Proposal To Experiment With Collective Wage Consultations in Guangdong Province Delayed

December 8, 2010

Recent strikes in the spring and summer of 2010 highlighted the need for more genuine representation for Chinese workers. Partly in response to the strikes, in late August, the government of Guangdong province in southern China released for public comment a third draft of the Regulations on Democratic Management of Enterprises (draft Regulaton). As proposed, the draft Regulations would extend workers the right to ask for collective wage consultations--a power currently given only to the state-run unions. In September 2010, under heavy lobbying by members of the Hong Kong industrial community, many of whom operate factories in southern China and are concerned with rising production costs, the Standing Committee decided to suspend further deliberation of the draft Regulation.

According to media reports, in late September 2010, the Guangdong Provincial People's Congress Standing Committee decided to suspend further deliberation of the draft Regulations on Democratic Management of Enterprises, which was originally scheduled to be discussed at the 21st Standing Committee meeting from September 27 to 29 (Wen Wei Po, September 18; VOA, September 22). With a stated aim to "advance the enterprises' lawful implementation of democratic management" and to "safeguard the legal rights of workers and enterprises," the draft Regulation stipulates that workers have the right to ask for collective wage consultations, delineates the responsibilities of enterprises and workers when disputes arise, and sets forth a representative framework within which consultations between workers and enterprises may take place.

Heavy lobbying by some members of the Hong Kong industrial community, many of whom operate factories in southern China, reportedly played a role in the Standing Committee's decision. An organization that represents many members of that community, the Federation of Hong Kong Industries (FHKI), stated in a September 14 press release that market principles should determine wage raises, and that many small and medium enterprises may not be able to catch up with such a drastic change in policy, especially in the midst of an economic recovery.

In particular, opponents appeared to have raised concerns regarding two aspects of the draft Regulation (the draft's latest version, published on August 23, is available on the Guangdong Provincial People's Congress Standing Committee's Web site):

  1. Article 32 provides that worker members sitting on the enterprise's board of directors and board of supervisors will represent worker interests in the boards' meetings; moreover, they will take part in the enterprise's decisionmaking processes. Article 34 further clarifies that the worker members of the respective boards will enjoy equal rights and will carry out the same responsibilities as other members.
  2. According to Article 38, if less than one-third of workers request wage consultations with management, they must notify the enterprise union, and the union may consult with management on the workers' behalf, and report the results to workers. Furthermore, if one-third or more of workers demand collective consultations, the union must demand collective consultations with the enterprise's management.

In a September 14 Power Point interpretation of the draft Regulation posted on the FHKI's Web site, an attorney noted several aspects of the draft Regulation that may not be beneficial to enterprises, including the concern that the draft Regulation grants "too much power to worker representatives"; that allowing workers to become members of the board of directors could compromise commercial secrets, especially given the high turnover of workers and the lack of clarity in establishing what constitutes commercial secrets.

Furthermore, many in the Hong Kong industrial community have stated their concern that operating costs will increase should the draft Regulation go into effect. In a July 2010 FHKI survey, the organization indicated that "most manufactures will try to reduce manpower in order to cope with rising production costs," and that "two thirds of the respondents would introduce automation in production gradually while almost half of the respondents would outsource their manufacturing process in the coming year." Some economists, however, have challenged this argument, saying that wages have been frozen during the global financial crisis and thus there is room for adjustment, and that "improved productivity can pay for more than half of these wage increases, while the other half can be passed in the form of higher customer prices" (Bloomberg, June 10; Caixin, June 28). A FHKI vice chair said in the September 18 edition of Wen Wei Po that, in liew of the draft Regulation, he preferred to link wage increases to the annual inflation rate, plus two percent, in order to ensure that pay levels remain above inflation.

Notwithstanding the industrial community's reservations, the draft Regulation did contain provisions that specifically describe a consultation process and the environment within which it is to take place. For example:

  • During consultation periods, enterprises may not threaten workers or prevent workers from working (Article 47); at the same time, before making their demands to initiate collective consultations or during the collective consultations, workers may not take part in work stoppages, strikes, or other "behaviors that could intensify contradictions" (Article 48).

The draft Regulation was reportedly an attempt to defuse potential collective labor disputes by preemptively bringing workers into formal legal and regulatory channels. Prior to the Standing Committee's decision to delay further action in September, the draft Regulation generated much attention in the domestic press, and a July 22 Xinhua article even identified the draft Regulation's potential to "turn 'lose-lose' labor disputes into 'win-win' negotiations" (see, also, Southern Daily, August 5; YCWB, August 5; China Court, August 16). In late summer 2010, after the occurrence of the recent worker strikes, the Guangdong government actually demanded faster action on the draft (China Labour Bulletin, August 10); officials recognized that the "changes in labor supply and demand" have enabled workers to gradually gain more leverage in their relations with management, and as a result the absence of genuine and effective representation can easily turn common labor strife into a "hard landing" with "intensified contradictions" (Sannong Express, July 26).

Despite the Standing Committee's decision, labor advocates continued to maintain the draft Regulation's potential to enhance worker rights. The China Labour Bulletin (CLB), a Hong Kong-based labor advocacy organization, has argued that the draft Regulations … "could, if implemented, finally open the door to genuine worker participation in collective bargaining in China." CLB also took out a half-page advertisement in the September 22 edition of the Hong Kong Economic Journal, reiterating that "a legally binding system of collective negotiation in enterprises will allow workers to make wage demands according to set procedures, and thereby help reduce the incidences of strikes." The CLB advertisement continued:

We cannot accept that just when the country has decided to acknowledge, and is about to pass legislation to guarantee, international labour standards that should have been applied a long time ago, namely the right to collective negotiation, some Hong Kong businesses, who have benefited enormously from the oppression of workers over the last 30 years, are now howling in protest!

According to a September 24 South China Morning Post article (subscription required), the CLB had made appeals to the Hong Kong industrial community to debate the merits of the draft Regulation. But the FHKI and the Hong Kong Young Industrialists Council (HKYIC) declined the debate invitation, noting that, "as employers, we look at the long-term interests and investment desires of Hong Kong investors across the border whereas the [CLB] looks from the workers' perspective and fights for the bargaining power of migrant workers." The HKYIC President added, "We are speaking two different languages and unlikely to reach any consensus."

For more information on the draft Regulation in Guangdong province, collective bargaining, and other topics relating to labor relations in China, please see previous CECC analysis and the CECC 2010 Annual Report.