Evaluating Trade Union Law and Collective Bargaining in China: Key Considerations for Foreign Firms

March 8, 2017 Posted by China Briefing Reading Time: 5 minutes

By Samuel Wrest

Industrial action in China entered uncharted territory last year. Once mainly confined to the manufacturing and construction sectors – the traditional linchpins of China’s growth – labor unrest took giant steps into the retail and service sectors in 2016, with strike action doubling in the former and growing by a fifth in the latter.

When combined with the transport sector – which continued its upwards surge in incidents by registering a 25 percent increase – labor strikes in these three sectors outweighed those in manufacturing for the first time.

The increase in industrial action in these three industries is indicative of the changing nature of the Chinese economy, which is transitioning from one powered by manufacturing and exports to one reliant on consumption and services. However, it is also a sign of the deeper problems with labor unrest that exist in China’s workforce.

As in previous years, 2016’s strikes were organized by the workers themselves and not through the All-China Federation of Trade Unions (ACFTU) – the only trade union that is legally allowed to exist in the country – highlighting the gap in employee representation that currently exists across all industries in the Middle Kingdom, and not just amongst blue-collar workers.

Current law on trade unions

The Trade Union Law of the People’s Republic of China is the country’s key piece of legislation on trade union organization. It states that 25 or more employees must be allowed to form what is called an Enterprise Trade Union (ETU); a component part of the wider Chinese Communist Party (CCP)-led ACFTU. If the number of employees falls short of the required 25, they have the option of forming a “basic-level” trade union committee, while female workers can form separate ETUs altogether.

If an ETU has been formed, their employer must pay two percent of its workforce’s wages to the ACFTU, ostensibly to support its employees and the local ETU’s activities. These activities, however, are loosely defined in the Trade Union Law, and include education among staff, protecting the property of the enterprise and State, making “rational” proposals and technical renovations, and vocational training outside of work hours.

Notably absent from the Trade Union Law is the right of union members to strike – a cornerstone of trade unions in the West. Additionally, once formed, management of ETUs is predominantly decided not by the workers, but by the company itself, which has often resulted in worker concerns not being put on the negotiating table. These are two of the primary drivers behind workers organizing and striking independently in China.

Obligations of foreign companies

Foreign-invested entities (FIEs) are subject to all the provisions of the Trade Union Law, but there is often more pressure placed on them to unionize than on domestic companies. The reason for this is twofold: there are a massive amount of FIEs in China offering competitive wages, translating into comparatively higher payments from them to the ACFTU, but there is also a perceived risk of FIEs westernizing their employees.

Unionization is seen as a means of countering this westernization, with the ETUs acting as a channel for the CCP to keep in touch with the country’s workforce.

Considerations for labor relations

China has a stated aim of unionizing 90 percent of its workforce, but its goal is not to uphold workers’ rights. Rather, the modus operandi of the AFCTU is to ensure that the country’s labor force runs smoothly and in line with CCP targets. The reality is quite the opposite. In addition to industrial action spreading to new industries, the first half of 2016 saw strikes and protests rise almost 20 percent over the previous year, with the construction and transportation sectors hit hardest.

While this slowed in the second half of the year, 2016 closed with employees at Walmart – which unionized 10 years ago – staging a series of coordinated strikes across the US retailer’s numerous Chinese outlets, underscoring how unionization with the ACFTU in its present form isn’t a safeguard against employee unrest for foreign companies.

FIEs in the Middle Kingdom therefore cannot currently rely on the ACFTU to guarantee employee satisfaction, and, similarly, employees cannot look to it to protect their rights. This may change in the future – in 2015, President Xi Jinping ordered the ACFTU to improve workplace representation in order to stem the regular flow of strikes – but 2016 has shown that this will not occur in the immediate term.

Keegan Elmer, a Labor Researcher at the China Labor Bulletin, told Asia Briefing, “Recent strikes at major multinationals like Coca Cola, Sony and Danone all showed that workers were willing to sit down with management long before they walked off the job. Workers are ready for bargaining, and companies can do a lot to help China’s labor relations bring about sustainable, mutually beneficial engagement between workers and employers through real collective bargaining.”

Foreign companies should therefore consider implementing their own policies that afford employees collective bargaining power. Observers of the Walmart strikes noted that the US retailer’s lack of basic collective bargaining rights was at the heart of its problem, indicating that an open internal channel with worker representatives would go a long way to both ensuring employee satisfaction and preventing disruption.

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Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email china@dezshira.com or visit www.dezshira.com.

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