Analysis of labour unrest by Bloomberg, AP and Reuters

China Labour Bulletin is quoted in the following articles. Copyright remains with the original publisher.

Bloomberg Businesswek: Honda Workers Bypass ‘Toothless’ China Unions, Fueling Strikes
Associated Press: China takes hands-off approach to labor strikes
Reuters: Q+A-What does China's labour unrest mean for foreign companies?

Honda Workers Bypass ‘Toothless’ China Unions, Fueling Strikes

30 June 2010

When Huang Fengxia and her co-workers at Honda Lock Co. (Guangdong)’s factory in Zhongshan, China, decided to strike on June 9 for higher wages, the last person they considered contacting was their labor union representative.

“I have no idea what a labor union is or what they do,” said Huang, 26, whose one yuan ($0.15) monthly union membership fee gives her no access to collective bargaining, just a twice- yearly 200 yuan gift voucher during Chinese festivals. “It’s like a school club.”

Strikes at plants of Japanese automakers Honda Motors Co. and Toyota Motor Corp. mark an escalation in labor disputes in China, the world’s biggest manufacturer after the U.S., as a dwindling supply of cheap rural labor pushes up wage demands. With no effective labor unions to negotiate with to head off stoppages, China’s factories face increased costs and lost production, said Mary Gallagher, director of the Center for Chinese Studies at the University of Michigan.

“These disputes are troublesome for employers and employees because they require time and money to resolve,” said Gallagher. “If there was an apparatus that allowed for collective bargaining and negotiation, we might see a decline or stabilization in labor disputes.”

Profit at Honda may be cut by as much as 10 billion yen ($113 million), after Japan’s second-largest carmaker suffered the worst strikes in its 18-year-history in China, Goldman Sachs Group Inc. said. At least 10 suicides at Foxconn Technology Group, the maker of Apple Inc. iPhones and Hewlett-Packard Co. computers, led the Taiwanese electronics company to double wages for its lowest paid employees in Shenzhen.

‘Toothless’ Unions

“Historically, China’s labor unions have been rather toothless,” said Li Qiang, founder of China Labor Watch, a New York-based labor advocacy group. “When Honda factory workers went on strike they had no intention of using the union to negotiate. Workers had no idea about the concept.”

The All China Federation of Trade Unions, which represents China’s 169 registered labor unions, is closely affiliated to the government, hindering its efforts to win concessions and higher wages, Li said. The federation, founded in 1925, uses “the Constitution of the People’s Republic of China as the fundamental criterion for their activities,” according to its website. A spokesman for the federation said it “represents the interests of the Chinese workers” and was not a government agency.

Labor organizations in the West such as the Detroit-based United Auto Workers union and the U.K.’s Trades Union Congress operate independently of the government and hire their own lawyers to advise on labor issues.

‘Huge Opportunity’

“The workers are crying out for proper representation,” said Geoffrey Crothall, China Labour Bulletin’s Hong Kong-based spokesman, in a Bloomberg Television interview. “If the union wanted to get involved and act in the workers’ interests, now is the time.”

During Honda’s second China strike at Foshan Fengfu Autoparts Co. in Foshan on June 7, plant workers demanded the right to elect their own union representatives as part of an agreement to end the stoppage.

Investment in western China is deterring workers from migrating, pushing up pay in more industrialized regions like Guangdong, said David Abrahamson, Project Manager in Shenzhen for the China Center for Labor and Environment. Today, Shenzhen raises its minimum wage to 1,100 yuan a month from 900 yuan.

China Wages

Most Honda line workers are hired from local technical schools and their average wage is about 4,000 yuan ($586) a month, including overtime, the company said in April. That compares with an average of 357,324 yen ($3,800) for Honda’s workers in Japan.

Toyota, the world’s largest carmaker, stopped production twice in China as strikes at suppliers in Tianjin and Guangzhou disrupted operations.

“We and our suppliers are working toward improving and strengthening sharing of information about labor-related issues to resolve any problems as quickly as possible,” said Toyota spokeswoman Ririko Takeuchi in Tokyo.

Honda suppliers agreed to raise wages 24 percent at its factory in Foshan after the first strike shut all four of the carmaker’s factories on the mainland. Yoshiyuki Kuroda, a Tokyo- based Honda spokesman, said the company was not in a position to comment on the role of unions in China.

“Having a more organized and stronger collective voice among labor is a good thing,” said Bill Russo, a Beijing-based senior adviser at Booz & Co., which advises automakers and investors. “The closer the co-ordination is among individuals, the easier it is for business to speak and manage a more effective relationship with the large number of employees.”

Press Watchdog

China Labor Watch’s Li said development of effective unions is hindered by corruption and the absence of a critical press. Berlin-based anti-graft watchdog Transparency International ranked China 79th out of 180 countries in its Corruption Perceptions Index last year, on par with Burkina Faso.

“In places such as the U.S., where the press acts as an external watchdog for worker unions, there is much more transparency,” said Li. “In China, the press is government- linked, there is no such supervision.”

Collective bargaining organizations will take time to mature, said Huang Yasheng, a professor at the Massachusetts Institute of Technology’s Sloan School of Management in Cambridge, Massachusetts. He cited the evolution of labor unions in Singapore and Korea in the 1960s and 1970s.

“Eventually both countries transitioned out of the active curbing of the unions,” said Huang in a June 18 e-mail. “The issue for China, is that the country should have grown out of this restriction 10 years ago.”

--Liza Lin in Singapore, Stephanie Wong in Shanghai. With assistance from Christine Hah in Hong Kong, Makiko Kitamura in Tokyo and Alfred Cang in Shanghai. Editors: Adam Majendie, Bret Okeson.


China takes hands-off approach to labor strikes
By TINI TRAN (AP)
26 June 2010

BEIJING — When workers at a Honda transmission plant in China went on strike for higher wages last month, they touched off a domino effect of high-profile labor disputes.

As the strikes, many of them at foreign-owned plants, rippled through China's southern manufacturing heartland, the government — usually quick to crush mass protests of any kind — did not step in, but allowed them to spread.

That's because it views the strikes less as a political threat these days than as an economic tool — a way to help restructure China's current export-driven economy to a more self-sustaining one, driven by ordinary people with more cash to spend.

The demand for higher wages reflects a younger, savvier work force that is better organized and has higher expectations, labor experts say.

Boosting wages fits in with Beijing's strategy of closing the income gap and promoting more equal growth in coming years, said Liu Shanying, an analyst at the Chinese Academy of Social Sciences' Institute of Political Science in Beijing.

"If incomes won't go up, how can domestic demand be boosted? Strikes for better pay are very much in line with the big trend of Chinese economic development," he said.

The authoritarian leadership sees the gulf between rich and poor as a threat to Communist Party rule and has cited widening income disparities as a factor in the protests. Policies aimed at raising incomes for working-class Chinese and promoting more equitable growth are a priority for the next five-year plan, which the government is drafting now.

Despite moves by the government to raise wages, they remain strikingly low. Workers' salaries as a share of China's economy have declined for the last two decades, dropping from 57 percent of gross domestic product in 1983 to just 37 percent in 2005.

The minimum monthly wage in southern Guangdong province was increased in March to between 920 yuan and 1,030 yuan ($135-$150) in the capital of Guangzhou and cities in the Pearl River Delta manufacturing base. Elsewhere, it is as low as 660 yuan ($95).

While China has taken a less confrontational approach toward striking workers, the workers also have helped, generally keeping their demands limited and not calling for national independent unions, which are banned. Police intervention has been rare unless protests spilled into public roads and areas.

"For several years now, the central government in Beijing has seen labor disputes to be just that — disputes between workers and management. They are not related to culture, religion or politics. They are pure economic disputes and should be dealt with as such," said Geoffrey Crothall, spokesman for the Hong Kong-based China Labour Bulletin, a worker advocacy group.

"We're not seeing the systematic repression of organized labor that we saw 10 years ago," Crothall said, noting that labor organizers used to be singled out for lengthy jail terms but in recent years have been given one or two years.

Striking workers in the recent unrest have helped their cause by largely remaining calm and staying out of the streets, said Liu.

"If the tensions get resolved in a peaceful and reasonable manner, why not take a free ride on it?" Liu said. "After a series of mass incidents, the government has learned this the hard way. Now it won't go and confront. If the workers are right, why should the government play the bad guy?"

China has been wary of the increasing number of "mass incidents" in recent years — large-scale social protests often aimed at government corruption or illegal land confiscation.

There were about 127,000 protests in 2008, according to a China Labour Bulletin report released last year. Roughly one-third are believed to be labor-related, according to Crothall.

Because China does not release official data on the number of strikes that occur annually, there is no way to say for certain whether the recent rash of labor unrest marks an increase from previous years, said Chang-Hee Lee, a specialist on industrial relations at the International Labour Organization's Beijing office.

Domestic media are often barred from reporting on labor strikes, so the recent surge in coverage by Chinese media is noteworthy, he said.

"We see many more reported cases of strikes in the Chinese media. We don't know if it's increasing, but what we do know is that the nature of the strikes are changing," Lee said.

The spiraling labor unrest poses a problem for Japanese companies that shifted production to China in the hopes of taking advantage of lower labor costs. Toyota Motor Corp. and Honda have repeatedly halted production at their car assembly plants in southern China since mid-May after parts suppliers were hit by strikes.

The protests have served to highlight a more effective, organized work force. Unlike past years, when the mostly migrant work force protested over blatant violations, Chinese laborers now are fighting for improved working conditions and higher pay beyond their basic rights.

That change reflects the attitudes of a younger generation who were raised in an era of relative plenty compared with the poverty and unrest their parents and grandparents knew.

"They are negotiating for their interests and not for their rights — it's a very different set of stakes," said Anita Chan, a labor expert at the University of Technology in Sydney.

"Normally, all the strikes that happened in this part of China in these kind of Asian, foreign-funded factories tended to do with violations of rights — wages not paid properly or paid at all or cheating of wages," she said.

One reason behind the more assertive work force is a shifting job market since China pumped up its economy with massive stimulus spending to fend off the global recession. Manufacturing has begun to expand into the Chinese interior, leaving traditional industrial enclaves on the coast competing for labor and giving workers a stronger bargaining position.

Workers "have the upper hand, and also sense the government is trying to address inequalities, so the workers feel more comfortable in pushing for high wages," said Lee.

He attributes some of the new worker awareness to the debate that surrounded passage of a 2008 labor law regulating contracts, layoffs and other conditions. China sought public input on the drafts before passage.

"They received 190,000-something public comments and it created huge debate in the Chinese media. Though workers didn't know every detail, they understood that this law provided better protection," he said.

In the recent string of strikes, workers are seeking not simply higher wages, but salaries more in line with what their overseas counterparts are paid, said Lee. They also demand more vocational training and reforms so that their salary and status can rise the more years they work, he said.

"I was surprised to see the degree of sophistication in their demands," he said. "My sense is they are much better organized."

Associated Press researchers Zhao Liang in Beijing and Ji Chen in Shanghai contributed to this report.


Q+A-What does China's labour unrest mean for foreign companies?

June 25 (Reuters) - A burst of strikes in south China has disrupted production at auto makers Toyota and Honda, showing how the country's workers are becoming more assertive in seeking improved wages.

Here are some questions and answers about what this could mean for foreign companies operating in or sourcing from China.

HOW SERIOUS ARE THE STRIKES?

So far the high-profile strikes have mostly hit parts suppliers for vehicle plants run by Japanese companies and their local joint-venture partners, and have been settled after talks over a few days. That's a sliver of a vast workforce.

The ruling Communist Party is wary of wider unrest that could erode its grip on power, and would quickly seek to snuff out any signs that these strikes were igniting wider confrontation.

But the copy-cat chain of strikes shows a workforce that is becoming bolder, and that may prompt some companies to pre-emptively raise wages.

"The strikes have been concentrated in a few areas and companies, but there are broader pent-up problems," said Chang Kai, a labour relations professor at Renmin University in Beijing who advised workers striking at a Honda parts factory.

"Rather than just focus on the strikes, we need to address the broader problems," he said.

SO WHAT DO THE STRIKES SHOW?

The strikes are a symptom of a broader trend that many investors will have to consider: a Chinese workforce becoming more assertive and selective, and sometimes inclined to protest by strikes, slow-downs and, most often, quitting.

Government numbers show that registered labour disputes have been rising.

The recent strikers have mostly been members of China's 150-million strong migrant labour workforce, which flows from villages to cities and industrial regions looking for work.

Younger migrant workers are becoming more demanding about job conditions. They see their futures in the cities, not in farming, and feel the pressure to save up money despite rising costs.

They are also gaining more bargaining power as the flow of potential job seekers tightens, because of wider opportunities and fewer entrants into the workforce as the population ages.

SO IS THIS THE END OF CHINA AS A CHEAP PRODUCTION BASE?

Labour costs in China have been rising anyway and, partly encouraged by a government that wants to turn farmers and workers into more confident consumers, that is likely to continue.

In itself, that trend will not dislodge China as a dominant player in manufactured exports. Labour costs remain a fraction of the cost of goods made in China.

But rising overall costs, and the risk that strikes could force sudden jolts in wage levels, could prompt more companies to move production from crowded coastal regions to cheaper inland parts of China, or to other low-cost manufacturing countries such as Vietnam.

"China is still an attractive option for most companies looking for an effective manufacturing base, although many companies have been pursuing a China plus one or a China plus two strategy in recent years to diversify their manufacturing operations," said Geoffrey Crothall of the China Labour Bulletin in Hong Kong, which advocates for improved workers' rights. "I really don't think we're going to see companies suddenly leaving China en masse."

WHAT ABOUT SUPPLY CHAINS?

Honda and Toyota have both been forced to temporarily suspend vehicle assembly plants in China, because strikes at suppliers choked off the flow of parts.

Their tight supply chains, modelled on the "just-in-time" system, exposed them to disruption, said Wen Xiaoyi, a researcher at the China Institute of Industrial Relations in Beijing who studies labour relations in China's automotive sector.

The risk of such disruption may prompt some companies to reconsider inventories management and diversity of suppliers, said Wen.

Vincent Chen, an analyst at Yuanta Securities in Taipei, said foreign tech manufacturers in China typically have about three to four weeks of inventory, which should last them through a strike.

"The biggest fear right now for brands is what is going to happen if one of their weaker suppliers gets hit," said Chen. "For the tech industry, all the suppliers depend on one another, and it takes just one weak link and companies will then be unable to get their product out to customers."

But Nissan's CEO Carlos Ghosn said this week he did not see any reason to change the way inventory is held at Chinese plants. Other vehicle makers have echoed his view, saying strikes are just one of many contingencies that could disrupt supplies.

WILL THE GOVERNMENT STEP IN MORE?

The outburst of labour unrest could prompt the central government, wary of unrest spreading, to become more energetic about wage and labour standards, which have been patchily enforced by local officials worried about deterring investors.

Premier Wen Jiabao has said migrant workers deserved better.

The unrest could also boost government efforts to encourage more systematic collective bargaining between workers and managers to determine wages and conditions. Official unions will remain kept under the thumb of the government, but at the factory level they may become more insistent on workers' demands.

The Communist Party will remain staunchly opposed, however, to the idea of independent unions.

(Writing by Chris Buckley; Reporting by Chris Buckley in BEIJING, Kelvin Soh in HONG KONG, Chang-Ran Kim in TOKYO; Editing by Lincoln Feast)
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