Paul Sweeney: Many thanks to all those who commented on the first post. A few responses are made by me on that post for those who are interested. This is the second of four posts on China.
In the first post I examined the huge growth of Chinese investment in the rest of the world. In this post I will briefly look at the other side of the investment coin – foreign direct investment in China and unionisation in MNC plants and offices. The growth in FDI into China quickly grew to over $108bn in 2008, the last figures from UNCTAD. This is equivalent to 6% of total investment in China. Outward investment from China was $52bn in 2008 and is undoubtedly higher today.
Western firms have been pouring investment into China. On 8th July, Peugeot announced a €1bn joint venture with a Chinese car company in new plants in China.
Yet some MNCs are baulking. Google’s decision to exit its Chinese business because of censorship was unusual as it is a major company which was willing to make a strong statement – eventually! However, a compromise was reached recently with the Chinese government in early July and Google will stay. In its licence-renewal application, Google pledged to “abide by Chinese law”. The level of censorship to be imposed and accepted by Google is as yet unknown. Other foreign firms put up with intimidation and often have to indulge in bribery to Communist Party officials.
The recent harsh prison sentences imposed on four Rio Tinto employees in Shanghai for bribe-taking of between seven and 14 years for bribery and theft of commercial secrets (only one of them admitted the second charge) has scared many western firms. The employees were three Chinese and one an Australian of Chinese descent. The American Chamber of Commerce in China found that many American firms feel shut out of Chinese markets because of “discriminatory government policies and inconsistent treatment by the legal system.”
One advantage for western multinationals in this “workers’ state” is the absence of free trade unions. There are only yellow unions in China. They are similar to the yellow unions in Ryanair or Quinn Insurance – not free trade unions but in-house “representatives.” The All-China Federation of Trade Unions, (ACFTU), the country’s union organisation, is closely linked with the Communist Party. Union representatives in companies have to be approved by the union federation. They are thus linked, perhaps indirectly, to the Chinese government. So unionisation can link in the state into management.
Yet Chinese workers in many plants have been ignoring the state controlled unions and confronting management. The ACFTU has been forced to increase its efforts to recruit members after industrial unrest, which stopped the China operations of two Japanese carmakers.
At the Honda plant, worker representative, Ms Li issued an open letter on behalf of the 16 employees chosen by workers to negotiate on their behalf, during the strike which closed Honda’s China operations for a week. “We must maintain a high degree of unity and not let the representatives of Capital divide us,” the letter urged. “This factory’s profits are the fruits of our bitter toil ... This struggle is not just about the interests of our 1,800 workers. We also care about the rights and interests of all Chinese workers.” The strike was quickly followed by two other strikes in two other Honda plants in China. Yet at rallies, most Honda strikers were fearful of the state and hid their faces with surgical masks and few would give their full names to the media.
The result: the workers won a 25% increase in pay to €230 a month! Most commentators do not think even 30% pay rises will lead to noticeable price increases in the West, but are more worried that strikes will disrupt supply chains. If this happens, the authoritarian state may step in.
Most foreign companies do not accept unions to date. But many commentators are saying that if they want to operate in China, they may have no choice from now on. It has been seen that the Apple IPod is made under very stressful conditions for its non-unionised workers, many of whom were so stressed that they have committed suicide. Great, progressive steps to prevent more suicides have been taken by Apple’s supplier. For example: Nets to prevent jumping off factories have been put up, “counseling” and pay rises have been “imposed” by Foxconn, the kind sub-contractor, to reduce stress! It is largely controlled by one staggeringly rich man.
Foxconn is the world’s largest contract electronics manufacturer, whose clients include Apple, Dell and HP. Some assert that it is one of the better employers with a fine campus with a large swimming pool and many other facilities at its “factory town” in Shenzhen, near Hong Kong. Yet it has been shaken by the high-profile series of suicides. And rightly so, for a fine pool is no good when you are treated like a serf in the factory working very long hours, doing repetitive and really tedious work under quasi-military guard. And other employers are even more nervous too. Whether free trade unions will be allowed to operate remains to be seen, but it is unlikely in the short run.
Up till recently, big companies have been welcomed in China for providing foreign capital and skills, and they were not asked by the state to allow the workers to organize (nor have workers been given this right in law), or rather, to be told by government what union to accept. Unions are mild in China but there is now a 2% charge on payroll in the companies where unions do exist. It may be used for workers' health care and other “benefits”. The FT reported that “They are actually telling us [to establish union chapters], not asking us,” said one foreign executive in Suzhou. “The feeling from everyone was – we just got a 2 per cent tax.” “In Europe or America, having a union is like having a [rival] manager in the company,” said a government official. “Here a union is to help the company be more productive.” Well those are two views of the comrades and the MNCs!
This increased worker militancy may impact on consumers as costs will rise at key stages in the thousands of supply chains that bring them electronics, clothes and toys. Workers are more skilled an,d with greater investment in capital and in skills, productivity is rising. The workers’ share was not at all equitable and they are now becoming more militant. Thus wages and then prices will rise. This is not bad as it would help reduce Chinas huge foreign surpluses in time, though for many Chinese products, like electronics, labour costs are but a fraction of total costs. Increased wages and salaries will re-orientate consumption to China’s growing middle class too, shifting more consumption to the domestic market.
Unionization had been mainly been confined to those industrial hubs which have a history of union activity, such as Guangdong and Tianjin, east of Beijing. Wal-Mart rejected unionisation in China and then pulled out, and Microsoft is currently resisting a unionisation drive. The FT recently reported that the “union officials in Beijing’s financial district summoned representatives of multinational investment banks to a meeting last month at which they were encouraged to establish union chapters.” The banks included Goldman Sachs, JPMorgan, Morgan Stanley and UBS.
1 comment:
I suppose one should admire this persistence in examining the rapid rise of this global superpower, but it's not clear what 'lessons' might be learned - if that is the intention - by an SOE on the periphery of the EU. One can only hope that it does not reflect a lingering, residual nostalgia for communist totalitarianism - or a desire to apply modernised, 'sanitised' aspects of this model to a small, democratic, developed - if troubled - economy.
Despite a dominant ethnicity which conveys the impression of significant homogeneity, China presents enormous diversity - as one would expect in a population exceeding 1.3 billion. Administratively it consists of 4 municipalities, 23 provincees (including Taiwan), 5 autonomous regions and 2 special administrative regions - some of which contain populations close to 100 million (with one recently exceeding that total).
The Chinese State Council persists with the fiction of China being a unitary state, but, in reality, it is a strange hybrid of centralised control and a diverse federalism. Although they may wish to convey otherwise, senior officials in the government compounds in Beijing know little - and have even less control - of much of what goes on in the provinces. Most provinces and regions have unofficial 'embassies' in Beijing to protect and advance their interests.
And to gain a full appreciation of this mix of dyfunctionality, diversity and creativity one needs to take account of the lack of an independent judiciary, a failure to define and enforce any type of property rights, the prevalance of corruption, the ability of the large, partly-privatised SOEs to create economies within the economy, the ability of local power-brokers to create fiefdoms (resembling the earlier warlords) and the significant role of the Peoples Liberation Army in the economic sphere.
And behind all this, beyond a veil of arbitrarily, but determinedly, enforced secrecy, is the desire of the party to retain an iron political grip. But the higher echelons of the party have long recognised that their continued grip on power is conditional on continuously raising economic prosperity and expanding it throughout the population. The current, and previous two, Five Year Plans have focused on spreading the economic prosperity of the eastern coastal regions into the much poorer werstern provinces. This has led to various hidden, but nonetheless real, trade-offs of economic power and influence between Beijing Central and the SOEs and provinces.
It is in this broader context that one should assess the recently reported trades union militancy. One thing I have learned is that no one, not even those who believe they are pulling the levers, knows what is really going on, but a plausible interpretation is that some union militancy is being allowed in foreign owned firms to allow workers to secure a bigger share of the rents being captured. This is in line with the desire to shift over time from export led growth to more docestic consumption. It is also significant that this is being tolerated in foreign-owned firms; nationalism - and, particularly, anti-Japanese nationalism - remains a potent political force. A further intention may be to encourage these firms to relocate to the western provinces where labour costs are lower. The huge stimulus programme was very much focused on developing infrastructure in the economically under-developed western provinces and linkages with the coast. Taking jobs to the recently-returned migrant workers in the western provinces is a major means of promoting the 'social and economic harmony' on which the party's continued grip on power depends.
Yes, developments in China are very interesting - and have global implications - but the machinations being conducted there have no real relevance to the reform of democratic governance and economic policy-making that is required in Ireland.
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