Wage Arrears Fuel Discontent

John Chen

Restructuring the employment remuneration system has been an integral component of China's economic reforms which began in 1978-9. The driving force underpinning these changes has been the return of foreign and overseas Chinese capital to the mainland and the pervasive influence this has had on the Chinese economy in general and industrial relations in particular. By the early 1980s, foreign investors had already made it clear that they could not operate within the restrictions of what was then known as a 'low wage high welfare' (di gongzi gao fuli) system of remuneration in which non-pecuniary subsidies from government and employers could represent as much as 122 per cent of a worker's overall pay packet. (1) The government listened and a series of reforms, culminating in the Labour Law of 1995, have gradually tied wages to enterprise performance and individual productivity as opposed to seniority and experience. The net result has been a dramatic rise in average cash remuneration and an equally dramatic drop in overall work place benefits such as housing, pensions and medical care.


But this is by no means the whole picture. Wage and salary statistics have generally ignored the fact that millions of workers are being hit by wage arrears. Despite the fact that the press in China has been carrying often-dramatic reports of the consequences of unpaid wages - ranging from strikes and lawsuits to suicide and kidnapping - the problem is getting worse. According to one Chinese legislator attending the National People's Congress (NPC) of March 2001, non-payment of wages is "a chronic issue [that] has become intensified in recent years."

The Problem

Lam and Regulations


Hope in Sight

Strike Back!

Early Warning System

Pilot Regulations

The Problem

In his report to delegates attending this year's NPC, Finance minister Xiang Huaicheng acknowledged that wage arrears carried over from 2000 stood at Rmb 6.5 billion. While the problem has not reached the scale that exists in the former Soviet Union, which stood at US$8 billion and rising in 1998 it is one of the main factors behind the labour unrest that has become a characteristic of labour relations in China. (3) For example, the settling of unpaid back pay was a demand of tens of thousands of highly organised and protesting workers in the cities of Liaoyang and Fushun in the province of Liaoning earlier this year. Wage arrears in the Liaoning are the highest in the country and at the end of 2000 stood at Rmb 4.3 billion owed to 1.8 million workers from 7,644 enterprises. (4) Heilongjiang province, itself a location for labour protests by tens of thousands of former oil workers in the city of Daqing, has the second highest figures for wage arrears with Rmb 4 billion owed to 1.34 million workers from 5,949 enterprises. (5)

But the problem is not restricted to these older industrial regions where declining and bankrupt state-owned enterprises have reduced millions of workers to penury. The special economic zones (SEZ) that have driven China's growth over the last twenty years are also plagued by wage arrears. Shenzhen city in south China was one of China's earliest SEZs and the experiment has transformed a once small fishing village into a large and dynamic city. Yet in the first 11 months of 2001, the Shenzhen Municipal Labour Bureau received 12,577 complaints from employees, of which 42 per cent where directly related to wage arrears. (6) The sectors that are most commonly affected are construction, restaurant, toy and garment. (7) Research by non-mainland academics has confirmed this state of affairs. One researcher surveying the town of Dongguan in Guangdong province found that wage arrears were near universal and that "[A]ccording to informed officials and factory managers, the illegal retention of workers' wages for between one and three months exists in 80 per cent of foreign-financed firms." (8)

Nor is the problem limited to blue collar factory workers. Teachers, government clerks and perhaps most worryingly for the Chinese government their own government cadres, who are more often than not loyal Party members, also go for months without wages. During numerous discussions with cadres from labour bureaux and other government officials over the problems of wage and pension arrears and the street protests that they often lead to, it has transpired that the officials we are talking to have also not been paid for months. (9) Earlier this year, a survey of 36 towns in five provinces and the giant municipality of Chongqing found that between 50 and 70 per cent of counties were failing to pay government employees and cadres in full and on time. (10) (back)

Laws and Regulations

Article 50 of China's labour law is the only clause that deals directly with employers not paying their workers on time. It is extremely vague and merely states:

"Wages shall be paid monthly to labourers themselves in the form of cash. The wages to be paid to labourers shall not be embezzled nor the payment thereof delayed without justification" (11)

There are also a number of other regulations but these appear to give the employer more power to delay wages rather than shore up employees' right to prompt remuneration in cash. A set of temporary rules regarding wage payments is still referred to by the courts and Labour Disputes and Arbitration Committees (LDAC) even though they are now over seven years old. (12) While Article 18 of these regulations state that wages may not be "deducted or delayed without justification", supplementary additions to these rules brought out by the Labour Bureau in May 1995 seemed to stress the clear loophole for employers. Taking a lead from newly-introduced national Labour Law, the supplementary regulations made it very clear that wages could be delayed by a company if it was in economic difficulties and had obtained the permission of the trade union. (13) Given the fact that trade unions in China are not independent of the state, obtaining such agreement - where a trade union actually exists - has not proved to be an obstacle to employers whether public or private.

Some local conditions have been so blatantly pro-employer they have attracted scathing attention from the normally restrained Workers' Daily. The township of Xiqiao in Nanhai city Guangdong province is dominated by small privately owned factories mostly operating in the textile sector. The township is so notorious for wage arrears that the practice has been dubbed a "local custom". A lawyer representing workers chasing unpaid wages was told by a cadre at the town's labour bureau office, "we've got rules here in Nanhai that allow an employer to keep back one to two months wages." (14) Although Nanhai Labour Bureau denied the existence of such a rule, the town's reputation appears to be fully deserved.

However, there is growing pressure for a national wage law - currently stuck in the drafting stage - which will actively punish employers for indulging in such practices. This pressure is rooted in the recognition that financial difficulties are not the underlying cause of wage arrears but more often result from employers' deliberate malpractice, especially in companies employing young migrant workers who have just started work. A popular Guangzhou newspaper found that "the majority of cases of wage arrears were not caused by enterprises' financial difficulties but were deliberate management [policy]…young migrant workers fear that they will be sacked by the boss if they pursue their wages". (15) The invariable result, according to the paper, was that the length of wage arrears would build up until resentment reached the point when workers felt they had nothing to lose by organising a collective petition to the labour bureau or relevant government department.
The newspaper also described the considerable delays that the proposed legislation has been hit by and laments the fact that although trade union cadres, Guangzhou People's Congress delegates and worker representatives had been lobbying for the new bill since 1999, no local national legislation has emerged. (16) (back)



As has been pointed out, while it is true that many SOEs are in very poor financial condition, this is not the main reason that lies behind wage arrears in the state sector. Moreover, when factories face closure, China's bankruptcy law makes it clear that wage arrears should be a priority in the liquidation process. Proceeds from the sale of factory assets must be used first and foremost to clear the arrears. However, SOE managers have found it easy to bypass these stipulations. SOE assets are often sold off at knock down prices to local officials or businessmen with good contacts. In one city, nine SOEs with net assets worth Rmb 100 million at market prices were sold for just Rmb 9.63 million. (17) The problem has caused so much anger among China's workers that on May 29-30, 2002 a special conference was convened in Wuhan to address the issue. Conference participants declared that corruption and personal enrichment at the expense of workers was a major factor:

…a minority of leading cadres from [SOE] enterprises collaborate with directors from unlawful private enterprises or small company bosses for mutual profit, [resulting in] chaotic investments, subcontracting arrangements and loans in which they jointly embezzle and divert state assets and property. (18)

This statement almost directly echoes the observations of workers in Liaoyang protesting against unlawful bankruptcy and unpaid wages in an open letter to Jiang Zemin:

His close aides, friends and relatives were placed in company positions from which he could directly benefit. At the instigation of Liaoyang's former mayor and party secretary Gong Shangwu, Fan Yicheng set up a number of independent enterprises - such as the Ya Po Company, Pengejin Factory, and the Sai De Company - and arranged fictitious domestic and foreign links and contacts. These people worked hand in glove as a team to swallow up billions of yuan in national funds resulting in losses of tens of billion of yuan in state property. (19)

The top-level CEOs and government officials attending the Wuhan conference were no doubt lavishly entertained to help them reach their conclusion. In contrast, four representatives of the Liaoyang workers are currently in detention awaiting trial on charges of "illegal demonstration" for their conclusion. (20)

Bad Faith

If corruption and murky privatisation deals are factors underlying the problem in the state sector, routine late payment of wages appears to have been factored into industrial relations in the private sector. Bosses are well aware that workers do not have access to a strong independent trade union and have devised various strategies to make the best of this "comparative advantage". These include: demanding deposits from new employees - a form of wage arrears - designed to ensure a passive workforce; the deliberate holding back of wages before the Chinese New Year holiday - to make sure workers return after the break; temporarily laying off of workers during quiet times but refusing to pay outstanding wages until they return to the production line after orders pick up - to save on "training" and reduce staff turnover. While all of these tactics are illegal, the ACFTU has proved powerless to prevent them in the face of local government policies aimed at attracting investment and maintaining government revenue from company taxes.


There is also a growing body of evidence pointing to a direct correlation between wage arrears and health and safety, as CLB has found during their work on mining accidents. Countless interviews with mining bureau officials, health and safety inspectors, trade union cadres from the mining unions, miners and the relatives of miners who have died in accidents have demonstrated the link between the murderous state of health and safety in the industry - especially coal mining - and wage arrears. A recent interview with a miner from the Chengzihe coal mine in Heilongjiang province illustrates this sinister link between wage arrears and health and safety in the coal industry. Over recent years the Jixi Mining Bureau, which owns the Chengzihe mine, has been delaying wages to fully trained miners who have subsequently refused to work. Management's response has been to hire cheaper, unskilled, untrained, desperately poor farmers from the countryside. The farmers are given three days "training" before starting work. On June 20, 2002, a gas explosion killed 115 miners. When asked by CLB why experienced miners were refusing to work a miner with 16 years of experience provided a blunt and angry explanation:

"Most of the experienced miners have already left. It pisses me off. You work all month and come pay day they don’t pay up. Then they get outside people in and pay them instead. Surely it would be better to pay the original miners and keep them on? But that’s how they do things round here. It doesn’t make fxxking sense. They’ll lean on you and then you quit. The experienced miners have all left and the unskilled guys don’t have a chance – they’re stuck here!" (21) (back)

Hope in Sight

Beyond doubt, the situation remains grim and the statistics give us little room for optimism. Yet as has been the case throughout China's turbulent labour history, it is the actions of the workers themselves that is pointing the way forward. Collective action and organising to force employers and local government officials to take the issue seriously is producing results. Such actions often are viewed with sympathy by other workers - especially given the risks involved - and have compelled the drafting of a wage law currently making its tortuous way to the statute books. Pressure is growing for this law to be finalised and promulgated and experimental solutions and pilot regulations in at least two cities -- Zhuhai and Yichang -- are in operation.(back)

Strike Back!

At the beginning of this year workers from the Zengcheng City Restaurant in Guangdong province were owed various amounts of money dating back six months. Despite management attempts to sow division among the staff by making partial payoffs to some of the workers, two strikes took place and both remained solid, the second resulting in a partial, but concrete, victory. On January 21, 2002, three days into the second strike, workers lost patience with the owners of the restaurant, temporarily abandoned their picket line and marched to the local labour bureau demanding government intervention. Following negotiations, labour bureau officials arranged a partial compromise in which the owners agreed to pay 40 per cent of the amount owed which would be underwritten by the city government. The bureau also agreed to set up talks to get the rest of the debt settled. In reply, workers agreed to call off their strike. (22) (back)

Early Warning System

Pressure like this has forced some local governments into action. The city of Yichang in Hubei province has set up a wage arrears "early warning early reporting" system, which aims at solving the problem before the arrears build up into large debts that are much harder to resolve. The city's departments for wages and labour inspection have been given the power to identify enterprises that consistently hold back wages and to order such companies to set up a separate wage and salary bank account. Company funds for wages must then be prioritised and channelled directly into this account, the contents of which are to be used exclusively for payroll requirements. The head of Yichang's labour bureau has claimed, "the early warning system is a government initiative…that has proved effective in solving the difficult problem of wage arrears and upholding social stability." (23) (back)

Pilot Regulations

After implementing the "Regulations on Wage Payments for Enterprises in Zhuhai City," on January 1, 2002, the local government has received widespread praise from the media for not only addressing the problem but also stipulating legal punishments for employers indulging in wage arrears. A Workers' Daily front page piece praised the Zhuhai government for taking the issue seriously by stipulating fines from between Rmb 5,000 and 100, 000 for employers plus compensation awards to workers of up to 25 per cent of the original arrears. (24) Moreover, Article 28 of the regulations makes the abuse of power and dereliction of duty by labour department inspectors an offence punishable under criminal law. (25) The ACFTU newspaper also expressed the hope that the forthcoming national "Wages Law" would follow Zhuhai's example. From January to September 2001, wage arrears in Zhuhai involved over 200 companies and more than 10,000 workers who were owed Rmb 10 million plus. (26) It remains to be seen if Zhuhai's approach improves the wage arrears situation in the city.(back)




1. See Tim Pringle, "Globalisation and The Implications for Chinese Workers, " Asian Labour Update, Issue 41, October - December 2001, p9.(back)

2. "Renmin daibiao huyu chutai 'gongzi fa' NPC delegate calls 'Wages Law'," Sohu.com, at:http://business.sohu.com/80/30/article13843080.shtml (back)

3. See John S. Earle, "Understanding Wage Arrears in Russia," Available at:http://www.upjohninst.org/publications/wp/0277wp.html (back)

4. Zhongguo gonghui nianjian China Trade Union Yearbook (2001), published by the ACFTU Publishing House, 2002, p515.(back)

5. Ibid.(back)

6. "Renmin daibiao huyu chutai 'gongzi fa' NPC delegate calls 'Wages Law'," Sohu.com, at:http://business.sohu.com/80/30/article13843080.shtml (back)

7. Zhao Xinqiang "Zhiyi wanju jiudian ye qianxin tuchu Garment, toy and restaurant sectors lead the way in wage arrears," Nanfang gongbao Southern Worker News," 05/12/2001.(back)

8. Godfey Yeung, "Foreign Investment and Social-Economic Development in China. The Case of Dongguan," in "Studies on the Chinese Economy," Edited by Peter Nolan and Dong Fureng, Unsworth Books, p171.(back)

9. For example see CLB interview with official from Linhe in 06/07/2001(back)

10. "Renmin daibiao…" op.cit.(back)

11. "Labour Law of the People's Republic of China," (1995) Article 50, China Legal Publishing House, publ. June 2001, p29.(back)

12. "Gongzi zhifu zhanshi guiding Temporary Rules on Wage Payments," (06/12/01)….(back)

13. "Dui 'gongzi zhifu zhanshi guiding' youguan wenti de buchong guiding"….(back)

14. "Tuoqian gongzi zen cheng le 'chengsu' How have wage arrears become a 'local custom'?" Gongren Ribao Workers Daily, 05/09/01.(back)

15. Tang Minquan and Lin Weishan, "Zhi qianxin yian yi lieru lifa jihua A Cure for Salary Arrears Enters the Legislative Process," Yangcheng Zhigong Guangzhou Worker, April 5, 2002.(back)

16. Ibid.(back)

17. "Zhongguo siyouhua Privatising," Xianqu Jikan Pioneer Monthly, Issue 52, 1999.(back)

18. “Yanjiu shentao yufang duice, qiye guyou zichan liushi wenti yinqi guanzhu” (“Research is required to discuss countermeasures and prevention of SOE capital and asset loss which is causing concern”), Xinhua (Online), May 30, 2002, available at:http://news.xinhuanet.com/fortune/2002-05/30/content_416469.htm.(back)

19. “Appeal to the Leadership after a Fruitless Four Year Struggle Against Corruption. The workers are being persecuted and need your support,” Open Letter to Jiang Zemin posted by “The unemployed former workers of the bankrupt Liaoning, Liaoyang Ferroalloy Factory” on walls in the vicinity of the Liaoyang Ferroalloy Factory and government buildings in Liaoyang, March 5, 2002.(back)

20. The managing director of the Ferroalloy Factory, Fan Yicheng, has since been arrested on charges of dereliction of duty. (Details available at http://www.clb.org.hk/en/node/4786)(back)

21. CLB, "Unsafe Production and Unpaid Wages -- A Senior Coal Miner Talks" Available at:http://www.clb.org.hk/en/node/2056 (back)

22. www.163.com, "zengcheng jiudian tuoqian ban nian gongzi bashi yuangong fen er bagong Zengcheng restaurant owes six months backpay - angry workers launch strike action," 22/01/02. Available at:http://news.163.com/editor/020122/020122_338409.html (back)

23. www.163.com"wei juejie tuoqian gongzi wenti Hubei Yichang shixing 'qianxin yujingzhi, "Hubei's Yichang city implements a 'wage arrears early warning system' to solve the problem of wage arrears," 17/04/01. Available at: http://news.163.com/editor/010417/010417_156060.html (back)

24. Xie Zhiwei, "zhili tuoxin huhuan 'gongzi fa' Appeal for 'Wages Law' to bring wage arrears under control," Gongren ribao Workers Daily, 09/02/02.(back)

25. "Zhuhai shi qiye gongzi zhifu tiaoli Regulations on Wage Payments for Enterprises in Zhuhai City," 01/01/02, Available at: http://www.zh-hr.com/news/xgfagui/2001102991107.htm (back)

26. "Zhuhai shuaixian chutai 'qiye gongzi zhifu tiaoli' Zhuhai takes the lead in promulgating 'Wage Payment Regulations,' Renmin wang People's Net, 31/10/2002. Available at:http://www.people.com.cn/GB/shehui/212/3572/3573/20011031/594837.html (back)

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