In brief

 

  • This year has seen increased industrial action in China, including at foreign-owned factories, due to worker discontent with wages and working conditions in a climate of labour shortages. Global media coverage has focused on the wages and working conditions at foreign-owned factories and factories supplying goods to foreign-owned companies.
  • Some employers have already increased wages or reviewed working conditions or both in response to this industrial conflict. Other employers may wish to consider taking similar actions.
  • Regional authorities have been under pressure to increase minimum wages and apply annual salary increases, although the actual increases applied have generally not been substantial.  
  • A number of government initiatives and regulations focus on collective bargaining as a possible solution, and it is likely that the government will continue to encourage employers to negotiate collectively with employees.

Background

This year has seen increased industrial action in China, particularly by factory workers. Strikes at two foreign-owned factories have been reported in the Chinese and global media.

At the Foxconn factory, a number of worker suicides prompted industrial action. At a Honda factory, workers went on strike demanding a 50% wage increase. Industrial action has also occurred in other sectors of the employment market, for example bank workers. A key theme has been that the industrial action has been organised at the workplace grass-roots level, rather than by trade union officials linked to the government-affiliated peak trade union body, the All-China Federation of Trade Unions (ACFTU).

Reasons for the increase in industrial action

Discontent with pay levels, allegations of employers cheating minimum wage and overtime pay requirements and poor working conditions have been reported in the media.

Commentators have suggested numerous reasons for the increase in industrial action. Worker shortages in some parts of China may be improving workers’ bargaining positions. For example, workers from inland China who would previously have migrated to cities to work in factories are now staying home to work on infrastructure projects which are part of the government’s economic stimulus programme. China’s system of internal passports may also inhibit worker mobility into areas of labour shortage.

In addition, young factory workers are seen to be more assertive and aspirational than their parents’ generation, in part due to lifestyle factors such as access to the internet, mobile phones, advertising and improved education levels. China’s Labour Contract Law introduced in 2008, which aimed to improve workers’ contractual rights, may also have increased worker expectations.

Employers’ response

Both the Honda and Foxconn factories have announced significant wage increases. Foxconn has also stated that it is working to introduce support programmes for workers. It is anticipated that other employers will also be reviewing wage levels and working conditions in response to this industrial conflict.

Government response

Government intervention following the labour unrest has largely been in the form of policy statements, minimum wage increases and moves to promote collective bargaining with respect to wages. This suggests that the Chinese government may want to appear non-interventionist in respect of foreign-owned companies and there may be a policy of ‘rebalancing the economy’ via increased wage levels, which will increase consumer spending. Specifically:

  • Minimum wages have been increased in over half of China’s provinces already this year, with some substantial increases. However, the overall trend is of moderate rather than dramatic wage increases.
  • Government documents have been issued at both the national and provincial levels to encourage collective bargaining.
  • Draft provincial regulations have been proposed in Guangdong Province, which would provide a right for workers to collectively negotiate with their employers and provide certain protections in the event of workers taking industrial action.
  • The ACFTU has launched a new campaign to promote collective bargaining and the ACFTU is also seeking to promote the role of its affiliated trade union officials in workplace relations. For example, all foreign companies with 200 or more employees will be encouraged to have a full-time union representative in the workplace.

Implications for employers

It is difficult to predict the impact the government initiatives and proposed new regulations will have on stabilising the industrial situation in China. Reports indicate that some workers are not happy to be represented by the official government-controlled unions and are instead seeking the right to elect their own union representatives.

It is possible that the wage increases that have already been made by some employers may have a flow on effect throughout the wider Chinese labour market. However, one view is that minimum wage increases have not in general been substantial and will not significantly affect production costs for factory owners.

Even so, some employers may be considering moving their premises to different areas in China, away from the labour shortages and the higher minimum wages of the more affluent provinces. Seeking cheaper labour elsewhere overseas may also be an option for some employers. However, some commentators have suggested that a similar pattern may emerge in other countries where labour costs have historically been very low. For example, there are indications of discontent and potential future labour shortages in Vietnam.