Financial Times: China labour activism: crossing the line

08 May 2014

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

May 7 2014

By Tom Mitchell and Demetri Sevastopulo

Zhou Zhigang wore his red Walmart jacket with pride when he joined the US retail group’s branch in Changde, Hunan province. But he has not put it on since the outlet’s closure in March, when his participation in protests with 70 other workers for better severance cost him a week’s detention without charge by Chinese police.

“After leaving the detention centre I tore off my Walmart jacket and threw it in a ditch,” he says. “I originally thought Walmart was a very good company and would provide me with a stable job.”

The Walmart dispute highlights a broader shift in the Chinese labour market that has significant implications for multinationals that manufacture or source products in the world’s second-largest economy. The number of protests is growing as the balance of power slowly shifts from employers to workers because of demographic and technological trends.

Factories find it increasingly hard both to find skilled workers as China’s labour force shrinks and to manage them. Workers have been empowered by their ability to tap social media with cheap smartphones, allowing them to compare employment conditions more easily and mobilise support for strikes.

Local governments, especially in export centres in southern Guangdong province, worry that routine double-digit annual wage rises will prompt manufacturers to move their operations to other regions or countries. “It will intensify,” says one factory manager, who warns of an investor exodus unless the government finds a better way to manage worker grievances and strikes. “The government has to do certain things so [we] don’t fall back into the Stone Age.”

Last year employees in eastern Shandong province blocked what would have been corporate India’s largest acquisition of an American company by seizing control of a Cooper Tire and Rubber factory. They refused to yield until the proposed $2.5bn sale of the Ohio-based company was abandoned in December. Cooper Tire has since estimated the strike cost it at least $70m.

Three months later IBM was caught off-guard when 1,000 workers in Guangdong demanded compensation before their factory was transferred to Lenovo, the Chinese computer group, which had promised to keep them in their positions on the same terms.

In April Yue Yuen, a Taiwanese shoe manufacturer for brands such as Adidas, Nike and Asics, was at the centre of a worker dispute over social security payments. Labour activists said as many as 40,000 employees had participated in the strike at Yue Yuen, which estimates the industrial action has cost it at least $58m.

Many multinationals operating in China have been taken aback by the surge in labour unrest, especially in situations where workers did not previously flex their muscle. A western executive involved in one recent dispute said: “Workers use these moments to try to get more compensation and they band together to do it. We just do what we can to treat them in accordance with the law.”

Jonathan Isaacs, a lawyer with Baker & McKenzie in Hong Kong, says: “You’ve definitely seen an increase in collective labour disputes in relation to M&A and company restructurings. We’re also seeing a sharp increase in the aggression with which employees pursue those actions.”

Labour activists are unsympathetic. “Multinationals that have been given the red-carpet treatment ever since they came to China are now waking up to the reality that they can’t bulldoze their way through people’s lives any more,” says Geoff Crothall of China Labour Bulletin, a workers’ rights group in Hong Kong. “If they want to close down operations or reorganise their business, fine, but you have to negotiate with your employees first.”

Xi Shaodong, 25, was among the workers who took advantage of the compensation squeezed from IBM, using it to begin a new life in his native city of Xian, far to the north. “I am back home with my family and have opened a small shop selling tobacco and wine,” says Mr Xi, who joined the US computer group when he was just 18. “Many of my friends also left IBM but decided to stay in Guangdong.”

Chinese officials are walking a fine line as they try to ensure workers are paid and treated well enough to minimise labour unrest without exacerbating factory flight and the strain this puts on the local tax base.

Disputes have traditionally been limited in part by the threat of prison terms of up to five years if strikers are deemed by police and prosecutors to have “disturbed social order”. Lin Dong, an NGO worker who advised employees at Yue Yuen, became the first labour activist charged with using the internet to disturb social order under a recently revised Chinese law.

Protests have also been damped by the All China Federation of Trade Unions, the country’s only officially sanctioned union. It is widely derided in activist circles as a weakling that lacks the stomach for a real fight with management and cares more about helping the government preserve “social harmony” than battling for workers’ rights.

“The ACFTU says it wants to protect workers’ rights but it also wants to support companies’ development,” says Chang Kai, a professor and labour expert in Beijing who is advising the Walmart workers in Changde. “It is pulling in two directions and is not firmly on the workers’ side.” ACFTU officials declined repeated interview requests from the FT.

The potential for unrest is only increasing. Chinese employees have been emboldened by demographic trends that are creating labour shortages – especially for skilled positions – and tilting negotiating power decisively in their favour.

Since peaking in 2011, the working- age population has declined by 5.9m. Although minimum wages are rising at double-digit rates, workers say that they are not keeping pace with soaring living costs.

Like most strikes in China, workers involved in the IBM action did not leave their factory compound to reduce the risk of arrest for disturbing public order. They acted independently of their factory’s ACFTU chapter, electing 20 representatives whom IBM later sacked.

Technology is also making a difference. The proliferation of smartphones and workers’ use of social media services such as Weibo, China’s Twitter equivalent, and QQ, an instant messaging service, has made it easier to mobilise protests. During the Yue Yuen strike, workers started several QQ message groups to share information and co-ordinate their activities.

There are even some signs of dissent within the ranks of the ACFTU. Walmart’s Changde employees are being led by Huang Xingguo, the head of the store’s ACFTU chapter. His role has excited labour activists, who see it as a landmark development in the history of China’s worker movement. It has also worried local authorities.

Mr Huang, 42, a powerful orator and charismatic leader, was the star speaker at a gathering of about 30 of China’s most prominent labour lawyers, activists and scholars held last month in Dengfeng, Henan province.

He was accompanied by Mr Zhou, the worker detained for five days who had traded in his red Walmart attire for a bright blue Italy football jacket. “If Walmart caves in Changde, it will be an exemplary case and they will be forced to pay more when they close stores in future,” Mr Huang says. “Our goal is simple: to let Walmart know they have made a mistake and force them to pay for their mistake.” Walmart insists it closed the Changde store in accordance with relevant laws and regulations.

Mr Huang and his colleagues now find themselves facing a dilemma that says much about the state of China’s labour movement. They have not been able to count on strong support from Changde’s municipal ACFTU chapter, let alone its higher- level provincial or national arms. Nor can they link up with other Walmart store unions.

Like the Chinese Communist party it ultimately serves, the ACFTU is a vertically structured bureaucracy that does not encourage horizontal linkages between “grassroots” chapters such as Mr Huang’s. That greatly reduces the chances of other Walmart store unions striking in support of their Changde colleagues.

“Walmart has almost 400 stores in China, all of them with unions,” Mr Huang says. “But each union is established under the local government. There is no larger alliance to link them.”
Although he has received messages of encouragement from other Walmart union heads, Mr Huang has not made any effort to co-ordinate with them – something that would risk a harsh government reaction. At the labour forum in Dengfeng last month, Mr Huang said a statement of support from a US union group had alarmed local officials, who warned him not to “politicise” the issue.

The ACFTU also maintains a strict divide between activists such as Mr Huang and its career bureaucrats, whose interests are more aligned with government officials preoccupied with social stability. “Huang Xingguo was democratically elected by his fellow workers,” says He Yuancheng, a legal adviser. “But there is no chance that he could ever rise through the ACFTU’s ranks despite his obvious leadership talent.”

Labour activists say that the ACFTU’s reluctance to get involved in industrial action often leads to situations where workers have no one to turn to for guidance, increasing the potential for violence. At Yue Yuen, for example, workers were reluctant to assume leadership positions and attempts by NGO activists to fill the vacuum triggered a harsh reaction from police. This only added further to an already confused situation, given the difficult benefit issues that lay at the heart of the dispute.

Although national laws require factories to pay employees a certain level of pension and other benefits, different guidelines issued by local governments allow companies to operate in a grey zone. As the situation spiralled out of control at Yue Yuen, government and ACFTU officials decreed that the company had not been paying its proper share and helped the workers elect representatives to negotiate with management. But in the end, according to labour activists, they also made Yue Yuen’s employees accept a compromise many objected to and used police to force them back to the assembly lines.

In Changde, the 70 holdouts at Walmart continue to gather daily as they wait for an arbitration hearing this month. “Right up until the point that the store was closed, I never thought about leaving Walmart and wanted to stay with the company,” Mr Huang says. “I had no idea that fighting for workers’ rights could be this difficult and many of my family and friends have warned me that defending the weak always offends the strong. But at least when I’m old I will have no regrets and a clean conscience.”

Trade unions: Pressure from employers and officials

Huang Xingguo, leader of the All China Federation of Trade Unions chapter at Walmart’s recently closed store in Changde, was shocked to receive a visit from local representatives of the Chinese Communist party’s powerful Politics and Law Committee in March.

The appearance of the committee, which oversees the judiciary and dictates verdicts and sentences in sensitive cases, showed how carefully workers’ demands were being monitored by party, government and ACFTU officials. Their messages to Mr Huang had a common theme: he could fight for the rights of his fellow workers only as long as he did so “legally”. They were worried employees might embrace any number of measures – from civil disobedience at one end of the spectrum to physical resistance at the other – which might endanger “social stability”.

As a result, the workers decided not to resist Walmart’s efforts to clear the store. But they tried to monitor the clearance, in a daily cat and mouse game with their former employer. “The store is in an underground mall and there are more than 30 fire exits,” said Mr Huang. “Walmart used them every day, entering through one and leaving from another. The back-up power generator, the wines, the appliances and the cosmetics inside were worth a lot of money.”

Walmart rejects the workers’ claim that it did not provide adequate warning of the store’s closure and says it offered the legally stipulated level of compensation to employees who could not take up its offer to transfer to operations in other cities. It also says that half of the store’s original 135 workers accepted its offer.

The retailer does not deny Mr Huang’s claim that it refused his chapter’s repeated requests for collective bargaining and would only meet employees individually to discuss their re-employment and severance options. “We did not negotiate collectively because there is no requirement to do so,” says Ray Bracy, a senior Walmart China executive.

Mr Huang and his colleagues have pitched two tents outside the closed store and continue their round-the-clock vigil.

Additional reporting by Wan Li

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