training course. It was a one-week course held by the ISO 9000 authority.
Trainees were guaranteed their assessor qualification. Course fees were charged
to their company. However, the skill, the quality and technology standards of
MotorCo were nowhere near the true requirement of ISO 9000. The Director
has a powerful network extending to the quality authority which issues the
quality certificates. MotorCo was accredited ISO 9000 status at the end of 2000.
The Managing Director’s approach to quality in a way reflects that which
prevails in many companies in China. For example, Zhao et al. (1995) found that
the standard of the product quality varies in China and that its managers and
workers tend to have a low level of awareness of the quality management techniques fashionable in the West. Glover and Siu (2000) also found that public
knowledge/image of the quality of a product are to a certain extent determined
by the nature of the external guanxi rather than by the true quality of the
product per se.
BeerCo’s increased investment in workforce skill training reflects a new training trend more commonly found in large SOEs and joint ventures (e.g. Child
1996; Ding & Warner 1998; Cooke 2000). For SOEs, the drive to increase skill
levels comes from the state which also foots the bill. For joint ventures and
foreign-owned firms, mass skill training for the workforce is usually a necessity
during the early stage (Bjorkman & Lu 1999a, b). In-house training methods are
often adopted for workers while managerial and professional staff have more
opportunities to be sent away for intensive training either at universities or at
their parent firms overseas. The emphasis of the training is on technological skills
and increasingly on managerial skills for managers. The lack of training at
MotorCo also reflects the pattern of absence of training in many small and
private firms in China which the state has little influence on and lends little
support to.
Pay
Since the joint venture in 1997, the wage structure of BeerCo, amongst other
employment issues, has been subject to a series of changes, many of the initiatives coming from the Hong Kong management. Initially, a bonus system was
implemented whereby only the managers knew what was in the brown envelope
given to each individual worker. This system was badly received by the shopfloor
because the deep-rooted Chinese social value of collectivism and egalitarianism
fundamentally resents the idea of differentials in bonus payments between individuals or between different groups in the same company (Easterby-Smith et al.
1995; Yu 1998). Any differentials should be symbolic rather than substantial in
order to maintain harmonious relations within the organisation (Cooke 2000).
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CHINA
31
The introduction of individual bonuses, a key feature of the reforms in China
since the 1980s, intended to break the egalitarianism, has been particularly
troublesome and had little real effect. For example, Shirk (1981) has noted that
the awarding of bonuses by workers themselves in small-group ‘evaluation and
comparison’ sessions resulted in a strongly egalitarian distribution of the extra
money. Informal rotation systems were often used for workers to take turns to
receive the highest bonus and then share it with their workmates by going out
for dinner together.
The secrecy of the bonus system initially introduced at BeerCo removed the
transparency which acts as a control mechanism to prevent the widening of bonus
differentials and to judge peers’ performance against their bonus. Whether the
bonus differential was wide enough to be deemed unreasonable or not was quite
another matter. Then again, the argument was, if there was not a wide gap, why
should it be so secretive? This bonus system was soon replaced by another wage
system in which each department was given a lump sum for their operating cost
and wage. This system again backfired quite quickly because each department
was trying to keep the costs down in order to receive higher pay. Sales staff were
not making any trips to promote sales; the production department was not
replacing failing or failed parts of the equipment; and the canteen was feeding
the workers with undesirable food. Hastily this system was yet again replaced by
the latest system in which each department was given a fixed wage bill against a
set production target. Wage increases for workers in the same department were
dependent on the reduction of labour with sustained, and even enhanced, productivity. Equally, an increased number of workers (in order to meet production
targets) will not warrant an increased wage bill for the department. No overtime
would be paid, which has put a stop to the abuse of overtime claims (someone
had previously claimed 800 hours overtime in a month). This latest system was
welcomed by the shopfloor as their total income has generally risen, but this was
achieved at the expense of the administrative and supporting staff who have been
put on a lower rate of pay. For BeerCo, the total wage bill has not changed.
It only took away from one group of workers (administrative and supporting
workers) and gave to another (the production-related workers). Even among production workers, grievances over pay still exist mainly because of the flat rate of
basic wage irrespective of length of service. This rule is at odds with the traditional Chinese wage system in which seniority has played an important part in
the wage structure.
BeerCo’s experience of limited success of the introduction of pay initiatives by
its Hong Kong managers is shared by many other joint ventures in China when
introducing a performance-based pay system based on more or less subjective
performance evaluation (Child 1996; Bjorkman & Lu 1999b). This is also a
generic problem of how far HR policies from the Western headquarters can be
translated into establishments in developing countries where institutional and
cultural arrangements differ considerably (Child 1996; Bjorkman & Lu 1999a).
At MotorCo, the total income for employees has increased since late 1999 in
the form of ‘flexi-pay’ or more specifically, bonus. On average, directors have
doubled their income, managerial and professional staff have received an increase
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of 50 per cent, and ordinary workers 20 per cent. This pay rise is not a reflection of product output, quality or sales. Rather, it is the Managing Director’s
attempt to show the workers that he is a ‘good boss’ and that they should be
more motivated to work for him. The increased wage bill is financed by the
income which the Company raises from renting buildings out as shops and offices.
These buildings have been built around the factory in the last three years for the
twin purpose of reinforcing plant security and increasing company revenue. It is
not known how long this bonus will be maintained. As was illustrated earlier,
regional differentials in pay exist in China for workers doing similar jobs, for
geographical and therefore social and economic reasons (Johnston 1999).
However, this ‘spatial inequality’ (Johnston 1999: 1) for the MotorCo workers
was exacerbated by the absence of a mechanism through which wages can be
negotiated and distributed in a fairer system.
Work reorganisation
In early 1999 after the second production line was put into operation, BeerCo
restructured its production and packaging departments. Both departments have
been downsized from 350 people for the first production line to 300 people
covering both production lines on three shifts (round-the-clock). Displaced
workers (who were deemed less competent than those workers who remained on
the production lines) have been re-deployed to replace the temporary workers
who were originally employed to carry out unskilled and laborious work.
Grievance levels are high from this group of re-deployed workers, in part because
they found it difficult to come to terms with the loss of face involved in downward adjustment and in part because they had neither the skill nor the strength
(many of them were older workers) to carry out the (albeit unskilled) tasks required
by their new post. Some of these displaced workers had been removed from the
production line because of their previous poor behaviour record, yet no official
warning has ever been given to them about their behaviour. Neither has training or counselling been given to the displaced workers to help them adapt to the
new situation. When we asked the HR manager if BeerCo was going to do anything to ease the pain, the reply was: ‘they should be grateful to the Company
that they were given a job instead of being kicked out of the company like many
others were. There are plenty of people out there waiting to be employed’. Yet
in the same interview the HR Manager declared that a new company culture (in
line with that of ISO 9002) for BeerCo’s employees demanded care and respect
for their fellow workers.
Increased levels of training and a fixed wage bill against set production targets
for BeerCo workers meant that working hours were extended unofficially in order
for them to carry out training activities, team briefing for problem solving, and
to finish the workload. At one stage, training was carried out on Saturdays (in
1999) when the workers were supposed to have the day off. Although in theory
they can go home early if they manage to finish their workload in advance, that
may mean that they are over-staffed and need to downsize again. In reality, most
workers and their line managers and supervisors have been working long hours
continuously. A competition mechanism has been deliberately created by the
E M P L O Y M E N T R E L AT I O N S
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CHINA
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management among different shifts and groups of workers because ‘there will
be no pressure or motivation (for the workers) without any competition’ (the HR
Manager of BeerCo). In order to live up to the standard of ISO 9002, the
Company has been very strict with the quality of the products. Workers have to
redo their work if it has failed to meet the national standard of ‘excellence’ even
if their work may have reached the ‘pass’ standard. Fatigue and stress were creeping in and morale was falling at the time of the interviews.
As in BeerCo, there was no redundancy in MotorCo when its ownership
changed and the organisation was restructured. Although departmental mergers
have taken place following the ownership change, limited work reorganisation
has occurred. People mostly continue doing what they have always done.
However, a few people were required to move to other posts mainly from a higher
and more skilled post to a lower and less skilled post with less pay. Those who
did not obey the order would be dismissed without redundancy pay. Three
people were dismissed (termed ‘resigned’) under this ultimatum. In general, work
has not been intensified for the workers in MotorCo because of their lack of
production work.
THE
ROLE OF THE TRADE UNION AND THE
WORKERS’ CONGRESS
BeerCo has a full-house of trade union officials which includes a trade union chairman, a deputy trade union chairwoman and a trade union officer. Each year, they
are given a reasonable amount of funding for trade union activities, which involve
mainly consoling sick and bereaved employees, organising entertainment and
sports events aimed at boosting employee morale, and increasing commitment,
as well as raising the Company’s profile in the local community. However, the
trade union has no real impact at all in terms of safeguarding the workers’ interests in labour-management disputes. As the HR Manager pointed out, ‘The trade
union officials are not very competent at their job. We are now co-operating
(joint-venture) with the capitalists (Hong Kong) and a strong trade union is
needed to fight for the workers’ interests. But the trade union has not played
that role effectively’. In fact, the trade union deputy chairwoman was the
ex-Personnel Manager who was displaced as a result of departmental restructuring (merger). Because BeerCo could not find a managerial position for
her, a deputy trade union chairman post was created for her.
The incompetence of the trade union was readily recognised by the workers
who usually by-pass the trade union and go directly to the managers to launch
their complaints and grievances. The chairwoman admitted when interviewed
that the trade union would not have any power to bargain with the management
even if they believed what the Company was doing was wrong. The ineffectiveness of the trade union as a source to protect the workers’ interests can be illustrated by the following incidents. According to the workers interviewed, BeerCo
has delayed the payment of their wages several times in the last couple of years.
When the HR Manager was asked by us if this was true, he admitted it without
hesitation and explained that the reason for the delay was because of the cash
flow problems which the Company encountered on occasions. He further added,
‘This isn’t a big issue and they should not make a fuss of it’. Surprisingly, the
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Trade Union Chairwoman expressed sympathy for the Company on this occasion, suggesting that ‘the workers should understand the Company’s difficulty
and be more patient’. Another incident occurred in February 2000 when the trade
union signed a collective contract, ‘a recent industrial relations innovation’
(Warner and Ng 1998: 1), with the Company on behalf of the workers. Workers
have not been given a copy of this three-year rolling contract and nobody could
recall what details had been included when they were asked in the interviews.
Things in MotorCo were worse. When MotorCo changed ownership from
an SOE to employee share-ownership, the trade union was dissolved, or more
precisely de-recognised, by the Managing Director, who claimed that the old trade
union belonged to the old ownership and that a new trade union had to be reestablished to represent the new ownership. He also decided that a full-time post
would not be created for a trade union chairman because of the small scale of
the company. However, ‘the Company would consult the workers and listen to
their opinions and suggestions when making important decisions and procedures
for the Company’ (Manifesto of the Managing Director). Nobody could argue
against this assertion as the Labour Law only requires the founding of a trade
union when a new company is set up, but it does not illegalise the dissolution of
a trade union when an ownership change takes place. The workers of MotorCo
did not want to re-establish a trade union because ‘it does not do anything for
us’ (a production worker). In theory, the function of the trade union was replaced
by that of the shareholder committee. In practice, none of the organisational
mechanisms (the board of directors, the board of supervisors and the shareholder
committee) has any power except the Managing Director himself, who alone
made all the decisions including wage, bonus, recruitment, promotion, price of
products etc. His decisions would only be handed down to the board of directors for approval as a gesture. If it is a fact that Chinese senior managers are
inclined to deal with matters personally and are reluctant to delegate responsibility (Child 1996), then MotorCo’s privatisation provides its Managing Director
more freedom to do so. This situation was succinctly summarised by a senior
manager of MotorCo:
The ownership change has created a perfect opportunity for the Managing Director
to exercise his dictatorship without any cost, and to profit profusel
EMPLOYMENT RELATIONS IN CHINA:
A STUDY OF TWO MANUFACTURING
COMPANIES
FANG LEE COOKE*
T
he need for China to survive and to compete in the rapidly globalising world
economy has never been so compelling as in the past decade. Reforming state-owned
enterprises (SOEs) has thus been at the top of the Chinese government’s agenda since
the mid-1990s. This has led to the emergence of new patterns of enterprise ownership
and consequently new employment relations which are distinctively different from those
in the traditional SOEs. This paper explores the ways key elements of employment
relations may have changed as a result of ownership change; why the trade unions have
failed to perform adequately, and what the impact has been on workers of the new form
of employment relations. In this paper, the term employment relations is used to include
a broad range of issues which fall within the scope of analysis of both traditional fields of
industrial relations and human resource management. In particular, aspects of employment relations such as recruitment, pay, training, work reorganisation and the role of
the trade unions are explored.
As a nation, China’s need to survive and to compete in the rapidly globalising
world economy has never been so compelling as in the past decade. By the end
of the last century, reforming and revitalising the outmoded state-owned enterprises (SOEs), which made up over 50 per cent of its GDP and employed the
majority of its workers, was at the top of the Chinese government’s agenda as
part of its social and economic reform. In the process of this reform, millions of
workers were laid off from their life-long jobs and from the only company they
had ever worked for, and thousands of formerly SOEs changed ownership to
private-owned, joint venture or employee share-ownership. This dramatic change
has fundamentally altered the nature of employment relations once characterised
by central planning, low pay, low productivity, slow pace of work and relatively
harmonised labour-management relations in which employees had no real voice
in the business but could expect to be relatively well looked after. The mass change
of ownership from the former SOEs has resulted in the national systems of
employment relations losing much of their distinctive character on the one hand,
* Lecturer in Employment Studies, Manchester School of Management, UMIST, PO Box 88,
Manchester M60 1QD, UK. Email: fang.l.cooke@umist.ac.uk The author would like to thank the
two anonymous referees for their helpful comments on the earlier draft of the paper.
THE JOURNAL OF INDUSTRIAL RELATIONS, VOL. 44, NO. 1, MARCH 2002, 19–39
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while creating a context for the reshaping of new employment relations at enterprise level on the other. As Kochan (1996) identified, the critical human resource
(HR) challenges facing firms in China are liberalising the labour markets, and
decentralising management authority without disintegrating into civil and political unrest. Yet few in-depth micro-level investigations such as well-informed case
studies have been carried out, to explore in what way changes are happening and
the impact of these changes on the workers.
This paper explores, through in-depth case studies of two small and mediumsized manufacturing companies in southern China, in what way the workers’ terms
and conditions and their wider experience of work may have changed (often for
the worse) as a result of ownership change; why trade unions have failed to perform adequately in the new context of employment relations; and what the impact
has been of the new form of employment relations on workers. The term employment relations is used in a broad sense in this paper to cover a broad range of
issues which fall within the scope of analysis of both traditional fields of industrial relations and human resource management. In particular, aspects which are
central to the domain of employment relations such as recruitment and promotion, pay, training, work reorganisation and the role of the trade unions are
explored.
CHANGING
CONTEXT OF INTERNATIONAL EMPLOYMENT RELATIONS
The nature of employment relations is determined by the relative power of
capital and labour, and the interactions between employers, workers, their collective organisations and the state. In recent years, new forms of international
competition aided by rapid technological innovations and adoption, and reduced
barriers to cross-border trading have significantly altered not only the ways individual organisations and nations arrange their production systems, business strategies and organisational structures, but also the power base from which individuals
and their representing bodies respond to the changes at workplace, industry and
national level. This phenomenon has captured the attention of scholars of industrial sociology. Notably, Piore and Sabel’s influential thesis The Second Industrial
Divide (1984) and Kochan et al.’s work The Transformation of American Industrial
Relations (1986) have been a source of on-going debates concerning the development of new management approaches to industrial relations and production
systems. Amongst other issues, both books ‘raised troubling questions about the
future of trade unions, suggesting that unless unions took account of these developments their future viability was doubtful’ (Kitay 1998: 3). While the debate
goes on as to whether employment relations have been transformed and to what
extent new models of employment relations are emerging in the Western industrialised countries and the newly industrialised Asian-Pacific nations over the last
two decades, recent social and economic reforms in China have certainly brought
profound consequences for its employment relations, particularly in the formerly
state-owned enterprises.
Traditionally, the SOEs in China which employ the majority of the workforce
have been the patrons of the workers’ welfare. It was the state employer’s responsibility to provide wide-ranging and far-reaching workplace welfare and benefits
E M P L O Y M E N T R E L AT I O N S
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CHINA
21
which included medical care, housing benefits, pensions and jobs for spouses and
workers’ school-leaver children to name but a few (Cooke 2000). In the communist system, in which labour and capital are supposed to share the same interests, trade unions in the SOEs in China play only a welfare role under the
leadership of the Communist Party. They carry out this function effectively by
acting as a ‘conveyor belt’ between the Communist Party and the workers in the
enterprise (Hoffman 1981). Under the new ownership form, the welfare role
of the state has largely disappeared and the harmonious management-labour
relationship has been replaced with one which is characterised by conflicting interests, rising disputes and increasing inequality in contractual arrangements between
management and labour. For example, in a survey of over 3000 workers conducted in 1998 in Sichuan Province on their perception of labour-management
relations, 21.6 per cent of the workers felt that the relationship was good, whereas
11.3 per cent considered it reasonable, 19.7 per cent thought it average, and
47.4 per cent voted poor. For those who felt that relations were poor, 22.1 per
cent believed that management was abusing disciplinary procedures; 27.4 per cent
felt that their managers were autocratic; and 42.6 per cent considered that the
distribution system was unfair (Lu 1999).
According to the Labour Law (Chapter 1, No. 7), ‘Trade Unions shall represent and protect the legal rights and interests of workers independently and
autonomously and develop their activities according to the law’. However, trade
unions in China have not been able, for various reasons, to take up an independent bargaining role to protect the welfare and interests of the workers in a style
more commonly found in the Western economy, even though this role of the
trade unions is clearly defined in the Labour Law implemented in 1995 in China.
Some trade union officials took pride in considering themselves the representatives of the enterprises. Some even confronted workers on behalf of the management during the handling of labour-management disputes, forgetting that they
should be representing the workers’ interests instead (e.g. Lu 1999; Sheehan
1999).
The formal national union structure in China goes back to the early 1920s
with the setting up of the All China Federation of Trade Unions (ACFTU) in
1925 in Guangzhou. The current structure of Chinese trade union organisation
has not changed drastically since 1949 (Warner 1990). The types of unions have
remained roughly the same, although there has been an expansion of union
membership as urbanisation has drawn more workers into industry (Ng & Warner
1998). Drawing their membership from all sorts of occupations and sectors including manual and non-manual workers in factory, hospital, school and university,
the trade unions do not have any distinctive ‘trade’ characteristics, as they all
belong to the same ‘father’: ACFTU (see Table 1). The formal ‘representative
function’ of the unions is supplemented by the trade union-guided Workers’
Congress which is a new organisation formed by workers’ representatives (Zhu
1995). The Workers’ Congress has been given the legal right to:
deliberate such major issues as the policy of operations, annual and long-term plans
and programmes, contract and leasing responsibility systems of management; it
may approve or reject plans on wage reforms and bonus distribution as well as on
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Table 1
of
of
of
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I N D U S T R I A L R E L AT I O N S
March 2002
Basic statistics on trade unions in China
Year
No.
No.
No.
No.
OF
grassroots unions
workers in China
trade union members
full-time union officials
1980*
1985*
1990*
1996*
376
74 482
61 165
243
465
96 430
85 258
381
606
111 569
101 356
556
586
111 814
102 119
605
*All figures in thousands.
Source: China Statistics Year Book, 1997.
important rules and regulations; it may decide on major issues concerning workers’
conditions and welfare; it may appraise and supervise the leading administrative cadres
at various levels and put forward suggestions for awards and punishments and their
appointment and approval; and it democratically elects the director (Liu 1989: 5–6).
SMALL
AND MEDIUM-SIZED
SOES
IN
CHINA
Small and medium-sized SOEs are chosen for study here because they occupy
the gap between large SOEs and non-SOEs. They lack the advantages of either
the former: having large-scale, advanced technology, higher level of technical
skills, favourable policy, or the latter: autonomy of decision-making and hence
flexibility in the market competition. The small SOEs are in the most disadvantaged position in the market, their organisational system incomplete and their
technology management backward. As market competition intensifies, the problems facing these small enterprises become more pertinent. Many of them have
been making a loss in recent years. According to Liu (1997), 24 000 SOEs made
a loss in 1994. Of these, 19 700 were small and medium-sized enterprises, i.e.
82 per cent of the total loss making firms. In 1998, China’s legions of small and
medium-sized SOEs were told to fend for themselves, as part of the Prime
Minister Zhu Yongji’s initiative of reforming the SOEs (The Economist, 13 June
1998). Many were forced to wean themselves from the state abruptly. Reform
seemed to be the only way out, and (partial) privatisation and employee-share
ownership appeared to be the favoured choice.
On the other hand, small and medium-sized SOEs do have an advantage in
the process of reform, compared with the large SOEs. They have relatively small
capital assets and debts, a clear ownership relationship, they find buyers and contractors more easily, and have far fewer accessories that come with the enterprise, unlike the large enterprises which carry with them a miniature society
consisting of school, clinic, entertainment club, shops, restaurant, police station
etc. (Cooke 2000). These small enterprises are also less constrained by the
traditional command system. They are more independent and can change their
products or services more rapidly. But much depends on the leadership quality
of the senior manager(s). Equally, intervention from the state is limited when
these enterprises change ownership or reform their HR policies, because the possibility and the impact of labour unrest will be limited. While attention from the
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23
state is heavily involved in overseeing a smooth reform of large enterprises in
order to minimise the risk of social upheaval, workers in small enterprises are
largely left to their own devices in their battles with management. Managers
in these enterprises have stronger powers not only to ‘hire and fire’ but also to
reorganise work and to determine pay levels and other HR policies.
RESEARCH
METHODOLOGY
This research is a pilot study of a larger scale project on changing employment
relations in the (former) SOEs in Guangdong Province funded by the Provincial
Government. An in-depth case study approach was adopted for the research in
which two manufacturing companies (BeerCo and MotorCo) were investigated.
Both are located in a medium-sized industrial city in Guangdong Province in
southern China. The two companies have changed ownership from SOE to a
joint venture (BeerCo) or an employee share ownership (MotorCo), with the
former a flagship company of the city and the latter a pretty much averageperformer. As the pseudonyms suggest, BeerCo produces a range of beer
products while MotorCo manufactures a series of small electric motors for construction and production equipment.
While the choice of the size (small and medium-sized) of the case study-firms
has a strong rationale as explained earlier, the choice of these two particular manufacturing firms is more opportunistic. As any (Western) researchers, government
officials and business people who have experience of dealing with matters in China
will know, ‘guanxi’, or a network of personal relationships is very important in
getting anything done. Many China scholars also view ‘guanxi’ as a deep-seated
cultural fact of Chinese society (e.g. Bian 1994; Yang 1994, Ruizendaal 1995;
Tsang 1998; Guthrie 1998; Gamble 2000; Glover & Siu 2000; Tung & Worm
2001). In general, academics in China do not have much bargaining power in
negotiating research access with business organisations, which do not have a
tradition of supporting social science research either in the form of surveys or
case studies. Gaining access at a meaningful level is not easy without ‘guanxi’,
and even if access is granted the interviewees may not be inclined to reveal a true
picture but repeat well-rehearsed official lines. The emphasis on hierarchical
structure in Chinese society also predetermines that access negotiation takes place
at a higher end of the management level of the two parties in order to give face
to the company’s high ranking officials and to stress the high profile of the
research. BeerCo and MotorCo were therefore chosen specifically because a
personal relationship at the higher end of the hierarchy already existed.
Although the existence of the personal relationships prior to the conduct
of the research has been advantageous to the research team in providing preunderstanding and understanding of the case study firms (Gummerson 1991),
the researchers were aware that they should not allow this to limit their perspectives. Rather, they should draw upon such insight and expand it independently by demonstrating theoretical sensitivity or flexibility of mind (Gummerson
1991).
The fact that all researchers can speak the local dialect (Cantonese) also
enhanced the effectiveness of the interviews in that no translation was required,
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a process through which the subtlety of local meaning may be lost. More importantly, the interviewees were more receptive to the researchers because language,
at least in China, serves not only as a means of communication but also as ‘a hallmark of local identity’ (Ruizendaal 1995: 4).
Over 20 formal interviews were carried out, in addition to informal conversations, with senior managers, middle managers, trade union officials, supervisors
and shop/office-floor staff between September 1999 to June 2000. Six interviews
(one director, two managers and three workers) were conducted in MotorCo and
the rest were with BeerCo. An open-ended, semi-structured interview technique
was employed so that new avenues which presented themselves in the course of
discussion could be followed up. Interviews with the shop/office-floor personnel
typically lasted about 45 minutes. Interviews with the managers normally lasted
much longer (between one and three hours). Company documents such as
policy statements and training plans were obtained, but the more sensitive
documents, for example the exact amount of pay received by individual managers
or workers, were not disclosed for tax reasons. Follow-up interviews were made
in April 2001 to capture any changes relevant to the research that may have taken
place since the first round of interviews.
BACKGROUND
INFORMATION OF THE CASE STUDY FIRMS
Beer brewing in China is a booming, but at the same time highly competitive,
industry. The total beer output of the country rose from 690 000 tons in 1980
to over 15 million tons by 1995, rendering China the second largest beer producing country after the United States with an increasing variety of products (see
Wang 1998 for more details of the industry). The growing industry is, however,
completely unplanned and uncoordinated, packed with ever emerging small plants
of low production capacity (with the average at below 22 000 tons) at township
level which are swamped by a few superpower foreign plants. For example, in
the 1980s there were over 2000 breweries producing nearly 1500 brands of beer
products (Wang 1998). By 1990, the number of breweries had fallen to about
800, and only 550 of them still survived in 1999. In 1995, the total sale volume
of the five top home-grown breweries made up only 12 per cent of the market,
whereas the top seven American breweries in China took 75 per cent (Wang 1997).
According to the Third Industry Census in 1995, the total production capacity
of the industry by the end of 1995 was 22.53 million tons, but only 73.5 per cent
of that capacity was utilised. By the beginning of 1996, the top ten breweries in
the world had all found willing brewery partners in China to set up jointventure businesses. Most of these joint ventures have provided opportunities
(funding and technology) for the breweries (many of them originally owned by
the local government) to expand the scale of production and upgrade product
quality (Gu 1997). BeerCo is one of the larger units and is included in the top
50 breweries in the country and the best in Guangdong Province, a prosperous
province in southern China.
Similarly, market competition in the motors industry has been intensive. Since
the early 1990s, the motor product market has been facing a steady decline as a
result of the slack market in construction equipment. Supply exceeded demand
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CHINA
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which has led to intensified sales competition and price cuts. In 1996, the average price of motors was reduced by 20 per cent which was continued by another
10 per cent in 1997 and a further 12 per cent in 1998 (Yuegang Xinxi 1999). Again,
the product market has been dominated by a few large and strong players.
MotorCo does not even feature in the market. It survives on marginal businesses.
BeerCo
BeerCo was formed in 1987 as an SOE (see Table 2). The enterprise made heavy
losses from day one until 1995 when a series of organisational changes including management and departmental restructuring began to take place. The main
reason for its loss making was poor sales which severely restricted the output of
the plant. For example, the production target was 30 000 tons when BeerCo was
formed, but this target was not reached until 1995. Prior to that, production had
been lingering below 20 000 tons. In 1996 the local government decided to change
its ownership status from a SOE to a joint venture (with Hong Kong investment)
in an attempt to improve its competitiveness. It was thought by the BeerCo management and workers that a joint venture would bring in much needed external
investment which would double the financial base of BeerCo so that it would
have more capacity to operate in the competitive brewing industry. However,
the joint venture turned out to be a transfer of ownership instead of a capital
injection, in which 51 per cent of the shares were transferred to a Hong Kong
investment company. The ownership transfer took place in early 1997 and the
Hong Kong Partner invested in a new production line for BeerCo. When BeerCo
was first set up, there was only one semi-automatic production line with a
production capacity of 60 000 tons per year. Since the introduction of a fully
automatic production line from Germany in 1997 (in production in 1998),
BeerCo’s total annual production capacity has increased to 150 000 tons. Its beer
products consistently met the ‘excellence’ grade of the national quality standard.
In 1999, BeerCo was accredited ISO 9002 by the state quality authority after
nearly two years’ preparation. The production target for the year 2000 was
100 000 tons, but much depends on BeerCo’s ability to sell. The reason for the
Table 2
General information on BeerCo and MotorCo
Former ownership
New ownership
Ownership change
No. of employees (2000)
Quality initiatives
Product market
Customer base
BeerCo
MotorCo
State-owned
Joint-venture (state &
Hong Kong)
1997
680
ISO 9002 accreditation
Upper end of the market
National but mainly
regional
State-owned
Employee ownership
1998
160
ISO 9000 application
Lower end of the market
National but mainly
regional
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under-performance of sales is local protectionism and geographical monopoly
which prevail in the beer product market in China. With a local consumption
of only 20 000 tons, the sales team has to work very hard to promote their
products to a wider geographical area.
Working on a round-the-clock shift system, BeerCo had a workforce of 680
people in June 2000. The total income (cash and material in kind) of the BeerCo
employees has always been high by China’s standards even when it was making
a loss. On average, the ordinary workers earned 26 000 RMB (about US$3130)
in 1999 while managerial and professional staff were on 35 000 RMB (about
US$4220). It was speculated that senior managers were on a much higher rate
of pay but the figure was unknown.
MotorCo
MotorCo is a relatively small (by Chinese standards) manufacturing company
established in 1974. In April 2000 it had 160 working employees and another
130 retired employees. MotorCo has long been a poorly-managed and unprofitable company whose employees have been on low pay for workers in an SOE.
In 1998, MotorCo changed ownership from a state-owned limited company to
an employee share ownership limited company. The Managing Director owned
36 000 shares, directors owned 16 000–30 000 shares each, middle managers and
professionals owned 10 000–15 000 shares and the ordinary workers owned
2500–6000 shares each. A ‘one share one vote’ system was adopted for the
decision making process which ‘enables the workers’ participation in the management of the Company’. In principle, the Managing Director and other directors were to be ‘elected’ by shareholders.
MotorCo has three types of customers. Its major customers are individual businessmen who often cannot pay cash for the products they purchase and to whom
large motor manufacturers are not prepared to sell their products. The second
type of customer is the network associates of the Managing Director to whom
he sells the motors with extensive guarantees. The Managing Director himself
takes handsome commissions from these sales. The third type of customer is large
companies which have cash flow difficulties but need the motors to continue their
production. So MotorCo only makes a small margin of profit on the product it
produces and sells. It is an exploitation of workers who are on piece work
with a low wage compared with their counterparts in the developed areas, for
example the Pearl River Delta area near Hong Kong. In the Pearl River Delta
area, ordinary motor workers are paid 800–1000 RMB (about US$96–120) per
month while workers in MotorCo with the same level of skills and producing
the same type of motors will only be paid 450 RMB (about US$54) per month.
The top level of managers (with the exception of the Managing Director) earn
only 600 RMB (about US$72) per month. The Managing Director indirectly
profits from the workers’ low pay. Furthermore, in China, sale is often not dependent upon quality of the product but upon personal relationships (guanxi). This
has a negative effect on the quality of the raw materials purchased. Most firms
face cash flow problems (known as ‘triangle debt’). Cash payment is required for
high quality materials. Therefore, many firms can only purchase second-rate
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materials for their production which in turn affects the quality of the products
they turn out.
MotorCo has been producing a series of motors which, according to new motor
authority regulations, were to be phased out in the near future. The Company
makes a few high quality motors and changes their nameplates quarterly to deal
with the quality inspection from the state authority. MotorCo was only operating at half of its production capacity due to poor sales of standard products and
lack of orders of specified products. The level of technical competence of the
staff is generally low. The Manager of the Technical Department came from an
apprentice background and has limited theoretical knowledge. On the other hand,
the young graduates recruited in recent years have theoretical knowledge but lack
practical experience. There is no apprentice training scheme. Not surprisingly,
MotorCo does not have any business strategy, long-term planning, or even a plan
for the following year. Research and development is unheard of. The Managing
Director just ‘plays it by ear’. His directorship was a five-year contract. ‘If everything was smooth, then he would continue for a second term. If not, he would sell everything, make a profit and run’ (The Production Manager). In the absence of strong
leadership, a long-term business strategy and a skilled workforce, MotorCo is
incapable of designing and producing new products which are competitive in the
market place.
RESHAPING
OF EMPLOYMENT RELATIONS UNDER THE NEW FORMS OF
OWNERSHIP
Unbound from the detailed control of the state, both BeerCo and MotorCo management now have much greater autonomy in the operation of their business,
including the freedom of making decisions in recruitment, pay and dismissal etc.
Although managing by the rules and regulations remains largely the norm, the
change of ownership of BeerCo and MotorCo has brought major changes to issues
such as recruitment, training, promotion, pay, work organisation, and the role
of the trade unions and Workers’ Congress. These changes are a somewhat mixed
blessing for the workers (see Table 3).
Recruitment and promotion
Prior to ownership change, BeerCo had to recruit local school leavers and
people who had connections with the local authority, since the local authority
had a responsibility to provide jobs to school leavers and nepotism has been common in the recruitment of new employees (Warner 1993; Lu 1996, Cooke 2000).
In the past three years, BeerCo has been able to recruit good quality university
and polytechnic graduates as technicians and skilled workers. Many of them have
been promoted to managerial and supervisory positions. In the early stage of the
joint venture, the Hong Kong Partner had brought in a team of key personnel
to head each department of BeerCo. Control was tight with strict rules and
regulations covering all sorts of issues. However, this untrusting style has not
been well received and the Hong Kong managers have failed to settle in to the
posts. Most of them have since left and workers from BeerCo have been promoted. Only the Finance Department remains in the charge of a Hong Kong
28
Table 3
Employment relations in BeerCo and MotorCo before and after ownership change
BeerCo
before
Local school leavers
Some
100%
Company pension
Welfare house purchase
Yes
90%
Social and welfare
State cadres
Annual meeting
Suggestion box
Loss-making
State employee status
Grade wage and bonus
Nepotism
Minimum
100%
Company pension
Welfare house purchase
Yes
95%
Social and welfare
State cadres
Annual meeting
Suggestion box
Break-even
Collective contract
Position and competence
wage
Nepotism
Minimum
Partial
State pension insurance
No
No
0%
Non-existent
Ex-state cadre managers
Non-existent
Suggestion box
Break-even
I N D U S T R I A L R E L AT I O N S
Recruitment
Training
Sickness benefit
Pension
Housing benefit
Trade union recognition
Trade union membership
Role of trade union
Management structure
Workers’ Congress
Employee involvement
Performance
Collective contract
Position wage and
bonus
University graduates
Increased
100%
State pension insurance
No
Yes
90%
Social and welfare
Joint-management
Not met for 2 years
Suggestion box
Profit-making
after
OF
State employee status
Basic wage and bonus
before
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Employment contract
Pay system
MotorCo
after
March 2002
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manager. The Company has now established a policy of flexibility in promotion
which replaced the seniority system traditionally adopted in Chinese organisations. Those who are seen as capable of new responsibility will be promoted
and those who are considered ineffective in their leadership will be demoted. This
new policy has brought some resentment from the older workforce as the majority of the newly promoted are those who are relatively young with higher qualifications and more updated skills and knowledge. Resentment of the new
promotion system also came from sidelined managers and supervisors, many of
whom are ex-army or ex-rural cadres of an older generation who owed their positions more to their personal ties or political standing than to their expertise in
industrial management (Sheehan 1999).
The change of ownership in MotorCo has not improved MotorCo’s ability to
recruit high quality graduates from good universities. University graduates are
unwilling to come to MotorCo because of its low pay and unhealthy prospects
as a firm. Those who came would only stay temporarily, using MotorCo as a
stepping stone to a better job elsewhere. Others came as a result of nepotism,
carrying its own inherent disadvantages.
Training
Since the change of ownership, BeerCo has invested heavily in training its (production) workforce at different levels. Each person has to spend 100 hours on
training each year. The objective of increased training has been to enhance the
managerial staff’s management skills and the workers’ production-related skills
and general education level. Two universities were given contracts to provide management training (e.g. supervisory skills) for (potential) managers and supervisors,
professional and technical training (e.g. accounting and finance, food chemistry,
laboratory analysis) for professionals and technicians, and further education (e.g.
literacy and numeracy) for the shop/office-floor employees. Production efficiency
and health and safety have also been important elements in the training. In addition, IT skill training has been available for all levels of employees should
they want it. The training courses were repeated the following year to reinforce
memory. In addition to in-house training, core members of staff were sent to the
manufacturers for training when new packaging equipment was purchased. They
then trained their colleagues. Most of these training activities have been carried
out in the workers’ own spare time. According to the workers interviewed, most
of the training has been a useful addition to their skills and knowledge. Training
was particularly welcomed at the managerial and supervisory level. However, work
re-organisation and intensification since the introduction of the second production line has made the trainees too tired to attend the courses or reduced their
motivation to learn after they have been removed from the post for which they
had been receiving training.
At MotorCo, there has rarely been any formal training for years, a situation
which continues after the ownership change. The absence of product and process
innovation and the static workforce have not helped to create a demand for training either, although this could be argued the other way around. In an attempt to
boost public relations, the Managing Director decided that MotorCo should apply
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for ISO 9000 accreditation. A consultancy agency was contracted in to prepare
the documentation for MotorCo. The preparation of the documentation has had
no real impact whatsoever (e.g. training) on the workforce other than as a
public relations exercise for the Company. The consultants go to one firm and
prepare the documentation for the firm and then sell it to another firm. The
Manager of the Technical Department commented, ‘ISO 9000 looks good on
paper but not in practice’. Three managerial staff were sent on an internal assessors training course. It was a one-week course held by the ISO 9000 authority.
Trainees were guaranteed their assessor qualification. Course fees were charged
to their company. However, the skill, the quality and technology standards of
MotorCo were nowhere near the true requirement of ISO 9000. The Director
has a powerful network extending to the quality authority which issues the
quality certificates. MotorCo was accredited ISO 9000 status at the end of 2000.
The Managing Director’s approach to quality in a way reflects that which
prevails in many companies in China. For example, Zhao et al. (1995) found that
the standard of the product quality varies in China and that its managers and
workers tend to have a low level of awareness of the quality management techniques fashionable in the West. Glover and Siu (2000) also found that public
knowledge/image of the quality of a product are to a certain extent determined
by the nature of the external guanxi rather than by the true quality of the
product per se.
BeerCo’s increased investment in workforce skill training reflects a new training trend more commonly found in large SOEs and joint ventures (e.g. Child
1996; Ding & Warner 1998; Cooke 2000). For SOEs, the drive to increase skill
levels comes from the state which also foots the bill. For joint ventures and
foreign-owned firms, mass skill training for the workforce is usually a necessity
during the early stage (Bjorkman & Lu 1999a, b). In-house training methods are
often adopted for workers while managerial and professional staff have more
opportunities to be sent away for intensive training either at universities or at
their parent firms overseas. The emphasis of the training is on technological skills
and increasingly on managerial skills for managers. The lack of training at
MotorCo also reflects the pattern of absence of training in many small and
private firms in China which the state has little influence on and lends little
support to.
Pay
Since the joint venture in 1997, the wage structure of BeerCo, amongst other
employment issues, has been subject to a series of changes, many of the initiatives coming from the Hong Kong management. Initially, a bonus system was
implemented whereby only the managers knew what was in the brown envelope
given to each individual worker. This system was badly received by the shopfloor
because the deep-rooted Chinese social value of collectivism and egalitarianism
fundamentally resents the idea of differentials in bonus payments between individuals or between different groups in the same company (Easterby-Smith et al.
1995; Yu 1998). Any differentials should be symbolic rather than substantial in
order to maintain harmonious relations within the organisation (Cooke 2000).
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The introduction of individual bonuses, a key feature of the reforms in China
since the 1980s, intended to break the egalitarianism, has been particularly
troublesome and had little real effect. For example, Shirk (1981) has noted that
the awarding of bonuses by workers themselves in small-group ‘evaluation and
comparison’ sessions resulted in a strongly egalitarian distribution of the extra
money. Informal rotation systems were often used for workers to take turns to
receive the highest bonus and then share it with their workmates by going out
for dinner together.
The secrecy of the bonus system initially introduced at BeerCo removed the
transparency which acts as a control mechanism to prevent the widening of bonus
differentials and to judge peers’ performance against their bonus. Whether the
bonus differential was wide enough to be deemed unreasonable or not was quite
another matter. Then again, the argument was, if there was not a wide gap, why
should it be so secretive? This bonus system was soon replaced by another wage
system in which each department was given a lump sum for their operating cost
and wage. This system again backfired quite quickly because each department
was trying to keep the costs down in order to receive higher pay. Sales staff were
not making any trips to promote sales; the production department was not
replacing failing or failed parts of the equipment; and the canteen was feeding
the workers with undesirable food. Hastily this system was yet again replaced by
the latest system in which each department was given a fixed wage bill against a
set production target. Wage increases for workers in the same department were
dependent on the reduction of labour with sustained, and even enhanced, productivity. Equally, an increased number of workers (in order to meet production
targets) will not warrant an increased wage bill for the department. No overtime
would be paid, which has put a stop to the abuse of overtime claims (someone
had previously claimed 800 hours overtime in a month). This latest system was
welcomed by the shopfloor as their total income has generally risen, but this was
achieved at the expense of the administrative and supporting staff who have been
put on a lower rate of pay. For BeerCo, the total wage bill has not changed.
It only took away from one group of workers (administrative and supporting
workers) and gave to another (the production-related workers). Even among production workers, grievances over pay still exist mainly because of the flat rate of
basic wage irrespective of length of service. This rule is at odds with the traditional Chinese wage system in which seniority has played an important part in
the wage structure.
BeerCo’s experience of limited success of the introduction of pay initiatives by
its Hong Kong managers is shared by many other joint ventures in China when
introducing a performance-based pay system based on more or less subjective
performance evaluation (Child 1996; Bjorkman & Lu 1999b). This is also a
generic problem of how far HR policies from the Western headquarters can be
translated into establishments in developing countries where institutional and
cultural arrangements differ considerably (Child 1996; Bjorkman & Lu 1999a).
At MotorCo, the total income for employees has increased since late 1999 in
the form of ‘flexi-pay’ or more specifically, bonus. On average, directors have
doubled their income, managerial and professional staff have received an increase
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of 50 per cent, and ordinary workers 20 per cent. This pay rise is not a reflection of product output, quality or sales. Rather, it is the Managing Director’s
attempt to show the workers that he is a ‘good boss’ and that they should be
more motivated to work for him. The increased wage bill is financed by the
income which the Company raises from renting buildings out as shops and offices.
These buildings have been built around the factory in the last three years for the
twin purpose of reinforcing plant security and increasing company revenue. It is
not known how long this bonus will be maintained. As was illustrated earlier,
regional differentials in pay exist in China for workers doing similar jobs, for
geographical and therefore social and economic reasons (Johnston 1999).
However, this ‘spatial inequality’ (Johnston 1999: 1) for the MotorCo workers
was exacerbated by the absence of a mechanism through which wages can be
negotiated and distributed in a fairer system.
Work reorganisation
In early 1999 after the second production line was put into operation, BeerCo
restructured its production and packaging departments. Both departments have
been downsized from 350 people for the first production line to 300 people
covering both production lines on three shifts (round-the-clock). Displaced
workers (who were deemed less competent than those workers who remained on
the production lines) have been re-deployed to replace the temporary workers
who were originally employed to carry out unskilled and laborious work.
Grievance levels are high from this group of re-deployed workers, in part because
they found it difficult to come to terms with the loss of face involved in downward adjustment and in part because they had neither the skill nor the strength
(many of them were older workers) to carry out the (albeit unskilled) tasks required
by their new post. Some of these displaced workers had been removed from the
production line because of their previous poor behaviour record, yet no official
warning has ever been given to them about their behaviour. Neither has training or counselling been given to the displaced workers to help them adapt to the
new situation. When we asked the HR manager if BeerCo was going to do anything to ease the pain, the reply was: ‘they should be grateful to the Company
that they were given a job instead of being kicked out of the company like many
others were. There are plenty of people out there waiting to be employed’. Yet
in the same interview the HR Manager declared that a new company culture (in
line with that of ISO 9002) for BeerCo’s employees demanded care and respect
for their fellow workers.
Increased levels of training and a fixed wage bill against set production targets
for BeerCo workers meant that working hours were extended unofficially in order
for them to carry out training activities, team briefing for problem solving, and
to finish the workload. At one stage, training was carried out on Saturdays (in
1999) when the workers were supposed to have the day off. Although in theory
they can go home early if they manage to finish their workload in advance, that
may mean that they are over-staffed and need to downsize again. In reality, most
workers and their line managers and supervisors have been working long hours
continuously. A competition mechanism has been deliberately created by the
E M P L O Y M E N T R E L AT I O N S
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management among different shifts and groups of workers because ‘there will
be no pressure or motivation (for the workers) without any competition’ (the HR
Manager of BeerCo). In order to live up to the standard of ISO 9002, the
Company has been very strict with the quality of the products. Workers have to
redo their work if it has failed to meet the national standard of ‘excellence’ even
if their work may have reached the ‘pass’ standard. Fatigue and stress were creeping in and morale was falling at the time of the interviews.
As in BeerCo, there was no redundancy in MotorCo when its ownership
changed and the organisation was restructured. Although departmental mergers
have taken place following the ownership change, limited work reorganisation
has occurred. People mostly continue doing what they have always done.
However, a few people were required to move to other posts mainly from a higher
and more skilled post to a lower and less skilled post with less pay. Those who
did not obey the order would be dismissed without redundancy pay. Three
people were dismissed (termed ‘resigned’) under this ultimatum. In general, work
has not been intensified for the workers in MotorCo because of their lack of
production work.
THE
ROLE OF THE TRADE UNION AND THE
WORKERS’ CONGRESS
BeerCo has a full-house of trade union officials which includes a trade union chairman, a deputy trade union chairwoman and a trade union officer. Each year, they
are given a reasonable amount of funding for trade union activities, which involve
mainly consoling sick and bereaved employees, organising entertainment and
sports events aimed at boosting employee morale, and increasing commitment,
as well as raising the Company’s profile in the local community. However, the
trade union has no real impact at all in terms of safeguarding the workers’ interests in labour-management disputes. As the HR Manager pointed out, ‘The trade
union officials are not very competent at their job. We are now co-operating
(joint-venture) with the capitalists (Hong Kong) and a strong trade union is
needed to fight for the workers’ interests. But the trade union has not played
that role effectively’. In fact, the trade union deputy chairwoman was the
ex-Personnel Manager who was displaced as a result of departmental restructuring (merger). Because BeerCo could not find a managerial position for
her, a deputy trade union chairman post was created for her.
The incompetence of the trade union was readily recognised by the workers
who usually by-pass the trade union and go directly to the managers to launch
their complaints and grievances. The chairwoman admitted when interviewed
that the trade union would not have any power to bargain with the management
even if they believed what the Company was doing was wrong. The ineffectiveness of the trade union as a source to protect the workers’ interests can be illustrated by the following incidents. According to the workers interviewed, BeerCo
has delayed the payment of their wages several times in the last couple of years.
When the HR Manager was asked by us if this was true, he admitted it without
hesitation and explained that the reason for the delay was because of the cash
flow problems which the Company encountered on occasions. He further added,
‘This isn’t a big issue and they should not make a fuss of it’. Surprisingly, the
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Trade Union Chairwoman expressed sympathy for the Company on this occasion, suggesting that ‘the workers should understand the Company’s difficulty
and be more patient’. Another incident occurred in February 2000 when the trade
union signed a collective contract, ‘a recent industrial relations innovation’
(Warner and Ng 1998: 1), with the Company on behalf of the workers. Workers
have not been given a copy of this three-year rolling contract and nobody could
recall what details had been included when they were asked in the interviews.
Things in MotorCo were worse. When MotorCo changed ownership from
an SOE to employee share-ownership, the trade union was dissolved, or more
precisely de-recognised, by the Managing Director, who claimed that the old trade
union belonged to the old ownership and that a new trade union had to be reestablished to represent the new ownership. He also decided that a full-time post
would not be created for a trade union chairman because of the small scale of
the company. However, ‘the Company would consult the workers and listen to
their opinions and suggestions when making important decisions and procedures
for the Company’ (Manifesto of the Managing Director). Nobody could argue
against this assertion as the Labour Law only requires the founding of a trade
union when a new company is set up, but it does not illegalise the dissolution of
a trade union when an ownership change takes place. The workers of MotorCo
did not want to re-establish a trade union because ‘it does not do anything for
us’ (a production worker). In theory, the function of the trade union was replaced
by that of the shareholder committee. In practice, none of the organisational
mechanisms (the board of directors, the board of supervisors and the shareholder
committee) has any power except the Managing Director himself, who alone
made all the decisions including wage, bonus, recruitment, promotion, price of
products etc. His decisions would only be handed down to the board of directors for approval as a gesture. If it is a fact that Chinese senior managers are
inclined to deal with matters personally and are reluctant to delegate responsibility (Child 1996), then MotorCo’s privatisation provides its Managing Director
more freedom to do so. This situation was succinctly summarised by a senior
manager of MotorCo:
The ownership change has created a perfect opportunity for the Managing Director
to exercise his dictatorship without any cost, and to profit profusel