Is Social Security the 'Solution' to the Labour Protests in North-Eastern China?

Reprinted with permission of ICFTU-Hong Kong Liaison Office


In March and April of this year, tens of thousands of workers joined protests in North-Eastern China. At its peak, there were an estimated 50,000 workers protesting in Daqing, Heilongjiang Province, and 30,000 workers from more than 20 state-owned enterprises (SOEs) in Liaoyang City, Liaoning Province. These protests, which were widely reported in the foreign press, are already well known outside China. Also well known is the government's violent response: police and soldiers were deployed to end the protests and workers' leaders were arrested (The most recent arrest in Liaoyang occurred as recently as 16 April). Despite this, many observers within China and overseas have focused attention on the move by the central and provincial governments to pacify workers through the payment of social security benefits.

As local officials disbursed 'emergency' payments to protesting workers and the central government declared its commitment to increase social security spending, more and more mainstream press reports have shifted attention away from the mass protest actions to the issue of social security itself. Premier Zhu Rongji's statements at the National People's Congress (NPC) and assurances by the Finance Minister, Xiang Huaicheng, that the central government will increase its spending on social security are cited as evidence of the 'social security solution.'

The emphasis on social security reinforces official claims that an inadequate, under-developed and under-funded social security system was the underlying cause of the protests. Given the fiscal deficits facing both central and provincial governments and the tremendous changes taking place in the social welfare system, it is argued that workers were demanding too much, too soon. More importantly, this line of argument led to the conclusion - expressed implicitly and explicitly in recent reports - that increased government spending on social welfare and a more efficient, effective social security system will satisfy workers' demands. For example, on 21 March Liaoyang Daily reported that the local government paid 50% of wages owed to the workers from the Liaoyang City Ferro-Alloy Factory. (Notably it was workers from this factory who led the protests). In total, 1,421 workers received Rmb 10,000 (US$1,250) each, while another 670 xiagang (off duty) workers were promised that they would be paid overdue living allowances. In addition, it was reported that the pensions owed to 814 retired workers would be disbursed in the coming month.

Some observers argue that this demonstrates the fact that if the central and provincial governments build a more effective social security system, then the kind of labour unrest seen in recent months will decline. This argument - promoted both within and outside China - is slowly gaining acceptance overseas, even among trade unions. The question remains, however, whether the 'social security solution' really is a solution from the point of view of workers. The key to this lies in a more critical understanding of the labour protests and the government's reaction.

1. The 'social security solution' fails to recognize workers' demands

There is no doubt that the demand for payment of overdue pensions, wages and compensation was a key issue in the Liaoyang and Daqing protests. When more than half a million SOE workers were laid-off in Liaoning Province last year they were entitled to receive Rmb 10,000 (US$1,250) from the government and Rmb 10,000 from their employers. However, the workers never received their compensation payments. In addition to this, the majority of the province's 6.8 million SOE workers have not been paid for several months - some for as long as 2 years.

During the protests journalists interviewed workers about the hardship faced by their families. One SOE worker pointed out that his monthly xiagang stipend of Rmb 215 (US$27) has left his family destitute: "It's not enough for three people to live on, even if you just eat corn gruel every day." [The New York Times, March 20, 2002] Most reports on the protests carried photos depicting former SOE workers standing on street corners with signs around their necks listing their job skills. Reports from Daqing also described how workers resorted to selling their blood in order to meet their basic needs. [Ming Pao, March 15, 2002]

It is clear then that the immediate payment of overdue pensions and wages was a major demand when workers took to the streets in early March. This in turn supports the notion that the need for increased social security benefits lies at the heart of the matter. However, four points of clarification are necessary:

(i) Workers were demanding that pensions, wages and living allowances owed by SOEs and their relevant government departments be paid according to their redundancy agreements. In other words, they were demanding money from their (former) employers - money that they are entitled to. This is their right and it was expressed as such. What this suggests is that workers were not simply demanding any amount of money from anyone, but a very specific amount owed by their (former) employers. As noted above, workers in Liaoyang City were entitled to Rmb 10,000 from the government and Rmb 10,000 from the enterprise when they were made redundant. Yet the 1,412 workers who were paid off on 20 March only received Rmb 10,000 from the government. The company simply did not pay. This highlights a crucial distinction between unpaid wages, pensions and living allowances on the one hand, and social security benefits provided by the state on the other. Regardless of whether the state pays out more social security benefits, workers are still demanding what they are owed. The political nature of workers' demands vis a vis their former employers is an important issue ignored by those advocating social security as a panacea. Even the management has recognized that this is a crucial issue. At the height of the protests Cao Zhengyan, a PetroChina representative, declared that: "They no longer have anything to do with us."[HK iMail, March 15, 2002] It is this attempt to break any ties with the protesting workers that reveals the underlying conflict. In this context, social security benefits paid by the state help to break this link, freeing enterprise managers from any accountability.

(ii) This is even more significant when we consider how workers expressed their demands. In every case, workers combined their demand for unpaid, wages, pensions, etc, with condemnation of corruption among officials and SOE managers. The delays in payment and non-payment were clearly attributed to the fact that managers had stolen funds. (In one instance workers accused 16 managers at the Liaoyang City Ferro-Alloy Factory of stealing US$640,000 in enterprise funds.) This is clearly where a lot of the money went. So workers were going unpaid and living in poverty not simply because enterprises were bankrupt, but because corrupt managers and officials had appropriated the money and forcibly bankrupted the firm. In the case of the oil field workers' protests in Daqing this was even clearer. PetroChina, the state-owned conglomerate operating the Daqing oil fields, bought Devon Energy Corp.'s Indonesian operations for US$216 million last year and yet the retrenched workers are still not receiving their wages according to their redundancy agreements.

(iii) The relationship between unpaid wages, bankruptcy and workers' criticism of corruption is important if we are to understand the protests. Workers demanded the resignation of those local officials who they saw as responsible for destroying their jobs and stealing the funds needed to pay their wages and pensions. One of the key demands was for the investigation and indictment of these officials. In petition letters, declarations and protest banners officials such as Gong Shangwu, head of the city's People's Congress and a delegate to the National People's Congress (NPC), were singled out for their corruption.

(iv) It is also clear that the demands for unpaid wages, pensions and/or living allowances were expressed along with several other demands. There is no evidence that the demand for money was any more important than these other demands. At best, the 'social security solution' is a partial, limited response to a much broader set of political, economic and social demands.

2. The 'social security solution' fails to recognize workers' priorities

Another important issue concerns workers' priorities. The view that the extension of social security benefits constitutes a 'solution' is premised on the assumption that the receipt of money was the top priority of the protesting workers. Yet even a brief examination of the workers' banners and slogans, the text of protest letters and the chronology of events reveals that workers had far more important priorities.

On March 4 and 5, the Liaoyang Bankruptcy and Unemployed Provisional Union, which brought together elected workers' representatives from 20 factories in the city, issued an open letter expressing their demands. Copies of this letter were posted on factory gates and walls throughout the city and photographed by journalists from Ming Pao newspaper: "The demands stated in these letters included: the resignation of the head of the city's People's Congress; freedom in Liaoyang city; that the provincial mayor conduct a personal, unofficial investigation into corruption." [Ming Pao, March 28, 2002] * Click here to see the full translation of this feature article.

When the protest began more than 5,000 workers marched to the head office of the provincial government to demand the resignation of Gong Shangwu, head of the city's People's Congress and a delegate to the National People's Congress (NPC) held last week. The protesters accused the People's Congress head of failing to protect the rights and interests of workers.

On 17 March, the leading workers' representative, Yao Fuxin, was arrested. This prompted more workers to join the protest, reaching a peak of 30,000 on 18 March. If we consider the chronology of events, it is evident that a vast number of workers took to the streets to protest Yao Fuxin's arrest. This suggests that workers were fighting to defend their representatives and were not simply demanding social security benefits from the state. Photos of the demonstrations very clearly show banners held by workers marching on March 18-20, which read:

"We demand the government release our man!"

"The army of workers must have food and jobs"

"Dismiss Gong Shangwu, Liberate Liaoyang"

A similar dynamic was evident when 2,000 workers from the Liaoyang City Ferro-Alloy Factory protested in May 2000. On the first day their banners read: "Demanding unpaid wages is not a crime!" On 16 May, hundreds of police attacked the workers with batons and arrested three organisers. When the workers regrouped and continued the protest, their banners read: "Release our representatives!"

3. The 'social security solution' ignores the other side of the government's 'carrot and stick' response

In several press reports there are references to the government's "carrot and stick" approach. Such references are so common that those promoting a 'social security' perspective appear to have deliberately ignored the other half of the government's response. While partial payments to workers and promises that overdue pensions will be paid constitute the 'carrot', the deployment of armed police and military troops to intimidate and harass the protesting workers and the arrest of workers' representatives constitutes the 'stick.' Even as the Liaoyang city government made token payments to a handful of workers on 20 March, it declared the protests illegal and arrested 3 more workers' leaders. Hundreds of armed police clashed with protesting workers. On the same day paramilitary police moved in to disperse protesting oil workers in Daqing, as the protest entered its third week. As troops moved into position around the city, about 300 armed military police were deployed outside the headquarters of the Petroleum Administration Bureau. This use of force was a clear signal that negotiations were impossible. The stick loomed much larger than the carrot.

This use of violence by the government reveals a fundamental flaw in the argument that this struggle originated in and can be resolved by 'social security.' The fact that workers' right to demonstrate is - and continues to be - suppressed shows that the promise of social security benefits is made without recognizing the legitimacy of the workers' claims. More importantly, so long as workers cannot choose their own representatives and organize collectively to express their demands, any social security policies that are formulated will not reflect workers' interests or be responsive to workers' needs. Such policies will only be determined by the need to provide enough social welfare to prevent social unrest (thus protecting the existing political order), and to ensure an adequate supply of productive labour for employers.

The social security 'carrot' loses its credibility when seen in the light of the government's strategy of containment and repression. Denying workers the right to democratic representation is a key element in this strategy. Workers were clearly conscious of this when they criticized the failure of the official unions under the All China Federation of Trade Unions (ACFTU) to represent their interests. According to interviews with workers in the Chinese-language Oriental Daily (March 19, 2002), workers were "spitting on the official unions" for failing to fight for their rights. As one worker commented: "We can't go on living like this, and nobody is listening to us. We can't take our problems to the official trade unions. They are the Communist Party's unions, not ours."

This failure on the part of the ACFTU was not accidental. The ACFTU's newspaper, Workers' Daily, refused to report on the labour protests in Liaoyang, let alone the arrest of independent trade union leaders. As the journalist John Gittings concluded:

"The pages of the Workers' Daily, the voice of the All China Federation of Trade Unions which claims 130 million members and is the only body authorised to speak for industrial labour, provide the negative answer. The Workers' Daily's silence has been so complete that the name of Liaoyang has not surfaced in any context at all since the protests began. However, it had earlier published a brief report, now damning in retrospect, which claimed success for industrial relations there. The Workers' Daily said in January that a pilot scheme in the city to reform social security had made 'a great breakthrough' in tackling a problem which dated back for many years." [The Guardian, April 2, 2002]

4. The 'social security solution' fails to recognize that Liaoning is upheld as a model

Praise for Liaoyang's social security reforms in the ACFTU's Workers' Daily points to another important weakness in the 'social security solution.' The fact is that Liaoning Province, where Liaoyang City is located, already has an extensive social security system in place. This system is promoted by the central government as a model for other provinces.

In June 2000, the new three-tier Liaoning Provincial Social Security Network, involving the Industrial and Commercial Bank of China's Liaoning branch, was launched. This new scheme covers pension funds, medical insurance, unemployment insurance and public provident funds for housing. Despite claims by the ACFTU that this reflects workers' interests, the burden on workers is high. About 7 million SOE workers are required to pay 20% of their monthly wages into the funds managed by the Liaoning Provincial Social Security Network. Although officials justify this burden in terms of the 3 million pensioners that must be supported in the province, last year only 8% of pensions were actually paid.

An indirect burden on workers is that social security funds are also raised through the sale of state assets. As Zhu Rongji declared on December 17, 2001, the sale of state assets will "enrich the social security reserve". Yet the sale of state assets includes the privatization or forced bankruptcy of SOEs, which again contributes to the destruction of jobs in the state sector. At the same time, workers face an increasingly vulnerable future as 40% of the Social Security Fund is invested in the stock market. Without a genuinely democratic form of representation, workers have no way of preventing corruption, speculation and financial instability from eating away these social security funds.

Last year 510,000 workers were laid-off from SOEs in Liaoning. The retrenched workers were told they would receive Rmb 20,000 as compensation, with the government paying half and the enterprise paying the other half. Yet the money has not been forthcoming and the majority of workers can only get payment in kind (paper, bicycle parts, and other surplus stock). Despite the failure of the social security system and lack of compensation for laid-off workers, the government has announced that another 800,000 workers will be dismissed in 2002. Since the xiagang system of 'off duty' status will no longer continue, all of these workers will become officially unemployed.

The government has responded by treating unemployment as a temporary phenomenon, placing emphasis on retraining and re-employment. This reflects a false assumption underlying social security policies whereby exaggerated prospects for new employment mitigate the need for long-term job creation or livelihood protection. In another city in Liaoning Province, Fuxin, the closure of coal mines this year will affect 400,000 miners and their families. Already the closure of three mines last year left 100,000 miners jobless. The city government claimed that through "training and re-employment" more than 100,000 would find employment in agriculture over the next 5 years. This is despite declining farm incomes, rural displacement and falling agricultural prices.

The gap between official policies and the realities faced by workers continue to widen, fuelling further protests. In November 1999, when the expansion of the unemployment insurance scheme was announced, the Ministry of Labour and Social Security dismissed claims that it had underestimated unemployment levels and reported that in the previous year 99% of all xiagang workers (some 6.1 million SOE workers) were re-employed. [Zhongguo Jingji Shibao (China Economic Times), February 26, 1999] Absurd claims such as a 99% success rate in re-employment - at a time of massive unemployment - are precisely those political statements targeted by workers in their demands against the government. [ See: Box: China's False Economic Data and its Social Consequences]

This was also the case in Liaoyang City in March. At the opening of the National People's Congress (NPC), Gong Shangwu, who for the past 7 years served as Liaoyang's mayor and head of the local Communist Party branch, and is now chief of the local legislature, told a Liaoyang TV reporter that "there are no unemployed in Liaoyang." In those few words Liaoyang's 60% unemployment rate was wiped out and a glowing report on the city's economic success followed. No wonder Gong Shangwu had a banner in his name when thousands of workers took to the streets!

5. Conclusion

At issue here is not social security as a policy or as a budgetary allocation, but as part of the fulfillment of a fundamental right - the right to livelihood protection. The only way to ensure this right is realized is through active workers' participation in a political environment where their collective bargaining power can be expressed freely. This requires freedom of association. Moreover, when the right to livelihood protection is undermined or violated, then workers must be able to defend this right. In doing so the right to freedom of expression and freedom of assembly is essential.

It is therefore wrong to present social security or social safety nets as evidence of a positive response by the government or as an acceptable means of resolving labour conflict. So long as the demonstrations by workers in recent months are declared "illegal", and their elected representatives imprisoned, no amount of social security benefits or promises of better social welfare protection is acceptable.

Put simply, if the problem is political repression, corruption, the destruction of jobs, increasing inequality, and the systematic denial of workers' rights (including the right to livelihood protection), then the 'social security solution' is no solution at all. In fact, so long as social security is used as a strategy of containment, then it can only be part of the problem.

Hong Kong Liaison Office

April 24, 2002

IHLO Updates on workers protests in Daqing and Liaoyang

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