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Int. J. of Human Resource Management 13:3 May 2002 431–449

Int. J. of Human Resource Management 13:3 May 2002 431–449

The impact of economic reform on the role of trade unions in Chinese enterprises

Daniel Z. Ding, Keith Goodall and Malcolm Warner

Abstract The movement of the Chinese economy towards a market orientation has been characterized by high levels of foreign direct investment, the diversi cation of forms of public ownership and the growing economic signi cance of the private sector as the PRC joins the global economy. These changes have clearly had a signi cant impact over time on the Chinese labour-force. This study, based on a geographically dispersed sample of sixty-two enterprises, both state-owned and joint venture, examines the effect of these economic reforms on industrial and labour relations, and in particular on the role of trade unions at plant level.

Keywords All-China Federation of Trade Unions (ACFTU); China; enterprise reforms; HRM; industrial relations; labour contracts; management; organizational inertia; PRC; social insurance; trade unions; wages; workers’ congresses.


The Chinese system of industrial and labour relations has, since the victory of the Communists in 1949, been a ‘top-down’ adjunct of a wider set of institutional

arrangements (see Lee, 1986; Chan, 1993; Ng and Warner, 1998). Within this framework, enterprises, trade unions and the state have interacted in what we may call

a ‘triangular’ model, which developed its recognizable characteristics of a ‘top-down’ transmission-belt-based system in the 1950s when China put into place a command economy. It was only with Deng Xiaoping’s ‘Open Door’ and ‘Four Modernizations’

policies that the economic focus began to shift, from the late 1970s onwards, towards

a ‘market socialist economy’ (Naughton, 1995). Even then, it took some time for the

economic and management reforms Deng initiated to create a ‘nascent labour market’ and to transform relations pragmatically in the Chinese workplace (see Warner, 2000; Lu and Perry, 1997). By the mid-1990s, signi cant reforms had taken place in labour– management relations linking them more closely with market forces as we shall examine in this study. This article focuses on these changes in labour–management relations in general, and the role of the Chinese trade unions in particular. It is among the rst to empirically examine such unions in any detail, using a relatively large sample of geographically dispersed enterprises. We explore the traditional role of the Chinese trade unions, the

Daniel Z. Ding, Department of Marketing, City University of Hong Kong, Kowloon Tong, Hong Kong, PRC (e-mail: Keith Goodall, China-Europe Inter- national Business School, Shanghai, PRC (e-mail: Malcolm Warner, Judge Institute of Management Studies, University of Cambridge, Cambridge CB2 1AG, UK (e-mail:

The International Journal of Human Resource Management ISSN 0958-5192 print/ISSN 1466-4399 online © 2002 Taylor & Francis Ltd DOI: 10.1080/09585190110111468

432 The International Journal of Human Resource Management

impact of economic reform on this role, and question whether trade union activity varies with regard to factors such as employee size, location and ownership. We also ask whether these unions can be meaningfully compared with their Western counter- parts. We then examine the extent to which the creation of foreign-funded joint ventures in China has resulted in a different form of people-management from that traditionally experienced there, and ask whether ‘human resource management’ (HRM) practices have begun to emerge. We nally consider the implications of economic change in China for the future of industrial and labour relations (hitherto referred to as IR vis-a-vis` the wider forces of globalization).

The iron rice-bowl system

In order to come fully to grips with the changing role of trade unions during the Chinese economic reforms, we must rst sketch out the economic and industrial context for these changes. Industrial production in the PRC from the mid-1950s to at least the late 1980s was dominated by state-owned enterprises (SOEs). The SOE work units (danwei) epito- mized the so-called ‘iron rice-bowl’ (tie fan wan) which guaranteed ‘jobs for life’ and ‘cradle to grave’ welfare arrangements for Chinese urban industrial employees (see Lu and Perry, 1997). The danwei was as close to a ‘total institution’ (Goffman, 1961) as has been found in a workplace context. Such work units were similar to those in other Communist countries and were thus not unique to the PRC context (see Sil, 1997; Straus, 1997 on the comparison between Russian and Chinese practices). The danwei system of lifetime employment, which had became fully institutionalized by the mid- 1950s, originated in part from earlier Chinese Communist experience in the liberated zones, and from ‘fraternal’ Soviet practice, but in addition may have had roots in Japanese public enterprises in Occupied Manchuria (see Warner, 1995). Although the danwei system provided substantial bene ts for urban industrial workers, it was not applied to the vast majority of the Chinese labour-force mainly working in the countryside. Indeed, the ‘iron rice-bowl’ did not even extend to all city dwellers. Several writers (Walder, 1986; Warner, 1995; Francis, 1996) have perceived the ‘iron rice-bowl’ relationship as ‘organizational dependency’, to which we will return later. It was also antithetical to the operation of a exible labour market. On leaving full-time education workers were allocated to factories by the state, where, with very few exceptions, they remained for the rest of their working lives. Labour turnover was consequently very low: in 1979, for example, the total ‘quits and res’ in SOEs was 0.03 per cent of the total workforce, and death was seven times more important a cause of job-leaving than quits and res combined (Naughton, 1995: 44). The ‘iron rice-bowl’ was also associated with an opposition to changes in working practices not only from workers, but also managers. The ‘mind-sets’ associated with this dependency were deep-rooted and, we shall argue, dif cult to modify or dislodge. By the mid-1980s, it was clear to many economists both inside as well as outside China that the ‘iron rice- bowl’ had to go. But, since this policy had been taken for granted by most Chinese industrial workers for nearly three decades, it was an extremely contentious issue for the government to tackle. In addition, considerable resistance by the trade unions to such a notion might have been expected, given the unions ’ role as ‘protectors’ of working-class interests but also a representative of government interests. The enterprise reforms that largely came into being in the mid-1980s and early 1990s were an important step in the reshaping of the Chinese economy. These changes were aimed at phasing out these ‘iron rice-bowl’ institutionalized practices, generally

Ding et al.: Impact of economic reform on trade unions 433

believed by economists – as noted above – to be associated with factor immobility and inef ciency (see Warner, 1995; Ding et al., 2000). As part of these reforms, managers were given more autonomy, particularly to hire and re; and decision making was decentralized with regard not only to personnel, but also marketing and purchasing (Child, 1994). State-legislated personnel reforms in 1992, principally the so-called

of individua l

labour contracts, performance-related rewards systems and contributory social in- surance (Korzec, 1992; Ng and Warner, 1998). Many JVs had however already incorporated such practices into their management systems, prior to these reforms (Child, 1994). The 1992 ‘three systems reforms’ were an important step in the dismantling of the ‘iron rice-bowl’ but this would take time to complete, given the organizational inertia facing such changes, particularly in the SOEs (Warner, 1995). The effect of the reform process on the SOE as prime employer of industrial labour is shown in the following statistics. In 1978, SOEs contributed 77.6 per cent of gross industrial value; by 1996, the time of our eld-work, this had fallen to 28.50 per cent. They employed 78.4 per cent of employees (7.451 million) in industry in 1978; by 1996, this had fallen marginally to 73.80 per cent (10.94 million), so it was still relatively large. The reforms noted above, particularly those of 1992, resulted in increased labour mobility. New entrants to the workforce were no longer allocated positions by the state, and the rate of labour absorption by the SOEs had dropped from 72 per cent in 1978 to 34 per cent in 1996 (see Lee et al., 1999: 1–14). By 1996, the bulk of new jobs were to be found in the non-state sectors, as the PRC has joined the globalized economy, such as foreign-funded enterprises, including joint ventures (JVs) (upon which we mainly concentrate in comparisons with state rms), township and village enterprises, privately owned rms and so on. In 1996, there were 44,300 foreign-funded enterprises, employing 5.4 million workers (China Statistical Year Book). In the following section we trace the evolving role of the Chinese trade unions in the context of the reforms outlined above.

‘three systems reforms’ (san gaige), saw the nationwide introduction

The role of trade unions

China’s trade unions are, on paper at least, the largest in the world in terms of their membership. They have over 103 million members in more than 586,000 primary trade union organizations, all belonging to the of cial state-sponsored union federation. This was, and remains, the only body permitted to represent Chinese workers since the ‘Liberation’ (when the Communists took power nationally) in 1949. Independent unions may not freely organize, and if they attempt to do so are vigorously suppressed (see Chan, 1998). Although there is no ‘right to strike’ (the hypothetical ‘right’ to do so was deleted from the Chinese Constitution in 1982), there is an elaborate arbitration and conciliation machinery for dealing with whatever disputes occur in the workplace (see Ng and Warner, 1998: 71). The early days of the Chinese labour movement have been sketched out elsewhere (Chesneaux, 1969; Lee, 1986; Ng and Warner, 1998), and we shall only outline the essential historical background here. The dominant Chinese trade union body is the All- China Federation of Trade Unions (known as the ACFTU), which was set up in 1925, although the earliest labour congress had already met in 1922. This set an organizational pattern, which continues to the present day, of recruiting workers on industrial lines, although there were also to be occupational groupings. After 1949, this industrial logic prevailed and was perpetuated in the Trade Union Law of 1950, the rst

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in the Chinese Communist state, which ‘systematized the trade union structure in China’ and the ACFTU was ‘designated as the highest body of all unions’ (Lee, 1986:


In the 1950s the Soviet Union was China’s role model, and the ACFTU was designed as on Leninist lines as a ‘transmission-belt’ between the Party and the ‘masses’. This relationship was explicitly stated, for example, in the ACFTU Constitutions since 1950 (see Ng and Warner, 1998). Trade union organizations, at least prima facie, therefore represented the institutionalized power of the workers as ‘masters’ (zhuren). The unions had as one of their roles the job of assisting enterprise management to boost production output (and this has been a persistent theme through most of the unions’ existence in the PRC up to the present day). They were also charged with helping management provide adequate collective welfare services, and organizing workers and staff in spare-time cultural and technical studies, vocational training and recreational activities. To this end, the unions had, and still retain, considerable funds, since enterprises deduct 2 per cent of payroll for ACFTU welfare and related activities. However, it should be pointed out that union growth in the 1950s was somewhat short-lived, for, although they had succeeded in building up their membership and expanding the number and scale of their primary union units, they were formally dismantled during the Cultural Revolution in 1966. The trade union structure was, however, formally re-introduced in 1978 by Deng Xiaoping, following the death of Mao Zedong. It gradually built up its formal role again over the 1980s as the Party’s main adjunct in the enterprise vis a vis the reform process. We turn now to the modern formal organizational structure of the ACFTU. Currently, there are thirty-one subordinate federations of trade unions in China based in each province, autonomous region and municipality directly under the Central Government, and sixteen national industrial unions. 1 The supreme organ of union authority is the National Congress of Trade Unions, which is convened once every ve years; the last one being the 13th National Congress, held in November 1998. The ACFTU Executive Committee, composed of 258 members, is the ruling body when the National Congress is not in session; it elects the Chairperson, Vice-Chairperson of the Executive Committee and members of the Presidium. When the Executive Committee is not sitting, a Presidium comprising thirty-seven members takes decisions, as need be. A working Secretariat is set up under the above Presidium and consists of a First Secretary and a number of committee members who are elected from among the members of the Presidium. The participants are closely linked to the Party and are usually regarded as ‘in uential’ in national politics. The ACFTU Secretariat takes care of the day-to-day work of the federation (see Ng and Warner (1998) for further details). In the 1980s and 1990s, the role of grass-roots Chinese trade unions became weaker as the political role of the Party at local level began to weaken, at least relatively, in the enterprise. The role of the Workers’ Congress (which had surfaced in various guises in earlier periods) was revived at the heart of the enterprise, to act as a representative ‘talking shop’, and possibly to diffuse the strains and stresses of the change process accompanying the enterprise and management reforms set in train by Deng in the mid- 1980s (see Child, 1994; Warner, 1995; Ng and Warner, 1998). It should be noted, however, that the Workers’ Congress in the 1980s had certain powers: the right, for example, to veto management proposals for bonus distribution. Proposals at this time to delegate more power to managers subject to the guidance of the Workers’ Congress were, however, dropped in favour of guidance by Party Committees (Naughton, 1995). It is said that Deng was so worried by the Polish ‘Solidarity’ oppositional challenge that he sent emissaries to Yugoslavia in the early years of the decade to see if some sort of

Ding et al.: Impact of economic reform on trade unions 435

workers’ participation might help maintain stability in the workplace and act as a mobilizational tool to persuade workers to back reform at factory level. Precisely what such representative organs achieve in gaining ‘voice’ for workers has been con- troversial. Both Laaksonen (1988) and Child (1994) conducted empirical work into decision making in the Chinese workplace. It is unclear whether workers can do more than air opinions, however, as the in uence of management at all levels has grown since the enterprise reforms began to take roots. Even so, in recent years, the Party-State, as well as the ACFTU, has tried to nd new functions for the unions to perform in Chinese economic life; the Labour Law of 1994, effective in 1995, showed a possible route by which this might be achieved (Warner, 1995). This new legislation was the result of thirty years’ wrangling between the enterprise employers, the state Ministries involved (of Labour, and now separately, of Personnel) and the ACFTU. The trade union in an enterprise is now empowered by law to sign ‘collective labour contracts’ (jiti hetong) with the employer on behalf of the employees. Such contracts supplement individual ones, introduced experimentally in the early 1980s and set out in the Temporary Regulations of 1986. The collective version is in many ways a ‘framework agreement’ for the individual ones but some do go further, as we have discussed elsewhere (see Warner and Ng, 1999; Warner, 2000).

State Bodies CCP ACFTU National Provincial Trade Industrial Unions Union Council Enterprise Enterprise Party
State Bodies
Provincial Trade
Industrial Unions
Union Council
Enterprise Party
Enterprise TU
Top Enterprise
Workers and Staff
Workers’ Congress

Source: adapted from Child (1994)


= Authority link = Weak or ambiguous relationship CCP = Chinese Communist Party TU = Trade union at enterprise ACFTU = All-China Federation of Trade Unions

at enterprise ACFTU = All-China Federation of Trade Unions Figure Chinese enterprises 1 Relationships between trade


Chinese enterprises

1 Relationships

between trade


party organization




436 The International Journal of Human Resource Management

Whether such contracts constitute ‘collective bargaining’ in a Western sense is however debatable. The new Labour Law of 1994 represents a major consolidation of legislation in the eld of work and labour–management relations. As a result of this law, for example, the trade union can now interfere in cases of inappropriate termination of labour contracts and in labour disputes. In addition, the trade union is, on paper at least, the executive agency of the Workers’ Congress in a given enterprise, which is legally entitled to supervise the management of the enterprise, and to represent the interests of the workforce in between meetings of the Congress. Nonetheless, the unions are still trapped between their obligation to support management in running economically viable organizations and their role in supporting workers’ interests. The trade union in SOEs still, however, plays a more important role than in other kinds of rms in the Chinese economy. In our empirical study, we show the degree to which unions still maintain their substantial ‘density’ in the state sector. In many non-state enterprises, on the other hand, their role is much more limited; indeed, in some there are neither unions nor Worker Congresses.


We now turn to a number of hypotheses and sub-hypotheses, which we have elaborated to guide this investigation into Chinese trade unions in the mid-1990s. China’s ‘Open Door Policy’ (kaifang zhengce) and the rapid growth of the foreign- invested sector, especially of JVs, as the PRC has exposed itself to the forces of globalization, have seen the emergence of new people-management, even of nascent HRM practices (Ding et al., 2000). The 1992 Trade Union Law and the 1994 Labour Law have de ned, in principle at least, a new form of industrial relations, and a new role for the trade union at enterprise level (Howell, 1998). In addition to the traditional role of mobilizing and organizing workers and staff members to take an active part in accomplishing the tasks of economic and social development, enterprise trade unions have gained a new and important function of protecting the legitimate interests and rights of workers and staff members according to the labour law. Trade unions also represent workers in signing ‘collective contracts’ (jiti hetong) with management on such matters as wages, work hours, vacation, labour safety and sanitation, as well as insurance and welfare, as we have seen (White, 1996; Warner and Ng, 1999). Therefore, we propose:

Hypothesis 1:

The economic reforms of the last two decades in China have greatly changed the role of trade unions.

About 70 per cent of total foreign direct investment in China comes from Hong Kong and Taiwanese investors who mostly do not have a tradition of collective bargaining. Their negative attitude towards trade unions comes from their experiences of organized labour in their home territories (Chan, 1998). The acceptance of trade unions in these foreign-invested enterprises tends to be low. Thus we hypothesize:


The trade unions tend to play a less important role in the newly expanding non-state sectors in the economy than in the SOEs.

Enterprises – as well as trade unions – are shaped by the nature of their external operating environment, and the PRC is no exception. Firms in China’s coastal and southern regions, for instance, with their well-developed infrastructure and industrial

Ding et al.: Impact of economic reform on trade unions 437

bases, higher per capita income and higher educational levels, have attracted the major share of foreign direct investment. The large number of foreign-invested rms concentrated in the region, especially large multinational enterprises, has had a strong in uence on the prevailing patterns of people management there, including the implementation of HRM practices (tenli ziyuan granli) (Bjorkman and Lu, 1999; Ding et al., 2000). By contrast, the northern and inland regions of China remain dominated by traditional state-owned enterprises, since their less-developed infrastructure, lower per capita income and lower education levels make the region less attractive to foreign investors. They therefore tend to have more conservative and less market-oriented people-management practices, particularly with regard to employment systems, rewards structures, the role of personnel managers and the role of the trade unions and Workers’ Congress. Signi cant differences in industrial and labour relations and HRM practices therefore exist across the length and breadth of the PRC. These differences are re ected in the employment systems, reward structures, social security schemes, labour turnover, the responsibilities of personnel directors, as well as the role of trade unions and workers’ congresses. Accordingly, we hypothesize:


The trade unions in rms in southern and coastal China tend to play a less important role than in northern and inland China.

The size of the rm has a bearing on the pace of organizational change. Large SOEs, with cumbersome organizational structures and substantial numbers of redundant employees, have experienced higher degrees of organizational inertia in attempted change processes (Ding et al., 2000). Thus, we propose:


The trade unions in small rms tend to play a less important role than in large rms. 2

The Chinese trade union is said by the government to be taking the ‘leading role’ in implementing the Labour Law and promoting ‘stable and harmonious labour relations under the leadership of communist party, strengthening the participation in legislation and protecting worker’s rights according to the law’ (see ACFTU, Work Report Delivered at the Thirteenth National Congress of the Chinese Trade Unions, 19 October 1998: 1). In order to test whether this is so, we hypothesize:

Hypothesis 2:

A strong trade union presence tends to provide better protection of the working and political rights and economic interests of Chinese workers. 3


The higher the level of unionization, the greater the role of the Workers’ Congress. 4


The higher the level of unionization, the lower the labour turnover.


The higher the level of unionization, the higher the average wages. 5


The higher the level of unionization, the lower the dismissal rate.


The higher the level of unionization, the more likely the rm will implement the collective labour contract. 6

438 The International Journal of Human Resource Management


The higher the level of unionization, the less market-oriented the social security system in the enterprise. 7


The higher the level of unionization, the less market-oriented the employment systems.


The higher


level of unionization,

the more constrained the role of

personnel directors.

Sample and research methodology

Our sample rms included sixty-two manufacturing enterprises in ve industrial sectors, including engineering, electrical equipment, electronics, chemicals and pharma- ceuticals (see Ding et al., 2000). These enterprises are located in various regions that, based on the stage of economic development and the degree of openness, can be classi ed into two categories: prosperous southern and coastal areas, and the relatively less developed northern and inland regions. There are thirty-two SOEs in our sample, accounting for 52 per cent of the total, with an average turnover about RMB600 million yuan. 8 These are mostly old, large enterprises, having been established for, on average, about thirty years and with an average total number of employees exceeding 3,500. The remaining rms in the sample are foreign-invested joint ventures. These joint ventures were established in the last two decades, and have an average age of seventeen years. Compared with the SOEs, the JVs are relatively smaller, with total employee numbers ranging from about 200 to over 2,000, with an average of 1,086. However, they produced higher levels of sales than the SOEs in the sample, with an average total turnover of RMB627 million yuan. The major characteristics of sample rms are summarized in Table 1. The research team for this study conducted in-depth interviews with factory directors, trade union representatives, personnel directors, technicians and workers in each sample rm. A semi-structured interview guideline and a questionnaire were both used to collect both quantitative and qualitative data, covering wide areas of industrial relations, human resource management, as well as information about company’s products, technology and performance. Interviews were also conducted with government of cials and local trade union representatives.

Table 1

Characteristics of Chinese enterprises sampled (N = 62)


Mean of SOEs N = 32

Mean of JVs N = 30

Mean of total N = 62



600.54 m (yuan)

626.17 m (yuan)

613.35 m (yuan)













































Ding et al.: Impact of economic reform on trade unions


Main ndings

The ndings of our empirical study of Chinese trade unions in their enterprise context are presented in two parts. Our analysis of the quantitative data collected to verify hypothesized relationships will be presented in this section, and the analysis of qualitative interview data, which eshes out the changing roles of trade unions, will be discussed in the next section. Table 2 displays the correlations of fourteen key variables for the sixty-two sample rms: sales volume, employment size, age (years of establishment), ownership type, location, labour contract, average monthly wage, social security, role of personnel director, recruitment, labour turnover, dismissals, trade union participation and the presence of Workers’ Congresses. Our rst major nding was that ownership type (i.e. not being in the state sector) is

signi cantly negatively correlated with the degree of unionization (signi cant at , .05), and the presence of Workers’ Congresses (signi cant at , .001). This nding supports previous research ndings that union acceptance rates were lower in foreign-invested rms than in SOEs (see Ding et al., 2000). Ownership type is also found to be positively associated with the role of personnel director, social security and labour turnover (signi cant at the level of .05 or lower), re ecting the more market-oriented human resource management practices in foreign-invested ventures. Second, the size of the rm is signi cantly negatively related to the date of establishment, ownership-type, social security and the role of personnel directors. This re ects the fact that the older, and relatively larger SOEs in our sample tend to be slower in their transition to market-oriented human resource management practices. Third, it is noted that location was positively associated with both the type of labour contract found in the enterprise and the average wage (both signi cant at , .01). This may indicate that individual contracts are used more extensively in joint ventures in the south of China than in enterprises in the north, as well as re ecting the higher incomes in the more prosperous south. In our sample, the average monthly wage for workers in rms in coastal and southern China was about RMB1,200 (approximately US$150 at the time the eldwork was carried out), signi cantly higher than the RMB702 (approximately $90 at the time) paid to workers in rms in northern and inland regions. To test hypotheses 1a to 1c, an ANOVA was conducted to identify factors that affect the variance in unionization. The arithmetic means of union participation in sample rms grouped by ownership type, geographic regions and size are compared in Table 3. It is noted that the mean of unionization in SOEs is 91 per cent, signi cantly higher than

73 per cent in joint ventures with foreign investment. Enterprises located in northern

and inland China have an average of nearly 90 per cent union participation, compared with 67 per cent of rms in the southern and coastal regions, a signi cant difference of

13 per cent. The sample rms are grouped into three evenly distributed groups by size,

and it is noted that small rms have the lowest unionization (i.e. union membership) rate of 57 per cent, signi cantly lower than the 92 per cent for medium-sized rms and

94 per cent for large rms. Thus, hypotheses 1a to 1c are con rmed.

Does the degree of unionization have a bearing on IR and HRM practices? To answer this questions, an ANOVA was conducted to compare the means of enterprises with high level of unionization with those of low level of unionization across nine variables, such as sales volume, average monthly wage, the presence of Workers’ Congresses, role of personnel director, recruitment, dismissals, labour turnover, labour contract and social security. The results are displayed in Table 4. The more weakly unionized rms













–.411*** –.132





–.412*** –.056

















Correlation of key variables in sample of Chinese enterprises (N = 62)















.668*** –.107








































*** < .001.















** < .01,







Table 2

* < .05,







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Ding et al.: Impact of economic reform on trade unions


Table 3


of trade union

presence by ownership, location and rm size



SOEs n = 32

Means JVs n = 30

North n = 42

Means South n = 20

Small n = 18

Means Medium n = 21

Large n = 23

Union presence








Standard deviation












Sig. (2-tailed)





Notes * < .05,

** < .01,

*** < .001.


have a mean turnover of RMB508 million (approximately $63.5 million at the time), compared with RMB638 million (about $79.8 million) for the more highly unionized group. The average monthly wage for employees in rms with relatively weak unionization is RMB968, higher than that of RMB856 in the highly unionized group. However, the difference in average monthly wages is not just to do with unionization – the highly unionized companies tend to be SOEs which perform less effectively and are unable to pay higher wages. The Workers’ Congress in rms with a relatively weak level of unionization played a less important role than it did in rm groups with higher levels of unionization, but not signi cantly so. There is also little difference in the roles played by personnel directors in recruitment, dismissal and labour turnover. However, it is noted that the group of enterprises with a lower degree of unionization had more market-orientated arrangements for social security, and adopted individual labour contracts more extensively. This was signi cantly different from the group of rms with high degrees of unionization. Thus, our hypotheses H2a, H2b, H2c, H2d, H2g and H2h are not con rmed but H2e and H2f are. For a summary of all the hypotheses tested, see Table 5. In the next section, we expand our discussion of these ndings in mainly qualitative terms, and evaluate their importance.

Discussion and evaluation

The key formal role of the ACFTU stems from their position as intermediaries in the labour-management system, acting as ‘transmission-belts’ between the state and the enterprise, on the one hand, and the enterprise and the workers, on the other (Chan, 1993, 1998; Ng and Warner, 1998). Whereas they may appear to be strongly embedded in the former, they may in reality be more weakly so in the latter. Our ndings indicate that, although the role and in uence of the union varies depending on the type, size and location of the enterprise (hypothesis 1 con rmed), the presence of a union generally confers very few of the bene ts normally expected from unionization in Western countries (hypothesis 2 largely discon rmed). It is often hard to deduce from their formal roles what the unions’ actual in uence may be. The union may have a large number of members in the danwei, but this does not necessarily mean they have commensurate leverage on the management these days, since the latter now have more autonomy in decision making (Naughton, 1995). However, as in many other areas of Chinese life, they may have informal in uence in terms of their ‘connections’ (guanxi) (Lovett et al., 1999; Seligman, 1999).























Comparison of Chinese industrial relations and HRM practices and by level of unionization (ANOVA)











































Std dev.

Std dev.



F Sig.

High level of unionization

Low level of

Union group


= < .05.

Table 4




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Ding et al.: Impact of economic reform on trade unions

Table 5

Summary of hypotheses tested


Hypothesis 1

The economic reform in China has greatly changed the roles of trade union.

Con rmed



trade unions in JVs

tend to be

playing a less importan t

Con rmed


role in the newly expanding non-state sectors than in SOEs. The trade unions in rms in southern and coastal China tend

Con rmed


to play a less important role than in northern and inland China. The trade unions in small rms tend to be playing a less

Con rmed

Hypothesis 2

important role than in large rms. A strong presence of trade union tends to provide better protection of the working and political rights and economic

Not con rmed


interests of Chinese workers. The higher the level of unionization, the greater the role of



worker’s congress . The higher the level of unionization, the lower the labour

con rmed Not


turnover. The higher the level of unionization, the higher the average

con rmed Not


wages. The higher the level of unionization, the lower the dismissal

con rmed Not


rate. The higher the level of unionization, the more likely the

con rmed Con rmed


will implement the collective labour contract .


The higher the level of unionization, the less market- oriented the social security system in the enterprise.

Con rmed


The higher the level of unionization, the less market- oriented the employment system.

Not con rmed


The higher the level of unionization, the role of personnel directors.


more constraine d

Not con rmed

In the course of interviewing, however, there was persuasive prima facie qualitative evidence that the ACFTU, in some enterprises at least, still played a discernible role in decision making: for example, senior union of cials were frequently present at meetings between the top management and the research team in major enterprises. In the HQ of one Shanghai SOE, one of the company’s vice-presidents is concurrently the ACFTU chairman. In most large SOEs and large JVs in big cities like Beijing, Dalian, Guangzhou, Shanghai and the like, the unions’ role extended over the full range of issues, ranging from primary areas of concern like production to secondary ones like welfare. In a Ji’nan SOE, for example, their role was seen as very important, that is, ‘strengthening work groups and democratic management, settling the employees’ troubles back home, enriching the cultural life within the company, and organizing skill competitions’. In a Ji’nan SOE, it was said that ‘when the employees’ legal rights are harmed, as in the cases of lengthened working time and bad working conditions, the union helps to settle problems. Once, some workers were asked to work on Sunday for no special compensation. The workers reported it to the union, and it talked with the management, at last the workers got the overtime compensation.’ In a Shanghai SOE, the union was described as representing ‘the interest of the employees and deals with various issues related to the employees’ lives, like the protection of women workers, family planning, deciding days off, entertainment activities or games and so on’. It also has a role of ‘coordinating labour relations, which is not so important because of the good atmosphere in the company’. In another Ji’nan SOE, the ACFTU branch has an

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Education Committee, which formulates the annual education plan and directs and inspects the training programs of the enterprise. The Workers’ Congress in a typical SOE participates in the discussions about substantive issues in the factory, such as ‘the management’s policies, objectives, distribution plans and performance of the leading cadres’. The Workers’ Congress in another SOE (in Shanghai) was said to have had ‘some real power’ in issues concerning employees’ interest, like ‘housing distribution, the wage-plan and so on’. It can come up with some opinions towards management practices and sometimes the managerial proposals were easily voted through the Congress. But its role in this respect was said ‘not to be obvious’. In a Dalian SOE, the trade union is the standing organization of the Workers’ Congress and uses full-time staff: ‘We manage the company democratically. The Congress helps the company make decisions and push its business, raise the economic bene t of the company and the income of the workers. It listens to the opinions of the workers and it can modify the decision of the board of directors.’ In this SOE, the role of the Workers’ Congress was ‘to summarize the last year’s work, assess the completion of objectives and formulate plan of development for next year according to last year’s situation, as well as to discuss on and approve the TU Work Report, TU Finance Report, TU Funds Report; to elect the TU Committee; and to elect the TU Funds Examination Committee’. Other data (see Ng and Warner, 1998: 88) shows very clearly that in many cases the union was still considerably involved in production matters at the expense of other enterprise-related issues. Where there were both individual and collective labour contracts, the union was often said to be ‘active’ in the ‘negotiation’ of these agreements (see Warner and Ng, 1999), but our ndings here show that this was mostly related to locational factors and was much more evident in southern and coastal China, where a reasonable degree of globalization has been most evident. The collective labour contract, according to union of cials in number of SOEs, was ‘just a formality required by the superior’. The executive and the trade union sit down together, have a meeting and sign the document, which is barely known by other people. The collective contract and the collective negotiation system, we were told in one Shanghai state rm, ‘are not quite applicable in the current situation of SOEs’, since the Party, the management, the trade union and the Youth League, it was claimed, are on the same ‘battle line’. The current format, the so-called ‘dialogues’ (duihua), is a compromise version of the ‘negotiation’, which has (for the state and management at least) unpleasant connotations of antagonism. A few meetings attended by the general managers and the ‘workers’ representatives’ were apparently enough to ful l the requirement of the ‘new type of labour relations’ in this SOE. A number of sources argue that Chinese unions have become increasingly marginalized in enterprises in the post-reform era, even in SOEs, let alone outside the burgeoning non-state sector (see Chan, 1998, for example) especially vis-a-vis` foreign capital and the pressures of globalization. According to these views, unions, where they do exist, have been relegated to dealing with secondary, mainly welfare and recreational matters. In a number of cases, as we shall illustrate below, the same point was made in interviews with both managers and employees (see Ding and Warner, 2001). It was clear that the TU had no signi cant role at all in some of the SOEs in our sample. In one that we investigated in Ji’nan, for example, they claimed ‘to hold a few meetings, write reports and, by doing that, try to enhance the morale a little’. When workers had problems with morale, the TU did some ‘ideological work’ (sixiang gongzuo). The only concrete work we could discern here was allocating apartments and administering welfare bene ts for retired employees. The union role vis-a-vis` housing

Ding et al.: Impact of economic reform on trade unions 445

allocation was once important but, since the work unit (danwei) is now of less signi cance as a source of welfare and housing provision, this is no longer the case. From our sample, it is also obvious that the union’s role is often even less signi cant in JVs than in most of the SOEs we investigated here. Some JVs in our sample, such as a Sino–US JV rm in Dalian, a Sino–Japanese JV in Guangzhou and a Sino–German JV in Ji’nan, have simply refused to set up a union branch due to resistance from the foreign partner. In the case of the Ji’nan JV, the German partner feared that the Chinese side could in uence the JV workers through the union and disrupt production. The foreign partner here was also anxious about the potential in uence of the Communist Party through its control of the union. However, the establishment of an ACFTU branch is mandatory according to the law. Therefore, most of the JVs in our sample did have organizations in them, and in many cases almost 100 per cent of the employees are members, at least in name. But it was hard to nd a union within a JV with an ‘especially important’ role in the company, except for ‘show-case’ sites, like a large Beijing Sino–US JV. In a Sino–Japanese JV in Dalian, for example, it was noted that ’the union does not have an important role. It is stipulated that the union should handle many affairs concerning employees’ welfare and interests, but actually it is not implemented in that way. In cases of dismissals and contract dissolution, the management needs the union to go through some formalities. And that is all’. In a Sino– Hong Kong Guangzhou-based JV, the union’s role was again ‘nothing more than writing news on a blackboard and collecting union membership fees. The management provides no funds for union activities. The union cannot get reimbursement even for the money used to buy wreaths for the deceased employees. (Traditionally, the union is involved in almost all affairs concerning employees’ lives, including marriages and funerals.)’ In another Sino–Hong Kong JV, it was much better than that, but still, our interviewee characterized the union role as ‘very unimportant. It mainly organizes entertainment or sports activities.’ Instead of acting as branches of a nation-wide trade union organization, these unions are operating more like a ‘family and entertainment of ce’ of the HR department. In JVs where the Chinese partners have majority share holdings, the ACFTU may still bask in what was described as the ‘sunshine of the Party’, and still plays its traditional role of ‘transmission-belt’. In one such organization, the ACFTU primary role was to ‘propagandize the Party’s policies to the employees’, and its secondary role was ‘to organize working competitions to help realize the board’s objectives’, while ‘representing the employees’ legal rights’ was the number four role, coming after ‘organizing entertainment and athletic activities’. Apparently, the employees did not have to use the law to protect themselves, since the ‘blessing’ of the Party and the ‘wise leadership’ of the board would give them enough leeway. A young middle manager in the HR department of a Sino–Japanese Shanghai JV analysed the ‘socialist’ nature of their trade union:

First, the socialist unions are different from those in the West. Their major function is to assist the management in the production. Second, the ACFTU is deeply involved in issues like wages and welfare. It reports problems on those issues or the employees’ ideas to the management, and participates the management’s discussions toward major decisions. Again, the union organizes various activities or entertainment and helps the employees with their family problems.

She also said that ‘the union is not at all a separate body from the management’. Because trade union activities ‘with Chinese characteristics’ are mainly inherited from the Chinese SOE partners, the strength of ACFTU branches depends largely upon

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the Chinese partner’s in uence in the JV. An interesting example is a Shanghai JV where the Swiss partner’s shares were increased from 51 per cent initially to 82 per cent currently. At the beginning, when the Chinese partner had a 49 per cent shareholding, they appointed the deputy general manager, and the JV hired many people from the Chinese side, who brought a lot of their usual practices, like the ACFTU organizing cadre meetings to learn about Party documents. However, with the foreign partner eventually holding more shares, the JV recruited more people from the labour market and those traditional union activities disappeared from the headquarters building, though they still existed in the JV’s old rural plant. On the other hand, there were also a few ‘success stories’ claimed in joint ventures, hence the picture is not all ‘black and white’. A Sino–American JV collaboration in Shanghai, for example, was not successful in terms of its economic performance, although its American partner apparently ‘greatly’ appreciated the ACFTU’s ‘positive’ work. According to a senior Chinese manager, ‘We have a full-time ACFTU Chairman and also a Secretary, who is simultaneously the Party Branch Secretary. Also there are several union representatives who do their work only part-time. The ACFTU Chairman participates in the board meetings and the management meetings. His status is equal to

a Department Head.’ Moreover, he continued:

The Trade Union organizes work-group seminars in which the ACFTU representatives inform the workers of government and company policies, and also understand their opinions and perceptions on every aspect of the company, including production, marketing activities, relations with expatriates, etc., which the ACFTU would summarize and report to the management meetings. Sometimes ‘dialogues’ are organized, in which the union representatives talk with the General Manager directly about various problems within the company, including production, allocation and so on.

The Americans had previously thought that a union would always be antagonistic to the management:

therefore, they were afraid when the union was established and refused to be present at the ceremony. However, we told them what the ACFTU does is to support the production and operation of the enterprise in cooperation with the management. Then they went to the ceremony. And later they did feel that the ACFTU has a positive role in the enterprise. When the US headquarters sent inspectors here, the General Manager talked about the excellent work the Trade Union Chairman had done with respect to the operation of the company.

Concluding remarks

What have we thus learnt from the study about the role of Chinese trade unions in an increasingly globalizing economy? To sum up the evidence, we nd in Table 5 the degree to which the hypotheses were tested vis-a-vis` the data collected. As we noted

earlier, the quantitative data suggest that, despite relative differences in union roles and

in uence between organizations of different types, locations, and sizes (hypothesis 1

con rmed), the presence of a union in China generally fails to confer many of the bene ts for workers expected from a union presence in Western organizations (hypothesis 2 largely discon rmed) and even more so in JVs and foreign-funded rms, key points where in many cases the forces of globalization have been felt. The qualitative data broadly support the conclusions reached in the analysis of hypothesis 2. Although much is made in of cial pronouncements and legislation of the power of the unions as protectors of the workers, in reality many processes at plant level are merely formalities. The union role that is consistently emphasized in qualitative interviews is as

Ding et al.: Impact of economic reform on trade unions 447

an adjunct to management. However, as always in China, of cial status tells only part of the story. Real in uence is always negotiable at the local level, and we have also seen cases where the union representatives have been able to offer substantive support to workers whose rights have been transgressed. We therefore must be cautious about over-generalizing the relative weakness of the unions visible in the quantitative data. An important nal question to ask in the light of the above ndings is whether Chinese trade unions are comparable with their Western equivalents. The differences between unions in the West and in Communist economies have been analysed in the case of the former Soviet Union (Korzec, 1992; Kaple, 1994), and with respect to the PRC (see Ng and Warner, 1998). However, the present sample has enabled us to carry this comparison one stage further. While critics (for example, Chan, 1998, 2001) have argued that existing Chinese unions have a state-controlled monopoly, cannot bargain freely and do not have the right to strike, the evidence we have presented allows us to conclude that, despite these obvious limitations, Chinese unions are sometimes able to in uence the outcomes of labour disputes positively and to protect workers’ interests. Overall, however, we would have to conclude that Chinese unions function more as an offshoot of the HR department, and are primarily concerned with supporting managerial interests. To the extent that concern for worker welfare and morale, particularly in JVs, does not con ict with the functioning of an ef cient production unit, then these are also legitimate concerns of the trade union.


We should like to acknowledge the help given to us in carrying out the eldwork by Zhang Qiang, research assistant CEIBS, Shanghai.


1 The sixteen national industrial unions include the Railway Workers’ Union, the Civil Aviation Workers’ Union, the Seamen’s Union, the Postal and Telecommunications Workers’ Union, the Machinery and Metallurgical Workers’ Union, the Petroleum, Chemical and Pharmaceutica l Workers’ Union, the Coal Miners’ and Geological Workers’ Union, the Water Conservancy and Electrical Power Workers’ Union, the Construction and Building Materials Workers’ Union, the Light Industry Workers’ Union, the Agricultural and Forestry Workers’ Union, the Financial and Commercial Workers’ Union, the Banking Workers’ Union and the Educational Workers’ Union. For detailed description of the structure of the ACFTU, refer to Ng and Warner


2 According to ACFTU’s constitution, the major sources of trade union funds come from membership dues, an amount equal to 0.5 per cent of a worker’s monthly wage, and appropriations contributed by enterprises that are equivalent to 2 per cent of total payrolls of all employees. Large organizations tend to have more resources than small ones.

3 The average level of unionization in SOEs generally was probably about 90 per cent, but in FIEs it was generally much lower. According to ACFTU, 54,000 FIEs or three quarters of the eligible ventures, were unionized by the rst quarter of 1998. See China Business Informatio n Network, New York, 20 July 1998.

4 The Workers ’ Congress, with the trade union as its working body, is the basic form of democratic management in Chinese enterprises. It has the rights, according to the Labour Law, to participate in board meetings, be involved in major decisions on long-term plans, and approve or reject wage reforms and bonus schemes. It may also appraise and supervise the leading administrative cadres at various levels of the enterprise .

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wage discrepancies between workers in FIEs and SOEs that might demoralize lower-paid workers in SOEs and trigger discontent and instability. See Ding (1997).

6 Pushing forward the system of equal consultation and collective contract is the basic right and duty granted to the trade unions by China’s laws and the focal point of the current work of the ACFTU as well. See ‘Union will promote collective bargaining ’, Southern China Morning Post, 1 December 1998.

7 The reform of social security system in China in the 1990s was focused on the establishmen t of a national social insurance system with contributions from three tiers: the state, the enterpris e and the individual employee. The new system is expected to provide a safety-net for employees , particularly in the case of ailing SOEs, in the event of their employers going bankrupt. See Ding and Warner (1999).

8 The exchange rate was approximately RMB8 to US$1 at the time.


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