The Everyday Impact of Economic Reform in China : Management Change, Enterprise Performance and Daily Life [1 ed.] 9780203850916, 9780415428415

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The Everyday Impact of Economic Reform in China

During the past 30 years, China has undergone extensive economic reform, replacing the government’s administration of enterprises with increasing levels of market-oriented enterprise autonomy. At the heart of the reform are changes in the employment relationship, where state control has been superseded by market relationships. These reforms have had far-reaching implications for many aspects of everyday life in Chinese society. This book appraises the impact of the economic reforms on the employment relationship and, in turn, examines the effects on individual workers and their families, including salaries, working conditions and satisfaction, job security and disparities based on location, gender, age, skill, position and migrant status. In particular, it focuses on how changes in the employment relationship have affected the livelihood strategies of households. It explores the changing human resource management practices and employment relations in different types of enterprises: including state-owned enterprises, foreign-owned enterprises and domestic private enterprises; throughout different industries, focusing especially on textiles, clothing and footwear and the electronics industry; and in different regions and cities within China (Beijing, Haerbin, Lanzhou, Hangzhou, Wuhan and Kunming). Overall, this book provides a detailed account of the everyday implications of economic reform for individuals and families in China. Ying Zhu is Associate Professor in the Department of Management and Marketing, University of Melbourne. He is the co-editor of Trade Unions in Asia; Unemployment in Asia; and Management in Transitional Economies: From the Berlin Wall to the Great Wall of China (all published by Routledge). Michael Webber is Professorial Fellow in the School of Resource Management and Geography, University of Melbourne, Australia. He is the co-editor of China’s Transition to a Global Economy and co-author of Global Restructuring: the Australian Experience. John Benson is Professor and Head of the School of Management at the University of South Australia. His most recent publications include (as co-editor) Unemployment in Asia; Asian Business: Women and Management; and Trade Unions in Asia (all published by Routledge).

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65 China’s State Owned Enterprise Reforms An industrial and CEO approach Juan Antonio Fernandez and Leila Fernandez-Stembridge

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69 The Rise of the Corporate Economy in Southeast Asia Rajeswary Ampalavanar Brown

80 Globalization and the Indian Economy Roadmap to a convertible rupee Satyendra S. Nayak

70 The Singapore Economy An econometric perspective Tilak Abeyshinge and Keen Meng Choy 71 A Basket Currency for Asia Edited by Takatoshi Ito 72 Private Enterprises and China’s Economic Development Edited by Shuanglin Lin and Xiaodong Zhu 73 The Korean Developmental State From dirigisme to neo-liberalism Iain Pirie 74 Accelerating Japan’s Economic Growth Resolving Japan’s growth controversy Edited by F. Gerard Adams, Lawrence R. Klein, Yuzo Kumasaka and Akihiko Shinozaki 75 China’s Emergent Political Economy Capitalism in the dragon’s lair Edited by Christopher A. McNally

81 Economic Cooperation between Singapore and India An alliance in the making Faizal Yahya 82 The United States and the Malaysian Economy Shakila Yacob 83 Banking Reform in Southeast Asia The region’s decisive decade Malcolm Cook 84 Trade Unions in Asia An economic and sociological analysis Edited by John Benson and Ying Zhu 85 Trade Liberalisation and Regional Disparity in Pakistan Muhammad Shoaib Butt and Jayatilleke S. Bandara 86 Financial Development and Economic Growth in Malaysia James Ang

87 Intellectual Property and the New Japanese Global Economy Ruth Taplin 88 Laggards and Leaders in Labour Market Reform Comparing Japan and Australia Edited by Jenny Corbett, Anne Daly, Hisakazu Matsushige and Dehne Taylor 89 Institutions for Economic Reform in Asia Edited by Philippa Dee 90 Southeast Asia’s Credit Revolution From moneylenders to microfinance Aditya Goenka and David Henley 91 Economic Reform and Employment Relations in Vietnam Ngan Thuy Collins

92 The Future of Asian Trade and Growth Economic development with the emergence of China Linda Yueh 93 Business Practices in Southeast Asia An interdisciplinary analysis of Theravada Buddhist countries Scott A. Hipsher 94 Responsible Development Vulnerable democracies, hunger and inequality Omar Noman 95 The Everyday Impact of Economic Reform in China Management change, enterprise performance and daily life Ying Zhu, Michael Webber and John Benson

The Everyday Impact of Economic Reform in China Management change, enterprise performance and daily life Ying Zhu, Michael Webber and John Benson

First published 2010 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon, OX14 4RN Simultaneously published in the USA and Canada by Routledge 270 Madison Avenue, New York, NY 10016 This edition published in the Taylor & Francis e-Library, 2010. To purchase your own copy of this or any of Taylor & Francis or Routledge’s collection of thousands of eBooks please go to www.eBookstore.tandf.co.uk. Routledge is an imprint of the Taylor & Francis Group, an informa business © 2010 Ying Zhu, Michael Webber and John Benson All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. All authors contributed equally to the research and writing of the book. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data Zhu, Ying, Ph. D. The everyday impact of economic reform in China: management change, economic performance and daily life / Ying Zhu, Michael Webber and John Benson. p. cm. — (Routledge studies in the growth economies of Asia) Includes bibliographical references and index. 1. China—Economic policy—2000– 2. China—Economic conditions–2000– 3. China—Social conditions—2000– 4. Industrial management—China. 5. Business enterprises—China. 6. Working class—China. I. Webber, Michael John. II. Benson, John. III. Title. HC427.95.Z473 2010 330.951—dc22 2009048291 ISBN 0-203-85091-2 Master e-book ISBN

ISBN10: 0–415–42841–6 (hbk) ISBN10: 0–203–85091–2 (ebk) ISBN13: 978–0–415–42841–5 (hbk) ISBN13: 978–0–203–85091–6 (ebk)

Contents

List of illustrations Authors Preface Acknowledgements List of abbreviations

xi xv xvii xix xxi

1

Introduction

1

2

Economic reform and its industrial and social impact

9

3

Management, workers and conditions of employment

30

4

Worker representation and emerging roles for trade unions

64

5

Enterprise performance and intangible management

82

6

Market-oriented economic reform and the quality of working life

106

7

Work, households and livelihoods

136

8

Economic reform and its impact on management, enterprises and workers

168

Bibliography Index

180 188

Illustrations

Tables 1.1 The profile of the six case study cities, 2004–05 financial year 2.1 National economic development since 1978 2.2 Economic, legal and social reform, 1978–present 3.1 Management mechanisms and systems in Chinese enterprises, 2003 3.2 Means of recruiting new workers 3.3 Workers’ means of obtaining job – present and previous job 3.4 Dealing with skill shortages 3.5 Key selection criteria used in recruitment 3.6 Methods used in recruitment 3.7 Types of training – enterprises 3.8 Types of training – workers (mean hours spent on training) 3.9 Workers – who conducts performance appraisal? 3.10 Criteria used in performance appraisals 3.11 Major criteria used in promotion 3.12 Workers’ perceptions of their participation in important decisions 3.13 Means of reducing employment 3.14 Average wages by selected sectors per annum 3.15 Average wage levels per annum in manufacturing by enterprise type 3.16 Annual income by occupation 3.17 Annual income range by industry and enterprise type 3.18 Components of income by occupation 3.19 Key criteria in determining wage levels 3.20 Insurance payments 3.21 Enterprise-funded worker benefits

5 16 29 31 32 33 34 34 35 37 38 40 41 42 43 45 50 50 51 52 53 54 54 55

xii Illustrations 3.22 Average hours worked by gender in urban areas, 2001–2004 3.23 Comparison of management and worker responses on hours worked, 2003 3.24 Selected HRM and ER practices by industry, age and size of enterprise 3.25 Selected HRM and ER practices by type of enterprise 3.26 Selected HRM and ER practices by location of enterprise 4.1 Frequency of union–management meetings 4.2 Managers’ perception of unions’ role 4.3 Workers’ perception of unions’ role 4.4 Workers better off in the next five years 4.5 Managers’ and workers’ perception of unions’ role 4.6 Unionization and union activity by industry, age and size of enterprise 4.7 Unionization and union activity by type of enterprise 4.8 Unionization and union activity by location of enterprise 5.1 Models of average employee satisfaction in 38 enterprises 5.2 Models of sales in 38 enterprises, 2003 5.3 Models of percentage growth in sales in 38 enterprises, 1998–2003 5.4 Models of productivity in 38 enterprises, 2003 5.5 Models of percentage growth in productivity in 38 enterprises, 1998–2003 6.1 Workers’ description of management structure of Chinese enterprises, 1998–2003 6.2 Employee satisfaction with work 6.3 Satisfaction with characteristics of work, 2003, and changes in characteristics, 1998–2003 6.4 Proportion of workers receiving specified forms of training, 1998–2003 6.5 Hierarchical linear models of training, participation and workload, 2003 6.6 Hierarchical linear models of job security, 2003 6.7 Hierarchical linear models of training, participation, security and workload, 1998 and 1998–2003 6.8 Hierarchical linear models of aggregate satisfaction with jobs, 2003 6.9 Hierarchical linear models of satisfaction with specific characteristics, 2003 6.10 Hierarchical linear models of changes in aggregate satisfaction, 1998–2003

56 57 59 60 60 69 70 72 73 74 78 79 80 94 96 97 98 100 114 116 116 118 122 123 125 127 128 129

Illustrations 6.11 Hierarchical linear models of changes in specific forms of satisfaction, 1998–2003 7.1 Size and income of sample households 7.2 Determinants of individual workers’ monthly incomes 7.3 Savings in households 7.4 Workers’ evaluations of their income and expenditure 7.5 Relations between age, income and aggregate income and expenses 7.6 Relations between location, aggregate income and expenses and housing and living conditions 7.7 Increase and decrease of expenses 7.8 Time spent on household chores 7.9 Male–female differences in household workload 7.10 Household and individual factors influencing time spent in all housework 7.11 Group differences in feelings of job security 7.12 The structure of workers’ hopes 7.13 Factors influencing workers’ hopes 7.14 Classification of workers by their combinations of hopes 7.15 Migrants’ intentions to stay, move on or return home

xiii 130 138 139 141 141 143 144 144 147 148 149 151 159 161 163 164

Figures 1.1 Contextual framework of the book 1.2 Location of the six cities in which enterprises were sampled 5.1 Model of enterprise performance as a function of workers’ satisfaction, intangible management factors and external variables 5.2 Estimated model of sales performance as a function of external, environmental factors, satisfaction and management 6.1 Frequency distributions of responses to the question ‘Have the following attributes of your job improved over the past five years?’ Tasks, accountability, responsibility, participation, promotion opportunities, pay, overtime pay rates, workload, job security and management 6.2 Frequency distributions of regular hours and total hours (including overtime) per week, 2003 and 1998 6.3 Frequency distributions of security of job tenure, 2003 and 1998

2 3

87

104

117 119 120

xiv Illustrations 6.4 Frequency distributions of labour market security: assessed likelihood of getting a job, 2003, and change in household income security, 1998–2003 7.1 Frequency distribution of persons per household 7.2 Aggregate household income per month and household income per worker per month 7.3 Relationship between hukou status and evaluations of income, expenses, living and housing conditions 7.4 Frequency distribution of travel times to work 7.5 Frequency distribution of hours per week spent on household chores 7.6 Total hours (work, overtime, commuting, housework) per week for men and women

121 137 138 142 147 148 150

Authors

Ying Zhu is Associate Professor and the Director of the Master of Human Resource Management in the Department of Management and Marketing, the University of Melbourne. He was educated at Beijing University and after completing an International Economics degree held the post of Economist and Research Fellow in the Research Office of Shenzhen Special Economic Zone Development Company. He later completed a PhD at the University of Melbourne. His teaching and research interests include international human resource management, international business, economic development in East Asia, and the political economy of globalization. He has published extensively on the topics of international human resource management, employment relations in Asia, labour law and regulations in Asia, and economic development in Asia. Michael Webber is Professorial Fellow, School of Resource Management and Geography at the University of Melbourne. After undergraduate and graduate training at Cambridge University and the Australian National University, he has held positions in departments of geography at the ANU, McMaster University and the University of Melbourne; and visiting positions at the universities of Cincinnati, Bristol, Sydney, Minnesota, UCLA and Monash. An economic geographer, Michael’s research combines formal social theory and large scale, surveybased empirical methods to identify how people’s working lives are affected by international political and social processes. He has a subsidiary interest in environment and development. His recent research is about the economic and geographic transformation of modern China; the emergence of markets for water in China; the emergence of the global economy; the role of the state in industrial development in East Asia; and the restructuring of industries in Australia. He has published 13 books and over 100 academic papers. Michael has consulted to government departments, trade unions and non-government organizations and is a Fellow of the Academy of Social Sciences in Australia. John Benson is Professor and Head of the School of Management at the University of South Australia. Prior to taking up his present appointment, John was Professor and Chair of the Graduate School of International Business at the University of Tsukuba, Japan after having spent many years in the Department of

xvi Authors Management, University of Melbourne, Australia. His major research interests are Japanese management and unions, the restructuring of Chinese and Vietnamese industry, outsourcing and knowledge work. John has published numerous papers and monographs and his most recent edited monographs are Unemployment in Asia (Routledge: London, 2005) with Associate Professor Ying Zhu, Women in Asian Management (Routledge: London, 2006) with Dr Vimolwan Yukongdi, and Trade Unions in Asia (Routledge: London, 2008) with Associate Professor Ying Zhu.

Preface

During the past 30 years, China has undergone extensive economic reform to replace government administration of enterprises with increasing levels of market-oriented enterprise autonomy. At the heart of the reform are changes in the employment relationship, which has replaced state control with market relationships. This economic reform raises important questions not only about the way enterprise managers have responded but also about the impact on workers and their families. In particular we aim to address the question: how has management reform affected the enterprise, the quality of working life and the livelihood strategies of households? Within socialist economies concepts of recruitment and selection, redundancies, collective bargaining and unemployment were irrelevant as the state controlled the appointment and payment of workers. Many aspects of human resource management and employment relations have now changed; a variety of enterprise ownership forms have emerged, a fledgling labour market has developed, and workers are now at the mercy of the market. This has placed considerable pressure on workers, their enterprises and their families. Two sectors that represent many of these issues are textiles, clothing and footwear, and the electronic industries – the two industries that will form the basis of this study. The underlying goal of this book is to extend previous research on management in China by tracing the impact of the economic reforms on human resource management and employment relations and, in turn, explore how these affect enterprise performance, the quality of working life, and households and families. Using the various literature on the management of labour and on the relations between restructuring/transition the book seeks to integrate the literature and to locate the study of China within the main currents of Western discourse, while recognizing the location-specific aspects of the research site. In undertaking this work, the book focuses on various types of enterprises (different categories of enterprise have different characteristic modes of labour management), various cities (reform and marketization have proceeded at different paces in different parts of the country), and specific industries (human resource management and employment relations reform may have proceeded differently in different industries). Three types of enterprise are examined: state-owned enterprises (representing the pre-reform system that is being forced to change), foreign-owned

xviii Preface enterprises and domestic private enterprises (representing the new forces in the market economy). We conducted interviews in six regions in China (Beijing, Haerbin, Lanzhou, Hangzhou, Wuhan and Kunming) so as to cover a range of political, economic and social environments. The two industrial sectors had different use of technology, level of capital investment, and types of skills required which meant that human resource management and employment relations may also be different in these sectors. Ying Zhu, Michael Webber and John Benson October 2009

Acknowledgements

We would first and foremost like to thank the managers and workers who participated in this study. Without their patience and understanding this book would not have been possible. We would also like to acknowledge and thank the China Industrial Relations Institute in Beijing who conducted the interviews so thoroughly and assisted us in a multitude of tasks. The research was funded through an Australian Research Council Discovery Grant which made possible a more detailed and in-depth study than otherwise would have been the case. We would like to thank the editors of the Asian Pacific Business Review for allowing us to publish a revised version of the paper ‘Intangible management and enterprise success in the Chinese transitional economy’ which appears as Chapter 5 in this book. Finally, but not least, we would like to thank the University of Melbourne and the University of South Australia for their ongoing support of the project.

Abbreviations

ACFTU CCP CMRS COE DPE ER FDI FIE GDP HR HRM JV MES MOLSS RMB

SEZ SOE TCF WTO

All China Federation of Trade Unions Chinese Communist Party Contract Management Responsibility System Collectively owned enterprise Domestic-private enterprise Employment relations Foreign direct investment Foreign-invested enterprise Gross Domestic Product Human resources Human resource management Joint-venture enterprises Modern Enterprise System Ministry of Labour and Social Security Renminbi – the official Chinese currency with the yuan being the principal unit. 1 yuan is equal to 0.146 (USD), 0.175 (AUD) and 0.087 (GBP) as at 10 August 2009 Special Economic Zone State-owned enterprise Textile, clothing and footwear World Trade Organization

1

Introduction

Introduction Economic reform in China has been underway for more than three decades. Today Chinese society is very different in a number of ways to that of 30 years ago. Considerable attention has been paid to macro-level changes, both the positive achievements of rapidly growing Gross Domestic Product (GDP), increasing foreign investment and trade, and growing foreign reserves, as well as the negative problems of increasing disparity of development between urban and rural areas and coastal and inland areas, environmental degradation, and unsustainable development practices. We also know a lot about changes at an individual level: incomes and well-being have improved but at a cost of a widening gap between rich and poor, and worker dissatisfaction and unrest. This book is designed to illustrate how these two levels of change are related, and to demonstrate how economic reform has influenced working life. In particular, we focus on work: how economic reform has driven changes in management systems, and how these have influenced the performance of enterprises, worker satisfaction and the workers’ households and livelihoods. What happens to workers over the process of reform depends not only on the actions of the central government but also on the manner in which those actions are interpreted by managers. Our framework of analysis is illustrated in Figure 1.1. We begin with reform, by which we mean changes to the rules governing business operations (for example, laws about employment relations, about the ownership of state-owned enterprises (SOEs) or about competition) and to the cost, delivery and availability of such community services as health, education and housing. These reforms, we argue, have led to changes in the management practices of enterprises – both their human resource management (HRM) and other forms of intangible management. But management practices have changed only slowly and only in some enterprises, and there has been little corresponding change to the role of unions within workplaces. Nevertheless, we do find that the working conditions of people and their satisfaction with conditions both depend on forms of intangible management, especially what we denote as soft management. (Of course, different categories of people – locals/migrants and young/old – do experience these new workplaces differently, or perhaps are treated differently in them.) Furthermore,

2

Introduction

Economic Reform Changing Management Systems HRM and ER Intangible Management Elements Enterprise performance Total Sales Productivity Wellbeing of Workers Satisfaction Quality of Work Life Livelihood

Figure 1.1 Contextual framework of the book.

we find that both the adoption of new forms of management and the satisfaction that workers feel with their jobs influence the performance of enterprises, though this does depend on the context of the enterprise (by context, we mean the industrial sector, the degree of competition and the location of the enterprise). That is to say, the well-being of workers, both at work and within the households of which they are members, has been substantially affected by the path of reform. The principal routes of this effect are satisfaction at work; the time spent at work, in commuting and on household chores; the changes to costs of living induced by social reforms; and of course, income. By this argument, illustrated in Figure 1.1, and the evidence we present, we link the paths of economic reform to the performance of enterprises and the well-being of workers.

Research sites and data collection The book is based on a study of 228 employees in 38 enterprises in six locations across China. In each enterprise one manager and five employees (in total, three men and three women) were interviewed in order to gauge the perceptions of both employers and employees. The interviews were conducted in 2004 and sought information about current management practices as well as changes in these practices, enterprise performance and workers’ well-being over the period 1998 to 2003. The people who work in China’s enterprises are often employed under a variety of employment situations. Many of these workers are local citizens, or migrants with work permits, who work for registered enterprises and are thus normally covered by China’s labour and corporate laws. Some, however, are own-account workers, often migrants from rural areas who seek a foothold in a larger city, while others are unregistered migrants, working in smaller or medium-sized enterprises, who often do not have the protection afforded to workers in larger enterprises. The book is about the former group: formal (registered workers, either migrants or

Introduction

3

Figure 1.2 Location of the six cities in which enterprises were sampled.

local citizens) working in formal industrial enterprises (registered companies) in large cities. We do not discuss the issues related to work in the informal sector or the issues associated with employment outside the large cities. As economic development in China has been uneven, we selected six locations throughout China that we felt reflected this diversity (see Figure 1.2). The first two locations are Beijing and Hangzhou, which are developed regions with high levels of economic development and up-to-date management systems. Beijing is the national capital with the most advanced infrastructure and technology in China. Hangzhou is a traditional economic centre and provincial capital of Zhejiang, one of the most developed coastal provinces. It has a strong industrial base with a large number of SOEs and, in recent years, has attracted an increasing number of domestic private enterprises (DPEs) and foreign-invested enterprises (FIEs). The next two locations are Wuhan and Haerbin, which are old industrial regions that are now undergoing substantial transformation. Wuhan is

4

Introduction

located in central China, the capital of Hubei province and has many SOEs. Due to the reform of SOEs that started in the 1990s, however, many workers were laid off and that allowed a number of DPEs to develop as an alternative for local employment and economic development. Haerbin is located in the northeast of China and is the capital of Heilongjiang province. The financial burden of its old SOEs has impeded reform in this region. In fact, SOEs still occupy a large proportion of the local economy with relatively little involvement of FIEs. The last two locations, Kunming and Lanzhou, represent less developed regions with lower levels of economic development and individual wealth. The traditional sectors of SOEs occupy a large proportion of the local economy, though with an increasing influence of DPEs. However, FIEs are less significant. These cities are less open and closer to the traditional centralized systems than are the other cities. Table 1.1 provides a more detailed indication of the nature of the economy of the six cities. Beijing and Hangzhou had a higher level of labour force participation, higher disposable income per capita and higher GDP and GDP per capita than the other cities. Wuhan and Haerbin were both below these cities on these indicators but ahead of Kunming and Lanzhou, which were the poorest cities. Traditional industrial cities such as Wuhan, Hangzhou and Haerbin had a relatively higher level of unemployment than the others. Ownership of the economy also differed between the cities: Beijing and Hangzhou were more open to foreign investment and the proportion of FIEs was higher than in the other cities. On the other hand, DPEs were more prominent in Hangzhou and Wuhan, due to the promotion of the domestic private sectors in these cities. The less open cities such as Haerbin, Kunming and Lanzhou, as mentioned earlier, had a relatively high proportion of SOEs. Finally, in the traditional industrial cities, secondary industry accounted for a large proportion of GDP, whereas Beijing’s economy was oriented towards the tertiary sector. Within each location we chose two industries: textiles, clothing and footwear (TCF) and electronics. These are both large and important industries in China. In 2007, the TCF sector produced a total output of RMB 2,633 billion (7 per cent of total industrial output) and exported RMB 714 billion of goods (10 per cent of the nation’s exports); it employed 10.4 million workers, 13 per cent of all industrial employees. The sector has been particularly important in generating employment in China, especially for semi-skilled and unskilled workers and for migrants to the cities. The electronics sector produced 23 per cent of national industrial output (RMB 9,180 billion), of which RMB 751 billion was exported; at 6 million, employment was 8 per cent of total industrial employment (China Statistical Press 2008a). Both industries have experienced systematic change since the beginning of the economic reform and, in particular, after China joined the World Trade Organization (WTO) in 2001, as the revaluation of the RMB and increasing price competition forced improvements to technology and management. Within each location we selected six enterprises (eight in Kunming) drawn from a cross-section of ownership forms (SOEs, DPEs, FIEs and collectively owned enterprises (COEs) and enterprise size (small–medium and large enterprises).

Introduction

5

Table 1.1 The profile of the six case study cities, 2004–05 financial year Items

Haerbin

Kunming

8.01

9.75

5.09

3.12

4.81

4.22

4.66

3.25

1.51

2.1

3.7

4.2

3.5

2.5

2.8

17,653

16,610

10,850

10,065

9,616

8,529

45.44

44.85

26.24

18.82

17.57

18.30

Ownership of economy (% of total industrial output): SOEs 5.7 11.1 9.9 COEs 1.3 1.1 6.4 DPEs 4.8 31.3 33.4 FIEs* 44.3 31.7 14.1 Others** 43.9 24.8 36.2 GDP (RMB, 688.63 291.86 223.80 billion)

16.3 1.4 7.7 18.0 56.6 183.05

36.1 2.5 41.2 9.5 10.7 106.23

52.2 2.9 30.1 3.8 11.0 56.70

Population (with local hukou, million) Labour force (million) Unemployment rate (%) Disposable income/per capita (urban residents, RMB) GDP per capita (RMB, thousand)

GDP by sector (%): I: Primary industry II: Secondary industry III: Tertiary industry

Beijing

Hangzhou

11.81

6.60

8.78

Wuhan

Lanzhou

1.4 29.4

5.0 50.9

4.9 45.5

16.4 35.3

7.3 44.9

3.9 44.1

69.2

44.1

49.6

48.3

47.8

52.0

Source: China Statistical Year Book, 2006; China Labour and Social Insurance Year Book, 2006; China Urban Statistical Year Book, 2006; China Economic Year Book, 2007; Beijing Statistical Year Book, 2006; Hangzhou Statistical Year Book, 2006; Wuhan Statistical Year Book, 2006; Haerbin Statistical Year Book, 2006; Lanzhou Statistical Year Book, 2006; Kunming Statistical Year Book, 2006. Notes: * FIEs include foreign joint ventures and wholly owned foreign investment enterprises with capital from overseas, including Hong Kong, Taiwan and Macao. ** Others include other domestic joint ventures and joint-stock companies etc.

To allow us to investigate the wide range of issues that have been raised by the existing literature and to represent the variety of Chinese enterprises, we developed separate interview questionnaires for managers and for workers. The questions were underpinned by the literature and had particular relevance for both the Chinese management systems we were investigating as well as for the theoretical underpinnings of the research project. Given the key issues being investigated in this book and the analytical framework illustrated in Figure 1.1, three groups of key variables were defined for the analysis. The first group of variables included enterprise-related factors, such as ownership, location, industry sectors (TCF and electronics), size, market orientation, and level of competition. The second group

6

Introduction

of variables reflected worker-related factors, such as age, gender, and household registration status (hukou, local or migrant workers). The third group of variables included outcome-related factors such as management change, enterprise performance, workers’ satisfaction, and workers’ expectation and hopes for the future. In conducting the field research we worked with the China Industrial Relations Institute in Beijing (the Institute). In particular, we assigned the Institute the tasks of selecting appropriate enterprises within the guidelines specified above, pilot testing the interview schedules, and conducting the interviews with managers and employees. The employees’ interview schedule contained 95 questions, often with multiple sub-questions; the managers’ schedule contained 84 questions. The interviews were conducted in the enterprise, with each interview taking between 1 and 1.5 hours to complete. To allow for cross-checking of responses from employees and managers the two sets of questions contained some common elements. All completed interviews, from managers and workers, were coded by one of the authors.

Design and structure of the book This book contains eight chapters. The logic and conceptual rationale of these chapters are arranged in terms of the analytical framework presented in Figure 1.1. Chapter 2 provides a general contextual background covering the evolution of economic reform and the changing economic policies at the macro level as well as the changing enterprise management systems and practices. The chapter commences with a review of the reform path from the early years of restructuring to the later stages that involved the adoption of the so-called ‘socialist market economy’. The characteristics of each stage are identified along with the underpinning ideology and economic thinking. The chapter then shifts to microeconomic reform and the impact of this reform on management systems. This is then followed by a general overview of the impact of this economic reform and changing management systems on workers. The chapter concludes that the reform processes have both top-down and bottom-up characteristics: initiatives from both government and enterprise have proved equally important for the continuation of reform agenda. The debates about ‘socialism’ versus ‘capitalism’ regarding ‘planned’ and ‘market’ economies have shifted from time to time in order to provide a green light for the continuation of the reform. Microeconomic reform has the potential to have a significant impact on management systems through the adoption of new management initiatives, the introduction of new HRM systems, and the way workers relate to management. Nevertheless, Chinese workers are not a homogeneous group, but have a variety of characteristics and entitlements. Therefore, the impacts of reform and management change on workers can be very different. Chapters 3 and 4 move the discussion to the enterprise level by providing the context with which we will explore the key issues of the impact of reform on enterprise performance (Chapter 5), quality of working life (Chapter 6) and households and livelihoods (Chapter 7). Chapter 3 illustrates the key aspects of HRM

Introduction

7

among the case enterprises, including recruitment and selection, training and career development, performance appraisal, promotion, employee participation and voice, and employment reduction. In addition, key elements of employment relations (ER) are also discussed, including individual and collective labour contracts, wages and hours of work. The evidence demonstrates that the present state of HRM and ER is in transition towards a more market-based system and away from the socialist policy of lifetime work and protection. This has been partly driven by the impact of economic reform with focus on efficiency and performance. Chapter 4 analyses the transformation of the ER system at the enterprise level by focusing on the role and activities of trade unions. The evidence shows that unions were numerically strong in terms of presence and membership in the case study enterprises. Perceptions of the role of unions were quite similar between management and employees with the understanding that their key role appears to revolve around the settlement of disputes and handling grievances. However, a reluctance to embrace new roles concerning the representation of workers and the determination of the terms and conditions of work means that Chinese trade unions still remain largely an instrument of the state and management. Chapter 5 addresses the questions of whether and how what we term intangible management practices (management structure, mechanisms and systems, and organizational culture) affect enterprise performance and employees’ satisfaction. By referring to the theoretical and empirical literature in this area, and analysing the case study enterprises, the evidence confirms that the performance of Chinese enterprises is due to similar kinds of intangible management variables, employee satisfaction and contextual variables that appear to drive the performance of Western enterprises. Chapter 6 examines the question of the impact of reform on the quality of working life in Chinese enterprises. In particular it explores the changes to quality of working life, the extent these changes are correlated with the marketoriented management strategies of enterprises, and the way these changes have affected workers. Our research demonstrates that the quality of working life is changing significantly with workers, on the one hand, generally satisfied with many aspects of their jobs such as responsibilities, participation and workloads but, on the other hand, indicating they were less satisfied with the level of job security, training, promotion opportunity and overtime pay. Chapter 7 examines the impact of economic reform and enterprise change on workers’ households and livelihoods. The change brought by economic and management reform has meant that workers’ households must now navigate their life choices. In addition, workers’ expectations about consumption and attitudes to the position of women in the workplace have also influenced the household strategies. Together, all of these changes have resulted in households having to rearrange their livelihood strategies in order to maintain some balance between income and expenditure as well as between the time and effort individuals spend at the workplace and at home. Key issues investigated in this chapter include incomes and expenditures; time at work and in commuting to work; domestic

8

Introduction

housework; workers’ expectations about work and their hopes for the future of their households. The chapter indicates that workers’ material circumstances and their ability to meet their expectations depend crucially on the performance of the company in which they work. Chapter 8 concludes the book by summarising the research findings in the context of the research questions and the analytical framework. The outcomes of this research project we believe are significant: we have linked macro and micro issues by tracing the interaction and relationship between management changes, the performance of enterprises, the well-being of workers in the workplace and their household livelihood strategies. Whatever path China might be on, whatever the future may hold, a key way of evaluating that path is the manner in which workers are treated – their well-being. Workers’ incomes and material possessions have clearly been rising in China; but their share of GDP remains remarkably low. At a more detailed level, however, we have sought to identify not only workers’ incomes, but also their satisfaction with work and their ability to manage households’ demands and responsibilities. These differ across individuals; they depend on the financial performance of the enterprise, and they depend on the forms of management adopted by the enterprise. In turn, the performance and characteristics of enterprises are influenced by the path of reform. These findings, explicated in detail in the individual chapters, provide a basis for understanding what China’s path of development has meant – and may continue to mean – for workers in Chinese enterprises.

2

Economic reform and its industrial and social impact

Introduction The path of economic reform towards the so-called ‘socialist market economy’ could be seen as another difficult ‘long march’ in Chinese history with many obstacles, particularly ideological barriers, along the way. Since 1949 there have been many political campaigns that have accompanied and influenced China’s economic development. These include the early years of ‘new democratic dictatorship’ (xin minzhu zhuanzheng), the multi-ownership of economic units after the establishment of the new People’s Republic, to the socialist collectivism in the rural agriculture sector and public ownership of urban industrial and service sectors. These events were accompanied by various political campaigns such as the Hundred Flowers Blooms campaign, the Anti-rightists campaign and the Great Leap Forward campaign during the second half of the 1950s. These were followed by the disaster of the three-year Great Famine which commenced in the early 1960s. After a moderate economic recovery in the period 1964 to 1965, the Cultural Revolution began in 1966. This campaign lasted for 10 years and with the death of Mao Ze-Dong the ‘Gang of Four’ fell in 1976 which placed enormous pressure, both politically and economically, on the regime and the Chinese people (Riskin 1988). The increase in population that had occurred during the Cultural Revolution, combined with a reduction in the production of consumer goods, resulted in shortages of food and clothing (Zhu and Warner 2000a). The economic gap between China and other developed economies and Asia’s newly industrializing countries became even wider, in spite of the most popular slogan under Mao’s leadership being about catching up with the British and US economies (ganying chaomei). Mao’s successor, Hua Guo-feng, announced reform to the initial economic model designed by former premier Zhou En-Lai and introduced the Four Modernizations – of industry, agriculture, defence, and science and technology – which became the new national goal and lasted until 2000 (Zhu and Warner 2000a). However, political and ideological struggles continued among the party leadership, between the extreme left wing led by Hua and the reformist branch led by Deng Xiao-Ping who had regained his power in 1977. Hua insisted on the ‘principle of two principles’ – everything that Mao said was ‘truth’ and everything that Mao did was ‘right’ (the so-called liangge fanshi principle). This principle blocked any attempt to break away from the then existing economic

10

Economic reform and its industrial and social impact

systems. Deng, however, believed that whilst Mao had made a tremendous contribution to the liberation of China, he had made a great mistake in the Cultural Revolution. According to Deng, the ratio of Mao’s mistakes to his contribution was 3:7 (san qi kai). For the Party and the people, the principle was ‘seeking the truth from facts’ (shishi qiushi) and the ‘liberation of thought’ (jiefang sixiang). This new belief led to a search for a new direction in economic development for China. The outcome of the struggle was that Deng’s ideology gained the support of the Party (Zhu and Warner 2000a: 120). Eventually Deng’s reform agenda and Open Door policy were formally adopted at the Third Plenary Session of the Chinese Communist Party’s (CCP) Eleventh Central Committee in December 1978 as the central Party policy (Korzec 1992). In China, as in other communist societies, the formation of economic policy in general, and economic reform in particular, needed to have an ideological basis before being adopted and implemented. This required the Party as well as the entire cadre system and citizenry reaching a level of understanding about the reform being consistent with socialism, in other words an understanding concerning political correctness. However, the key issue concerned the kind of socialism required and as such the path to economic reform required considerable debate and interpretation among the ruling elites. Therefore, it was of little surprise to see the path of economic reform in China being subjected to extensive ideological debate and reinterpretation of the meaning of socialism. The following section illustrates the major issues regarding the different stages of economic reform in China.

Ideology and stages of economic reform Economic reform commenced at the beginning of 1978 when the state, through the CCP’s Central Party Committee, changed the focus of national policy from the so-called ‘continuation of class struggle’ to a policy of ‘socialist economic construction’. The reform initially started in rural areas, as the responsibility system replaced the People’s Commune system (Hsu 1991; Riskin 1988). Then, the fiscal system was reformed from the earlier state controls on enterprise investment and profit taking, to allow greater enterprise autonomy over decisions concerning investments and the allocation of after-tax profits (Wong 1995; Blejer 1991; Li 1991). A new banking and financial system was introduced with the goal of establishing a commercial banking system, including a central bank, commercial banks, investment banks, financial companies and new local money and share markets (Yang 1995; World Bank 1988). Meanwhile, the economy was opened up in order to stimulate international trade and foreign investment in China by establishing Special Economic Zones (SEZs), Open Cities and Open Regions (Webber and Zhu 1995). By this step, all the east coast regions, and finally the entire country, were opened up to trade and foreign investment (Lardy 1994; World Bank 1994, 1997; Sheahan 1986; Kleinberg 1990). The reform philosophy followed Deng’s pragmatic approach and was described as ‘crossing the river by feeling the stones’ (Zhu and Warner 2002).

Economic reform and its industrial and social impact

11

Hence, a market-determined price system was gradually introduced into the traditional central planning system which led to a dual system of plan and market for the 1980s and early 1990s. The political events surrounding the 1989 Tiananmen Square incident blocked further reforms until 1992, when Deng visited the SEZs in the South and pushed for further change under the banner of the so-called ‘socialist market economy’ (Lin 1996; Goodman and Segal 1996). Given this ideological imprimatur, more drastic reform initiatives were set in motion, such as the reform of SOEs, the development of stock markets, the opening up of the price system based on market criteria, the introduction of legislation to allow for enterprise mergers, corporatization and privatization, bankruptcies, more favourable regulations and physical environments for foreign investment and trade, and eventually the opening up of the entire country to the global economy by joining the WTO in 2002. A review of the evolution of economic reform and development suggests four stages of development and accompanying ideological debate and interpretation by the ruling elites (Zhu and Zhao 2005): namely 1978 to 1984, 1984 to 1992, 1992 to 2002, and 2002 to the present time. The first stage of 1978 to 1984 is marked by the breaking of the fully controlled planning system through the introduction of market adjustment as complementary to the planned economy (jihua jingji wezhu, shichang tiaojie wefu) (Zhu and Zhao 2005). The ideological argument for such a policy was based on the notion that the socialist economy should have two parts: a planned economy part which manages national economic activities and people’s lives in the society, as well as involvement in decision-making of enterprises and the expansion of workers’ participation in decision-making as part of promoting industrial democracy; and a market economy part which would facilitate the realization of efficiency through the utilization of economic mechanisms and market means (Zhu and Zhao 2005). The second stage of 1984 to 1992 included the new concept of a planned commodity economy. The underpinning ideology for this shift came from the realization that as part of reforming the planning systems, the first step was to correct the traditional view of the inherent contradiction between the planned economy and a commodity economy (Zhu and Zhao 2005). This argument suggested that the socialist economy should also follow the rule of value and could be developed as predominately public ownership alongside a planned commodity economy. The planned economy was not only based on controlled or ordered planning, but also related to guided planning, which allowed a certain autonomy of economic actors for decisions on production and sales. Since 1985, the so-called systems reform (tizhi gaige) was fully implemented and marked by an increasing free market for agricultural products and consumption goods while industrial materials started to have a parallel system with a partially planned and a partially market component. In addition, managerial autonomy was expanded at the enterprise level and market competition started to play a central role in influencing enterprise decision-making (Zhu and Zhao 2005). The third phase of 1992 to 2002 witnessed an even more significant shift in political thinking about the transition from a planned to a market economy with

12

Economic reform and its industrial and social impact

the claim that the eventual goal of China’s economic reform was to establish a socialist Market Economic System (shehui zhuyi shichang jingji tizhi). Following a decade or so of economic reform, a much deeper issue arose for ideological debate, namely whether the path of China’s reform belonged to socialism or capitalism (xingshe or xingzi). Under the leadership of Deng Xiao-Ping, the dominant elites within the reform think-tanks broke the barrier to claim that the distinction between socialism and capitalism was not between planned and market. Moreover, Deng pointed out in 1992 that socialism had a degree of a market economy and capitalism also had a degree of a planned economy. In short he argued that it was not right to say that a planned economy is equivalent to socialism and that a market economy was equivalent to capitalism (Deng 1993). The central focus of this stage of economic reform was to liberate and develop production capacity and to realize common prosperity for all citizens. In this context, planned or market approaches were viewed as tools or methods for realizing the key goals, depending on which one could achieve the results more quickly. Key considerations for adopting a market mechanism were based on the need to rationalize resource allocation under macroeconomic adjustment (hongguan tiaokong) in order to realize exchange value. In addition, by using market competition, efficient enterprises would triumph over inefficient enterprises, leading the entire economic system to be more competitive and efficient. Under this principle, the state encouraged government officials and enterprise managers to learn advanced economic management systems and modern enterprise management approaches from other developed economies and not to be afraid of capitalism (Zhu and Zhao 2005). This move to fully develop the so-called socialist market economy required more detailed economic policies to be implemented. One of the key policies was the encouragement and development of non-state-owned enterprises, including both DPEs and FIEs. At the same time, further reform of SOEs was to be carried out through corporatization (regrouping large and medium-sized SOEs and changing them into public shareholding companies) or privatization (selling small SOEs to domestic or foreign owners). This policy was described as ‘holding the big ones and letting go the small’ (zhuada fangxiao). Accordingly, the establishment of modern management systems, improving socialist market systems, changing government function towards service orientation, and the development of rational individual income distribution systems and social security systems were all part of the key agenda for reform during this period (Zhu and Zhao 2005). The fourth phase of 2002 to the present time has been marked as a crucial stage of developing an improved socialist market economic system. Whilst the basic economic structures and systems had been gradually developed, other problems have emerged such as the mismatch between the challenges of market competition and the existing public sector’s incapability to cope with such challenges; insufficient government transformation of its responsibility with substantial political and administrative interferences; incomplete market systems and regulation; and limitations on the development of non-public ownership economies. The full extent of the impact on workers of this reform was also becoming clear. The concepts of

Economic reform and its industrial and social impact

13

market economy in general and ‘user pay’ in particular have added substantially to the financial burden on household and individual livelihoods. The most significant additional expenses have been associated with education, medical care, housing and retirement. Health, housing and educational reforms have seen what were once stateprovided systems that served as models for the Third World replaced by market models, in which health, housing and education are provided as commodities for sale in the market. Total expenditures on all three items have risen rapidly since the mid-1990s, according to data from the National Bureau of Statistics (1996–2006). Prices of health care and education have increased sharply: between 1994 and 2005, the consumer price index increased by less than 40 per cent, but the price of health care services increased by 226 per cent, the price of tuition increased by 370 per cent and the price of housing by three times the consumer price index. Individual expenditures for education were more than five times greater in 2004 than in 1996, 3.6 times greater for health care, and 3.2 times greater for housing. In 2007, the central government announced some refinancing of education and health care, although these announcements are too recent to affect the costs faced by our respondents. The impact on enterprises of these reform policies was also significant. The major effects included: 1

2

3

The reinterpretation of the concept of public ownership to include a public stock shareholding system that allowed for a connecting point for public ownership on the one hand and the market economy on the other. The introduction of multi-ownership systems (including both public and private) which forms the basic economic style of the so-called ‘Primary socialism’, which represents the current stage of China’s development. The new direction for China’s development based on the so-called Scientific Development Concept (kexiu fazhang guan) and a focus on developing a harmonious society (fazhang hexie shihui).

The central government outlined five general principles that would allow for a balanced and systematic approach to economic development, namely balancing urban and rural development; reducing the disparity of different regions’ development; considering a harmonious development pattern between the factors of social and economic development; balancing human needs and development and sustainable environmental conditions; and managing the balance between domestic market development and foreign trade/investment (Zhu and Zhao 2005). These bold changes were implemented in the last decade or so and have been associated with both positive outcomes such as high economic growth, better economic and investment environments, healthier legal frameworks, larger foreign currency reserves and foreign direct investment (FDI), and higher national and individual incomes (Zhu and Warner 2005). However, the negative consequences of past growth strategies have also become apparent, with increasing income inequality both at personal and at regional levels, rising unemployment

14

Economic reform and its industrial and social impact

and insecurity among both urban and rural citizens, and environmental degradation. Those in urban areas have done better than those in rural ones; most urban workers have benefited vis-à-vis most peasants. But relative deprivation is now the operative concept in analysing the uneven welfare outcomes. A new middle class of consumers, possibly over 150 million, those enjoying the fruits of the last three decades, is now visible in this scenario, particularly in Beijing and Shanghai, as well as in many of the big eastern coastal towns and cities. Even within the cities, there are more gains for some than for others. Indeed, income inequality has grown and the Gini coefficient (defined as a ratio of low incomes to high incomes) is now 0.47 (CIA 2008) compared to estimates of 0.2 under Mao (Lee and Warner 2005: 99), and is now converging with that of other East Asian countries (see World Bank 2000). These negative outcomes may lead to social instability and the new leadership under President Hu Jin-tao and Premier Wen Jia-bao are paying particular attention to these problems (see Huang 2008 for an analysis of the changes in growth strategy under Hu as compared to his predecessor, Jiang). The so-called developing a harmonious society (hexie shihui) and adopting a scientific development concept (kexu fazhan guan) have become popular ideological slogans for the new regime and are clearly different from the previous leadership’s emphasis on efficiency and competitiveness rather than on social fairness and harmony.

Reform of labour regulation The economic reform outlined above could not have proceeded without substantial changes to the rules governing the interaction among employers, workers, trade unions and other related institutions such as the labour bureaus and the courts. As a consequence new legislation and regulations were introduced that would not only facilitate the market-orientated reform but also covered the variety of emerging new economic entitles such as the DPEs and FIEs (Benson 2007). The major legislative developments that affected people management over the reform period included: 1

2

3

The introduction of the Fixed-term Contract Employment regulation in 1986, which specified that all future employment would be on short-term fixed contracts. This was in contrast to the jobs-for-life principle that existed for most of the period since 1949. A range of gender-related legislation that was introduced to protect the rights and health of women. This commenced with the Female Employees’ Labour Protection Legislation in 1988 and continued with the Prohibited Posts for Female Employees in 1990 and the Protection of Women’s Rights and Interests in 1992. Administrative reforms, also undertaken in 1992, to improve the system of labour administration, wage distribution and social insurance. Importantly these were jointly agreed and proposed by the Commission for Restructuring

Economic reform and its industrial and social impact

4

5

6

7

8

9

15

the Economy, the Ministry of Labour and Social Security (MOLSS) and the All China Federation of Trade Unions (ACFTU). The introduction of the Provision of Settlement of Surplus Labour in 1993, which provided guidelines for enterprises that wished to reduce their level of excess labour through such means as the creation of new jobs, retraining and a variety of leave arrangements. Enterprises’ liability for their workers was not, however, reduced. Accompanying this reform was a system of unemployment insurance for dismissed workers. The introduction of a new Labour Law in 1995 that provided a framework for the conduct of employment relations. This legislation incorporated the minimum wage regulations of 1993 as well as permitting collective agreements. This law applied to all enterprises irrespective of their structure or ownership. The key aims were to protect the rights of employees while promoting economic development and social progress. The Act encouraged the formation of and participation in trade unions, widened the system of labour contracts, and listed a variety of wage and working conditions. The Act also outlined policy on occupational health and safety, employment of juveniles, vocational training, social insurance and welfare, and the settlement of industrial disputes. The revision of the 1950 Trade Union Law in 1992 (and again in 2001), which specified the organizational structure of trade unions and defined their rights and obligations. This law was premised on the need for the management of SOEs and trade union officials to work together for the common good of the state. Nevertheless, it recognized the potential for conflict in a range of areas including negotiating collective agreements, protecting workers’ legal rights, processing grievances and labour disputes, and directly monitoring health and safety issues. The Act specified collective bargaining as a legitimate activity of trade unions. The Temporary Measure on Collective Wage Consultation, implemented in 2000, that governed the principles and details of wage increases through collective consultation between the enterprise and the trade union/workers’ representatives. The Provision Concerning the Administration of the Labour Market, introduced in 2000, which provided the basic principles that would underpin the developing external labour market. A new Labour Contract Law that came into effect in 2008. The Act had gone through a series of modifications based on a large number of submissions received from the various parties. The objective of the law was to create a ‘harmonious society’ and to be more inclusive in its coverage. The Act requires employers to provide written contracts to all workers, restricts the use of temporary labour and makes it harder to lay off employees.

The increasing tendency towards the ‘rule of law’ significantly influenced the relationship between enterprises and workers as well as affected the social and economic life of the society as whole. These impacts are outlined below.

16

Economic reform and its industrial and social impact

Table 2.1 National economic development since 1978 Measure GDP (RMB, billion) I. Primary industry II. Secondary industry III. Tertiary industry Domestic consumer-good sales (RMB, billion) International trade (US$, billion) Export Import FDI (US$, billion) Population (billion) Male Female Urban (city/township) Rural (village) Employment no. (million) Urban registered unemployment no. (million)

1978

1990

2000

2005

2007

365 103 175 87 156

1887 506 772 589 830

9922 1495 4556 3871 3911

18387 2308 8736 7343 6718

24953 2810 12138 10005 8921

21

115

474

1422

2174

10 11 – 0.96 0.49 0.47 0.17 0.79 402

62 53 3.5 1.14 0.59 0.55 0.30 0.84 648

249 225 40.7 1.27 0.65 0.61 0.46 0.80 721

762 660 60.3 1.31 0.67 0.63 0.56 0.74 758

1218 956 74.8 1.32 0.68 0.64 0.59 0.72 770

5.30

3.83

5.95

8.39

8.30

Source: China Statistical Press (2008a).

Industrial and social development Industrial development The economic and legislative reforms outlined above have underpinned the substantial growth in the Chinese economy over the past 30 years. By the end of 2007, the total GDP had reached RMB 24,953 billion, which represented a 68fold increase on the 1978 figure. Details are presented in Table 2.1. The GDP growth rate has averaged nearly 10 per cent (9.8 per cent) per year over the last three decades (Liu et al. 2008). This growth has led to a GDP-per-capita figure of US $2,500 in 2007 (Ma 2008), which represents a 17-fold increase on the 1978 figure of US $148. Much of this growth was driven by a significant shift in industrial activity to the secondary and tertiary sectors. During the period between 1978 and 2002, the agricultural sector’s share of GDP fell from 28 per cent to 15 per cent and the agricultural labour force share of the total labour force fell from 70 per cent to 50 per cent (Lin 2008). By 2007, agriculture’s share of GDP had fallen to 11 per cent. In contrast, the tertiary sector’s share of GDP increased from 24 per cent in 1978 to 39 per cent in 2000 and to 40 per cent in 2007. However, the proportion of the secondary sector’s share of GDP remained relatively constant fluctuating from 48 per cent in 1978 to 46 per cent in 2000 and to 49 per cent in 2007. Over

Economic reform and its industrial and social impact

17

the entire period of economic reform the primary sector has increased 3.7-fold, the secondary sector 23.2-fold and the tertiary sector 19.0-fold (Liu et al. 2008). The shift from the primary sector to the tertiary sector over this period has driven the level of urbanization in China from 18 per cent to 39 per cent (Lin 2008) and the increase in GDP per capita has led to domestic consumer-good sales increasing by 57 times in RMB value between 1978 and 2007 (see Table 2.1). The development of international trade has been the most significant factor for engaging China in globalization and building-up foreign currency reserves. The total value of foreign trade increased 104-fold between 1978 and 2007. China has enjoyed significant trade surpluses over the past three decades and China is currently the holder of the largest accumulated foreign currency reserves in the world. In 2007, China’s value of exports was 8.8 per cent of the total world export value and it was the second-largest exporting country (Lin 2008). At the same time China’s value of imports increased to 6.7 per cent of total world import value and this placed it as the third-largest importing country (Lin 2008). Overall, by the end of 2007 China’s foreign trade share was 8 per cent of world trade value (Lin 2008); a substantial increase from the 1 per cent share in 1978. A significant factor in this development of trade has been the level of FDI in China, which has increased 21-fold between 1990 and 2007 (see Table 2.1). The substantial level of economic development in China has not, however, proceeded evenly. China can be divided into many different development areas, each of which has a different level of industrialization. The most advanced industrial areas are the Yangzi River Delta region (including Shanghai and Hangzhou cities, and Zhejiang and Jiangsu provinces), the Pearl River delta region (mainly Guangdong province), and the Beijing–Tianjing region. The traditional industrial regions, such as the northeast old industrial region (including Haerebin) and the central industrial region (including Wuhan) have become less significant in the years following economic reform. The least developed regions are to be found in the southwest and northwest areas (including Kunming and Lanzhou). The unevenness in the level of China’s economic development is clearly demonstrated using the index developed by Xiao et al. (2008). This is an overall measure of economic capability formed by combining various economic measures such as: • • • •

material/capital assets (for example raw material, fixed capital, non-fixed capital, and infrastructure); economic operational capacity (for example the domestic economy and production, international trade, international investment, and employment); economic operational efficiency (for example productivity, assets-usage efficiency, management efficiency, and financial service efficiency); regional innovation environment (for example scientific research activities, human resources and development, and public services).

Using their index, Xiao et al. (2008) compared four metropolitan cities and 27 provinces. Scores ranged between Shanghai (most developed with 100 points)

18

Economic reform and its industrial and social impact

to Ningxia province (least developed with 0 points). Among our selected six locations, Beijing was ranked third with 75.4 points, Zhejiang province including Hangzhou was ranked fifth with 66.4 points, Helongjiang province including Haerebin was ranked twelfth with 24.8 points, Hubei province including Wuhan was ranked fourteenth with 22.9 points, Yunnan province including Kunming was ranked twenty-fourth with 16.0 points, and finally Gansu province including Lanzhou was ranked thirtieth with 0.2 points. Our selection of enterprises and locations clearly reflects the unevenness of industrial development across the country. Social development Accompanying the economic and industrial development was the recognition that reform of social policy was also required. In this section we deliberately focus on social changes relevant to the aims of this book, namely enterprise performance, quality of working life, and household and livelihood strategies. Issues such as social insurance, the problems facing migrant workers, education and training and the growing social disparity will be considered. We begin, however, by providing a summary of five important social changes affecting the world of work. The first important social change occurred early in the reform process when the government instituted a population policy with the focus on reducing the population in China through what became known as the ‘one child policy’ (Li, P. 2008). This policy has substantially affected the birth rate and the total population growth rate, but has also had some negative effects such as contributing to the ageing of the population and creating an imbalance between the official birth rates of boys and girls. In addition, a spoilt generation of children has grown up in one-child households that may have long-term consequences for the maintenance of social harmony. The second major social policy change was in the area of employment relations. The key statutory and regulative reforms were summarized in the previous section; here we highlight some of the effects of these reforms. Workers no longer have long-term job guarantees as they did with the ‘iron rice-bowl’, though they now have access to a variety of forms of social insurance, including an unemployment insurance scheme. The development of an external labour market has meant that workers who have lost their jobs have to actively engage in the job search process through a variety of employment avenues. A number of ‘re-employment training schemes’ have been introduced to assist workers with upgrading their skills and the government has provided more support to migrant workers and other vulnerable workers such as women and children (Li, P. 2008). A third major social policy change was the adoption of anti-poverty polices to assist in improving the living standards of the poorest segment of the population, particularly those in rural areas affected by economic development. These policies appear to be having some effect as between 1978 and 2006 China reduced the number of people classified as rural poor from 250 million to 21 million (Li, P. 2008). Another important policy for improving living standards was the encouragement given to rural workers to move to the larger cities and industrial regions in

Economic reform and its industrial and social impact

19

search of work. Whilst the initial number of migrant workers was relatively low – about 2 million migrant workers recorded in the mid-1980s – this number had increased to nearly 130 million migrant workers in cities and industrial regions by 2006 (Bai 2008). In addition, the government assisted in rural industrialization through what have become known as Township and Village Enterprises (TVEs). Such enterprises were made possible by the government supporting a system of multi-ownership in the early 1980s. By 2006 there were 23 million TVEs established throughout China, employing some 146 million workers (Wang, X. 2008). In short, the government realized that eradicating rural poverty and developing rural regions could not be achieved solely through agricultural development but required improved infrastructure for industrialization and urbanization in the rural areas. A fourth key social policy area was education. After the Cultural Revolution, the university system was reopened through the re-implementation of a national higher education examination system in 1977. In 1985, the central government passed a policy on the reform of the education system and established a nine-year compulsory primary and secondary education system. This nine-year free compulsory education was gradually expanded into the less developed regions so that by the late 1990s the compulsory education system had been established throughout China (Li, P. 2008). Lack of funding meant, however, that some schools could not pay teachers’ salaries and others had to charge higher fees to enable them to run their schools. Under pressure from students, their parents and schools the government enacted a new Compulsory Education Law in 2006 that established the principle of free education and ensured that both the central and local governments provided sufficient funding for the implementation of the nine-year compulsory education system (Li, P. 2008). In addition, from 1999 the government has allowed individual universities to expand their student intake beyond their allocated number by charging full fees. This, the government argued, would allow more young people to gain a higher education, although it could also be seen as a way to allow universities to earn additional income (Li, P. 2008). The final key area we will consider in this section is the change in social management policy that has had a significant impact on enterprises and individual workers. The term ‘work-unit’ in China means considerably more than the equivalent term of ‘workplace’ in English. Prior to the period of economic reform the work-unit had full responsibility for its workers, which typically covered the entire life of the worker which in Chinese was expressed as ‘birth, ageing, illness and death’ (Sheng, Lao, Bing, Si). This welfare system has often been referred to as the iron rice-bowl or in Western jargon the ‘cradle to the grave’. This system led workers to develop a strong dependent relationship with their enterprise which, in turn, added a substantial financial burden to each work organization or danwei. Since the commencement of the economic reform this enterprisebased welfare system has been considerably eroded through two key mechanisms. First, social welfare responsibility has been devolved to the individual worker through market mechanisms such as individual responsibility for housing through housing commercialization and insurance through social insurance systems (Li, P. 2008). Second, the diversity of employment status and new employment

20

Economic reform and its industrial and social impact

systems created an environment that enabled individual workers to determine where they worked. These reforms can be best summarized as changing individual employees from a ‘work-unit person’ (danwei ren) to a ‘social/society person’ (shehui ren) (Li, P. 2008). These social policy changes have had a profound affect on workers, enterprises and society more generally. To summarize these impacts, we highlight the following points that are relevant to our research aims: 1

2

The new social and economic environments have created new and multiple social status groups. Under the socialist planning system, Chinese society was mainly composed of four social status groups: workers, peasants, cadres and intellectuals (Li, Q. 2008). However, since the market economic reform started, the social status groups have gradually changed and expanded. For instance, peasants started to break the household registration system (hukou) and an increasing number of migrant workers gained temporary or long-term urban citizenship. In addition, those peasants who remained in their home areas could become the owner of TVEs with a change in their social status to one of entrepreneurs. Among the urban citizens, namely workers, cadres and intellectuals, their social status changed through their engagement in market economic reform. For instance, some workers resigned from their enterprise and started their own business while others became involved in the developing stock markets. This led to a change in the traditional social rankings where economic wealth became more important than occupation. In addition, due to the labour market reforms, workers now had more chance to determine their own career opportunities rather than relying on their work organization (danwei). Therefore, the ‘personal file’ (dangan) that used to be very important for workers’ careers became less significant, while personal skills and experiences became more important in gaining employment opportunities in the external labour market (Li Q. 2008). The gap between rich and poor has been getting wider. By following Deng Xiaoping’s initial slogan for economic reform, labelled as ‘allowing a group of people to become rich first’, a number of people became rich in a very short time. The consequence was, as we discussed earlier in this chapter, the Gini index in China rose to 0.47, which was one of the highest in Asia (World Bank 2000). In other words, China has become one of the most unequal societies in the world. This gap reflects the social disparity between urban and rural citizens, educated and less educated citizens, coastal and inland citizens, and probably male and female citizens. The key problems associated with this phenomenon were related to unequal and unfair opportunities among citizens in their access to business and other economic activities and could also be linked to family status (for example an official’s family versus an ordinary citizen’s family), and to the social and economic environments (for example different educational backgrounds, gender, location and social networks). In addition, this inequity could also be due to the underdeveloped redistribution systems that have not fundamentally changed in order to accommodate the pressures of redistributing the benefits of economic reform from the rich to the poor.

Economic reform and its industrial and social impact 3

4

21

An emerging new middle class has become a crucial factor for social stability. Following the economic reform and the changing industrial structure a new middle class has emerged. In contrast to the previous years of industrialization that focused on the primary and secondary sectors, the development of the tertiary sector has created a large number of workers with special skills and experiences that were different from traditional manual workers. This rise in the tertiary sector, together with the relative decline in the primary and secondary industries, has meant that the middle class is increasing rapidly, with some commentators suggesting that the number of middle-class people could reach 35 per cent of the total urban workforce by 2008 (Li, Q. 2008). If this trend is realized then the degree of social disparity mentioned above may be constrained and social stability enhanced. The development and constraints of domestic consumption have provided opportunities and obstacles to further economic development. Economic reform has increased workers’ incomes with national citizens’ consumption increasing by 646 per cent between 1978 and 2006 (Wang, N. 2008). Economic reform has, however, changed many aspects of workers’ economic and social lives; in particular in the transition from an organizational welfare-based system towards a market-oriented user-pays system, workers and their households have had to plan carefully and control their day-to-day spending (this is further discussed in Chapter 7). Economic reform therefore had two implications for workers’ consumption: first workers gained autonomy for determining what and how much they could spend or save, and second, workers became much more aware of the risk they were taking in terms of consumption and saving behaviours. Since 2001, the total consumption rate (the percentage of consumption expenses among total after-tax incomes) has fallen: between 2001 and 2006 the total citizens’ consumption rate declined from 45.2 per cent to 36.2 per cent, with urban citizens’ consumption rate declining from 30.7 per cent to 26.7 per cent and rural citizens’ consumption rate declining from 14.5 per cent to 9.5 per cent (Wang, N. 2008). The major reasons for the decline in consumption were related to insecurity and worries that workers had about the increased expenses related to housing, education and medical care, concerns about the quality of products and services that might not meet their expectation, and uncertainty about their future job security (Wang, N. 2008).

These industrial and social changes have had a significant impact on workers, enterprises and society as a whole. In order to understand how these reforms may have affected enterprises we now focus on the micro-level reform and management systems.

Microeconomic reform and management systems Microeconomic reform commenced in the 1980s when China opened up to foreign investment and foreign companies started operating in the SEZs (Webber

22

Economic reform and its industrial and social impact

and Zhu 1995). The market competition that had been building up among existing SOEs and COEs, as well as the newly established DPEs, received an extra boost with the entry of the FIEs, although these firms were primarily focused on export markets. The process of gradually introducing market forces made it clear among Chinese enterprises that the pre-reform, welfare-based management systems that existed under the planned economy would no longer fit with the increasing market competition. Reforming the management systems in general, and employment relations in particular, thus became the crucial strategy for microeconomic reform. Before examining the reform agenda we will outline the key characteristics of employment relations under the welfare-based management system. Welfare-based management systems Generally speaking, the employment relations aspects of the welfare-based management systems were based on the principle of the so-called ‘socialist superiority’ which had five core values (Zhu and Warner 2005). First, employment security, seniority, social welfare, and Party/management leadership (central control) were labelled as the advantages of the socialist system. Second, trade unions mainly played a window-dressing role, but this was explained as a way of leading to industrial harmony. Third, narrow wage differentials were praised as egalitarianism under the socialist system. Fourth, the traditional kinship system was modified into a revolutionary relationship, as relationships (guanxi) with powerful leaders now determined the path of an individual career. Fifth, the goals of the work unit (danwei) not only required individual sacrifice for the unit but also for the nation. This form of employment relations did not, however, always benefit individual employees and work performance. For example the role of unions was highly regulated and became primarily one of a ‘transmission belt’ between the Party/state and workers. As a consequence, workers lost their motivation for work and focus on production, which led to extreme pressure being placed on both the economic and management systems by the end of the Cultural Revolution in 1976. Reforming employment relations The problems with the employment relations system meant that with the commencement of economic reform in the late 1970s a major and urgent task was to reform the existing personnel management and industrial relations systems into a new one embodying HRM and industrial relations. Such an approach focused on five key activities. First, new policies were centred on the reform of wages, employment, welfare and management. These new initiatives have been referred to as breaking the ‘three irons’– iron rice-bowl, iron wages and iron position – and establishing three new systems, namely, the labour contract system, the floating/ structural wage systems, and the cadre or manager engagement systems (Yuan 1990; Ding et al. 2000). Second, government policy shifted to restore the principle of ‘distribution according to work’ and to link individual performance, skills and position with

Economic reform and its industrial and social impact

23

their income in order to improve individual employees’ motivation to achieve greater production (Zhu and Campbell 1996). For instance, new types of wage systems were introduced such as piece-work, bonuses, and later the ‘structural wage system’ and the ‘floating wage system’ (Li 2000; Ding et al. 2000) and the ‘post plus skills wage system’ (Warner 1997). This step was important because the economic reform process called for greater efficiency in factor-allocation, with labour flexibility a priority (Ding et al. 2000). Third, the reform of employment relations was to be achieved by the introduction of a modern HRM system. The achievement of such an objective was, however, to prove gradual and slow. Whilst the term HRM is mostly de rigueur in the more prominent FIEs and Sino-foreign joint ventures (JVs), particularly the larger ones, management remained largely inward-looking with a focus on issues such as wages, welfare and promotion (Benson and Zhu 1999). Thus employment relations in these early years were similar to conventional personnel arrangements rather than the strategic systems normally associated with HRM (Zhu and Warner 2004). Fourth, trade unions gradually gained more autonomy in terms of representing workers, not only in the SOEs and the public sector, but also increasingly in the private sector such as DPEs and FIEs. This was clearly illustrated by the establishment of union branches in all of Wal-Mart’s subsidiaries in China (Zhu et al. 2009). In addition, there have been increasing grass-roots initiatives among union branches in recent years to organize migrant workers (those workers from other parts of China) as well as defending workers’ rights through legal processes (e.g. involvement in drafting labour laws and regulations and defending workers’ through legal arbitration and court systems) (Zhu et al. 2009). Fifth, labour immobility was a feature of the old system dominated by the SOEs’ employment system as well as the household registration system (hukou). This led to considerable overstaffing, zero-turnover of workers and no labour movement between different locations (including both urban-to-urban and ruralto-urban migrations). The challenge was therefore to create an external labour market and to encourage labour mobility between firms and locations through the labour contract systems and registered migrant workers from rural areas to urban and industrial areas. Whilst such reform was high on the reform agenda, improvements in labour mobility were not to take place overnight. Even by the late 1990s, the level of job mobility was relatively low in many SOEs although rising in the non-state sector such as in JVs, especially in large cities like Shanghai (Zhu and Warner 2005). More recently labour mobility has increased given the phenomena of ‘China as a global factory’ and many migrant workers seeking and gaining employment at FIEs operating the Pearl River and Yangzi River delta regions. Economic reform and management ‘Modern’ management systems were introduced in China in the mid-1990s as part of the economic reform agenda (Huang 1996). One of the key aspects of

24

Economic reform and its industrial and social impact

this reform included changing the ownership system by transforming the old SOEs into new public corporations, such as public-stock companies (PSCs) and joint-stock companies (JSCs) under the control and supervision of a company board and supervisory committee (Zhang 2004). Therefore, the managers of these transformed SOEs are no longer the agents of the state, but the agents of multiple investors, including the public (and, commonly, ministries and government bureaus) and other institutional investors. Another related reform policy was the privatization of the old SOEs and the encouragement of private enterprises, including both DPEs and FIEs (Benson and Zhu 1999: 58). The consequence of the diversification of ownership is increasing competition among different types of enterprises as well as the development of new management initiatives in order to survive in the new competitive markets. With this new ownership structure, enterprise managers sought to introduce advanced management systems and new technology. The transformation of management systems was a two-stage development: first to a Contract Management Responsibility System (CMRS) and then to a Modern Enterprise System (MES) (Huang 1996; Forrester and Porter 1999). The most important objective of the CMRS was related to performance – a desire to see industry achieve higher output targets through the inducement of retained profits (Forrester and Porter 1999: 50). Another objective was to increase the autonomy of SOEs with respect to operational decisions on a range of matters, such as corporate strategy, organization, finance, procurement, marketing, technical innovation and HRM. The third important objective was for government to maximize its revenue from SOEs, which led to a number of fiscal measures (Forrester and Porter 1999: 50). These measures included the progressive application of a regime of income tax to all enterprises in place of the requirement to hand over all profits to the state under the previous centrally planned system. In the long term it was assumed that the state would benefit from these new arrangements. Experimentation with the CMRS commenced in the early 1980s (Nee 1992). The change from profit transfers to taxation of enterprise began around 1984, but the widespread application of the CMRS throughout China did not occur until 1987 (Forrester and Porter 1999: 51). Apart from the introduction of the corporate income tax system, two other important initiatives occurred. First, the growth of total wages and bonuses would be linked to any growth in profits and taxes paid; and second, targets should be agreed between the state and SOEs for technological upgrading and investment (Forrester and Porter 1999: 51). The CMRS led to some positive outcomes, such as higher production efficiency and profitability when compared with the previous system. However, managers began to adopt short-term perspectives to improve immediate and short-term profit figures and neglected or placed to one side major problems that required extensive restructuring and long-term expenditure (Forrester and Porter 1999: 52). These deficiencies led to considerable debates about the value of the CMRS and by 1993 the new MES was introduced (Forrester and Porter 1999: 61), though vestiges of the CMRS remained in some firms for some time. The major reasons for such a change included the need to:

Economic reform and its industrial and social impact 1 2 3 4 5

25

address the question of ownership of enterprises; combat short-termism among managers; modify the very complex and fraught system of separate negotiations over contract terms with so many SOEs; correct the negative impact of earlier tax reforms; and clarify the separate responsibilities of the enterprise, state and Party, and allow SOEs to be managed ‘scientifically’ (Forrester and Porter 1999: 61–62).

Since the introduction of MES, SOEs were transformed into one of three types, namely ‘state-owned limited liability corporations’, ‘shareholder corporations’, and joint-stock enterprises (Forrester and Porter 1999). Integral to this structural reform was the introduction of new corporate governance systems such as a board of directors, a supervisory committee and a management committee. Such a structure was felt to provide a system of checks and balances and to allow enterprises to focus on their obligation to increase their asset value for the shareholders and to respond to government policy (Forrester and Porter 1999: 62–63). The non-state sector, in particular FIEs, had also established non-state-owned limited liability corporations within the modern enterprise system. Indeed the action of FIEs in transforming their international management systems in China was a major factor towards the development of the Chinese management system. This was also the case with many of the DPEs. In parallel to the tangible changes among enterprises in corporate governance and ownership, attempts were also made to introduce a number of intangible elements as part of developing the MES. Intangible elements such as enterprise culture, mission, internal rules, management knowledge, mechanisms and systems were gradually developed in order to create a competitive organization. These changes commenced with the FIEs through their JV arrangements and then spread into other local firms such as DPEs and SOEs. This led to a range of practices related to intangible management being introduced including involvement and participation schemes, information sharing, individual grievance/complaint system, employee stock ownership, profit sharing, worker empowerment, and employee commitment schemes. Other issues focusing on quality concerns were also addressed through the adoption of Quality Control Circles, Total Quality Control, and ISO9000 and ISO14000 bench marks. These initiatives became increasingly important for measuring enterprise performance and developing a more competitive enterprise. Research has identified some of the outcomes of these management changes and the response of enterprises (Benson and Zhu 1999; Ding et al. 2000; Zhu and Warner 2004). For example, Zhu and Warner (2004) investigated the impact of the reforms in general, and the WTO accession in particular, on management changes. The general finding was that the reactions of Chinese enterprises towards the challenges of reform and globalization could be divided into two categories, namely actively responding to these challenges through innovative strategies and new management practices (proactive) and being passive and less willing to accept such challenges (reactive).

26

Economic reform and its industrial and social impact

Zhu and Warner (2004) found that a number of factors determined the particular path adopted by the enterprise. These included ownership, location, history, experiences and industrial sectors. The size of firm and its market orientation was found to be not significant. Enterprises with foreign-ownership, or being transformed from SOEs to joint-stock enterprises, were more likely to have proactive management than SOEs and DPEs, as were enterprises located in the coastal regions. Enterprises that had weaker links with the traditional planned system were also more likely to have proactive management than enterprises which remained under the shadow of the past. In addition, enterprises that had experienced the modern management system and internationalization were more likely to have proactive management than enterprises with experience of the planned management system or the family business management system. Finally, enterprises in high-valueadded sectors and the new economy were more likely to have proactive management than enterprises in low-value-added and labour-intensive industries.

Economic reform and workers The impact of the economic reform on workers has been significant since the commencement of socialist economic construction in the late 1970s and early 1980s. Those parts of the reform agenda that had a significant impact on workers include the relaxation of the household registration restriction that allowed rural labour to work in urban and industrial areas, the introduction of a ‘user-pays’ approach for workers and their families in such areas as education, medical care, and housing, and the increased flexibility associated with the new employment relations. This flexibility included the adoption of the labour contract system, the increased use of a non-regular workforce with ‘temporary’ employment status, the linking of pay with performance, and an increased emphasis on work efficiency and productivity. The impact of this reform varied considerably as Chinese workers are not a homogeneous group but belong to various groupings that have a range of entitlements. The major division is between the urban and rural workforces with an increasing number of the latter becoming migrant workers. Other divisions include gender, age, skill levels and occupational differences. To date most research investigating the impact of the economic reform have focused on the situation of migrant workers (Chan 2001), the differential treatments and entitlements between urban local workers and rural migrant workers (Sargeson 1999; Chan 2001), the deterioration of the position of women at work (Zhao and Nichols 1998), and the various forms of management-labour relations (Zhu and Campbell 1996; O’Leary 1998; Zhu and Warner 2005). In general, with some exceptions, the reform process appears to have had a negative impact on migrant workers. For some the reform provided an opportunity to gain regular employment and higher incomes but for many, as claimed by Chan (2001: 7), migrant workers were the main victims of the most serious labour-rights violations. Most migrant workers were attracted to the more developed regions in China, especially the SEZs and coastal cities. For many enterprises, especially the

Economic reform and its industrial and social impact

27

FIEs and DPEs, they constituted a cheap and flexible source of labour for the emerging free labour market (Chan 2001: 7). Migrant workers had a very different status from the local urban workers as they were required to possess a temporary residential permit and became illegal workers if their employer took this permit away from them (Chan 2001: 7). In addition, these workers were not entitled to any of the benefits enjoyed by the local residents such as social welfare, schooling, the right to own property, to be accompanied by their spouses and children (Chan 2001: 8). When their labour was no longer required, they were obliged to go back to their place of origin. In short, in a variety of ways migrant labour were discriminated against by local residents (Chan 2001: 9). A number of researchers have also explored how migrant labour affected the local urban workers. While SOEs’ contract workers (mainly local urban workers) had better pay and other entitlements (Zhao and Nichols 1998), pressure on these wages and benefits was mounting as the increasing number of migrant workers were employed under, or were willing to accept, inferior terms and conditions of employment (Sargeson 1999). The once celebrated, privileged, tenured population of urban workers was becoming vulnerable to the same material insecurities as the contingent workforce (Sargeson 1999). Another major effect of the reform process was on the employment of women. Since the early 1980s there has been a general deterioration in the terms and conditions of women’s employment. Research on women workers in general, and women workers working in the TCF sector in particular, indicated that women suffered not only in the areas of working conditions such as lower pay and job insecurity, but also in the areas of mental and physical health, such as depression and physical injury (Chan 2001; Sargeson 1999). In addition, the privatization of SOEs led many women workers to be targeted when redundancies occurred (Sargeson 1999). Through this reform process, women workers are now more vulnerable to the vagaries of the market and their ongoing employment less secure than that of their male colleagues. The other major impact of the reform process is related to the changes in management-labour relations. Two perspectives illustrate the relationship, namely manager’s control over workers and workers response towards management. Manager’s controls over workers include their labour and the energy expended in that labour, time, production spaces and processes. To many managers their primary objective under the restructuring process was to raise productivity and increase profit, rather than to provide employment opportunities or play a supplementary role in the economy (Sargeson 1999: 26). These demands placed considerable pressures on employers/managers and raised the ever-present possibility of a reduction in income and dismissal, whilst rendering workers vulnerable (Sargeson 1999: 19). The long-term significance of such reform raises the possibility that China’s proletariat is being reworked as a cheap, manageable workforce that will produce profit for investors and enterprise owners (Sargeson 1999: 30). Some commentators have also mentioned that there had been an increased level of dissatisfaction among workers concerning their weakened position compared to the empowerment and aggrandizement of managers (Sargeson 1999: 37). In short,

28

Economic reform and its industrial and social impact

plant managers had been given increased rights and powers while workers were now expected to passively obey the directions of management. Many of the workers are now excluded from participation in enterprise management, and have certainly lost any rights they may have had as masters of the enterprise (Sargeson 1999: 37). In addition, given the reality of newly formed coalitions between local governments, trade unions and employers/investors in their endeavors to pursue economic development, workers have found themselves alienated from governments and trade unions when they were in dispute with their employers (Zhao and Nichols 1998). In contrast to the increasingly powerful employers/managers, workers now represented an over-abundant factor of production, people who are simply an object of political and managerial strategies (Zhao and Nichols 1998). As Sargeson (1999) argued, the economic reform has created the ideological, political, economic and institutional tools by which China’s proletariat is being reworked. Therefore, it is important to investigate these significant issues related to economic reform in general, and management changes in particular, and the impact on the key actors, including managers, unions and individual workers. The following chapters in this book will address these issues.

Conclusion This chapter has illustrated the major issues regarding the different stages of economic reform and the thinking underpinning restructuring in China. The reform processes can be characterized as both a top-down and bottom-up phenomenon whereby the initiatives from government and the grass roots level are important for the continuation of the reform agenda. Opening up the economy for market competition and encouraging enterprises and workers to achieve a higher level of efficiency and productivity have been a crucial aspect of the reform policy. The debates about socialism versus capitalism regarding the planned and the market economies have shifted over time in order to provide the green light for further reform. Microeconomic reform has had a significant impact on management systems through the adoption of new management initiatives and the introduction of new employment relation systems with HRM elements, as well as affecting individual workers and the relations between management and labour. Table 2.2 summarizes the changes in economic, legal and social policy and provides clear evidence of a gradual but focused reform agenda since the late 1970s. After three decades of economic reform the Chinese society, enterprises, and workers and their families are quite different to what they were 30 years ago. The changed economic, legal and social contexts reported above and the impact on enterprise performance, quality of working life, and households and livelihoods underpins the research undertaken for this book. Our focus is on the fourth phase of reform (2002–present) as outlined above and we attempt to understand the change process by exploring the progress of reform and the dynamics of the change process. Enterprise-level research enabled us to investigate the issues related to the reform of management systems and the impact of new management systems, structure, mechanisms and cultures. In order to have a clear understanding of how such reform affects different types of workers we interviewed different groups of

Economic reform and its industrial and social impact

29

Table 2.2 Economic, legal and social reform, 1978–present Period

Economic reform

Employment legal reform

Social reform

1978– 1984

Land reform Contract/leasing management system Introduction market/ price system Establishing SEZs Further opening for FDI and open cities More market orientation Financial and bank reforms Control inflation Management responsibility system Introducing full socialist market economy Reform of SOEs and development of DPEs, TVEs and FIEs Re-employment policy and scheme Introducing modern management system Restructuring economic and industrial structures Further financial and banking reform Further microeconomic reform New policy on dealing with global financial crisis

Temporary regulation on employment contract and insurance in SEZs

Re-open university New population policy

Temporary regulation on employment contract and insurance in the whole country

Gradually introducing 9-year free education Beginning housing and medical care reform

Introducing new Trade Union Law and new Labour Law

Introducing more user-pays systems and social insurance University expansion Minimum income protection

Introducing amended Trade Union Law and new Labour Contract Law New laws on mediation and arbitration, occupational health and safety

Introducing policy on affordable housing and medical care reform Policy on creating job for university graduates and long-term unemployed people Developing a harmonious society

1985– 1992

1993– 2002

2003– Present

workers including men and women, migrant and local workers, as well as workers of different ages. The key issues were related to the management changes and the influence on the position of workers as well as the key determining factors for successful firms’ performance. The following two chapters will explore the degree and progress of change in HRM, ER and trade unions so as to provide the context for the later chapters that investigate the impact of reform on enterprise performance, quality of working life, and households and livelihoods.

3

Management, workers and conditions of employment

Introduction As illustrated in Chapter 2, China has undertaken substantial reform of its economy since 1978 (see also Webber et al. 2002). The transformation of Chinese management structure and systems (Huang 1996) is closely related to wider market forces and reflects both greater globalization and market-orientation (Warner et al. 2005). The Chinese government claims that the transition to a market economy has been special and distinctive (see former Chinese President Jiang Zemin’s speech on the definition of a ‘socialist market economy with Chinese characteristics’, Beijing Review, 23–29 August 1993 and 12–18 July 1993). In such a transition the new management system will have both general and particular characteristics that mark its evolution (Warner et al. 2005). How has this wider macro-level change affected the enterprise, in particular management mechanisms and systems, the recruitment, development and appraisal of workers, and ER, most noticeably wages and working hours? These questions will be the focus of this chapter. Using our interview data, the chapter commences with a brief examination of management mechanisms and systems as viewed from a management perspective. This sets the context for the next section, which details the current state of HRM practices in our case study enterprises and some of the changes that have taken place. The fourth section focuses on employment relations in these enterprises with a particular emphasis on employment contracts, wages and hours of work. The chapter concludes by considering some possible explanations for variations in the practices of enterprises. The aim of the chapter is to provide the context for the analysis of enterprise performance, worker satisfaction and household livelihood that is provided in Chapters 5 to 7.

Reform and restructuring of management in China There has been substantial empirical research on the management of Chinese enterprises. Much of this has been devoted to analysing the structural reform of SOEs (Benson and Zhu 1999; Zhang 2000), the introduction of modern management systems (Zhu and Warner 2000), and changes to HRM and employment (Cooke 2005). Others have begun to investigate strategies and management

Management, workers and conditions of employment

31

Table 3.1 Management mechanisms and systems in Chinese enterprises, 2003 Management mechanisms

N

Yes (%)

Employee commitment schemes Involvement/participation schemes Information sharing Individual grievance/complaint mechanism Worker-stock ownership Profit sharing Empowerment

37 37 38 38 38 38 37

89.2 62.2 68.4 57.9 21.1 39.5 43.2

Management systems

N

Yes (%)

Professional business management Incentive-based management Reformed organizational structure Shareholding system ISO9000 ISO14000 Private ownership

36 36 36 36 36 35 35

44.4 38.9 27.8 25.0 66.7 17.1 14.3

Source: Manager interviews.

behaviour in the new SOEs (Tan and Litschert 1994; Tan and Tan 2005) or compared the behaviour of SOEs, DPEs and FIEs within a framework of internal changes and external challenges (Ralston et al. 2006). From this and other research it is clear that the modern SOE in China is no longer the cumbersome, bureaucratic and inefficient organization of the pre-reform period. This research reaffirms Warner’s (1987) early claim that learning Western-style management theories and practices has been a priority in the country’s reform strategy. What has been the situation in our case study enterprises? Table 3.1 provides an overview of the management mechanisms and systems adopted by the 38 enterprises. In general, softer mechanisms (such as commitment schemes, information sharing and grievance/complaint mechanisms) have been more widely adopted than mechanisms that give power to workers (such as empowerment, profit sharing and stock ownership). Modern management systems are even more weakly adopted: only ISO9000 certification has been adopted by a majority of enterprises. More fundamental reform that involves change to the organizational or ownership structure, or the adoption of other quality measures such as ISO14000 certification, has been by a quarter or fewer of the enterprises. In short, these data point to some changes taking place but certainly at a slower rate than that presented in some of the literature (Ding et al. 2000).

Approaches to HRM Given the potential impact of the reform on workers, the challenge for the state and employers was to provide a framework for HRM that would develop the

32

Management, workers and conditions of employment

Table 3.2 Means of recruiting new workers (%) Means of recruitment

Internal recruitment Government job agencies Social agencies (e.g. trade unions) Private job agencies School/university recruitment Newspaper advertisements Family or friend recommendation Internet

Production workers

Technicians and administrative staff

Yes

No

Yes

No

35.1 43.2 40.5 10.8 40.5 37.8 51.4 27.0

64.9 56.8 59.5 89.2 59.5 62.2 48.6 73.0

52.6 40.5 37.8 10.8 62.2 37.8 32.4 46.0

47.4 59.5 62.2 89.2 37.8 62.2 67.6 54.0

Source: Manager interviews. Note: N = 37.

skills of workers and provide the basis for a productive market system. Yet much of the rapid growth experienced by China in the first two decades of reform was built on inherent competitive advantages such as a cheap labour force and inadequate protection for workers and the environment. Is this still the case or have enterprises started to develop a more modern system of HRM? In this section we use our case study data to explore a number of areas that can provide an assessment of the nature and extent of the HRM reforms undertaken in China. Recruitment In the past, workforce numbers were determined centrally and were related to an assessment of the enterprise’s ability to meet the production quota determined by the government. There was little ability for the enterprise to gain additional workers or to terminate the employment of those workers who could be considered excess to requirements. In the year before the interviews took place 30 of the 38 enterprises had recruited new workers. The number of new workers recruited ranged considerably: the largest number of recruits in any one enterprise was 1,200 workers. The overall average was 122 workers, of which a little over 29.5 per cent were female. These new workers were recruited via a number of avenues as shown in Table 3.2. Clearly for production workers, family or friends, government job agencies, social agencies such as trade unions, and school/university recruitment are important means of sourcing new workers. Whilst such methods had some significance for the recruitment of technicians and administrative staff, the recruitment methods for these workers relied more heavily on internal recruitment, school and university recruitment as well as the Internet. The pattern of the recruitment strategies reported by managers of the 38 enterprises is similar to the responses of workers to the question ‘how were you selected

Management, workers and conditions of employment

33

Table 3.3 Workers’ means of obtaining job – present and previous job (%) Means of recruitment

Present job

Previous job

University graduate programme School graduate programme Government job agencies Social agencies (e.g. trade unions) Newspaper advertisement Family of friend recommendation Private job agency Internet Applied myself Internal promotion N

3.7 7.4 5.3 5.3 11.6 28.4 0.0 3.2 17.4 17.4 190

9.2 23.9 12.8 0.9 5.5 29.4 0.9 0.0 12.8 6.4 109

Source: Worker interviews.

to work for this job?’. As shown in Table 3.3, the most popular means workers used to gain their present job was through family and friends (28.4 per cent), followed by applying to the enterprise directly (17.4 per cent), internal promotion (17.4 per cent), newspaper advertisements (11.6 per cent) and through some form of school or university graduate recruitment programme (11.1 per cent). Government job agencies only accounted for 5.3 per cent of placements. The major differences between the views of managers and workers about the recruitment processes was that workers placed less significance on government job agencies, social agencies and newspaper advertisements than did managers and enterprises. We also asked workers how they were selected for their previous job. As for many of the workers their current employer was their first employer (only 109 workers responded to this question). The results, however, are interesting as they provide a partial picture of change in recruitment strategies within a period of economic reform. These changes can be readily seen in Table 3.3. Avenues such as school (7.4 per cent) or university graduate programmes (3.7 per cent), and government job agencies (5.3 per cent) have fallen significantly, while social agencies (5.3 per cent), newspaper advertisements (11.6 per cent), direct application (17.4 per cent), the Internet (3.2 per cent) and internal promotion (17.4 per cent) have risen substantially. For many of these enterprises this recruitment was part of an attempt to fill shortages in skilled labour (68.4 per cent). Those enterprises facing skill shortage did not appear to prefer any one method of recruitment, although school/university recruitment figured most highly among this group. This similarity of recruitment methods raises the question as to whether enterprises have other means to handle skill shortages. To explore this question further, enterprise managers were asked how they dealt with skill shortages. Results are presented in Table 3.4. For production workers the most popular approach was to develop or adapt the skills of existing workers, which nearly 90 per cent of enterprises undertook. Other methods included widening the recruitment net and offering better pay and/or working conditions. These methods were also important for the recruitment of

34

Management, workers and conditions of employment

Table 3.4 Dealing with skill shortages (%) Methods

Develop/adapt skills of existing workers Widen recruitment net Offer better pay/work conditions Outsourcing/subcontracting New technology

Production workers (N =28)

Technicians and administrative staff (N = 29)

Yes

No

Yes

No

89.3 39.3 35.7 14.3 35.7

10.7 60.7 64.3 85.7 64.3

75.9 75.9 51.7 17.2 34.5

24.1 24.1 48.3 82.8 65.5

Source: Manager interviews.

Table 3.5 Key selection criteria used in recruitment (%) Criteria

Skills Experience Education Commitment Personality Technical ability Social relationship Health Age Gender

Production workers (N =37)

Technicians and administrative staff (N = 38)

Yes

No

Yes

No

89.2 73.0 54.0 54.0 24.3 62.2 8.1 81.1 75.7 29.7

10.8 27.0 46.0 46.0 75.7 37.8 91.9 18.9 24.3 70.3

84.2 94.7 71.1 65.8 39.5 79.0 13.2 71.1 55.3 28.9

15.8 5.3 28.9 34.2 60.5 21.0 86.8 28.9 44.7 71.1

Source: Manager interviews. Note: N = 37.

technicians and administrative staff, although widening the recruitment net and offering better pay and conditions was used more extensively for these types of workers than they were used for production workers. In recruiting workers Chinese enterprises use a variety of selection criteria. These are presented in Table 3.5. The key criteria tend to relate to objective and work-related characteristics including skills, experience, education and technical abilities. These were important criteria for both production workers, and technicians and administrative staff, although they were clearly more important for the latter group. Health and age were also important selection criteria, although these criteria were more important for production workers. Gender was only a stated selection criterion in fewer than one-third of all enterprises and no difference was noticeable between the two groups of workers.

Management, workers and conditions of employment

35

Table 3.6 Methods used in recruitment (%) Methods

Check references Interviews Skill test Aptitude tests Probation Education results

Production workers (N = 37)

Technicians and administrative staff (N = 38)

Yes

No

Yes

No

16.2 68.4 78.4 24.3 73.0 18.9

83.8 21.6 21.6 75.7 27.0 81.0

34.2 89.5 63.2 39.5 79.0 44.7

65.8 10.5 36.8 60.5 21.0 55.3

Source: Manager interviews. Note: N = 37.

Once having decided to recruit applicants for vacant positions how do enterprises actually go about the selection process? Table 3.6 outlines six common methods used by the case study enterprises. Interviews, skill tests and probation were the most popular methods for both production workers, and technicians and administrative staff. Skill tests were more prominent with the selection of production workers, whereas interviews, aptitude tests and education results were a little more important for technicians and administrative staff. Checking references did not appear to be important, with only 16.2 per cent of enterprises using this method for selecting production workers and 34.2 per cent of enterprises using it for selecting technicians and administrative staff. Given the pace of economic reform it is likely that most enterprises would experience some problems in recruiting qualified workers. This was certainly the case with our case study enterprises: 45.9 per cent and 75.7 per cent of enterprises stated they had problems with recruiting suitable production workers, and technicians and administrative staff, respectively. When asked why this was the case, managers cited a number of reasons including poor salaries, poor enterprise performance, a general reluctance to work in SOEs, and the enterprise was not well known. Typical comments included ‘the company does not have a big name and talented people are reluctant to work here’ and ‘workers from Beijing are reluctant to work in textiles since they have higher income requirements’. Yet, underlying these practical considerations of pay and enterprise reputation were complex problems which were well illustrated by the comments of a manager in a textile enterprise: The clothing industry is in decline but the workload is still heavy. The workers only want to do some relaxing work and well-paid work, they think their current work is tiring. We have to recruit workers in other cities and it will take half a year to train a qualified worker. Each kind of product should be guided. The procedures and requirement of quality should be standardized.

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Management, workers and conditions of employment

These problems have appeared to have intensified since 1998. Many managers reported that similar problems had existed five years earlier, yet, as one manager stated ‘the difficulties in 1998 were less serious. We recruited some farm workers and they were easily satisfied’. For some managers there also appeared to be a longing for the past: ‘The company was in a golden period in 1998. The competition was not fierce because there were relatively few enterprises in the industry. The difficulties of recruitment were less serious’. Several managers felt, however, little had changed and one manager alluded specifically to the earlier difficulties of recruiting technical staff. For other managers the declining performance of many enterprises meant that workers were willing to change jobs and so it was possible to find new staff. By 2003 the difficulties facing many enterprises which were brought on by increased competition meant that workers in low-wage industries such as textiles were constantly looking for better-paid opportunities. Training and career development Having been recruited, what training and career development exist for workers in Chinese enterprises? All 38 enterprises reported that new workers undergo an induction programme, although only 65.2 per cent of the 184 workers who participated in the study stated that they completed such a programme. This inconsistency may, in part, be explained by the likelihood that induction programmes may not have existed when some of the older workers commenced employment with the enterprise. The length of such training varied substantially; from a low of a half-day programme (four enterprises) to programmes that extended beyond three months (four enterprises). Overall, the average length of the induction programme was 28.9 days, which is consistent with worker’s claims that the average length of their induction programme was 1.4 months. Most managers (81.6 per cent) reported that the training needs of the enterprise are formally identified. In general, the training-needs analysis of the case study enterprises follows a similar path: A questionnaire of requirements is made at the end of every year. The questionnaire is a little like the menu for the choice of each department. The departments can also propose missing items in the menu. It is generalized at last by the education department. This process is affected by recruitment strategies, the introduction of new technology and also the hiring plans of the enterprise. Another key factor identified is the particular market focus of the enterprise. As one manager pointed out, the training needs will depend on ‘the export standards’, that is ‘workers are required to produce products according to the quality standard’. This training-needs analysis led to significant amounts of training in the year before the research was undertaken: an average of 44 hours for production workers, 52.3 hours for technicians, 32.7 hours for administrative staff, and 51.8 hours

Management, workers and conditions of employment

37

Table 3.7 Types of training – enterprises (%) Type of training

On-the-job

External

Combination

No training

Orientation Technical/skills training Career path development training Refresher training on roles and tasks Leadership programme

48.5 42.8 17.1

8.6 14.3 8.6

2.9 22.9 5.7

40.0 20.0 68.6

60.0

2.9

2.9

34.2

40.0

17.1

8.6

34.2

Source: Manager interviews. Note: N = 35.

for managers. There was, however, a high variability in these figures and, as pointed out in Chapter 6, apart from technical training in the specific job skills the relative incidence of training was quite low. Thus, whilst some enterprises provided substantial levels of training, about two-thirds of managers reported training hours below those detailed above. Some 73.0 per cent of workers surveyed from these enterprises stated that they were involved in an initial training programme. Employers reported that this training consisted of a variety of on-thejob and external activities, although most training took place in-house or on-thejob. This was regardless of the type of training undertaken. Workers concurred, with 64.6 per cent of worker respondents reporting they had undertaken on-thejob training. Technical/skills and leadership training was most likely to be conducted outside of the enterprise, but even in these cases the bulk of the training was conducted in-house. Career path training was the most neglected area of training, although this is a relatively new concept in Chinese HRM. Some managers saw regular training as synonymous with training for the job, although several more enlightened managers cited policies such as paid leave for development, improvement of professional capabilities, and providing more choice and wider opportunities to workers. Nevertheless, old practices remained as illustrated by the comment of one manager that ‘the party classes are offered so as to develop new party members’. Details of the types of training available in the case study enterprises are presented in Table 3.7. Most workers felt that training would be beneficial for their promotion prospects (73.5 per cent; N = 133). For these workers training would improve their skills and capabilities, their competency in carrying out work tasks, and provide more opportunities to undertake a wider variety of jobs. As one worker contended ‘the enterprise values talent so much because of the fierce competition. The one with advanced skills through training will definitely be promoted’. Yet, over a quarter of workers (26.6 per cent) felt that undertaking training would not increase their chances of gaining a promotion. While for many of these workers their older age was perceived as the major barrier for promotion, other reasons

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Management, workers and conditions of employment

Table 3.8 Types of training – workers (mean hours spent on training) Type of training

Political training Technical/skills training Management training Career path development planning Refresher training on roles and tasks

12 months preceding 2003

12 months preceding 1998

Mean

N

Mean

N

11.8 43.1 20.1 6.9

159 161 160 158

20.1 40.3 16.6 3.1

95 96 96 99

12.6

160

4.4

98

Source: Worker interviews.

included lack of promotional opportunities in their enterprise and the general feeling that effort, experience and competency are more important. Another reason mentioned by one worker and alluded to by other respondents was that ‘promotion is dependent on the relationship with the directors, not on whether or not you have been trained’. Managers were also asked to explain the relationship between training and worker promotion. From these responses it was clear that managers perceived that training was a prerequisite for promotion. Indeed several managers pointed to the requirements for technical and managerial positions in their enterprise which demanded tertiary studies. Other managers pointed out that ‘training is the bridge for promotion’ and that improved capabilities and skills will ‘provide the opportunities of promotion’. Nevertheless, such views are not universal and of the 36 managers who responded to this question, five felt there was no relationship between training and promotion. How does the level of training compare to the level of training five years ago? In an attempt to answer this question, workers were asked how many hours of training they had received in the past 12 months and also in the 12 months, five years ago. The responses are presented in Table 3.8. Time spent on political training has declined while time spent on all other types of training has increased. While the hours spent on career path development planning have more than doubled such training remained a low priority. This finding is consistent with the responses of managers presented in Table 3.6. The hours allocated to technical/skills training were the highest, averaging 43.1 hours per year. This finding is also consistent with the responses of managers and is only slightly higher than that of five years before. Refresher training on roles and tasks has nearly tripled on what was undertaken five years earlier. Nevertheless, while the average hours of training had increased, as pointed out in Chapter 6, the incidence of this training has decreased. To ascertain the appropriateness of this training, workers were asked a series of questions about their training and training needs. Some 63.2 per cent of workers (N = 190) felt the training provided by the enterprise was appropriate to their

Management, workers and conditions of employment

39

current roles and tasks. That is, over a third of the worker respondents (36.8 per cent) felt that the training they had received to date did not provide the necessary skills to undertake their job. Less than half of the workers (47.3 per cent) felt that they would be better trained in the future, although a further 15.0 per cent of workers felt this would probably be the case. For some their optimism was related to the need for managers to improve the performance of the enterprise and ‘more technical personnel are needed by the enterprise’. As one worker argued ‘there will be no first class products without highly qualified workers’. On the other hand, other workers pointed to the fact that ‘the competition is so fierce and the profits of the company are decreasing. It is impossible to arrange training’. Other workers cited the unwillingness of enterprises to invest in their staff, the desire of enterprise management to cut costs in industries like textiles, and ‘the enterprise doesn’t take training seriously’. Yet, when asked if they would be prepared to upgrade their skills even if the enterprise did not provide time off or financial support, 84.0 per cent of workers stated they would be willing to undertake this extra training. Underpinning the willingness of workers to undertake this training without enterprise support was a realization by many workers that ‘the competition is so intense. I will miss out if my technological skills cannot be improved’. Whilst missing out meant different things to different workers, it included becoming unemployed, being unable to gain promotion, facing reduced job opportunities, and being unable to take advantage of the broader changes taking place within society. For older workers, who often lacked formal qualifications and had few skills beyond their present job, the need to upgrade their skills was no longer a choice but a necessity. Older workers, on the other hand, seemed to be resigned to their fate and many felt that it was now too late to re-skill. Comments like ‘I am too old and it is unnecessary to be trained’ and ‘I am too old to have the desire to upgrade skills’ were typical of these workers. While the enterprises in this study provided some induction and ongoing training for workers, this was clearly insufficient for many workers to carry out their tasks or to look forward with confidence to their future. Nevertheless, whilst these workers were pessimistic as to their future training prospects they were more than willing in most cases to undertake training if given the appropriate opportunity. Performance appraisal Under the centrally planned system, workers were allocated by central and regional bodies to SOEs. Workers’ performance was not generally assessed, although production targets were set and teams, workshops and plants were expected to achieve such targets. Certainly poor performers would be identified; however, if targets were not met it would often result in more workers being assigned to the enterprise. The economic restructuring of SOEs, coupled with the growing number of private or quasi-private enterprises, has meant that efficiency and productivity of human resources has become increasingly important. In this study 33 of the 38 enterprises (86.8 per cent) appraised workers, with managers responding that this

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Management, workers and conditions of employment

Table 3.9 Workers – who conducts performance appraisal? Position

Factory/department/section head Direct supervisor Higher authority Senior enterprise management Personnel department Trade union/worker’s committee Other/several Total

2003

1998

N

%

N

%

71 34 38 18 6 4 18 189

37.6 18.0 20.1 9.5 3.2 2.1 9.5 100.0

65 26 30 14 5 2 19 160

40.6 16.3 18.8 8.8 3.1 1.3 11.9 100.0

Source: Worker interviews.

occurred monthly (30.3 per cent), quarterly (24.2 per cent), half-yearly (24.2 per cent) or annually (21.2 per cent). In most cases the appraisal was conducted by the relevant line manager (91.2 per cent), although HR managers (23.5 per cent), peers (20.6 per cent) and customers (8.8 per cent) could also be involved. Workers had similar views on who conducted performance appraisals, although the worker survey provided more detail as to who actually conducted the appraisals. The relevant line manger could, for example, range from the worker’s direct supervisor to more senior managers including the general manager, vice president and the president. The HR department conducted few appraisals on its own as was also the case with representatives of the trade union or worker’s committee. Little change in who conducted the appraisals occurred over the five-year period from 1998 to 2003. Details are presented in Table 3.9. The criteria adopted for performance appraisal varied significantly between the 38 enterprises as illustrated in Table 3.10. This ranged from hard quantitative measures, such as output, defects and time to complete tasks, to more qualitative criteria including attitudes, acceptance of rules and common values, as well as knowledge and willingness to undertake training. Nevertheless, as indicated in Table 3.10, the majority of managers, when asked to indicate the three most important criteria, focused on the quantitative measures, although they often included adherence to rules and workers commitment/loyalty to the enterprise. Safety and training were considered less important. Another way of assessing the importance of performance appraisals is to examine the outcomes of such a process. The major outcome for most workers was that the appraisal was directly linked to improved wages and bonuses (88.2 per cent), increased chances of promotion (68.6 per cent), increased training (45.7 per cent), and contract renewal (45.7 per cent). Managers also indicated that by undertaking this process they learn about problems in the production/management system (41.2 per cent) as well as learning about the difficulties workers face (37.1 per cent). These responses are similar to what we may expect to find in more advanced industrialized countries.

Management, workers and conditions of employment

41

Table 3.10 Criteria used in performance appraisals (%) Criteria

Used

Top three criteria

Output based on a particular time frame Number or level of defects per quantity produced Time taken to complete task Organizational commitment/loyalty Acceptance/adherence to policies and procedures Acceptance of common value and norms Job knowledge Willingness to undertake training Safety Intensity and difficulty of work

74.3

62.8

74.3

51.4

57.1 77.1 88.6

45.7 48.6 42.9

51.4

20.0

65.7 51.4 62.9 2.9

17.1 2.9 5.7 2.9

Source: Manager interviews. Note: N = 35.

To explore this issue a little further we asked managers to list the most important criteria for promotion in their organization. The responses are presented in Table 3.11. For most enterprises, seniority coupled with merit was the most important. The use of these criteria had declined only slightly in the period 1998 to 2003. Merit only was the other major criterion and again little change was evidenced over the period 1998 to 2003. Seniority alone was not important and for women workers this criterion had declined in importance over the five-year period. Social relationships were not a major factor at either time period for male or female workers. On the basis of these findings there does appear to be a reasonably good match between managers claiming performance appraisal was important for promotion and the criteria they use to promote workers. Nevertheless, it should be noted that only 52.2 per cent of all workers (N = 190) felt they had any chance of gaining promotion within their current workplace. Some 63.1 per cent of workers (N = 189) felt there was a direct link between how hard they worked and their chances of promotion. When asked to explain, workers expressed considerable disagreement. One worker claimed that ‘promotion only came through hard work’, while another stated ‘I think I have been working very hard for over 20 years, but I am still a worker’. Whilst many claimed hard work was essential, this was often linked with qualifications and skills. Typical of many of these comments was that by one senior worker who claimed ‘I was promoted by my effort, good skills and management capabilities’ and another worker who felt that ‘promotion has nothing to do with effort but with performance and efficiency’. Equally, however, this question led to many workers pointing out the flaws in their enterprise’s promotion and staff development system: personal relationships, lack of skill training, a poor appraisal system, and ‘the

42

Management, workers and conditions of employment

Table 3.11 Major criteria used in promotion (%) Criteria

Seniority only Merit only Seniority and merit Social relationships N

Males

Females

1998

2003

1998

2003

0 42.9 57.1 0 28

2.8 41.7 55.5 0 36

7.1 35.7 57.1 0 38

2.7 43.2 54.1 0 37

Source: Manager interviews.

workload is so heavy that I cannot perform perfectly, which makes it impossible for me to be promoted’. Yet for managers and workers to gain the most from the performance appraisal process, managers and workers must have a clear understanding of what is required of each job. We asked workers whether they had a written job description. Nearly four out of five workers (N = 149; 78.4 per cent) reported that they had a written job description with 38.4 per cent reporting they had some involvement in the development of their job description and a further 16.6 per cent of workers claiming they had a lot of involvement. For most workers, however, a written job description was quite new: 52.0 per cent of workers pointed out that they had only had a written job description since 1998. For the vast majority of workers (N = 168; 88.9 per cent) performance of tasks listed in the job description was monitored and checked by managers; either the worker’s direct supervisor or more senior managers such as section, department or division head, factory management or more senior enterprise managers. The remaining workers had their tasks checked by quality, marketing or HR departments, or by union officials. The consequences of not performing a set task could be quite severe, with 42.0 per cent (N = 188) of workers reporting that they would be fined. Other possibilities were losing seniority (1.6 per cent), dismissal (2.7 per cent), being severely criticized or facing re-education (4.8 per cent). Nearly half of the worker respondents (46.8 per cent) indicated that the outcome of non-performance of a set task would, however, depend on the particular circumstances. Worker participation and voice A part of modern HRM is allowing workers the opportunity to participate in decisions that impact on their daily work. As shown earlier in this chapter (see Table 3.1) managers claimed a variety of participation mechanisms were in place, although these tended to be the softer mechanisms such as commitment schemes, information sharing and grievance/complaint mechanisms rather than schemes that transferred some power to workers such as empowerment, profit sharing and stock ownership. Yet managers’ perceptions are often different from those of

Management, workers and conditions of employment

43

Table 3.12 Workers’ perceptions of their participation in important decisions (%) Mechanism Information sharing Individual grievance/complaint mechanism Survey of views/opinions about policy Suggestion schemes Regular formal meetings between managers, supervisors and workers Regular information on enterprise performance Union and workers’ congress is channel of involvement N

2003

1998

69.3 63.2 63.6 72.0 60.4

51.9 49.4 52.7 63.1 53.1

64.6 62.7

53.2 64.8

173–189

148–160

Source: Worker interviews.

workers and such practices can often be in name only. How do workers perceive their ability to participate in decisions affecting their work life? Table 3.12 provides workers’ perceptions at the time of the survey and also what they felt the situation was five years earlier. For all mechanisms, with the exception of the union and the workers’ congress, workers felt that there had been an increase in the support of management in their participation in the decision-making process. The most significant change was in the areas of information sharing and having access to grievance mechanisms. In contrast, worker perceptions of management support for the union and the workers’ congress to carry out this role had slightly fallen. Overall, as shown later (Table 6.2), some 53.7 per cent of workers were satisfied with their level of participation about matters affecting their work. A further 34.6 per cent of workers felt that their level of participation was ‘alright’ with only 11.7 per cent of workers indicating that they were dissatisfied with the current situation. These figures are consistent with how workers felt about their supervisors and managers more generally. Some 85.2 per cent of all workers surveyed (N = 189) felt they were able to discuss any concerns they had directly with their supervisor. Behind this finding, however, lies a complex and seemingly frustrating relationship between workers and their supervisors. The general consensus from the extensive comments made by respondents was that in most cases, issues concerning factory working conditions and other benefits such as transport and meals can be raised and discussed. Wages, and particularly overtime payments, appear more problematic. As one textile worker commented ‘there is still some distance between workers and supervisors. Some issues such as marriage and salary cannot be discussed. Issues such as food and clothing can be discussed’. An important factor underpinning the worker–supervisor relationship is trust. For example one worker felt that as ‘the boss and I were classmates when we were in primary school … she trusts me’. Another worker stated ‘I am living close to the group leader and we are of similar age. Everything can be discussed between us’. Such social relationships appear important and led one worker to claim ‘we can discuss everything with the supervisor. We are even discussing the

44

Management, workers and conditions of employment

European football match recently’. But for many workers they ‘don’t dare to discuss with them [the supervisor] the issues we are concerned about’. For these workers ‘there is a trade union in the factory. The workers’ congress can express workers’ opinions’. There is also some indication that supervisors take a proactive approach to worker suggestions, as one worker stated: During the recent reform of the salary, the workers with low skills in my group were facing no increase in salary. I talked to the section director about it. He decided to arrange a training programme for them in order that they could upgrade their skill level. Accordingly, their salary increased. While the findings illustrated a strong relationship between supervisors and workers, 87.9 per cent of workers also felt that senior managers were supportive of workers. The reasons for such a view among workers ranged from managers listening to workers’ complaints, adopting worker suggestions, support during busy periods, rectifying problems with working conditions, and supporting worker initiatives. As one worker commented ‘the reasonable suggestions of workers such as more emphasis on production are taken seriously by management’. Another worker commented: The feature of the industry is that many knowledgeable people are needed. They are the internal driving force for the company. A project cannot be completed without this driving force. In this sense, management provides strong interest and support for the workers. But management also takes on a human dimension that extends beyond the workplace to include support for family leave and family problems and helping to resolve worker problems. As one worker commented succinctly, ‘the workers are supported financially by management when they are in trouble in finance or family’. Another worker showed the extent of this outside work support by claiming that ‘the management attempt to find solutions for the difficulties faced by workers. The funeral arrangements for the parents and the education of children faced by the workers are supported by the management’. Nevertheless, the new economic imperative is always just below the surface as one worker found when ‘the manager of the production department and I asked something about the restructuring of the company. The response from the supervisor was that the speed of reform would be expedited and we needn’t worry about it’. These broad findings are generally in accord with workers’ overall assessment of their satisfaction with management (see Chapter 6, Table 6.2). When asked how satisfied they are with the management aspect of their work, 86.0 per cent of workers indicated that they were either satisfied with management (57.5 per cent) or they felt management was ‘alright’ (28.5 per cent). Of course not all workers are satisfied with the level of management support and one worker commented ‘managers are supportive as long as they are correct’; another worker stated that ‘issues relating to work are supported but issues concerning salary are not’. Perhaps this last point is best summed up by an older worker who stated:

Management, workers and conditions of employment

45

Table 3.13 Means of reducing employment Methods

Leave without pay Early retirement Lay off workers Reduce working hours Not renew contracts Pay less Redeploy workers to other tasks Stop hiring Call for voluntary retirement Outsource or subcontract

Have reduced employment in past (N = 21)

Would reduce employment in future (N = 17)

N

%

N

%

3 10 6 4 9 4 8 11 5 2

14.3 47.6 28.6 19.0 42.9 19.0 38.1 52.4 23.8 9.5

2 4 2 6 10 2 8 10 4 3

11.8 23.6 11.8 35.3 58.8 11.8 47.1 58.8 23.6 17.6

Source: Manager interviews.

Actually it depends on the nature of the problem. For example I have some grievances about laying off the workers. I contributed to the society without paying attention to the payment when I was young. But now I am said to be too old to work. Why should I be laid off because I have old people to be cared for and children to be cared about? Employment reduction Under the centralized planning system employment levels were not related to the efficient allocation of labour but to what the government decreed was an appropriate level of labour needed to allow the enterprise to achieve the centrally determined production targets (Lee and Warner 2005: 105). Now enterprises have the ability to introduce new ways of working and this, coupled with a stronger emphasis on efficiency and productivity, means that many SOEs have workers surplus to their requirements. This was the case with many of the 38 enterprises involved in this research; 55.3 per cent (N = 21) of enterprises had reduced their employment levels. This action was most pronounced in SOEs where five of the six SOEs (83.3 per cent) had deliberately reduced employment. Such a strategy was also popular among shareholding enterprises where five of the seven enterprises (71.4 per cent) had also reduced employment. Joint ventures were less likely to take such action and only three of the eight JVs in this study (37.5 per cent) had reduced their employment. Why this might be so is perhaps linked to the influence of the Chinese joint venture partners as only 50.0 per cent of the FIEs had undertaken employment reductions. Little difference was detected between the two industry sectors. The means by which these enterprises achieved these reductions are given in Table 3.13. The most popular methods were to stop hiring, early retirement, not

46

Management, workers and conditions of employment

renewing contracts, and redeploying workers to other tasks. Directly laying off workers was only used by 28.6 per cent of enterprises and these tended to be SOEs. Of the 17 enterprises that had not reduced employment, all would do so in the future if the need arrived (Table 3.13). In a similar fashion to enterprises that had undertaken employment adjustments, the most popular methods would be to stop hiring, not renew contracts, and to redeploy workers to other tasks. In addition, these enterprises would also tend to reduce working hours. Summary This section explored the basic HRM mechanisms that existed in our case study enterprises. It is clear that enterprise managers have more authority to recruit and select employees, and although they used a range of mechanisms they also continued to rely on government job agencies. Managers reported that a variety of training was offered, although the type and amount of training varied considerably between enterprises. Moreover, whilst the average number of hours spent on training had increased slightly, the incidence of this training had declined. Most of the training was of the in-house or on-the-job variety. Career path training was a neglected area, notwithstanding that training was seen by workers and managers as necessary for promotion. Performance appraisal of workers was carried out by most enterprises, usually by more senior managers, with a focus on adherence to rules, output and quality. These criteria fed into promotion where managers reported that merit, or a combination of seniority and merit, were the key criteria. About half the workers felt that they had little chance of promotion in the future given high workloads, lack of training opportunities and the role of personal relationships in the promotion process. Workers felt that they were able to participate in enterprise decisions through a variety of approaches that included the provision of information, suggestion schemes, regular meetings with management, grievance mechanisms, and union and workers’ congress meetings. Most workers also felt that they were able to discuss issues with their supervisor, although many workers felt that this did not extend to wages and overtime payments. More than half the enterprises had reduced employment levels, although in most cases this was achieved by less direct methods such as restrictions on hiring new employees, early retirement and the redeployment of workers to other tasks.

Employment relations The previous section explored various aspects of HRM in our case study enterprises. The modern Chinese enterprise seems to be quite a different place compared to those that existed at the commencement of the reform period, although many workers still regarded their enterprises as bureaucratic and centralized. Clearly, however, HRM practices have developed from the pre-reform period, if slowly. In this section we explore how such reform may have affected wages and

Management, workers and conditions of employment

47

hours of work. To do this more fully we locate the wages and hours of work within the wider Chinese context. Before doing this, however, we commence with a brief discussion and examination of employment contracts. Employment contracts The increasing marketization of the economy, coupled with the reduced levels of job security brought on by the labour contracts system, meant that the state would be under mounting pressure to introduce some enabling mechanisms for the determination of wages and working conditions at the enterprise level. The first major mechanism introduced was the ‘Regulation on Collective Contracts’ which was issued by the MOLSS in 1994. This regulation specified the rules relating to collective contracts and was premised on the need for managers and unions to work together for the common good of the state, although it does recognize the potential for conflict in negotiating collective agreements. Indeed, collective bargaining is specified as a legitimate activity of trade unions in both the 1992 and 2001 Trade Union Law. Nevertheless, Chinese trade unions are not autonomous bargaining agents for workers and do not have the right to stage industrial action. As a result, although trade unions are the major driving force behind the implementation of the collective contract system, they have generally been unable to challenge enterprise management or to negotiate labour terms and benefits above statutory minimums. Notwithstanding, the ACFTU and other official Chinese bodies have often claimed that the existence of the employment contract provisions demonstrates that collective bargaining is used in establishing collective labour contracts. The state plays an active role in the collective contracts process through the local labour departments. The 1995 Labour Law specifies five issues that may be included in collective agreements between the enterprise and its workers. These are wages, working hours, rest and vacations, occupational health and safety, and insurance and welfare. Any such agreement will go into effect immediately if no objections are raised by the local labour department. Collective contracts remain largely formal documents, which tend to repeat the existing legal obligations of management and the workers and reflect labour statutory minimums. Collective contracts are normally signed at the enterprise or small-region level such as an industry park or street, covering all enterprises in the area (Shen 2007). The regulations on collective contracts were updated in 2004 under the title Collective Contracts Provisions. The revised regulations now allow collective discussions about employment conditions above the statutory minimums. Under these provisions employers are now prohibited from refusing to enter collective negotiations without ‘proper reasons’. The discussions are, however, often compromised due to the overlapping personnel in the enterprise trade unions and management, and the overlapping personnel in higher trade union bodies and the CCP. Nevertheless these reforms have changed the nature of the collective contract system from a political instrument towards a more industrial matter. Now, no group can represent both sides of the negotiations and trade union officials are

48

Management, workers and conditions of employment

prevented from representing both the workers’ and employers’ interests. In addition, professional personnel are now permitted to provide negotiating parties with professional assistance. These changes represent a step forward toward collective bargaining, although progress will be limited by the restrictions on the actions that Chinese trade unions may engage in. How then have these changes affected contracts and conditions of employment? Managers reported that three-quarters (75.6 per cent, N = 35) of workers were on limited-term contracts in 2003. This was a significant increase from an estimated 62.9 per cent in 1998. Workers reported similar figures: 27.4 per cent of workers reported that they were permanent workers, significantly down from the 1998 figure of 38.0 per cent. Overall, 84.7 per cent of workers stated they had a written employment contract. These employment contracts were normally for a specified period. One enterprise (2.6 per cent) did report that all their workers were on unlimited contracts, while at the other extreme seven enterprises (18.4 per cent) had all workers on fixed-term contracts. This latter figure is up on the three enterprises (7.9 per cent) that had all workers on fixed-term contracts in 1998. For workers on fixedterm contracts, enterprises reported that the average length of the contracts ranged from 2.1 years for ordinary workers, 2.9 years for administrative staff, 3.2 years for technicians to 3.3 years for managers. Again, in a similar fashion to the enterprise survey, 39.8 per cent of workers reported their contract was for one year or less, 45.8 per cent of workers had contracts greater than a year but less than three years, while the remaining workers had contracts extending beyond three years. Some of the enterprises in this research employed workers on a temporary basis (no contracts or contracts less than one year in length). In 2003, of the 24 enterprises that responded to questions concerning the temporary employment of male workers, 14 (58.3 per cent) had workers in this category, although numbers were quite low (averaging less than 10 per cent of the workforce). A similar situation appeared with female workers (13 enterprises out of 23 respondents; 56.5 per cent) although the average was lower at about 6 per cent. These numbers were, however, an increase from 1998 when the comparable figures were about 3 per cent in the case of male workers and 4.5 per cent for female workers. In addition, only half of the 16 enterprises responding to this question (50 per cent) actually employed temporary workers. Wages and benefits At the time of the research 24 of the 38 enterprises (58.3 per cent) had a collective agreement governing employment and working conditions. The first collective agreement among these enterprises was introduced in 1993 and by 1998 another 14 enterprises had also introduced such agreements. Collective agreements are usually the outcome of discussions between the union and management, although considerable variation was found to exist. In the case study enterprises the process usually commenced with a proposal being developed by

Management, workers and conditions of employment

49

the union, normally with worker input. This proposal would then be discussed with enterprise management before being submitted to the workers’ congress (if one exists in the enterprise) for its approval. A copy of the agreement would then be lodged with the local labour department. As pointed out above, the process adopted at the individual enterprise varied, as the following comments by managers illustrate: The president of the trade union as the representative of the workers negotiated with the director of the factory to sign a collective agreement that decided working hours, salary, paid annual leave and overtime pay. The agreement was discussed between members of the human resource department and then passed to the workers’ congress. The approval of the managers of the Chinese and Japanese parties is then sought. The agreement is then announced in the company newsletter. The draft was discussed at first (seemingly among management personnel). Then it was discussed between the workers and management. It was then kept on record at the labour department of the government. At last it was signed by representatives of workers and management. Before examining the wages and benefits of workers that might stem from these collective agreements, the section will commence by placing the case study enterprises in the wider industrial context. Wages in China have risen considerably since 1985. As can be seen in Table 3.14, the highest average nominal wages at the end of 2002 (the year before our case study data) can be found in the finance and transport sectors. Lowest average wages were in agriculture which included farming, forestry, animal husbandry and fisheries. Other relatively low-wage industries were wholesale, retail, and trade and catering services, as well as construction. The manufacturing sector was marginally higher than the lowest groups reported above. The fastest wage-growth sectors were finance, transport and the government sectors: in the period 1985 to 2002 (the latest wage figures by sector) average nominal wages rose by 1,658 per cent, 1,258 per cent and 1,240 per cent respectively. Since 2000 the greatest wage-growth sectors were finance, government and wholesale, and retail trade, where wages grew in the period 2000 to 2002 by 142 per cent, 139 per cent and 131 per cent respectively. When taken collectively the average wage levels have increased substantially since the start of the economic reform. Wage growth was strongest in the period 1990 to 1995, although the period 1995 to 2000 also saw considerable wages growth. As illustrated in Table 3.14, wage levels varied greatly across industries. They also varied substantially across regions. Economic development has proceeded unevenly with the east-coast regions such as Beijing, Zhejiang, Shanghai and Guangdong receiving the largest share of capital inflow and investment. Wages in these regions are the highest in China, while average wages in northern and western regions such as Jilin, Heilongjiang, Qinghai, and Ningxai are amongst the lowest (China Statistical Press 2008b: 165).

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Management, workers and conditions of employment

Table 3.14 Average wages by selected sectors per annum (RMB) Year

Agriculture Manufacturing Construction Transport

Wholesale Finance Government and and and retail insurance agencies

1980 1985 1990 1995 2000 2002

616 878 1,541 3,522 5,184 6,398

692 1,007 1,818 4,248 7,190 9,398

752 1,112 2,073 5,169 8,750 11,001

855 1,362 2,384 5,785 8,735 10,279

832 1,275 2,426 6,948 12,319 16,044

720 1,154 2,097 7,376 13,478 19,135

800 1,127 2,113 5,526 10,043 13,975

Source: China Statistical Press (2008b: 53–54).

Table 3.15 Average wage levels per annum in manufacturing by enterprise type (RMB) Year

State-owned enterprises

Collectively-owned enterprises

Other enterprise

1980 1985 1990 1995 2000 2001 2002

821 1,190 2,289 5,352 8,554 9,590 10,876

619 963 1,622 3,717 5,722 6,088 6,749

n/a 1,328 3,055 7,245 10,192 11,074 12,027

Source: China Statistical Press (2008b: 59–79).

Wages in the manufacturing sector also vary considerably depending on the form of ownership. As shown in Table 3.15, wages in the manufacturing sector were lowest for those enterprises that are collectively owned. As many of these enterprises are located in more rural areas, wages needed to attract and retain workers are considerably lower. Wages paid in SOEs which, at the time of the research, were lower than those in the ‘other enterprises’ category (e.g. JVs, FIEs, DPEs) are now, on average, higher than those in this category. Part of the explanation for this is the growing number of smaller DPE manufacturers that are now included in the statistics which has the effect of bringing down the average for the ‘other enterprises’ category. This broad analysis of wage development in China since the commencement of economic reform sets the parameters for the analysis of wages in our case study enterprises. Table 3.16 sets out the average annual wages paid by the case study enterprises in 2003 and also wages paid in 1998. Two points stand out. First, wages have increased in the five years from 1998 to 2003. The increases were most pronounced, however, for managerial staff and technicians whose nominal wage increases were 45.2 per cent and 35.4 per cent, respectively. This demonstrates a widening of income dispersion which, as discussed in Chapter 2,

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51

Table 3.16 Annual income by occupation (RMB) Occupation

2003 (N = 34–36)

1998 (N = 27–28)

% increase, 1998–2003

Present wage as % of manager’s wage

Production workers Technicians Administrative staff Managerial staff

11,029 19,128 15,547 26,081

9,298 14,128 12,504 17,963

18.6 35.4 24.3 45.2

42.3 73.4 59.6 100.0

Source: Manager interviews.

is illustrated graphically with the increase in the Gini coefficient over the past 40 years. As Khan and Riskin (2005) suggest, China is becoming one of the most unequal societies in East Asia despite its continued adherence to socialism. Second, production workers in 2003 were paid an average of 42.3 per cent of the average of managerial staff. Administrative and technicians did substantially better, averaging 59.6 per cent and 73.4 per cent respectively. As pointed out above, wages in China vary significantly between industrial sectors and enterprise types. This was also the case with the case study enterprises. Table 3.17 explores this variation further. Column 2 of this table shows the difference in annual income for each occupation in the two sectors covered by this research. In each occupation the electronics sector paid substantially more than enterprises in the TCF sector. Column 3 quantifies this difference and shows that the electronics sector paid over double for managerial staff. The smallest margin was for technicians, which generally reflects their mobility and labour market demand. A similar situation applied to the wages paid to workers in the various enterprise types. Column 4 of the table shows the highest and lowest annual wages when classified by enterprise type for the various occupation categories. These differences are quantified in column 5. Workers in SOEs were generally the lowest-paid workers, although FIEs paid the lowest wages for production workers. The highest wages for administrative staff and managers were to be found in JVs, while joint-stock enterprises paid the highest rates to production workers and DPEs paid the highest rates to technicians. The highest wages were generally 60 to 70 per cent higher than those paid to the lowest-paid workers. Some of the differences identified above relate to the way wages are constructed for the various occupational groups. All occupations had several elements contributing to their pay, including a base wage, a skill component, a measure of performance (often paid in the form of a bonus), some piece-rate amount, and some allowances. A small number of enterprises also attempted to annualize these components presumably to provide for some certainty in weekly pay or to avoid paying excessive overtime. These components are listed in Table 3.18. Piece rates were primarily the domain of production workers and accounted for a little over one-third of the wages for this group. In nearly half of the case

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Management, workers and conditions of employment

Table 3.17 Annual income range by industry and enterprise type (RMB) Occupation

Sector

Production workers

9,500 (TCF) 12,864 (Electronics) 12,833 (TCF) 15,433 (Electronics) 12,786 (TCF) 18,308 (Electronics) 17,027 (TCF) 35,135 (Electronics)

Technicians

Administrative staff Managerial staff

Difference (%)

Enterprise type

Difference (%)

35.4

9,450 (FIE) 15,133 (JSC)

60.1

20.3

14,880 (SOE) 23,734 (DPE)

59.5

43.2

11,972 (SOE) 21,090 (JV)

76.2

106.3

19,958 (SOE) 33,737 (JV)

69.0

Source: Manager interviews. Note: N = 26 to 38.

study enterprises (48.6 per cent) piece rates or bonuses were based on individual performance with a further 42.9 per cent of enterprises reporting that a combination of group and individual performance was used. Only 8.6 per cent of enterprises stated that piece rates or bonuses were based on group performance. These figures were generally consistent with those reported by workers. For example, 49.2 per cent of workers reported that their bonuses were based on individual performance, although some 32.5 per cent of surveyed workers reported their bonuses were based on group performance. Basic wages were a more important component for the remaining three groups, as were skill and allowances. About half the workers (51.9 per cent) reported receiving allowances which they claim contributed, on average, an extra 13.8 per cent to their monthly wage. More than half the workers (60.4 per cent) also reported receiving bonuses which, in turn, contributed a further 19.5 per cent of their monthly base wage. A small proportion of workers also reported that their enterprise had instituted some form of stock ownership (14.3 per cent) and profit sharing (14.1 per cent), although these figures were slightly less than those reported for 1998. A further source of income is overtime work. This section will focus on the financial rewards received from such work, while the following section will examine the way such overtime hours are configured. Legally, payment for overtime worked must be at 1.5, 2 or 3 times the normal pay rate depending on whether overtime is worked on normal working days, weekly rest days or on public holidays. Most of the case study enterprises stated that they pay a premium for overtime work (N = 33; 86.8 per cent). In general workers confirmed this was the case with 62.7 per cent of workers surveyed (N = 111) indicating they

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Table 3.18 Components of income by occupation (%) Components

Production workers

Technicians

Administrative staff

Managers

Basic wage Skill Bonus/performance Piece rate Allowances Annual salary Total N

26.3 10.1 18.6 36.9 3.6 4.4 100.0 34

38.3 28.4 21.6 2.9 5.7 2.9 100.0 36

41.3 32.8 13.8 2.1 4.9 2.8 100.0 37

36.9 32.1 16.4 2.1 5.3 7.2 100.0 37

Source: Manager interviews.

received extra pay for overtime worked. This was an increase from the 1998 figure of 55.3 per cent (N = 78). Nevertheless, these figures suggest that a minority (but a significant number of workers) do not receive the legal minimum payments for additional hours worked. Moreover, even if workers received some payment, the amount of this premium did not necessarily meet legal requirements. For extra hours worked during the regular work day an extra 50 per cent of wages could be earned, although the average of the enterprises was considerably lower at 16.8 per cent. For work undertaken on weekends workers should receive double wages, although the average among the case study enterprises was again lower at 66.2 per cent. Work undertaken on public holidays should attract triple time, although again the average amongst the case study enterprises was 2.6 times the ordinary rate. In short, a little more than half of the enterprises surveyed paid the legal minimum overtime rates of 150 per cent (45.2 per cent of enterprises), 200 per cent (62.1 per cent) and 300 per cent (71.4 per cent) respectively. How did employers determine individual wages and have these criteria changed over the period 1998 to 2003? Table 3.19 documents the key criteria for both time periods broken down by gender. In 2003 the most important criteria determining wages were skills, performance, occupation/position, experience, education and seniority. These criteria were recognized as important in determining wages by the majority of case study enterprises. Importantly, all these criteria had increased in importance as determinants of wages in the period 1998 to 2003. No major differences were detected in terms of the criteria used to determining men’s wages and women’s wages. In addition to wages, workers also received a variety of benefits that had a direct financial value. Many of the case study enterprises paid an assortment of insurance premiums/schemes that covered medical, unemployment, pensions, injury and maternity payments. Details are provided in Table 3.20. Medical, unemployment and age pensions were generally paid by contributions from both the employer and worker. Injury and maternity insurance was generally

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Management, workers and conditions of employment

Table 3.19 Key criteria in determining wage levels (%) Criteria

Males

Age Seniority Education Experience Skills Rates paid by other organizations Performance Occupation/position Social relationships Gender Language skills N

Females

1998

2003

1998

2003

28.6 57.1 57.1 64.3 85.7 21.4 75.0 64.3 14.3 14.3 21.4 28

32.4 59.5 62.2 73.0 91.2 21.6 81.1 67.6 18.9 21.6 24.3 37

28.6 53.6 50.0 60.7 82.1 17.9 71.4 64.3 14.3 14.3 21.4 28

32.4 59.5 59.5 70.3 94.6 24.3 81.1 70.3 18.9 21.6 24.3 37

Source: Manager interviews.

Table 3.20 Insurance payments (%) Type

Enterprise pays

Worker pays

Enterprise and worker pay

No-one pays

Medical Unemployment Age pension Injury Maternity

15.8 (6) 15.8 (6) 2.6 (1) 34.2 (13) 7.9 (3)

5.3 (2) – 2.6 (1) – –

47.4 (18) 52.6 (20) 76.3 (29) 7.9 (3) 2.6 (1)

31.6 (12) 31.6 (12) 18.4 (7) 57.9 (28) 73.8 (28)

Source: Manager interviews.

not covered, but if they were they were payments made by the enterprise. Unlike in the pre-reform era, few enterprises offered dormitory living (39.5 per cent), subsidized housing (21 per cent) or a housing scheme (10.5 per cent). This is to be expected given the increasingly privatized housing market. If such benefits existed, they were mostly paid for by the enterprise, although a small percentage of enterprises required some payment from the worker. A range of other benefits were also provided by the enterprises which, in many cases, reflected the pre-reform Chinese enterprise. These benefits are detailed in Table 3.21. Three features of this data stand out. First, some benefits, such as retirement benefits, subsidized meals, transport to and from work via a commuter bus, and enterprise-paid social trips still exist in the majority of case study enterprises. Second, with the exception of social trips, there has been a noticeable decline in the number of enterprises providing these benefits in the five-year period 1998 to 2003. Third, no differences existed in the provision of these benefits to male and female workers.

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Table 3.21 Enterprise-funded worker benefits (%) Benefit

Retrenchment compensation Retirement benefit Subsidized meals Nursery/kindergarten Retail shop Commuter bus Library Education fund Social trips N

Males

Females

1998

2003

1998

2003

31.6 57.9 60.0 41.2 31.6 68.4 52.6 45.0 50.0 19–20

26.7 45.2 54.8 19.4 12.9 58.1 25.8 38.7 54.8 29–31

31.6 57.9 60.0 42.1 33.3 68.4 52.6 45.0 50.0 19–20

25.8 45.2 54.8 19.4 12.9 58.1 29.0 38.7 54.8 31

Source: Manager interviews.

Working-time arrangements Another important component of workers’ terms and conditions of employment are the hours worked and the ways these hours are configured. The current working-hours arrangements in China are underpinned by the 1995 Labour Law which provided for a maximum work day of 8 hours and an average work week not exceeding 44 hours (Article 36). The Chinese Government has also promulgated a number of regulations that affect working hours. These include the ‘Regulations on Working Hours of Workers’, ‘Examining and Approval Standards on Enterprises Practising Flexible Working Hours’, and ‘Integrated Accounting of Working Hours’. In March 1995 the government issued a revised ‘Regulations on Working Hours of Workers’ that reduced working hours to 40 hours per week. Enterprises were, however, allowed to delay the introduction of the 40-hour week by two years if difficulties arose in implementing such a decision. Improvements and variations from these statutory and regulatory requirements are generally not the result of collective bargaining as, up to now, collective bargaining has not been well developed. Where collective bargaining does take place, outcomes tend to follow regional and local conditions as determined by provincial regulations and local labour bureaus. Poor enforcement of laws and regulations has, however, led to hours of work often exceeding statutory and regulatory limits and in 2001 the first case of ‘death caused by tiredness’ gained considerable publicity (Zeng, Lu and Idris 2005: 4). The 2002 Chinese Labour Force survey indicated that weekly working hours were 45.4 hours per week. This was a little higher than the 2001 figure of 44.9 hours. These hours varied by industry (40.8 hours in government agencies to 50.7 hours in wholesale and retail trade – with manufacturing averaging 46.4 hours per week) and occupation (41.6 hours for clerks to 50.9 hours for commercial and service personnel). A survey conducted in 2003–04 by the International Labour Organization (ILO) (Zeng et al. 2005) found similar results, with the average

56

Management, workers and conditions of employment Table 3.22 Average hours worked by gender in urban areas, 2001–2004 Group

2001

2002

2003

2004

Male Female Total

45.2 44.5 44.9

45.6 44.7 45.2

45.8 44.9 45.4

45.8 44.9 45.4

Source: China Statistical Press (2006).

weekly working hours in three cities (Beijing, Guangzhou and Changsha) being 44.6 hours (44.0 hours in Beijing to 45.7 hours in Changsha). Considerable variations did occur in these three cities with 21.8 per cent of workers working in excess of 50 hours per week. Male workers were found to be working an average of 45.9 hours, while women worked a little less at 43.4 hours. Details for the period 2001–04 are presented in Table 3.22. Hours of work can be increased by the level of overtime worked. Overtime in China is defined as work beyond the daily standard hours or work during legal public holidays. Overtime is prohibited for certain categories of workers including minors, pregnant women and women nursing infants under one year of age (Zeng et al. 2005: 8). Overtime should not exceed one hour per day, although in special circumstances up to 3 hours per day is allowed: in total, overtime should not exceed 36 hours per month. For overtime worked on weekly rest days it is possible, under the Labour Law Act, for workers to take compensatory leave. The general extent of overtime can be gauged from the ILO survey. In the three cities covered by the survey (Beijing, Guangzhou and Changsha) over a third of all respondents had worked overtime in the last month. Over half of the workers undertaking overtime during normal working days (51.1 per cent) did not receive payment. A significant proportion of workers did not receive payment for working overtime on rest days (46 per cent) or for working on public holidays (32.2 per cent). With the exception of the last category of overtime work, less than a quarter of all workers received the legal payment. In many cases the enterprise provided other benefits to avoid payment such as shift exchange or other local arrangements (Zeng et al. 2005: 16). How do the enterprises that form part of this research compare to the above figures? As can be seen in Table 3.23 the average hours worked per day across the case study enterprises was 7.2 hours. Responses from workers indicated this may be substantially higher (they reported 8.2 hours as average). Nevertheless, both managers and workers agreed the median working day (the value of the mid-point of responses) was 8 hours in length. The average number of days worked per week, according to managers, was 4.7 days, although workers reported a substantially higher average of 5.4 days. Again, however, both managers and workers agreed the median figure was 5 working days per week. Managers reported an average of 8.3 hours overtime per week compared to the lower average of 5.8 hours reported by workers. Again both managers and workers agreed that the median figure for overtime worked was

Management, workers and conditions of employment

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Table 3.23 Comparison of management and worker responses on hours worked, 2003

Hours worked per day Days worked per week Overtime worked per week

Manager response1

Worker response

Mean

Median

Mean

Median

7.2 (n = 29) 4.7 (n = 30) 8.3 (n = 25)

8.0 (n = 29) 5.0 (n = 30) 6.0 (n = 25)

8.2 (190) 5.4 (188) 5.8 (156)

8.0 (n = 190) 5.0 (n = 188) 4.0 (n = 156)

Source: Manager and worker interviews. Note 1: The manager figures are for production workers. For technical and administrative workers the figures were slightly lower with means of 6.8 hours per day, 4.5 days per week and 6.4 hours overtime per week. The median figures were the same with the exception of overtime worked which was lower at 4.5 hours.

4 hours per week. Using the median figure suggested that workers in these enterprises were working about 44 hours a week, which is similar to the figures provided by the ILO study for this time (Zeng et al. 2005). It is important to recognize that considerable variation exists in daily working hours, days worked per week and overtime hours. To explore this a little further we developed a composite measure for workers and technicians/administrative staff. The average hours worked across the 18 case study enterprises that had provided all necessary data were 49.6 hours for workers and 46.3 hours for technicians and administrative staff. The variation was considerable, with standard deviations from this mean being 14 hours in both cases. Overall, the average across the enterprises for all types of workers was 47.9 hours, with a standard deviation of 13.5 hours. The minimum hours worked were 10.5 hours per week, while the maximum hours worked were 76 hours per week. A similar exercise was carried out using the workers’ survey. Overall, workers reported longer hours than the managers. Among the 156 workers included in the calculations, the average hours worked per week were 50.1 hours with a standard deviation of 14.5 hours. The range of total hours worked was from 16 hours to 102 hours per week. The median figure for weekly hours worked was 48 hours. Even discounting for some exaggeration on the part of workers, this last figure would suggest that workers were working well above the legal standards. Summary This section explored three key aspects of ER: employment contracts, wages and benefits, and working-time arrangements. Managers reported that most workers were on limited-term contracts and that this number had increased over the past five years. The length of contracts varied considerably, although the average ranged between two and three years for the different classes of workers. There were also a small number of workers that had no contracts or a contract of less

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Management, workers and conditions of employment

than one year. These contingent workers appeared to have increased in numbers over the past five years. A little over half of the enterprises operated under a collective agreement which governed employment and working conditions. These collective agreements were usually reached through discussions between management and the union, although a variety of approaches existed. Wages for workers in the case study enterprises had increased over the five-year period studied. The increases were most pronounced among technicians and managers when compared to production workers and administrative staff. Wages also varied significantly between sectors (for all workers the electronics sector paid higher wages) and enterprise types (with SOEs generally paying the lowest wages and JVs and private enterprises paying the highest wages). Production workers had the most pay at risk with a sizeable part of their wages based on piece rates. Most workers also received some overtime payments. An individual worker’s wage was influenced by a range of factors such as skills and performance. In addition to wages, workers also received insurance protection (medical, unemployment, age pension, injury and maternity) and other benefits such as meals, commuter bus, library, and social outings. In some cases workers would contribute to the cost of these benefits. Workers reported that the median hours worked per day was 8 hours, for five days per week, with an additional 4 hours of overtime. There was, however, considerable variation in these figures as well as differences between the various types of workers. Managers generally reported similar figures, although the median amount of overtime was a little higher at 6 hours per week. Overall, it appeared that a working week of about 48 hours was the norm, which would suggest that workers are working above the legal maxima.

A modern approach to managing people at work? The previous two sections have outlined the present state of HRM and ER in our case study enterprises. Yet some enterprises are clearly more advanced than others in the adoption of modern management approaches. In this section we attempt to identify whether these reforms to HRM and ER constitute a modern approach to managing people at work. Variations in HRM and ER Before addressing whether the situation noted earlier in this chapter constitutes a modern approach to management we disaggregate the findings by five distinguishing factors: industry, year of establishment, enterprise size, ownership type and location. Results are presented in Tables 3.24 to 3.26. This allows us to investigate whether some clear pattern is emerging as to where such change is taking place. Given the small number of case study enterprises that exist in some of the subgroups this exercise can only be taken as an indication of possible explanations of the pattern of HRM and ER. Various combinations of these factors are subsequently used as determinants of enterprise performance, quality of working life and worker livelihoods (Chapters 5, 6 and 7).

73.7 35.6 100.0 65.0 55.0 60.0 20.0 48.4

66.7 27.8 46.7

Electronics N = 20

33.3 54.1 72.2 58.8 55.6

TCF N = 18

2

Industry

90.9 9.1 41.8

54.6 36.2 72.7 54.6 72.7

Before 1978 N = 11

51.9 29.6 49.5

45.5 47.2 92.6 65.4 48.2

After 1978 N = 27

Year of establishment

Note 1: percentage unless otherwise stated. Note 2: textiles, clothing and footwear. Note 3: average hours of training with N ranging from 34 to 35. Note 4: average hours worked (including overtime) with N ranging from 24 to 25.

Source: Manager interviews.

HRM: Selection criteria (education) Training (hours per annum)3 Performance appraisal (yes) Worker participation (yes) Employment reduction (yes) Conditions of employment: Collective agreement (yes) Comparative wages (higher) Hours worked per week (total)4

Variable

Table 3.24 Selected HRM and ER practices by industry, age and size of enterprise (%1)

36.8 21.1 47.9

57.9 49.3 84.2 63.2 36.8

Less than 500 N =19

89.5 26.3 47.4

50.0 38.4 89.5 61.1 73.7

More than 500 N =19

Size of enterprise (workers)

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Management, workers and conditions of employment

Table 3.25 Selected HRM and ER practices by type of enterprise1 (%2) Variable HRM: Selection criteria (education) Training (hours per annum)3 Performance appraisal (yes) Worker participation (yes) Employment reduction (yes) Conditions of employment: Collective agreement (yes) Comparative wages (higher) Hours worked per week (total)4

SOE N=6

JSC N=7

JV N=8

FIE N=4

DPE N = 10

COE N=2

66.7 20.0 83.3 33.3 83.3

42.9 70.3 100.0 71.4 71.4

75.0 45.8 87.5 62.5 37.5

75.0 55.5 75.0 100.0 50.0

44.4 40.3 100.0 44.4 40.0

0.0 48.0 50.0 100.0 50.0

83.3 0.0 45.3

85.7 28.6 45.8

62.5 50.0 46.9

75.0 25.0 54.8

30.0 20.0 51.4

50.0 0.0 32.0

Source: Manager interviews. Note 1: SOE – state-owned enterprises; JSC – joint stock companies; JV – joint ventures with foreign companies; FIE – foreign-invested enterprises, DPE – domestic private enterprises; COE – collectively owned enterprises. Note 2: percentage unless otherwise stated. Note 3: average hours of training with N = 35. Note 4: average hours worked (including overtime) with N = 25.

Table 3.26 Selected HRM and ER practices by location of enterprise1 (%2) Variable

Beijing Hangzhou Harbin Wuhan Kunming Lanzhou N=6 N=6 N=6 N=6 N=8 N=6

HRM: Selection criteria (education) 66.7 Training (hours per annum)3 45.6 Performance appraisal (yes) 100.0 Worker participation (yes) 66.7 Employment reduction (yes) 66.7 Conditions of employment: Collective agreement (yes) 66.7 Comparative wages (higher) 16.7 Hours worked per week 59.3 (total)4

20.0 26.7 100.0 80.0 66.7

50.0 42.7 83.3 66.7 33.3

66.7 25.0 83.3 16.7 50.0

62.5 59.5 75.0 62.5 62.5

50.0 65.0 83.3 83.3 50.0

83.3 16.7 58.5

50.0 33.3 45.0

83.3 16.7 36.9

62.5 12.5 43.0

33.3 50.0 47.7

Source: Manager interviews. Note 1: Beijing and Hangzhou are the most economically developed cities; Harbin and Wuhan are older industrial cities that are developing rapidly; Kunming and Lanzhou are less developed cities. Note 2: percentage unless otherwise stated. Note 3: average hours of training with N = 34. Note 4: average hours worked (including overtime) with N = 24.

Table 3.24 breaks down the analysis by industry (TCF, Electronics), year of establishment (pre-1978 and post-1978) and size of enterprise (less than 500 workers, more than 500 workers). The results were mixed. Enterprises in the electronics

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61

industry placed more emphasis on the level of education in the selection of workers and were more likely to conduct performance appraisals than enterprises in the TCF sector. On the other hand, TCF enterprises had more hours of training and were more likely to have a collective agreement in place than were enterprises in the electronics sector. Similarly, enterprises that pre-dated the commencement of economic restructuring placed more emphasis on education and were more likely to have a collective agreement in place than those enterprises established after 1978. These new enterprises were, however, more likely to have a collective agreement, although this did not translate into better wages (managers were less likely to perceive wages paid in their enterprises as higher than elsewhere). Hours worked in the newer enterprises were significantly lower than in the older enterprises. Larger enterprises were more likely to have undertaken workforce reductions and to have a collective agreement operating than were the smaller enterprises. Part of the explanation for this latter finding is that many SOEs were abandoned by the government with only the larger and more strategically placed enterprises able to receive continued government support. Thus many of the larger enterprises in this study remain state-owned and pre-date the commencement of reform. This can be seen in Table 3.25. In general, however, the findings when broken down by ownership are mixed. SOEs are more likely to have a collective agreement, while JSCs along with DPEs are more likely to have conducted performance appraisals and spend many more hours on training than other enterprise types. JVs along with FIEs place more emphasis on education as a selection criterion and tend to pay higher wages. FIEs are also more likely to have some form of worker participation in place, although they also had the highest weekly working hours. Many of these differences may relate to location, as the case study enterprises were selected to provide a broad representation of Chinese industry: industrially developed (Beijing, Hangzhou), developing (Harbin, Wuhan) and less developed (Kunming, Lanzhou). As can be seen in Table 3.26 the most industrially advanced regions tend to have adopted, although not exclusively, modern management practices. As expected, these regions are also where employment reductions were most likely to have been undertaken. Interestingly, hours of training among these enterprises were lower and fewer managers felt that wages in their enterprises were higher. This last point may, however, indicate that the reference point in the developed regions is higher than elsewhere. Enterprises in the less developed regions, however, provided a higher level of training than those in the developing or developed regions. What does seem to be clear from these findings is that enterprises in Harbin and Wuhan, regions we classified as developing, paid the least attention to modern HRM and employment practices. This suggests that industrial development precedes any systematic attempt to improve systems of work and management. Modern HRM The analysis presented in the second and third sections of this chapter clearly indicates some change from the pre-reform days of centrally controlled SOEs,

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during which workers would be allocated to enterprises and production targets set by government. What then does the research imply about the nature and approach taken to HRM? Clearly the nature of recruitment has changed to some extent, with skill, experience and education being of prime importance (along with health). Most workers are interviewed and undertake skill tests, with the successful applicants being placed on probation. Likewise, a range of training is provided, including induction programmes and a strong emphasis on developing workers. Performance appraisal has assumed importance to the Chinese enterprise, with the development of clear job descriptions and criteria for promotion. Merit is now the overwhelming criterion for promotion, although this is often linked with seniority. Job security is now no longer guaranteed, with a majority of enterprises having engaged in employment reduction programmes and the remainder likely to do so if economic conditions require such action. Participation practices appear to be on the increase, although this did not prevent an adjustment to employment levels through a variety of compulsory and voluntary means. Overall, on the evidence produced in this research, Chinese enterprises of all types have adopted, to varying degrees, HRM practices that are common in the more developed economies. Is such a conclusion also relevant to ER? In line with statutory provisions, the vast majority of workers worked under an employment contract, although some workers worked on a temporary basis. A majority of the case study enterprises operated under a collective agreement, although the terms and conditions of these agreements reflect existing practices, statutory minima and regional norms. More recently, changes to regulations and statutes have strengthened the collective ‘discussion’ aspects of collective contracts and are moving the determination of terms and conditions of employment towards an industrial matter. The processes used to develop these contracts are often, although mistakenly at this stage, referred to as collective bargaining (Shen and Benson 2008). The lack of autonomy of Chinese trade unions is a limitation on the achievement of true collective bargaining (this aspect will be addressed further in Chapter 4). Wages in the case study enterprises had increased substantially in the period 1998 to 2003, with technicians and managerial staff receiving the largest increases. Considerable differences in wages existed between the electronics and TCF sectors as well as between enterprise forms. These differences appear to be consistent with the wages paid in these sectors in more developed countries. The components and criteria used to determine individual salaries, whilst complex, are also similar to more developed countries with an increasing emphasis placed on skill and performance. A range of additional payments are made to workers but these are now tending to consolidate around activities that have a direct relationship to the needs and performance of the enterprise. Hours of work are controlled by clear statutory maxima, although the analysis of the case study enterprises indicated that these hours are often breached and many workers do not gain the benefits of penalty rates for overtime work.

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Discussion and conclusions What then can be said about the present state of HRM and how is this related to nearly three decades of economic reform? Clearly HRM is in a state of transition towards a more market-based system and away from the socialist policy of lifetime work and protection. In the area of HRM, enterprises are moving towards adopting modern Western practices, albeit at varying speeds and directions (see also Benson and Zhu 1999; Benson et al. 2000). This has been partly driven by the impact of economic reform which, when coupled with globalization, meant that enterprise managers had to focus on efficiency and performance. The influx of foreign firms has illustrated exemplary behaviour by some enterprises with respect to ER, although it has also served to reinforce the market-based nature of the capitalist system with a strong emphasis on workers as disposable resources. The considerable amount of legislative change that has accompanied the economic reform over the past two decades is a strong indicator that the government has recognized the need to set employment standards and protect workers’ rights. Yet the magnitude of the task of developing a market-based employment system has meant that legislative reform often lags behind economic reform and that the bureaucracy takes some time to both recognize and act upon managerial excesses. This is no different to what is experienced in the more developed industrial societies. What is required is a stronger emphasis on the enforcement of legal minima. This can and should be done by well-staffed and trained bureaus with appropriate powers of inspection, enforcement and punishment. This, however, has not generally been the case and workers have therefore little protection against those employers willing to abuse their position. In conclusion, this chapter has explored the state of HRM and employment conditions in the 38 case study enterprises. From this research it is clear that considerable change in these areas has accompanied the economic reform. In both these areas there is strong evidence that more Western-oriented practices are being adopted and that the employment system appears to be in a transitionary period. Nevertheless, there appears to be some reluctance on the part of government to proactively address the need to provide for stronger policing of the employment legislation and the need to provide other institutional players the freedom to represent their constituents. This is most obvious in the perceived role and activities of trade unions. It is this issue we will consider in the next chapter.

4

Worker representation and emerging roles for trade unions

Introduction As can be seen from the preceding chapter, important changes have taken place in HRM and ER practices of Chinese enterprises. Running parallel to these changes have been significant changes to legislation covering trade unions and to trade unions themselves. It is often convenient to view Chinese trade unions as subservient to the party interests. What we have seen over the past two decades of reform, however, is a growing independence and reshaping of the activities and role of trade unions as the relationships between management and trade unions mature and take on, at least superficially, a more Western character. This chapter commences with an overview of the background and current structure of trade unions. The next section then explores worker representation at the enterprise and is followed by a section that explores union–management relations. The final substantive section explores differences in unionization and union activity in terms of industry, enterprise age and size, type of enterprise and geographic location.

Structure of trade unions Background In the communist era trade unions were only one of the mechanisms established by the state to ensure that the management of the SOE sector could function fairly and meet the government-determined targets for the sector and each enterprise. In this scenario trade unions served to ensure the enterprise managers conformed to the directives of the state and worked with the party cadres to ensure that minimum standards laid down for wages and working conditions were met. Collective bargaining, in this system, served little purpose as in many cases the union officials had equal power to, and in some cases considerably more, than that of enterprise managers. While much of the union activity took place at the enterprise level, unions were part of the ACFTU. The ACFTU served to assist local unions in such things as worker welfare, and health and safety training and formed, in essence, a powerful arm of government. Enterprise unions and the ACFTU thus had mainly administrative functions rather than a representative role.

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65

This administrative function meant that Chinese trade unions were run on enterprise union lines rather than the craft and industrial structures that are more common in Western countries. They are in essence, however, organized and governed by the ACFTU and not by the rank-and-file. The ACFTU has a matrix organizational structure with its organization extended vertically and horizontally into provinces, cities, counties, districts, streets, communes, industries and enterprises. There are 10 national industrial unions and 31 federations of trade unions in provinces, autonomous regions and municipalities that operate under the umbrella of the ACFTU (Warner 2008: 147). Trade unions are generally present only in urban cities or towns; they do not usually cover economic activity in the rural areas. It is stipulated in the Constitution of the ACFTU that membership in trade unions is open to all manual and other workers in enterprises, undertakings and offices inside China for whom wages constitute the principal means of livelihood and who accept the Constitution of the ACFTU irrespective of their nationality, race, sex, occupation, religious belief or educational background (Shen and Benson 2006). The move from a centrally planned economy to one based on market principles meant that important changes to trade unions needed to occur. As reform progressed and enterprises became more profit seeking, and workers no longer ‘owned’ enterprises, there arose a clear need for unions to represent workers against the interests of managers and enterprises. Such a transition for unions would inevitably be slow given the inherent contradiction between a communist government and a market economy. Nevertheless, since the commencement of the economic reform process in 1978 the Chinese government has consolidated and reformed legislation relating to trade unions. The most important pieces of legislation were the 1992 Trade Union Law, which consolidated earlier regulations governing the operations of trade unions, and the 1994 Labour Law. The 1992 Act specifies the organizational structure of trade unions and defines their rights and obligations. The ACFTU is the only legitimate and singular peak union body in China. According to its constitution and the 1992 Trade Union Law the ACFTU is charged with representing the interests of its members. Nevertheless, the ACFTU is subordinated institutionally and politically to the CCP and at the local level it is under the control of local government (Warner 2008: 145). The Trade Union Law amendments in 2001 reaffirmed Party control of the ACFTU and ensured that the ACFTU is not a workers’ organization, but a quasi-government body (Article 4). Notwithstanding, the 1994 Labour Law allows Chinese trade unions to stage activities independently of the ACFTU (Article 7). These seemingly contradictory rules means there is some confusion as to the extent to which enterprise-level trade unions can independently represent their members and engage in independent bargaining activities. According to the Trade Union and the labour laws, trade unions have the right to represent workers who sign an individual labour contract with enterprises and institutions (shi ye dan wei). Trade unions have the right to ensure that the implementation of individual labour contracts is in accordance with the law. Moreover, as stated in the 1994 Labour Law:

66

Worker representation and emerging roles for trade unions In case it becomes necessary for the employer to cut down the workforce, the employer shall explain the situation to its trade union or all of its employees 30 days in advance and solicit opinions from its trade union or the employees. (Article 27, Chapter 3)

The trade union shall have rights to air its opinions if it regards as inappropriate the revocation of a labour contract by the employer. If the employer violates the law, regulations or labour contracts, its trade union shall have the right to ask for handling the case anew. (Article 30, Chapter 3)

In a unionized enterprise, the union is also required to discuss labour terms and sign the collective contract with the enterprise management on behalf of workers. On 1 May 2004, the MOLSS issued the Provisions on Collective Contract (Jiti Hetong Guiding). The 2004 provisions provided workers with some representation in preparing contracts on labour terms that exceed the statutory minimum standards. This new regulation prevents trade union officials who are also enterprise managers from representing employers, which was, until recently, common practice. The new provisions also permit both sides to select one-third of their representatives from professional personnel (Shen and Benson 2006). Trade union numbers and members At the end of the research period (2004) trade union membership in China was 136,950,000, in 1,020,000 primary trade union organizations. According to the ACFTU these unions covered 1.94 million profit and non-profit organizations nationally, which represents 37.9 per cent of organizations and 63 per cent of all employees. Some 33.4 per cent of union members were women. In the private sector, 459,000 unions have been established, a unionization rate of 25.5 per cent (ACFTU 2009). Up to August 2006, about 26 per cent of China’s 150,000-odd overseas-funded enterprises have established trade unions, with a total membership of 4.29 million. At the end of 2006 there were some 1,323,965 primary trade unions with a combined membership of 169,942,111 workers (China Statistical Press 2008b: 553–556). Over the two-year period (2005–06) these changes therefore represent an increase of 24.1 per cent in trade union membership and 29.8 per cent increase in the number of primary trade unions. As at 2005 the ACFTU has the largest trade union membership in the world (ICTUR 2005). Confirming the ACFTU trade union density figure of 63 per cent is difficult as the trade union membership data is not broken up by the urban/rural divide. Nevertheless, some broad estimates can be made. Of the economically active population of 782,440,000 in 2006, some 484,940,000 were working in rural areas of which 193,976,000 were classified as non-farm workers. This meant that the urban workforce at this time was 297,500,000 and the total non-farm workforce was 491,476,000. If we assume that all union members are in urban areas then the density

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67

figure would be 57.1 per cent. On the other hand, if we assume union members are spread evenly throughout rural and urban areas then the density figure would fall to 34.6 per cent. Of course neither assumption is completely valid so we would anticipate the actual figure would lie somewhere in between, although given the difficulty of organizing rural workers we would expect a figure skewed towards the higher density figure. Whilst these calculations also include in the economically active population the self-employed (except farmers) and those working in small shops and the like, it would appear that the figure of 63 per cent is too high and a more realistic figure would be around the 50 per cent mark for urban employees.

Worker representation at the enterprise Union membership and worker representatives The above discussion provides the context for an analysis of trade unions in our case study enterprises. Thirty-two (84.2 per cent) of the 38 enterprises reported that they had a union in their organization. Those enterprises without a union presence were located in Beijing (2), Haerbin (1), Kunming (1) and Lanzhou (2) and were thus located in regions at various stages of economic development. Nonunion enterprises were, however, predominantly in the electronics sector (66.7 per cent) and DPEs (83.3 per cent), although one was an FIE (16.7 per cent). All nonunion enterprises were small (ranging from 17 workers to 58 workers with an average of just over 32 workers) and had been established in the post 1990 era. A similar result for unionization was found from the worker survey in which 79 per cent (N = 190) of workers confirmed the existence of a union in their enterprise. This figure, was, however, slightly down on the 83.5 per cent (N = 170) of workers who claimed a trade union was present in their enterprise in 1998. In those enterprises where unions existed, the average union density, according to managers, was 89 per cent (N = 32). This membership figure, however, belies the diversity between enterprises: 18 enterprises had all workers belonging to the union (100 per cent density) while one enterprise reported a low of 15 per cent. Nevertheless, only two enterprises reported a figure of below 50 per cent, with over 90 per cent of all enterprises claiming a union density of 70 per cent or higher. Of the 150 workers who stated that a union existed in their enterprise, some 94 per cent (N = 141) were members of their trade union. This suggests an overall density for all enterprises involved in this study of about 79 per cent. Where unions did exist the membership was normally represented by a combination of full-time and part-time officials. While all unionized enterprises (N = 32) reported they had part-time officials, a smaller, although a substantial majority of enterprises (N = 23; 71.9 per cent), also reported they had full-time officials. On average the number of full-time officials was a little over two per unionized enterprise while the average number of part-time officials was 10. Again, these averages understate the diversity that exists within the case study enterprises: the number of full-time officials ranged from 1 to 11, whilst the number of part-time officials ranged from 1 to 60. This diversity was to be

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expected given the range in enterprise size, for the number of union officials, both full-time and part-time, rose with the size of the workforce (r = 0.55 and r = 0.60 respectively). Meetings between union officials and members were held, on average, six times a year (6.1 times; N = 24), although the frequency varied from one meeting a year to 24 meetings a year. Two-thirds of the enterprises (66.7 per cent) reported that five or fewer meetings occurred annually. A further avenue for workers to meet with their representatives is through the legally established and sanctioned workers’ congress. The aim of these bodies was to provide a basic form of democratic management by ensuring employees, through their representatives, were fully involved in the affairs of the enterprise (Benson, Debroux and Yuasa 1998; Benson et al. 2000). The workers’ congress met less frequently than union membership meetings; the frequency of these meetings averaged slightly over one meeting per year (1.4 meetings). For many enterprises involved in this research there was only one meeting per year of the workers’ congress (N = 16). This conforms to the legally mandated requirement (see Cooke 2005: 38), although 11 enterprises reported meetings of this body took place twice a year. While the workers’ congress is separate and distinct from union meetings, given the high union density in the case study enterprises it is likely that the congresses are influenced, to a large extent, by union officials and most likely adopt a prounion stance and a strong union agenda (see Benson and Zhu 2000). Union voice mechanisms The presence of union officials and the frequency of union meetings in the case study enterprises allows for members to participate in the affairs of the union, at least to some degree. Does the presence of a union with some degree of membership activity ensure some level of voice for workers? This is an important question, as trade unions can vary considerably in their activities and their ability to voice workers’ concerns and preferences. This is particularly the case with unions structured along enterprise lines where local conditions will affect the structure, organization and influence of unions. One measure of union voice is the willingness of managers to meet with union officials on a regular basis. Managers were therefore asked how often union–management meetings were held. As can be seen from Table 4.1, only 20 per cent of enterprises (N = 30) held such meetings on at least a regular monthly basis. The remaining enterprises had less frequent meetings scheduled, usually on a half-yearly or yearly basis. These figures do, however, underestimate the number of meetings held as nearly half of the enterprises (43.3 per cent) indicated that they would meet as required. That is, if problems arise or workers had issues they wanted to discuss with management then a meeting between managers and the union would be organized. Of course union voice through formal meetings may be perceived very differently by workers. Workers were therefore asked whether they felt the enterprise supported worker participation in important decisions through their union and/or workers’ congress. In 2003 some 62.7 per cent of the 185 respondents felt their

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Table 4.1 Frequency of union–management meetings (%) Frequency

%

Weekly Monthly Quarterly Biannually Annually As required

3.3 16.7 6.7 20.0 10.0 43.3

Source: Manager interviews. Note: N = 30.

enterprise supports their participation through these mechanisms. This figure was slightly down on the 64.8 per cent of respondents (N = 159) who felt this way about the situation five years earlier. Clearly, despite the high level of unionization in the case study enterprises less than two-thirds of workers felt unions had been accepted by management as important contributors to decision-making in the enterprise. As indicated, little change in this perception had taken place over the five-year period 1998 to 2003. Overall, the majority of workers (95.4 per cent, N = 151) felt that managers were generally supportive of the union. This a much higher figure than the responses to questions concerning involvement in enterprise decision-making and illustrates that workers perceive management support for the union in a far wider context than the official union structures. This would include management involvement of the union in the affairs of the enterprise, the provision of facilities to union officials, and the wider role union officials have traditionally played in the Chinese enterprises. Another form of employee voice in Chinese enterprises, often linked directly to the union or union officials, is the legally mandated workers’ congress. A majority of the workers surveyed (68.3 per cent, N = 189) indicated that a workers’ congress existed in their enterprise. This is slightly down on the 75.3 per cent of workers (N = 174) who indicated that a workers’ congress existed in their enterprise five years earlier. Of these workers, 76.1 per cent indicated that they were actively involved in the congress. To explore this involvement, workers were asked about the real role of the workers’ congress. A variety of views were expressed around the themes of protecting the legal rights and interests of workers, communicating with workers, involving workers in enterprise decision-making, facilitating company policy, mediating between workers and managers, providing welfare and training, and discussing the reform plans of the enterprise. But not all workers perceived the congress in a positive light. Some workers felt unsure about the congress’s role and thought that it had little purpose or that it was ‘nothing but an empty title’. Do these negative views suggest that the workers’ congress is less relevant in a market-oriented market system? To explore this question, workers were asked to outline the role of the congress five years earlier. Whilst most of the responses

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Table 4.2 Managers’ perception of unions’ role (%) Purpose

N

Yes

No

Involved in decision-making Monitoring of management performance Mediator between employees and management Welfare provider Facilitate organization policy among workers Assist in managing individual grievances Not really much purpose

33 33 33 33 33 33 31

48.5 66.7 81.8 45.5 66.7 69.7 6.5

51.5 33.3 18.2 54.5 33.3 30.3 93.5

Source: Manager interviews.

were similar to those expressed above there were some comments which suggested a stronger role for workers in the management of the enterprise had existed via the workers’ congress in earlier years. More emphasis in the earlier responses was placed on ‘democratic involvement in decision-making’, ‘protecting the interest of workers’, and ‘to sum up the working performance of the departments’. This enhanced management role was best explained by one worker who claimed that in 1998 the role of the workers’ congress was to ‘embody the (principle) that workers are the masters of the enterprise’. Perceptions of the union’s role Among the case study enterprises, managers expressed a variety of roles for unions in their enterprise. Only two case study managers (6.5 per cent) felt that unions did not really have much purpose. The most frequently cited role was to act as a mediator between workers and managers in the resolution of workplace disputes (81.8 per cent). This mediating role was also cited by managers as assisting in the management of individual grievances (69.7 per cent). Other frequently cited roles included the monitoring of management performance (66.7 per cent) and the facilitating of organization policy among workers (66.7 per cent). These perceived roles point to managers seeing unions, and particularly their officials, as partners in the management of the enterprises. Yet, such a view had limits, with less than half of the managers (48.5 per cent) seeing a role in decision-making for unions. The union as a welfare provider was also seen as a role for unions by a significant minority of managers. Managers’ responses are provided in Table 4.2. Given that the majority of managers interviewed saw a mediation-type role for unions as being of prime importance, this raises the question as to whether they have formal mechanisms in place to achieve this outcome or whether enterprises leave it to the union to work through the issues. Some 57.1 per cent of the 35 managers that responded to this question indicated their enterprises had established a mediation committee. In all but two of these cases managers specified that a union representative, in most cases the local president of the union, was on this committee usually with other union members and representatives of management, often

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from the HR department. The role of this committee, as the name would suggest, involves mediating ‘the relationship between workers and the enterprise’ or ‘conflicts between managers and workers’. Such a role, however, extends in several enterprises to ‘mediating disputes between workers and mediating conflicts in the family’. In the words of one manager the role of the committee is to ‘coordinate the capital–labour relationship’. Interestingly, however, when managers stressed a role for unions in mediation, only 63 per cent of them were in enterprises where such committees had been established. This finding suggests that managers of the other 37 per cent of enterprises were probably content for unions to handle such matters on a case-by-case basis through some form of collective discussions with management. A similar finding (66.7 per cent) occurred for those managers stating that an important role for unions was to assist with managing individual grievances. This proposition is supported by the finding that 42.4 per cent of managers (N = 33) stated that grievance procedures were handled by the union in preference to the HR department. Do workers perceive unions in the same way as managers? Table 4.3 presents workers’ views on the purposes of trade unions. The categories adopted are the same as for managers as presented in Table 4.2 but with the addition of three extra responses: protection of workers, training and education provider, and employment services provider. Only a small percentage of workers could see little purpose for trade unions (11 per cent). The major purpose of unions as perceived by workers (members) was in providing mediation between workers and management (77.9 per cent). Other important purposes were welfare provision (73 per cent), facilitating organization policy among workers (68.7 per cent), protecting workers (66.9 per cent) and assisting in managing individual grievances (54 per cent). Notwithstanding the changed employment context now facing workers, the purpose of unions appears to have diluted somewhat in the minds of workers in the period 1998 to 2003. This can be observed in the smaller percentage of workers who saw a role for unions in eight of the nine categories presented in Table 4.3 in 2003 as compared with 1998. This may be a result of the more individualistic employment practices that have been introduced over time, such as labour contracts, or it may reflect a more market-oriented approach on the part of workers. Indeed, as pointed out in Chapter 6, 83.5 per cent of workers were happy with the length of their current employment contract and 79.7 per cent of workers were happy with their existing employment conditions. Unions clearly still have an important purpose but their key role appears now to revolve around the settlement of disputes and grievances with management. What then do workers believe is their employment future with this apparent weaker union presence and activity? Table 4.4 outlines workers’ perceptions of their job security, salaries and working conditions, both with their present employer and also in the event that they needed to seek employment elsewhere. This, given the nature of the past employment system in China, provides some indication of the union’s ability to protect and represent workers. Around half the workers surveyed indicated they felt that over the next five years their jobs were secure, that they would receive pay increases, that working conditions would

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Table 4.3 Workers’ perception of unions’ role (%) Purpose

2003

1998

Involved in decision-making Monitoring of management performance Mediator between employees and management Welfare provider Facilitate organization policy among workers Assist in managing individual grievances Protect workers Training and education provider Employment services provider Not really much purpose N

49.7 44.2 77.9 73.0 68.7 54.0 66.9 44.8 31.9 11.0 163

53.7 49.3 82.8 82.1 76.9 66.4 71.6 51.5 30.6 9.0 134

Source: Worker interviews.

improve and that they will be better trained. Nevertheless, a sizeable minority felt this would not be the case. The vast majority of workers felt, however, they would be required to work harder. This finding, coupled with the finding that fewer workers see a role for the union in a number of key areas (see Table 4.3), suggests that many workers see a decreased relevance of unions in their present workplace. Workers, when asked about their job prospects in the wider labour market, felt that they were employable and that they would be able to get another job if they lost their present job. Importantly, however, these workers felt that the pay and working conditions would not be as good as they currently enjoy. This suggests that workers felt their union had protected them to some degree and that once they are on the open labour market this protection would, in many cases, no longer exist. This section explored worker representation in Chinese enterprises. In most enterprises a union was present and where this was the case the overwhelming majority of workers were members. A combination of full-time and part-time officials represented these workers and meetings between officials and workers occurred quite regularly. These meetings, together with the workers’ congress, provided workers with some voice in the running of the enterprise and most workers felt that management was supportive of the union and the workers’ congress, although this support had declined a little over the years. There were considerable similarities in the roles for unions as perceived by workers and managers, although there were several important differences that will be discussed further in the following section. Overall, there was a decline in the number of workers who saw a role for unions and many workers saw little chance that the union could protect their jobs and working conditions in the future.

Management–union relations The relationship between management and the union can often be clouded by the different perceptions of the role that unions should play within the workplace.

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Table 4.4 Workers better off in the next five years (%) Issue Current employer: Job security Increased pay Work harder Improved working conditions Better trained Future employer: Employable if lose job Could get another job Earn as much as now Working conditions as good as now

Yes

Probably

No

N

47.4 54.8 96.8 52.6 47.3

11.1 18.1 0.5 14.2 15.4

41.6 27.1 2.7 33.2 37.2

190 188 189 190 188

80.0 79.5 54.3 39.3

– 2.1 24.5 43.6

20.0 18.4 21.3 17.2

190 190 188 186

Source: Worker interviews.

The previous section discussed these perceptions based on the survey (see Tables 4.3 and 4.4). Table 4.5 consolidates these two tables to facilitate a direct comparison between managers’ and workers’ perceptions of the role of unions. There was substantial agreement on union purposes such as decision-making, mediation between workers and management, and facilitating organizational policy among workers. In the case of involvement in decision-making, however, only half of the managers and workers stated this was a key role for unions. This clearly is a change from the pre-reform days in SOEs (Benson et al. 2000). In the other two cases, managers and workers expected unions to act to resolve issues before problems arose. The two most significant differences were managers’ perceptions of a role for unions in monitoring management performance and workers’ perceptions of unions as welfare providers. These findings suggest that managers and workers have not come to terms with western-style capitalism and the years of trade union monitoring of enterprise performance remains the preferred managerial approach. Such a view is also supported by the finding that most managers interviewed also see a role for unions in assisting in the management of individual grievances. Equally, a similar desire to hold onto the past could be said of workers’ views of unions as providers of welfare. This again relates to a traditional pre-reform role of unions (see Verma and Yan 1995) which has probably become more urgent given the lack of employment security most workers now face. Clearly the nature and strength of management–union relations will be significantly influenced by these perceptions of the role of unions. Yet, if the argument that there appears to be a ‘holding onto the past’ by both managers and workers is valid then we would expect to see little change in the relationship between management and unions over the period 1998 to 2003. Nearly half of the workers (42.2 per cent; N = 128) indeed felt that the relationship between management, unions and workers had changed little over this period. A further 25 per cent of workers were unsure. As these workers were alluding to little or no change they were not

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Table 4.5 Managers’ and workers’ perception of union’s role (%) Purpose

Management

Employees

Involved in decision-making Monitoring of management performance Mediator between employees and management Welfare provider Facilitate organization policy among workers Assist in managing individual grievances Not really much purpose N

48.5 66.7 81.8 45.5 66.7 69.7 6.5 33

49.7 44.2 77.9 73.0 68.7 54.0 11.0 163

Source: Manager and worker interviews.

required to provide further details. Nevertheless, several workers pointed to what was the traditional role for Chinese unions. One worker, for example, pointed out that the relationship between management and the union was ‘harmonious. The management supports the trade union so much. The funds of the trade union are allocated by the management to organize various activities to strengthen the cohesion and motivation of workers’. This traditional role for Chinese unions is summed up by another worker who pointed out that there was no change in the relationship and that: The management is more powerful than the trade union. The problems that cannot be resolved by the trade union will be dealt with by the management. The trade union isn’t involved in the decision-making. It only publicizes the policies and principles of the company. Underpinning many of these perceptions concerning the relationship between management and the trade union is a view of trade unions quite different to that perceived by workers in Western economies. One worker explained it as ‘the management is at the top level, the trade union is in the middle, and the workers are at the lowest level. The management directs the trade union and the trade union directs the workers’. For some workers this order provides a sense of ‘partnership’ between management and unions and could be seen in the comments of workers such as the relationship is ‘harmonious and united’, ‘the trade union doesn’t have many powers’ and ‘the trade union is effective in the restructuring of the enterprise’. For other workers, however, such a view provides support for only an administrative role for trade unions. This can be seen in comments such as ‘the trade union helps the enterprise more than the workers’, ‘the trade union is in the administrative office’, and ‘the top director has a final say and even the unions obey the directors’. Nevertheless, one-third of worker respondents (32.8 per cent) could identify changes to this relationship and were able to articulate the types of change that have taken place. These changes covered the relationship between the parties becoming closer and also more remote, more and less involvement of the union in decision-making, more and less transparency in the relationship, and the union

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becoming stronger and also weaker in its dealings with management. One worker pointed to an important factor underpinning the relationship when he contended that ‘the relationship was good when it used to be a joint venture but isn’t after it was transformed to a wholly foreign-owned firm’. This change in the structure of enterprise ownership was a recurring theme among some workers who saw such changes as affecting the way they were treated by managers and also the way the union was taking on new representative roles. Those workers who felt the relationship had improved pointed to an increase in ‘the power of the trade union’, and that management and union were ‘interdependent and trust each other’. For one worker a ‘dramatic change had occurred. The trade union not only protects the legal rights of the workers but also involves itself in the production activities such as technological innovation’. On the other hand, those workers who felt the quality of the relationship had declined pointed to the fact that ‘it is not as close as it used to be. It used to be like friends, but now conflict often occurs’ and ‘it is not as democratic as before. The union is not as powerful as before. The issue as to how to reform is only known by the leaders’. Another way to explore the relationship between managers and the trade union is to analyse the way the enterprise responds to a variety of issues raised by workers and their union representatives. Managers in the case study enterprises were therefore asked whether any labour disputes had occurred in their enterprise. Some 39.5 per cent of managers responded that disputes had occurred in their enterprise. These disputes covered a range of issues with the most common issues involving non-payment of salaries, unpaid overtime work, retrenchments, fines for certain breaches of company policy such as being absent from work, and occupational health and safety issues. In the main, the disputes were not, however, collective in nature and usually revolved around the treatment handed out to, or the behaviour of, an individual worker. The following two examples, provided by managers, illustrated this clearly and in both cases some form of arbitration was used: One worker reimbursed the medical expenses for his child and was discovered. This violated the occupational regulation seriously. He was fired and the contract was dissolved. He appealed to the Municipal Labour Dispute Arbitration Committee and asked to have the penalty rescinded. Finally, the Committee decided the company had won. The factory subcontracted part of our business out to a private-owned enterprise and some of our workers worked there during the period. One of the female workers aborted when she took the bus to go to work. But the boss of that private enterprise refused to offer her maternity treatment. A dispute then occurred. The Mediation Committee mediated it. At last, both parties made a concession. The worker was given maternity treatment a little lower than stipulation. Interestingly, not one of the 15 examples provided by managers mentioned any intervention by the union. As a consequence it is difficult to assess the union’s level of involvement (if any) and whether any collective action may have been taken by

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the workers and the union at this time. While constitutionally Chinese workers have a great deal of freedom to protect their employment rights, in practice the state neither gives workers the right to strike nor does it prohibit strike action (Shen 2006: 354). Requests for strikes have not been approved, although such requests have normally resulted in negotiations and the intervention of the government. We do know, however, that as employment relations have become more diversified and complicated the number of labour disputes has risen sharply since the beginning of the economic reform. In 2005, based on an investigation by the MOLSS in 31 provinces, autonomous regions and municipal cities, there were 314,000 labour disputes involving 744,000 workers. There were also 19,000 collective labour disputes involving 410,000 workers. In addition to these registered labour disputes, labour arbitration committees settled 94,000 non-registered labour disputes (MOLSS 2006). In 2005 the number of registered labour disputes increased to 53,000, which was an increase of 20.6 per cent over 2004. This represented 2.3 and 9.5 times more labour disputes than in 2000 and 1995 respectively. There are considerable regional variations in the occurrence of labour disputes and it has become evident that regional differences are closely associated with the scale of the regional economy, the restructuring of SOEs and development of nonSOEs. Guangdong, Jiangsu, Zhejiang, Shandong, Shanghai, Beijing, Sichuan and Liaoning are the regions most heavily affected by labour disputes. In 2005, twothirds (65.8 per cent) of labour disputes covering 206,700 workers occurred in these regions. Collective labour disputes are usually unorganized, largely localized, isolated and sporadic in nature due to a lack of collective power. Most incidents have remained isolated and short-lived due to the lack of strong leadership, although in more recent years workers have appeared to be better organized (Shen 2007). Whilst there have been changes to the way managers and workers perceive the role of unions within the Chinese enterprise, we argued in this section that management and workers appeared not to have come to terms with Western-style capitalism. This was highlighted by managers still preferring to see unions as monitors of management performance and workers seeing unions as welfare providers. These perceptions influence the relations between management, workers and unions and for many workers this relationship had not changed in the period under observation. On the other hand, a number of workers felt that the relationship had changed, although there was little agreement on the direction of this change. Whilst a sizeable minority of enterprises had experienced an industrial dispute, these appeared to be of an individual nature and one where the union did not become involved. Clearly the trade unions represented in this study face a number of challenges if they are to represent workers’ interests effectively to management in the future (see Cooke 2005: 198–201).

Variations in unionization and union activity The previous sections have outlined the state of unionization and union activity in our case study enterprises. Yet, considerable differences existed within the enterprises with regard to unions, their activities and industrial disputes. In this

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section we explore whether these differences can be explained, at least to some degree, by selecting a number of criteria (union presence, worker representation, worker involvement, industrial disputes) and disaggregating the findings by five distinguishing factors; industry, year of establishment, enterprise size, ownership type and location. Results are presented in Tables 4.6 to 4.8. As in Chapter 3, given the small number of case study enterprises that exist in some of the subgroups, this exercise can only be taken as indicative of the reasons why unionization and union activity varies between enterprises. Table 4.6 breaks down the analysis by industry, year of establishment and size of enterprise. Enterprises in the TCF sector were more likely to be unionized than those in the electronics sector, although where a union did exist, fewer workers belonged. Workers in TCF enterprises were more likely to be represented by fulltime officials who were, in turn, a little more likely to have regular meetings with management than electronic enterprises. A similar situation was found when the findings were broken down by year of establishment with those enterprises that existed prior to the commencement of the economic restructuring being more likely to be unionized and with more workers belonging to the union than those enterprises established after the reform had began. Workers in these older enterprises were also more likely to be represented by full-time union officials and although these officials were less likely to meet regularly with management the workers were more likely to be involved in the enterprise’s decision-making processes than workers in younger enterprises. Smaller enterprises, those which employed fewer than 500 workers, were less likely to have a union presence than larger enterprises but if a union did exist, a higher percentage of workers would join. Interestingly, these smaller enterprises were more likely to have a full-time union representative, although these representatives were less likely to meet regularly with management. Workers in smaller enterprises were also less likely to be involved in the decision-making processes but were substantially more likely to be involved in monitoring management’s performance than their larger counterparts. Workers in these smaller enterprises were less likely to have engaged in industrial disputation than were workers in the larger enterprises. Can some of this variation noted above be explained by ownership structure? Table 4.7 provides a breakdown of the results by enterprise type. SOEs and JSCs appear similar, with high rates of unionization, union membership, full-time officials and worker involvement in the enterprise decision-making processes. Unionization rates were clearly lower in FIE enterprises and DPEs. In these enterprises, workers were most likely to be involved in monitoring management performance but least likely to be involved in enterprise decision-making. SOEs were substantially more likely to have experienced labour disputes than other enterprise types. As these enterprises were also more likely to have a collective agreement (see Chapter 3) this suggests the disputes were more likely associated with the pressures of the wider macroeconomic reform agenda, such as staff reductions, than internal issues. Can these variations be explained broadly by the level of economic development and restructuring? It is possible to explore this question as the case study

80.0 62.5 63.6 21.4 47.1 70.6 35.5

83.3 25.0 50.0 62.5 44.4

Electronics N = 20 (16)

88.9 50.0

TCF N = 18 (16)

1

Industry

Note 1: textiles, clothing and footwear. Note 2: for union presence N = 38, otherwise N = 32 (see number in parentheses). Note 3: meetings held at least quarterly.

Source: Manager interviews.

Union: Present2 100% unionized Workers actively represented: Full-time union officials Regular meetings with management3 Workers involved: Enterprise decision-making Monitoring management performance Labour disputes (yes)

Union activity

72.7 63.6 45.5

77.8 18.2

100.0 81.8

Before 1978 N = 11 (11)

36.4 68.2 37.0

71.4 26.3

77.8 42.9

After 1978 N = 27 (21)

Year of establishment

Table 4.6 Unionization and union activity by industry, age and size of enterprise (%)

42.9 78.6 31.6

83.3 16.7

68.4 61.5

Less than 500 N = 19 (13)

52.6 57.9 47.4

70.6 27.7

100.0 47.4

More than 500 N = 19 (19)

Size of enterprise (employees)

100.0 100.0 80.0 28.6 57.1 57.1 28.6

100.0 16.7 66.7 50.0 83.3

JSC N = 7 (7)

100.0 66.7

SOE N = 6 (6)

37.5 75.0 37.5

60.0 0.0

100.0 37.5

JV N = 8 (8)

33.3 100.0 25.0

66.7 0.0

75.0 0.0

FIE N = 4 (3)

33.3 66.7 30.0

66.7 60.0

50.0 20.0

DPE N = 10 (5)

50.0 50.0 50.0

0.0 50.0

100.0 100.0

COE N = 2 (2)

Note 1: SOE – state-owned enterprises; JSC – joint stock companies; JV – joint ventures with foreign companies; FIE – wholly foreign-invested enterprises, DPE – domestic private enterprises; COE – collectively owned enterprises. Note 2: for union presence N = 37, otherwise N = 31 (see number in parentheses). Note 3: meetings held at least quarterly.

Source: Manager interviews.

Union: Present2 100% unionized Workers actively represented: Full-time union officials Regular meetings with management3 Workers involved: Enterprise decision-making Monitoring management performance Labour disputes (yes)

Union Activity

Table 4.7 Unionization and union activity by type of enterprise1 (%)

100.0 33.3 60.0 60.0 33.3 83.3 50.0

66.7 25.0 75.0 75.0 66.7

Hangzhou N = 6 (6)

66.7 75.0

Beijing N = 6 (4)

60.0 83.3 50.0

100.0 0.0

83.3 60.0

Harbin N = 6 (5)

80.0 50.0 33.3

100.0 33.3

100.0 16.7

Wuhan N = 6 (6)

57.1 42.9 12.5

75.0 14.3

87.5 85.7

Kunming N = 8 (7)

0.0 75.0 33.3

33.3 0.0

66.7 75.0

Lanzhou N = 6 (4)

Note 1: Beijing and Hangzhou are the most economically developed cities; Harbin and Wuhan are older industrial cities that are developing rapidly; Kunming and Lanzhou are less developed cities. Note 2: for union presence N = 38, otherwise N = 32 (see number in parentheses). Note 3: meetings held at least quarterly.

Source: Manager interviews.

Union: Present2 100% unionized Workers actively represented: Full-time union officials Regular meetings with management3 Workers involved: Enterprise decision-making Monitoring management performance Labour disputes (yes)

Union activity

Table 4.8 Unionization and union activity by location of enterprise1 (%)

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enterprises are located in six regions that typify three distinct stages of economic development in China; industrially developed regions (Beijing, Hangzhou), older industrial areas that are now undergoing substantial transformation (Harbin, Wuhan), and less developed regions (Kunming, Lanzhou). As can be seen in Table 4.8 the results are mixed, with union presence being relatively high across all regions. The highest union density rates were in enterprises located in the least developed regions, although this did not translate into a higher probability of fulltime officials or indeed more regular meetings with management. Workers’ involvement in decision-making or monitoring enterprise performance did not appear to be related to stages of economic development. Interestingly, enterprises located in the more industrially advanced regions of Beijing and Hangzhou had higher levels of labour disputes than those enterprises in the less developed regions. Whether this can be related to market reforms is difficult to judge as those enterprises with lower levels of disputes also had higher levels of training and worker development.

Conclusions This chapter has examined trade union organization at the enterprise, and managers and workers’ perceived roles for union. Unions were found to be numerically strong in terms of presence and membership in the case study enterprises and the internal structure allowed for a combination of full-time and part-time union officials. Union meetings were held regularly with members, although union– management meetings were quite rare. The workers’ congresses would, however, serve to enhance this aspect of unionism. Perceptions of the role of unions were quite similar between managers and workers and there appeared to be an overall reluctance to embrace new roles for unions in a market-oriented system. The reluctance to develop a more independent and representative role for unions may well be part of the larger philosophy behind the reform agenda: build a strong market-oriented system that allows Chinese-based enterprises to compete strongly on the domestic and international markets. Strong independent unions may well be seen as an obstacle to achieving such objectives. We would contend, however, that worker protection cannot be left solely to legislation as it then remains a political, as opposed to an industrial, issue. Trade unions should therefore be granted more freedom to conduct their affairs and to negotiate the terms and conditions of employment. This form of ‘self-regulation’ will not undermine the operations of the enterprise but will strengthen the commitment of managers and workers and ensure that workers share in the benefits of economic reform. Trade unions, when they existed in our case study enterprises, were well placed to bargain collectively and so provide workers with enhanced conditions of employment. At the present time, however, trade unions do not appear to be influential, independent representatives of workers but remain a component of the management structure of the enterprise. As such, trade unions will not be considered as separate independent variables in the explanatory models presented in Chapters 5 to 7.

5

Enterprise performance and intangible management

Introduction The previous two chapters have illustrated a number of the changes that have taken place in HRM and ER in Chinese enterprises since the decision to adopt market principles was implemented in the late 1970s. In addition, other research has been undertaken on various aspects of this reform (see for example Benson and Zhu 1999; Child 1994; Ralston et al. 2006; Tan and Tan 2005; Warner 1987; Warner et al. 2005; Zhang 2000; Zhu and Warner 2000b). Over much the same period, there has emerged within the management literature a broad understanding of the role of business management and employee satisfaction in underpinning the success of Western corporations (see Pfeffer (1998) for a summary of much of this literature). However, little attempt has been made to understand collectively how the various changes to management have affected the performance of Chinese enterprises (for one exception see Deng et al. 2003). Importantly, in a transitional economy like China little is known about the nature of the relationship between management and enterprise performance and the factors that might affect this relationship. In particular, how have changes, to what may be termed the intangible aspects of management – such as organizational culture, management structures and management systems – affected enterprise output and productivity? Such a relationship is complex as changes to the various elements making up intangible management may have a direct effect on enterprise performance, or may work more indirectly through effects on other critical factors such as employee satisfaction. These facts generate three questions about the role of management within a transitional economy like China. First, to what degree in China do intangible aspects of management such as organizational culture, management structures and management systems, affect enterprise output and productivity? This is the ‘transitional question’: have enterprises in China fully cast off the legacy of the old command and control economy so that their success now responds to managerial behaviour in the same manner as Western enterprises? Since the reform of urban enterprises in China has a less than 30-year history, it would be surprising if the traces of the past have been completely eliminated. Second, do the various elements making up intangible management directly affect enterprise

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success, or do they work indirectly through other critical factors such as employee satisfaction? This is a question of theoretical significance, largely not addressed in the literature about intangible management, that offers insight into the mechanisms through which intangible management influences enterprise success and that permits us to link two literatures – about intangible management and enterprise success and about employee satisfaction and enterprise success. Third, what is the relative role of intangible management and other contextual conditions (such as market competition, ownership form, age of the enterprise and location) in determining the success of enterprises? Again, this question has theoretical importance, for it offers an understanding of the significance of contextual conditions (that reflect China’s transition and that are outside the control of management) in influencing the adoption of new forms of intangible management, the levels of employee satisfaction and the performance of enterprises. This chapter addresses these questions concerning whether and through what means intangible management practices affect the success of Chinese organizations. Put simply, we examine the interrelationships between three important factors that determine enterprise success: management actions, employees’ responses and contextual conditions. The chapter is organized as follows. First, we review the theoretical underpinnings of the Western management literature on the role of intangible elements and related empirical research on the adoption of ‘modern management systems’ in China. The research framework and hypotheses will be defined in this section. The third section identifies our research methods, sample selection and analytical procedures. This is followed by a results section that links intangible management practices, various dimensions of employee satisfaction, and a range of structural contextual variables with enterprise performance. Based on the results of the data analysis, the fifth section interprets the findings in terms of the central hypotheses of this research. The theoretical and practical implications of the results are considered in the conclusion.

Theoretical and empirical framework The resource-based view of the firm postulates that enterprise resources are the main determinants of competitive advantage and firm profitability (Wernerfelt 1984; Mahoney and Pandian 1992). According to this view, if such resources are unique or possess superior attributes than those of the enterprise’s competitors they become strategic assets. The way these assets are managed and used to their best advantage thus becomes a key task of management (Michalisin, Smith and Kline 1997). Despite these claims, it is only in recent years that evidence is emerging that lends support to such contentions (see for example Carmeli and Tishler 2004). In general these strategic assets are made up of tangible elements such as the management of facilities, raw materials, equipment and capital (Itami and Roehl 1987), and intangible elements such as organizational culture, communication and knowledge (Michalisin, Smith and Kline 1997). Intangible assets

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can be further broken down into several elements including (intangible) management, which is the central interest of this chapter. Intangible management The literature refers to ‘intangible management’ as those aspects of management that incorporate organizational culture, management structures, management mechanisms and management systems (Canals 2000; Chatterjee and Wernerfelt 1991; Teece 2000; Hitt et al. 2001; Carmeli and Tishler 2004). Organizational culture refers to the perceptions held about an enterprise and how managers attempt to rally employees around common projects, values, or symbols through interactions among the various members of the organization (Dupuis 2008). The concept brings out the importance of certain non-visible management elements of organizational life (Dupuis 2008). Management structure, mechanisms and systems refer to the way people are integrated into the organization to achieve its objectives. More specifically, management structure is the levels and means of communication, the degree of decentralization and the forms of problem-solving within an organization. Structure sets the parameters by which the enterprise formalizes the temporary and ephemeral occurrence of social interactions in organizational settings, which in turn are closely connected to interrelations among organizational actors (Strati 2008). Management mechanisms involve financial rewards and forms of participation, including employee commitment schemes. These mechanisms allow employees to exert influence over the decisions that affect their work and work environment (Cabrera 2008). Some of the many forms that these mechanisms can take include participative management, information sharing, profit-sharing and employee stock-ownership programmes (Cabrera 2008). Management systems include the forms of corporate ownership (including privatization), the adoption of innovative management practices and formalized quality control. The adoption of new management systems is associated with organizational changes in the areas of production process and the establishment of new management/work practices (Marceau 2008). It is these aspects of intangible management which are the concern of this chapter. The status of many of them have been discussed in Chapter 3. The literature concerning intangible management includes both the management of intangible assets and intangible management as we have defined it above. Intangible assets, such as the embodied knowledge and skills that exist within an organization (Carmeli and Tishler 2004), will not be considered in this chapter as we are interested in the implications of (intangible forms of) management actions, rather than the management of intangibles. The elements making up intangible management can affect multiple uses at the same time, serve simultaneously as inputs and outputs of corporate activities and are not consumed when in use. For some (Teece 2000; Hitt et al. 2001) an organization’s superior performance depends on its ability to defend and use the intangible assets it creates, such as culture and unique management systems. In contrast, the distinction we make is between assets, whether tangible or intangible, and (intangible forms of) management – the culture,

Enterprise performance and intangible management

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structures, mechanisms and systems that are deployed by managers to create value and to encourage employees to create value. The existing research on intangible management, however, has significant limitations. Most quantitative research has focused on a single element such as a particular mechanism or system (e.g. Hitt et al. 2001; Waldman et al. 2001), and seeks to identify its role in performance. In addition, most studies have ignored the interplay between the intangible elements and other influential variables, such as ownership, size, location, history and market-orientation (see the research of Desarbo et al. (2005) on enterprises in China, Japan and the United States). Furthermore, most research has examined each relationship separately, without a comprehensive understanding of the combined effects of management initiatives, their impact on employees, and the influence of both on enterprise performance. Finally, previous studies of the topic are largely limited to developed economies with relatively stable and established institutional environments (see Wright et al. 2005 for one exception). The role of intangible management A number of empirical studies have demonstrated that intangible management contributes to enterprise performance. Koys (2001) found that in 28 stores in a restaurant chain, organizational citizen behaviour in year one was related to profitability in year two, although no attempt was made to control for a range of contextual and management factors. Tzafrir (2005), using a survey of 104 leading industrial, service and trade companies in Israel, found that enterprises exhibited higher organizational performance when trust and commitment among employees were high. More comprehensive research was, however, undertaken by Carmeli and Tishler (2004). They investigated local government authorities in Israel through a set of intangible management elements (including managerial capabilities, organizational reputation, organizational culture) and identified their effect on the performance of the enterprise. They found that intangible management, together with environmental uncertainty and geographical location, strongly affected the performance of local authorities. The contribution of this research was not only that a set of intangible management elements was analysed in relation to enterprise performance but that perceived environmental uncertainty was employed as a control variable in order to improve the conceptualization and measurement of organizational task environments (Dess and Beard 1984). Pfeffer (1998) reviews a number of other studies that confirm this evidence. The studies referred to above, with the exception of Koys (2001), ignored other possible key intervening variables such as employee satisfaction. While there is an extensive literature on job satisfaction and job performance these tend to link job satisfaction with employee job performance and not overall enterprise performance (see Iaffaldano and Muchinsky 1985; Judge et al. 2001). There are, however, some recent relevant studies for our research based on the idea of the psychological contract. For instance, Guest’s (2004) research on the impact of the psychological contract on employment relations provided both a theoretical

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underpinning as well as an empirical illustration about organizational performance and well-being, on the one hand, and employees’ commitment to the organization, job satisfaction, and intention to stay, on the other (also see Shore and Tetrick (1994) and Rousseau (1995) on the notion of psychological contracts as well as the case analysis of a large Norwegian sample by Kalleberg and Rogues (2000)). Nevertheless, these studies only illustrated the relationship between enterprise performance and employees’ responses, and not their links to intangible management. In addition, these studies did not measure the impact of employees’ responses on organizational performance. Our central aim in this chapter is to develop a more holistic approach by bringing all of these elements together to understand more completely enterprise performance. In order to achieve such an aim we examine four key intangible management elements, namely organizational culture, management structure, management mechanisms and management systems. These four intangible elements represent the major dimensions of managerial change in Chinese organizations under the process of economic reform, and their use permits us to compare our research findings with previous studies. Therefore, this chapter investigates the following two hypotheses: first, that intangible management variables (organizational culture, management structure, management mechanisms and management systems) influence enterprise performance; but second, that intangible management variables directly influence enterprise performance and indirectly influence enterprise performance through their effect on measures of employee satisfaction. The general form of the first hypothesis is broadly confirmed in the literature; however, we are mostly interested in what is less well known – the specific forms of intangible management that most influence enterprise success. Likewise, it is accepted that forms of intangible management influence employee satisfaction and that satisfaction has an influence on enterprise success; what is less clear is which forms of management influence employee satisfaction and whether intangible management influences enterprise success principally through its effect on satisfaction or more directly. Our modelling strategy to reflect the underlying theory and to test these hypotheses is summarized in Figure 5.1. The impact of ‘new’ management systems in China The transformation of the management of Chinese enterprises is in a state of transition (Chapter 3). More Western-oriented practices have been introduced, but in some key areas (such as employee representation) practice still reflects the past. The new management system has both general and particular characteristics (Warner et al. 2005). A key question is, therefore, whether a Western-derived model such as that encapsulated by the hypotheses can capture significant elements of the performance of Chinese enterprises. This question is quite different from that which has driven most empirical research on the performance of Chinese enterprises. Much of this has been devoted to describing and analysing changes in the structure of SOEs (Benson and Zhu 1999; Zhang 2000) and the introduction of modern management systems

Enterprise performance and intangible management

Context, initial conditions

87

Targets: productivity and sales

Intangible management

First stage

Workers’ satisfaction

Second stage

Third stage

Figure 5.1 Model of enterprise performance as a function of workers’ satisfaction, intangible management factors and external variables.

(Zhu and Warner 2000b). Others have begun to investigate the strategies and management behaviour in the new SOEs (Tan and Litschert 1994; Tan and Tan 2005) or compared the behaviour of SOEs, DPEs and FIEs within a framework of internal changes and external challenges (Ralston et al. 2006). Chapter 3 has extended this work. From this and other research it is clear that the modern SOEs in China are no longer the cumbersome, bureaucratic and inefficient organizations of the prereform period. Ralston et al.’s (2006) research is an important contribution to understanding Chinese management in transition as it not only identifies SOEs’ organizational culture and the elements of their transformation, but also makes a comparison with other forms of organizational ownership. However, Ralston’s research is based on only one element of intangible management, namely organizational culture, and a more comprehensive approach with multiple elements of intangible management is now required. This literature leads to the conclusion that the performance of Chinese enterprises reflects not only variables that are generally important (such as intangible management and employee satisfaction), but also the condition of transition. Therefore, we use measures of such contextual conditions as level of competition, form of ownership, age of enterprise and location to reflect the transitional character of the Chinese economy. These variables all measure traces of the past: non-market linkages between enterprises and government protections against competition (level of competition), continuing bureaucratic interference in some elements of the operation of SOEs and collective enterprises (ownership), inherited structures of employee relations and compensation systems (age of enterprise), and inter-provincial differences in rates of economic reform (location). Therefore, we expect that intangible management practices, employee satisfaction and enterprise performance also depend on a range of contextual factors.

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Enterprise performance and intangible management

Variables and data The large number of questions contained in the questionnaires allowed us to measure many elements of enterprise performance, employee satisfaction and management practices as well as a variety of contextual conditions. The number of variables, however, is far larger than the number of cases – a not uncommon problem in the social sciences. There are three general approaches to this problem: canonical correlation (Cliff 1987); robust canonical analysis (Tishler and Lipovetsky 2000); and data reduction through principal components analysis (Rao 1993). Since our model is inherently three-stage (the contextual conditions influence management; management influences satisfaction and performance; and satisfaction influences performance), we used principal components factor analyses to reduce the large number of indicators to a much smaller number (on the theoretical underpinnings of this approach, see Zeller and Carmines 1980). The factor analyses were conducted using the Statistical Package for the Social Sciences (SPSS); all extracted factors are after Varimax rotation with Kaiser normalization. The key variables that are used in this analysis are as follows. Enterprise performance The outcome variables, reflecting the performance of the enterprise, sought to measure the well-being of the organization. In this chapter, the four target measures of performance are 2003 sales, log transformed; percentage increase in sales, 1998 to 2003; 2003 labour productivity, log transformed; percentage increase in productivity, 1998 to 2003; all for the 38 enterprises. Levels of sales and of productivity in 1998 (log transformed) are deployed as predictor variables. Variables were identified from the managers’ interviews: the level of total sales and number of employees in 1998 and 2003. From these figures we calculated labour productivity (total sales divided by number of employees). Log transformations were needed to remove the skew in the 1998 and 2003 levels of sales, employment and productivity. As some of the case study enterprises were only established after 1998 their five-year rates of growth were calculated from the annual average rates observed during the actual period of operation of the enterprise and the 1998 values of sales, employees and productivity were extrapolated from the 2003 data and these growth rates. Employee satisfaction One aspect of the well-being of employees is their satisfaction with their working environment. Employees were asked, on a three-point scale (dissatisfied, it’s alright, satisfied), how satisfied they were with 10 aspects of their work: tasks, accountability, responsibility, participation, promotion opportunities, pay, overtime pay rates, workload, job security and management. For each enterprise, we thus have five employees’ reports on 10 measures of satisfaction in 2003. For each enterprise, an average satisfaction score on each of the 10 aspects in 2003 was calculated by averaging the five employees’ responses (scored as 0, 0.5, 1).

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The matrix of 38 enterprises’ scores on the 10 aspects of current satisfaction was subject to a principal components analysis. Two components accounted for 73 per cent of the variance in the 10 variables. The first component primarily reflected satisfaction with promotion opportunities, pay, overtime pay rates, workload and job security. This component was labelled satisfaction with benefits. The second component reflected satisfaction with responsibilities and accountabilities and was labelled satisfaction with responsibilities. Thus, two variables reflect employee satisfaction at work: satisfaction with benefits and satisfaction with responsibilities. The factor scores for satisfaction with responsibilities were first made positive (by adding the minimum score to all scores) and then squared to remove skew. Intangible management Four aspects of intangible management – organizational culture, management structure, management mechanisms and management systems – were considered. These aspects of management were measured by a variety of indicators and all except management structure were obtained from the manager interviews. The key aspects of organizational culture were selected after a consideration of both the Chinese tradition as well as the influence of Western practices. The measure of organizational culture was derived by asking managers to rank the three most important elements of their organizational culture. The options were: ‘organization is family’, ‘harmony’, ‘efficiency’, ‘productivity’, ‘quality’, ‘employee satisfaction’, ‘customer satisfaction’, ‘individual value’, ‘internal competition’ and ‘external competition’. Each of the 10 measures was scored 1, if ranked in the top three by the managers, and 0 otherwise. Although the measures appear to overlap, only six of the 45 pairs of measures are significantly correlated (at p < 0.05) and the factor structure is quite weak: principal components factor analysis extracts five components to account for 74 per cent of the total variance in these measures: 1 2 3 4 5

cultures that emphasize productivity and external competition as opposed to customer satisfaction (‘productivity culture’); cultures that refer to organization as family rather than quality (‘family culture’); cultures that emphasize efficiency (‘efficiency culture’); cultures that refer to harmony (‘harmony culture’); cultures that focused on employee satisfaction (‘employee culture’).

The second variable developed to reflect intangible management was management structure. Employees were asked whether their organization’s structure could be characterized as ‘open communication’, ‘centralized’, ‘many management levels’, ‘democratic’, ‘whether it works well’, ‘whether it enables managers and employees to communicate well’ and ‘whether it is easy to resolve problems’. Responses were scored 0 (for no), 0.5 (for partly) or 1 (for yes) and averaged for each enterprise. The enterprise averages were subjected to principal components factor analysis. Two components were found to account for 62 per cent of the total variance in the seven variables:

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1

decentralization, well-functioning, good communication and problem resolution (‘effective structure’); open communication and democratic (‘open structure’).

2

The two components reflect different ways of characterizing a management structure – by its effects or by its character – and not significantly uncorrelated (at p < 0.05). Measures of management mechanisms are derived from managers’ responses to questions about whether their enterprise had an involvement/participation scheme, information sharing mechanisms, individual grievance/complaint system, employee stock ownership, profit sharing, some form of employee empowerment, or employee commitment schemes. Thus there are seven measures for each enterprise, scored 1 if the enterprise had this practice or 0 if the enterprise did not have this practice. These practices are weakly correlated with each other and so the mechanisms variable is derived as the simple sum of each enterprise’s score on these measures. Thus this variable measures the total number of management mechanisms implemented by the enterprise. Measures of management systems are based on the concept of ‘modern management systems’ adapted from Western business. Managers were asked which of the following had been adopted in their enterprise: private or corporate ownership; reform of management system; professional business management; incentivebased pay system; comprehensive shareholding system; quality control through ISO9000; and quality control through ISO14000. Responses are coded 1 (for adopted) or 0 (not adopted). Again, these measures are only weakly correlated with each other and so the management systems variable is simply the sum of each enterprise’s score on these measures and thus represents the number of management systems implemented by the enterprise. Contextual variables A number of key contextual variables may influence enterprise performance and the responses of management and employees. These include enterprise age, industry sector, ownership, location, market competition and market orientation – the traditional drivers of firm performance (Zhu and Warner 2004). This information was collected in the managers’ interviews. Age is the year of formation of the enterprise. Industry sector is 1 (textiles, clothing and footwear) or 0 (electronics). Ownership is measured by four dummy variables: SOEs, FIEs, DPEs and others (principally COEs). Location was also measured by dummy variables that reflected the city of location of each enterprise. Market competition was scored as 1 (high), 2 (medium) or 3 (low). Market orientation was measured by three dummy variables, namely whether the main market is within the province or nearby, within China as a whole or focused on exports. Many of these control variables were found to be correlated with each other. Both age and market competition were significantly correlated with three other variables; ownership variables were correlated with two or more other variables.

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Using principal component factor analysis, four components accounted for 78 per cent of the total variance of the contextual variables. These were: 1 2 3 4

enterprises that are young and DPEs, rather than old and SOEs; enterprises that are in China-wide markets with low competition, rather than provincial or export markets with higher levels of competition; enterprises that are DPEs serving provincial markets, rather than FIEs serving export markets; enterprises that are in older industrial cities (Haerbin), rather than more modern cities (Hangzhou).

Summary of data The data used in this analysis thus has the following structure. A. The measures of performance are: 1 2 3 4

sales: logarithm of 2003 level, in RMB; sales: percentage growth 1998–2003; productivity: logarithm of sales (RMB) per employee, 2003; productivity: percentage growth 1998–2003.

Two other measures of performance are used as control variables: 1 2

sales: logarithm of 1998 level, in RMB; productivity: logarithm of sales (RMB) per employee, 1998.

B. There are four contextual variables: 1 2 3 4

enterprises that are young and DPEs, rather than old and SOEs; enterprises that are in China-wide markets with low competition, rather than provincial or export markets with higher levels of competition; enterprises that are DPEs serving provincial markets, rather than FIEs serving export markets; enterprises that are in older industrial cities (Haerbin), rather than more modern cities (Hangzhou).

C. There are two variables related to employee satisfaction: 1 2

satisfaction with benefits; satisfaction with responsibilities.

D. There are nine intangible management variables in four groups: 1 2 3 4

organizational culture: productivity culture, family culture, efficiency culture, harmony culture, employee culture; management structure: effective structure, open structure; management mechanisms; management systems.

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As indicated earlier the predictor variables (satisfaction, management and contextual conditions) were all measured in 2003. This means that the variables are measured as the sales are occurring rather than historically before the growth in sales between 1998 and 2003. We have adopted this approach because we did not conduct the survey in 1998 and we presume that managers’ and employees’ responses to questions about management or satisfaction now are more accurate than responses to questions about management or satisfaction as they were in 1998. This means that, although we are hypothesizing a direction of causality, the data about causes and effects are in fact, concurrent rather than sequential.

Analysis The key questions that directed this research can be expressed in terms of the model presented in Figure 5.1. The model is estimated, using linear regression, in three stages. In the first stage the measures of intangible management are estimated as a function of the contextual variables and the initial conditions (1998 measures of sales and productivity). Only one of the nine measures of intangible management (effective structure) showed any sign of a relationship with the contextual variables (adjusted R2 = 0.272; df = 14, 23; F = 1.988; p = 0.070). In general, intangible management variables are independent of the contextual variables and the initial conditions and so the subsequent analyses employ the original measures of management rather than the measures estimated in this first stage. The second stage involved estimating the two measures of workers’ satisfaction as a function of the contextual variables and initial conditions and of the intangible management variables. In the third stage, the measures of performance (logtransformed sales and productivity 2003 and growth of sales and productivity 1998 to 2003) are estimated as a function of the contextual variables and initial conditions, of the intangible management variables and of the two measures of workers’ satisfaction (predicted values from stage 2). For reasons of brevity, the chapter reports only the analyses of employee satisfaction (from the second stage) and measures of performance (from the third stage). Sample size There are two issues concerning the size of our sample. The first issue concerns the power of statistical tests that rely on a sample of 38 enterprises; the second issue is the validity of relying on information from only six persons in each enterprise. Formally, power is the probability of correctly accepting a correct hypothesis – that is, of identifying an effect, given that the effect actually exists. If the sample size (here the number of enterprises) is small, it may be incapable of detecting ‘really’ significant variables. As a rule of thumb, it is recommended that the statistical power of any design should exceed 0.8. Soper (2008) provides a calculator for computing the power of multiple regression models, depending on R2, sample size, number of predictors and the conventional significance probability. Some of

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our analyses have 15 predictors; if significance is taken as p ≤ 0.05, then R2 > 0.45 implies that power exceeds 0.81; if significance is taken as p ≤ 0.10, then R2 > 0.39 implies that power exceeds 0.81. Two of the six models in Table 5.1 fail the less stringent test, but both full models with all predictors present pass it. Other analyses have 17 predictors; if significance is taken as p ≤ 0.05, then R2 > 0.48 implies that power exceeds 0.81; if significance is taken as p ≤ 0.10, then R2 > 0.42 implies that power exceeds 0.81. The less stringent test is passed by all the models in Tables 5.2–5.5; the more stringent test is passed by all the full models with all predictors present. In other words, although the number of enterprises is relatively small, the power of the individual regression models is sufficient to identify effects that actually exist. Most of the data required to measure the variables deployed in the analyses come from managers. Certainly, the best information about the characteristics of the enterprises and their performance would combine data from managers with data from ‘the books’ (see, for example, Koys 2001). But we were not given access to enterprises’ records and have to rely on managers for this information. Information about management structure, satisfaction with benefits and satisfaction with responsibilities was obtained from five workers in each enterprise. This is clearly a small sample from which to estimate these characteristics of the enterprise, and as a result, the standard errors of estimate of these three variables are high, which means that their measurement is subject to random error. This error attenuates (biases towards zero) the regression coefficients. It is possible to correct for attenuation, but the procedure is controversial and the resultant R2 values are not appropriate for inferential statistics and hypothesis testing (Muchinsky 1996). As a consequence, our results need to be understood as conservative, likely to understate rather than overstate the effects that we are examining.

Results Employee satisfaction A variety of models of employee satisfaction is reported in Table 5.1. The predictor variable for Models 1–3 is satisfaction with benefits. All three forms of the model are statistically significant (p < 0.05) and explain a substantial proportion of variance in employee satisfaction with benefits (adjusted R2 = 0.34–0.46). Satisfaction with benefits is associated with several of the intangible management variables: management structures (effective structures and open structures) and management mechanisms. In one model (2), there is weak evidence of an initial condition (logarithm of 1998 productivity per worker) negatively affecting satisfaction with benefits. There is no evidence of a statistically significant relationship between either the contextual variables or other measures of management and satisfaction with benefits. The predictor variable for Models 4–6 is satisfaction with responsibilities. These models are less successful than those estimating satisfaction with benefits. Values of adjusted R2 range from 0.03 to 0.23, and only the two backwards stepwise models are significant at p < 0.05. The two management variables, culture (productivity

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Table 5.1 Models of average employee satisfaction in 38 enterprises Satisfaction: benefits 1 (Constant) Initial conditions Log sales 1998 Log productivity 1998 Contextual variables Young, DEPs China market, low comp. Provincial, DPEs Old industrial cities Intangible management Productivity culture Family culture Efficiency structure Harmony structure Employee culture Effective structure Open structure Mechanisms Systems R2

2 3.369 1.512

0.002 0.021 −0.268 −1.304 0.178 0.797 0.232 1.355 −0.052 −0.322 −0.123 −0.665 −0.166 −1.018 −0.053 −0.324 −0.226 −1.474 −0.217 −1.481 −0.085 −0.538 0.665** 3.340 0.239 1.595 −0.032 −0.312 −0.113 −0.698 0.605

Satisfaction: responsibilities 3

3.058 1.817

−0.269 −1.820 0.187 1.320 0.190 1.270

−0.166 −1.266

0.000 0.000

1

2

3

−5.587 −0.468

3.566 2.050

3.780* 2.194

0.203 0.325 0.559 0.507 −0.050 −0.042 −0.874 −0.952 0.350 0.402 1.231 1.243

1.81* 2.077 0.135 0.155 −0.216 −0.808 −1.646 −0.984 −0.197 −0.763 −1.581 −0.972 0.675 0.796 0.670** 0.633** 1.186 4.329 5.090 1.111 0.247 0.241 −0.131 1.918 1.940 −0.164 1.216* 1.111 2.224 2.569 −0.508 −0.587 0.574 0.459 0.420

1.189 1.700 1.495 2.076

1.791* 2.530

−0.854 −1.277 −0.781 −1.213 0.855 1.227 1.054* 2.481 0.353

0.210

Source: Worker and manager interviews. Note: For each variable the data reported are the unstandardized coefficients (first row) and t values (second row). Models 1 and 4 contain all of the predictor variables; Models 2 and 5 are estimated as backward stepwise to the highest value of adjusted R2; Models 3 and 6 are the final backward stepwise estimated model (with probability to remove = 0.10). Shading indicates significance.

culture) and management mechanisms, have a significant effect on satisfaction with benefits. Neither the initial conditions nor the contextual variables are associated with satisfaction with responsibilities. The levels of satisfaction predicted by Models 1 and 4 are used in the third stage of the analysis.

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Enterprise performance Tables 5.2 to 5.5 present the estimates of the effects of the initial conditions, contextual variables, intangible management and (predicted) employees’ satisfaction on the four measures of enterprise performance. In the analysis, when all variables were entered, it was found that two variables (management systems and management structures represented by effective structures) were eliminated because of low tolerance. Therefore, two separate models were estimated: Models 1 and 3, in which management systems and effective structures were not included; and Models 4 and 6, in which the five enterprise culture variables were omitted. Models 1 and 4 contain the full set of variables; Models 3 and 6 are estimated by a backwards stepwise procedure (with probability to remove = 0.10). The four models estimating the logarithm of 2003 sales are presented in Table 5.2. All models were statistically significant and all explained a substantial proportion of variance with the adjusted R2 values ranging between 0.95 and 0.97. The coefficient estimates are relatively stable across the models. The significance and sign of coefficients indicate that 2003 sales are higher in enterprises which: 1 2 3

started with higher sales and lower productivity in 1998; are young and DPEs, rather than old and SOEs, and are in China-wide markets with low competition; possess open structures, or cultures of family and employee.

Less consistent or marginally significant relationships with sales in 2003 are exhibited by provincial DPEs, not in old industrial cities, efficiency cultures, and employees’ satisfaction with benefits and responsibilities. Four models of the percentage increase in sales over the period 1998 to 2003 are presented in Table 5.3. The values of adjusted R2 are naturally lower than those reported in Table 5.2, but are still high, ranging between 0.34 and 0.53. All the models are significant at p < 0.05 and the coefficient estimates are stable across the models. The significance and sign of the coefficients indicate that the percentage rate of growth of sales between 1998 and 2003 depended principally on: 1 2 3

high sales and low productivity in 1998; being young and DPEs, rather than old and SOEs, and in China-wide markets with low competition; open structures, or cultures of family and employee.

Less consistent or marginally significant relationships with growth in sales 1998 to 2003 are exhibited by: provincial DPEs, not in old industrial cities, efficiency cultures, and employees’ satisfaction with benefits and responsibilities. These results closely mirror the models of sales in 2003 reported in Table 5.2. Table 5.4 presents four models that estimate the logarithm of productivity (sales per worker) in 2003. The values of adjusted R2 are high, ranging from 0.79 to 0.85, and all the equations are significant at p < 0.01. However, there is some discrepancy

Table 5.2 Models of sales in 38 enterprises, 2003 Logarithm of 2003 sales (RMB) 1 (Constant) Initial conditions: Log sales 1998 Log productivity 1998 Contextual variables: Young, DPEs China market, low comp. Provincial, DPEs Old industrial cities Predicted satisfaction: with benefits with responsibilities Intangible management: Productivity culture Family culture Efficiency culture Harmony culture Employee culture Effective structure Open structure Mechanisms Systems

3

4

6

−1.020 −0.727

−0.681 −0.590

0.713 0.500

1.057 1.051

1.194** 16.927 −0.316* −2.130

1.183** 18.818 −0.349** −3.387

1.198** 15.519 −0.169 −1.291

1.217** 18.486 −0.248* −2.106

0.447** 2.926 0.422** 3.088 0.067 0.677 −0.215 −1.590

0.446** 3.524 0.405** 3.975

0.322* 2.178 0.287* 2.411 0.177 1.836 −0.154 −1.094

0.338** 2.797 0.237* 2.415 0.184 1.970

−0.291 −1.459 −0.004 −0.077 0.011 0.095 −0.182 −1.809 −0.162 −1.713 −0.045 −0.476 −0.236* −2.293 E −0.207* −2.169 −0.092 −1.006 E

−0.170 −1.856 −0.278 −1.868

−0.229** −2.810 −0.149 −1.728 ‘−0.235** −2.940 E −0.214* −2.456 E

0.163 0.571 −0.008 −0.171

−0.210* −2.305

F

F

F

F

F

F

F

F

F

F

−0.224 −0.962 −0.237 −1.912 −0.068 −0.086 −0.006 −0.675

Source: Worker and manager interviews. Note: For each variable the data reported are the unstandardized coefficients (first row) and t values (second row). Models 1 and 4 contain all of the predictor variables; Models 3 and 6 are the final backward stepwise estimated model (with probability to remove = 0.10). Models 1 and 3 start with all variables, but management systems and effective structures are eliminated because of low tolerance; Models 4 and 6 omit the five enterprise culture variables.

Table 5.3 Models of percentage growth in sales in 38 enterprises, 1998–2003 Percentage increase in sales, 1998–2003 1 (Constant) Initial conditions: Log sales 1998 Log productivity 1998 Contextual variables: Young, DPEs China market, low comp. Provincial, DPEs Old industrial cities Predicted satisfaction: with benefits with responsibilities Intangible management: Productivity culture Family culture Efficiency culture Harmony culture Employee culture Effective structure Open structure Mechanisms Systems

3

4

6

0.232 0.724

0.283 1.245

−0.187 −0.597

−0.115 −0.442

0.039* 2.483 −0.072* −2.148

0.037* 2.632 −0.076** −3.277

0.040* 2.350 −0.036 −1.240

0.046** 3.080 −0.054 −2.033

0.099** 2.873 0.095** 3.095 0.015 0.675 −0.054 −1.787

0.097** 3.393 0.088** 3.837

0.069* 2.109 0.062* 2.344 0.040 1.838 −0.039 −1.246

0.073* 2.687 0.050 2.254 0.041 1.962

−0.069 −1.544 0.001 0.100 −0.001 −0.048 −0.041 −1.808 −0.038 −1.787 −0.011 −0.502 −0.052* −2.248 E −0.039 −1.804 −0.021 −1.041 E

−0.041 −1.986 −0.062 −1.855

−0.051** −2.766 −0.035 −1.780 −0.050** −2.797 E −0.041* −2.086 E

0.041 0.645 −0.001 −0.074 F

F

F

F

F

F

F

F

F

F

−0.055 −1.070 −0.048 −1.739 −0.016 −0.699 0.000 0.002

−0.041 −1.982

Source: Worker and manager interviews. Note: For each variable the data reported are the unstandardized coefficients (first row) and t values (second row). Models 1 and 4 contain all of the predictor variables; Models 3 and 6 are the final backward stepwise estimated model (with probability to remove = 0.10). Models 1 and 3 start with all variables, but management systems and effective structures are eliminated because of low tolerance; Models 4 and 6 omit the five enterprise culture variables.

Table 5.4 Models of productivity in 38 enterprises, 2003 Logarithm of productivity, 2003 1 (Constant) Initial conditions: Log sales 1998 Log productivity 1998 Contextual variables: Young, DPEs China market, low comp. Provincial, DPEs Old industrial cities Predicted satisfaction: with benefits with responsibilities Intangible management: Productivity culture Family culture Efficiency culture Harmony culture Employee culture Effective structure Open structure Mechanisms Systems

3 4.391** 3.352 0.048 0.744 0.561** 4.126

0.043 0.309 0.412** 3.283 0.015 0.164 −0.118 −0.945

4

6

4.565** 5.557

1.336 1.074

1.144 1.024

0.620** 8.604

0.059 0.856 0.818** 7.054

0.110* 2.400 0.754** 8.380

0.351** 4.458

−0.146 −0.796 0.015 0.338

−0.135 −1.026 0.170 1.606 0.138 1.613 0.024 0.188 0.647* 2.548 −0.029 −0.674

−0.139 −1.298 −0.190 −2.055 −0.196* −2.267 −0.092 −1.072 −0.241* −2.551 E

−0.135 −1.861 −0.214** −3.112 −0.165* −2.322

−0.203* −2.317 −0.048 −0.573 E

−0.220** −3.041

−0.210** −3.011 E

E

0.209* 2.340 0.144 1.796

0.555* 2.673

F

F

F

F

F

F

F

F

F

F

−0.417 −2.020 −0.334** −3.038 −0.009 −0.101 0.057 0.917

−0.427* −2.569 −0.300** −3.252

Source: Worker and manager interviews. Note: For each variable the data reported are the unstandardized coefficients (first row) and t values (second row). Models 1 and 4 contain all of the predictor variables; Models 3 and 6 are the final backward stepwise estimated model (with probability to remove = 0.10). Models 1 and 3 start with all variables, but management systems and effective structures are eliminated because of low tolerance; Models 4 and 6 omit the five enterprise culture variables.

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between the coefficient estimates in Models 1 and 3 and in Models 4 and 6 (the five variables that measure enterprise culture are omitted from the latter models). There is strong evidence that levels of productivity in 2003 depend on: 1 2 3 4

levels of productivity in 1998; being in the China-wide market, with low competition; having open structures, cultures of family, efficiency and employee; satisfaction with benefits.

There is weaker evidence that having an effective structure enhances productivity, and slight evidence that sales in 1998 also are associated with higher productivity in 2003. Finally, Table 5.5 contains the estimates of four models of percentage growth in productivity per worker, 1998 to 2003. As would be expected, the values of adjusted R2 are lower than those reported in Table 5.4, ranging between 0.39 and 0.54. Still, the equations are all significant at p < 0.10 and the coefficient estimates are reasonably stable across the models. The results indicate that growth in productivity 1998 to 2003 depended principally on: 1 2 3

initial (1998) productivity per worker; being in the China-wide market with low competition; having an effective structure, an open structure, cultures of family, efficiency and employee.

There is also evidence that growth in productivity is affected by the initial level of sales and satisfaction with benefits. These four tables provide evidence that the initial conditions and the contextual variables influence the target measures of performance. The 1998 level of sales is strongly and positively associated with sales in 2003 and with the growth in sales; it is more weakly associated with 2003 productivity and growth in productivity. The 1998 level of productivity is negatively associated with 2003 sales and the growth in sales, as well as with the growth in productivity; it is strongly associated with 2003 productivity levels. Being in the new private economy contributes to sales, but not productivity; being in the old protected economy contributes to both productivity and sales; the local private economy has weak effects on sales and productivity; and the old industrial cities in which reform is lagging have even weaker effects. However, none of these variables has much effect on employee satisfaction (Table 5.1); their effects on performance are therefore confined to these direct relationships. Enterprise cultures are associated with performance. Cultures of workplace as a family and of employee satisfaction are strongly associated with all four measures of performance. Cultures that stress efficiency are also associated with performance, especially with productivity and the growth of productivity. By contrast, cultures that stress productivity are weakly associated with only productivity and its growth (and with satisfaction with responsibilities); and

Table 5.5 Models of percentage growth in productivity in 38 enterprises, 1998–2003 Percentage growth in productivity, 1998–2003 1 (Constant) Initial conditions: Log sales 1998 Log productivity 1998 Contextual variables: Young, DPEs China market, low comp. Provincial, DPEs Old industrial cities: Predicted satisfaction: with benefits with responsibilities Intangible management: Productivity culture Family culture Efficiency culture Harmony culture Employee culture Effective structure Open structure Mechanisms Systems

3 0.970** 3.360

0.010 0.672 −0.095** −3.183 0.008 0.266 0.091** 3.297 0.006 0.299 −0.030 −1.087

4

6

1.009** 5.553

0.303 1.122

0.248 1.017

−0.084** −5.243

0.012 0.809 −0.039 −1.565

0.024* 2.428 −0.053* −2.724

−0.030 −1.058 0.037 1.633 0.032 1.700 0.002 0.072

0.045* 2.323 0.033 1.880

0.077** 4.411

−0.033 −0.828 0.004 0.439

0.140 2.541 −0.006 −0.671

−0.033 −1.414 −0.040 −1.953 −0.043* −2.259 −0.018 −0.968 −0.050* −2.399 E

−0.032 −1.992 −0.046** −3.027 −0.036* −2.302

−0.041* −2.111 −0.011 −0.606 E

−0.045** −2.807

−0.043** −2.817 E

E

0.120* 2.653

F

F

F

F

F

F

F

F

F

F

−0.091 −2.040 −0.070 −2.957 −0.003 −0.155 0.014 1.027

−0.093* −2.573 −0.063** −3.140

Source: Worker and manager interviews. Note: For each variable the data reported are the unstandardized coefficients (first row) and t values (second row). Models 1 and 4 contain all of the predictor variables; Models 3 and 6 are the final backward stepwise estimated model (with probability to remove = 0.10). Models 1 and 3 start with all variables, but management systems and effective structures are eliminated because of low tolerance; Models 4 and 6 omit the five enterprise culture variables.

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cultures of harmony with none of the measures of performance. The effects of enterprise culture on performance are principally direct rather than mediated through satisfaction. The structures of management also have direct influence on performance. Effective management structures are associated with higher productivity and higher rates of growth of productivity (though not with sales); they also have a strong influence on satisfaction with benefits. Open management structures are correlated with all four measures of performance; though more weakly with satisfaction with benefits. Management structures have direct and indirect (through employee satisfaction) associations with performance. Neither the management mechanisms nor the management systems variables have significant effects on sales or productivity (or their growth). Unlike enterprise cultures and management structures, management mechanisms and systems have no direct effect on performance. However, management mechanisms are correlated with satisfaction with responsibilities, and so may influence performance through this indirect route. Employee satisfaction (that is, the values estimated from Models 1 and 4, reported in Table 5.1) is also associated with performance. Satisfaction with benefits is strongly associated with levels of productivity in 2003, and less strongly with the other measures of enterprise performance. Satisfaction with responsibilities is only associated with the level of sales in 2003.

Discussion Forms of management in China have changed substantially since the economic reform process began in the late 1970s and, more particularly, since enterprise reform was hastened in the 1990s. Now, most of the management practices, forms of organizational culture, management structures and management systems that are common elsewhere are at least present to some degree in Chinese enterprises (Chapter 3). In exploring the hypotheses that are summarized in Figure 5.1, we found that employee satisfaction was made up of two components. The first aspect reflected satisfaction with promotion opportunities, pay, overtime pay rates, workload and job security – that is, it reflected employee satisfaction with benefits. The second aspect reflected employees’ responsibilities and accountabilities, which we termed employee satisfaction with responsibilities. The majority of employees expressed satisfaction with both benefits and responsibility; however, levels of satisfaction with responsibility were significantly higher than satisfaction with benefits. In other words, enterprises appeared to have been more successful in developing employee satisfaction with the intangible rather than the tangible characteristics of the job. How do the results of this study relate to the hypotheses presented earlier? First, consider the argument that contextual factors influence intangible management, employee satisfaction and enterprise performance. The evidence we have presented fails to identify any relationship between the contextual conditions and any of the intangible management and satisfaction measures. On the other hand, there is

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evidence that enterprise performance is strongly influenced by some contextual variables. Being in the new private economy contributes to sales, but not productivity; being in the old protected economy contributes to both productivity and sales. However, the effects of provincial market orientation, being an FIE and being in a city where reform is lagging are all hard to discern (see also Tan and Tan 2005; Ralston et al. 2006; and Zhu and Warner 2004 on the impact of WTO accession on the development of management in general, and HRM in particular, among enterprises with different ownership forms). This finding provides an additional complexity compared with previous research (see for example Tan and Tan 2005; Ralston et al. 2006). These results provide only partial support for the influence of context, and to the extent that the contextual variables measure aspects of the Chinese transition, they indicate that the conditions represented by this transition have direct influences on enterprise performance but little effect on employee satisfaction and intangible management. Second, consider the indirect effect specified in the hypothesis that intangible management variables indirectly influence enterprise performance through their effect on measures of employee satisfaction. On the one hand, satisfaction with benefits and responsibilities does appear to translate into success, as measured by sales and growth in sales; and satisfaction with benefits translates into productivity. The relationships between satisfaction and performance are not all that strong, but they persist across the variety of models and measures of performance. On the other hand, both components of employee satisfaction are related to particular forms of intangible management, though not all the relationships are strong. Of the measures of organizational culture, only the culture of productivity was strongly related to satisfaction (with responsibilities). Other measures of enterprise culture are not correlated with satisfaction. Effective management structures appeared to promote satisfaction with benefits, as did open structures (though more weakly); they had no effect on satisfaction with responsibilities. The presence of mechanisms such as participation schemes, information sharing, individual grievance channels, empowerment and employee commitment schemes was associated with levels of satisfaction with responsibilities, which suggests that perhaps these mechanisms do gain some level of commitment from employees (though clearly they do not translate into satisfaction with benefits). Management systems had little relationship to satisfaction with either benefits or responsibilities. In other words, there is evidence that some elements of intangible management have an influence on employee satisfaction and in turn that satisfaction influences enterprise performance. This research finding fills the gaps in the current literature identified earlier: on the one hand, it makes a complementary contribution to the existing research on the direct interaction between intangible elements and organizational performance (i.e., that ignores the intermediate variable of employee satisfaction), such as Dess and Beard (1984), Carmeli and Tishler (2004) and Tzafrir (2005), in particular by specifying which forms of intangible management contribute most to enterprise success. On the other hand, it develops further the argument based on the research on the psychological contract by illustrating the relations between

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organizational performance and employees’ commitment and satisfaction (e.g., Guest 2004; Shore and Tetrick 1994; Rousseau 1995; Kalleberg and Rogues 2000). Our finding indicates that employee satisfaction does influence organizational performance in a positive way through the linkage of intangible elements (this is the reverse of the common argument that enterprise performance influences employee satisfaction). Third, the direct impact of intangible management on enterprise performance – as measured by level and growth of sales and level and growth of productivity – has been estimated in conjunction with the effects of satisfaction on performance. Neither the management mechanisms nor the management systems variables have significant effects on sales or productivity (or their growth). Open management structures are associated with all measures of performance; and decentralized structures with productivity and its growth. Performance was also found to be strongly related to elements of management culture, especially cultures of workplace as family and of employee satisfaction (and, more weakly, cultures that stress productivity). In other words, we have demonstrated that some intangible management variables have a direct influence on enterprise performance, even after the effects of employee satisfaction on enterprise performance are accounted for. Together, these second and third sets of results are consistent with the hypotheses. This interpretation is summarized in Figure 5.2. However, it does need to be emphasized that not all the intangible management elements performed well: some enterprise cultures influenced satisfaction with responsibilities and enterprise performance; some structures influenced satisfaction with benefits and enterprise performance; management mechanisms only influenced satisfaction with responsibilities; and management systems influenced neither employee satisfaction nor enterprise performance. It also needs to be emphasized that quality of management, satisfaction and performance were all measured concurrently rather than sequentially: the data are consistent with our hypotheses, but also with hypotheses in which the directions of causality are reversed.

Conclusions The forms of management in China have changed substantially since the beginning of the economic restructuring period and most of the innovative management practices, the forms of organizational culture, management structures and systems that are common in advanced economies are now present, at least to some degree, in Chinese enterprises. Our research demonstrates that the performance of Chinese enterprises is due to similar kinds of intangible management variables, employee satisfaction and contextual variables that appear to drive the performance of Western enterprises. The impact of changing intangible management elements on employees’ satisfaction is significant. However, the soft-oriented managerial style, such as better communications, participation and provision of information, is more effective than the ‘hard’-oriented managerial restructuring of systems or structure. In addition, the effect of an internal-oriented clan culture is more profound than that of

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Young DPEs – old SOEs

Satisfaction: Benefits

Satisfaction: Responsibilities

China market, low competition Enterprise success

Provincial DPEs – export FIEs Old industrial – modern cities Management Structure Organizational Culture Management Mechanisms Management Systems

Figure 5.2 Estimated model of sales performance as a function of external, environmental factors, satisfaction and management. Note: the relationships between the initial conditions and measures of performance are not shown, for reasons of clarity. Solid lines indicate stronger relationships; dashed lines, weaker.

an external-oriented market culture among the majority of Chinese enterprises. Furthermore, employees’ satisfaction is more associated with autonomy and individual rights than benefits, though both components are important for employees’ satisfaction. The effects of changing intangible managerial elements and employee satisfaction on organizational survival/performance were also significant. Managerial intangible elements including certain aspects of management culture, such as references to cooperation and unity, and open and decentralized management structures, were found to have a significant effect on sales (compare also the arguments of Hitt et al. 2001). In addition, employees’ satisfaction as measured by their level of responsibility had a positive effect on sales in enterprises. Finally, a number of contextual variables, such as age, ownership and markets, correlated strongly with outcomes. Our data showed that enterprises in the new private economy and in the old protected economy both enjoyed faster growth as compared with other enterprises. However, other measures of transition (the local private economy or locational variations in the pace of reform) do not have much

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impact on organizational performance. However, other variables such as location, size and sector do not have a significant impact on employees’ satisfaction and organizational performance. These findings have significant practical and theoretical implications. In practice, the results provide an improved understanding about which intangible elements have significant impact on employee satisfaction and how both intangible management and employee satisfaction work together to influence the performance of organizations. These findings also contribute significantly to the literature. The major contribution of this chapter is to provide an evaluation of the role of intangible elements in enterprise performance in the context of the emerging economy of China. Little work has been done in this area and the use of a more holistic approach, one that uses multiple predictor, outcome and control variables, has been able to advance previous research that focused on single elements and examined each variable separately. In doing so we have confirmed that intangible management influences employee satisfaction and enterprise performance and have identified the most important of those variables.

6

Market-oriented economic reform and the quality of working life

Introduction The rapid transition of China to a market-oriented economic system has impacted substantially on workers within the enterprise and, more broadly, within society. As we have seen, at the workplace these market forces have been reflected through ongoing changes in enterprise structure, organizational strategy and management systems in an attempt to improve the competitive position of the enterprise through improved efficiency, productivity and profitability. These changes were discussed in Chapter 3 and have placed substantial pressure on workers as they attempt to adjust to new managerial approaches and meet the challenges of market competition. In turn, these enterprise changes have affected the nature of workplace trade unionism, as discussed in Chapter 4. The rapid transition of China to a market-oriented economic system has generated significant research into the impact of such reform on organizations and management systems (Child 1994; Warner 2002), on workers and employment (Zhu and Campbell 1996; Benson and Zhu 1999), and on the economic health of China and what this may mean for the rest of the world (Webber et al. 2002). Despite this sustained level of research there have been few attempts to explore and understand what market-oriented economic reforms may mean for the quality of workers’ jobs. This contrasts with a small but growing literature on the quality of working life in the developed economies, primarily in the United States and Europe (Gallie 2003; Gospel 2003; Houston 2005; Kirchmeyer 2000). This chapter aims to redress this imbalance by addressing three questions. First, what are the principal changes in the quality of working life in Chinese enterprises? Second, to what extent are these changes correlated with the market-oriented management strategies of enterprises? Third, have the changes in quality of working life affected different categories of workers in different ways? The chapter is structured as follows. The next section provides an overview of the literature on the quality of working life from both a psychological (individual choice and behaviour) and sociological (the influence of changing society) perspective. From this review, the key variables and measures that underpin the research framework are identified. This is followed by a section that outlines the key variables and data used in the analysis. The fourth section presents the results

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of the research, focusing on management changes; employee satisfaction with these changes; the determinants of certain characteristics of jobs (training, participation, tenure and workload); and the determinants of employee job satisfaction. The final section discusses these results in the context of the central questions presented above and explores the implications of the findings for theory, policy and practice.

Quality of working life The concept of quality of working life is complex for several reasons. First, there are widely differing definitions of quality of working life in the literature. At the basic level are those relatively simple approaches that define quality of working life to include such elements as a safe work environment, suitable working time and appropriate remuneration (see Ministry of Social Affairs – Estonia 2004). At a more complex level are the more encompassing definitions that refer to a multiplicity of measures such as wages, working hours, power and participation, fairness and equity, self-development, social support, use of skills, and effect on activities outside of work (see Taylor 1979). Within this range there are those that take a more partisan view and argue the importance of particular constituents of quality of working life, such as Hackman and Oldham (1974), who drew attention to the significance of personal development through such features as skill variety, autonomy and feedback. More recently, Gallie (2003) provided a useful categorization of measures, that has subsequently influenced the design of our study: (a) quality of the work task, including variety, learning, participation in design of the task; (b) participation and consultation about the organization of work and the workplace; (c) training opportunities and opportunities for career progression; and (d) job security (e.g. ease of dismissal). A second complexity is that two disciplines, industrial/organizational psychology and sociology/industrial relations, have produced substantial literature about the quality of working life. The theoretical assumptions, methodologies, and research foci of the two disciplines differ significantly. The industrial/organizational psychology literature recognizes the value of cultural or group variations in response to, and the arrangements for, quality of working life (Kossek and Lambert 2005). On the other hand, the sociology/industrial relations literature seeks to understand how specific elements of the economic environment (e.g. the levels of competition and degree of market orientation), management systems and policies, and demands on households may influence commitment, work–family conflict or stress (Houston 2005). This latter approach is more aligned to the approach taken here. A third complexity is that the concept of quality of working life is inextricably linked with other major issues under research in these two disciplinary areas, including commitment to work, with its variety of components, causes and consequences (as exemplified by Meyer et al. 1993), work–family conflict, workplace family-friendly policies and support (including the literature on work–life balance (see Fleetwood 2007a) and business approaches (see BSR 2005)), career consequences of work–family arrangements (see Gatrell 2007),

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working hours culture, pressure management indicators, and well-being, including emotional health (see Danna and Griffin 1999; Worrall and Cooper 2006). Within this literature, research has explored how work–life issues differ by job, organization and culture, as well as attempting to integrate organizational, individual and social/cultural perspectives (see Kossek and Lambert 2005; Poelmans 2005; Houston 2005). From an organizational point of view, there is a claim that the balance between work demands and outside interests or pressures is a longstanding but ever-evolving area of corporate social responsibility and that policies should maintain this balance (BSR 2005). In the industrial/organizational psychology field, Zedeck’s (1992) edited book Work, Families and Organizations was an early examination of the individual and organizational perspectives on the work– family relationship, at a time when many corporations were first responding to the changing gender and family demographics of the workforce and awakening to the need for better understanding of work–family issues (Kossek and Lambert 2005: 6). The research agenda has now broadened from ‘family-friendly’ to ‘people-friendly’ issues and from ‘work–family initiatives’ to ‘work–life initiatives’ (Kirchmeyer 2000). More recent research, such as that conducted by Kossek and Lambert (2005), incorporated individual, organizational and cultural/social perspectives to explore the links to work identity and the workplace. It extended the work of Zedeck (1992) by focusing on changes in society and in organizations and by broadening the scope to include some important and critical organizational and management perspectives (Kossek and Lambert 2005: 6). In the sociology/industrial relations literature, Houston (2005) provides a comprehensive overview and analysis of gender-based studies of work–life balance in terms of flexibility and changing labour market, career development, work and family care, job insecurity and workplace participation. Detailed critiques of the work–life balance literature are to be found in Fleetwood (2007b), Lewis et al. (2007) and Ransome (2007). There has been a variety of attempts to understand the reasons for variation in the apparent quality of people’s working lives. As the notion of work–life balance would suggest, there is evidence that happiness and life satisfaction impinge on the quality of working life (Warr et al. 1979) although most research has focused primarily on the work environment. Of particular significance is a report prepared for the ILO by Gospel (2003), which analyses differences and changes in the quality of working life at two levels, namely the macro and individual levels. At the macro level the context of markets, technologies, management structures and practices brings to the fore an analysis of work organization, skills, hours and working time, intensification of work, organizational health and safety, family-unfriendly and family-friendly patterns of work, unemployment and employment, employment relations and job tenure, pay and benefit systems, and other aspects of worker dignity such as sexual harassment, bullying at work and minority rights. At the individual level the focus is on the personal background, experiences and expectations of workers that influence the meaning of work, the employee’s attitudes towards work, job satisfaction, and organizational commitment (Gospel 2003). In addition to the research about the nature and causes of the quality of working life considerable effort has been devoted to measuring the quality of working

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life in individual or clusters of countries. For example, several country-based surveys focus on key aspects of individual workers’ well-being (ISR 1996, 1997, 1999a, b). Likewise the European Foundation for the Improvement of Living and Working Conditions sponsors surveys of working conditions in about 30 European countries, providing information across Europe as a whole (see, for example, Giaccone 2007) and for specific countries (see, for example, Giaccone (2008) on Italy; Vaskova and Kroupa (2005) on the Czech Republic). Generally speaking, these surveys have covered both arenas: the workplace and the home. Workplace concerns have included job security and contract, pay system and fairness of pay, hours of work, flexibility, overtime, occupational health, attitudes to management systems and teamwork, training, work appraisals, stress and competitiveness at work, satisfaction with supervisor while family concerns have included the family situation (for example income and employment status), conflict over work times with partner, housework and sharing responsibility, childcare, and attitudes and expectations about household well-being now and in the future. Typical of the findings of these surveys are Giaccone’s (2007) conclusions that job satisfaction is rising in Europe, though it is lower in the transition economies of Eastern Europe than the developed economies of Western Europe; that work intensification is increasing; that satisfaction with work–life balance depends not only on hours but also their regularity; and that working conditions differ widely, depending on country, sector, gender and employment status. A further example of international comparisons of quality of working life is the research of Gallie (2003) on Scandinavian societies. Gallie (2003) sought to test the hypothesis that different places have different qualities of working life, reflecting cultural/social norms as well as government policies and programmes that influence the development of relations at work. Moderating variables such as gender, occupation, industry sector, size of workplace, length of time working in the job, and age of employee were used in order to identify whether these factors influence the outcome. Some of Gallie’s (2003) findings were consistent with previous research. For example, class and occupation had a major effect on stratifying the quality of work conditions. Organization size also influenced the outcome: larger organizations had negative implications for the quality of work tasks and direct participation, but were positively linked to career opportunities and employment stability. In addition, there was evidence of significant gender differentials in work quality: men had better conditions with respect to three of the four dimensions – the work task, participation, and promotion (Gallie 2003: 76). Other specific findings related to Scandinavian workplaces: Sweden and Denmark had exceptionally high levels of organizational participation; Finland had a good system of consultation; most of the countries had exceptionally high levels of employer-provided training, but there was no evidence of more developed internal labour markets, career opportunities or better employment conditions across the broad range of dimensions of job quality as compared to other OECD countries. A major feature of this literature is that it is dominated by large sample surveys. It is thus focused on questions concerning differences in the quality of working life

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experienced by different categories of people (classified by gender, age, length of time in the job) and by people in different economic circumstances (as indexed by changes over time or differences between countries). In contrast, the characteristics of the enterprises have played only a minor role in the empirical research and where included have generally been limited to such variables as sector and size of the workplace. This is the point of departure of this research. The management strategies of enterprises are explicitly investigated as mediators between the macroeconomic conditions and personal characteristics of workers. Using indicators of quality of working that are similar to those employed by Gallie (2003) and the large European surveys (such as Giaccone 2007), and following Gospel’s (2003) analytical framework to study the influence of macroeconomic conditions (indexed by time and contextual variables), managerial strategies (indexed by enterprises) and personal circumstances (indexed by individuals), we seek to understand how and to what extent changes in organizational strategy and structure and management systems under the market-oriented economic reforms have influenced workers’ performance, participation in decisions, training opportunities, satisfaction with work, and commitment towards work and organization. .

Variables and data The variables that measure the quality of working life broadly follow Gallie (2003), but with the addition of measures of working hours. On the other hand, the framework of analysis is based on the work of Gospel (2003). Thus the key variables we will use to measure the quality of working life are: Training for work-related tasks This combines measures of the presence or absence of specified forms of training (political training, technical skills training, management training, career path development training, and refresher training). Training is scored 0 (hours of that form of training are less than 0.5 hours in a year) or 1 (otherwise). The variable TRAIN03 is the simple average of the five measures for the year 2003 and varies between 0 (lowest quality) and 1 (maximum quality). The measure TRAIN98 assesses whether the quality of training was worse in 1998 than in 2003 according to the five measures, and its values range between 0 (everything was better in 1998) and 1 (everything is better in 2003). The corresponding ‘satisfaction with training’ measures are STRAIN03 and STRAIN98. Participation and consultation Employee participation in decisions concerning the enterprise was assessed according to six criteria: information sharing, individual grievance or complaint mechanisms, surveys of employee views about policy, suggestion schemes, regular formal meetings between managers, supervisors and workers, and the regular passing of information about enterprise performance. Respondents assessed

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their enterprise on a scale of 0 (no participation on the stated criterion) to 1 (participation) for 2003 (PARTIC03) and for 1998 (PARTIC98). Workers were also asked about their satisfaction with participation (SPART03) on a scale of 0 (for dissatisfied), 0.5 (it’s alright) or 1 (satisfied) and about whether participation had improved over the period 1998 to 2003 (0 if it was worse, 0.5 the same and 1 improved) (SPART98). Job and income security Four measures of job and income security were included in the analysis. The first is TENURE, which measures the degree to which an employee has job security. Workers are assigned 0 for TENURE if they do not have a written contract of employment and 1 if the employee has permanent employment. If the employee has a written contract, then TENURE = (length of contract in years)/22 since the maximum reported length of a contract was 20 years. As such the TENURE score for workers with written contracts (but not permanent employment) can range between 0 and 0.9. TENURE is measured for 2003 and 1998. The second measure is satisfaction with the level of job security (SECURITY) which can range between 0 and 1 (1 = satisfied, 0.5 = it’s alright, 0 = dissatisfied). The third measure, LABMKT, assesses employee’s views of their position in the labour market and averages responses to (i) whether they think they could get another job, (ii) with as much income and (iii) with as good working conditions as their current job. In this case 0 means that the employee has a dismal view of his/her chances in the labour market; 1 means an optimistic view. The final measure reflects changes in household income security (HHOLDS): whether over the five years 1998 to 2003 they think that household income security has risen (3), remained the same (2) or fallen (1). Workload This measure of the quality of working life assesses the amount of time that workers put into their work. Measures of working time include the number of regular hours per week for 2003 and 1998 (HOURS03 and HOURS98) and the number of hours per week, including overtime in these years (WORK03 and WORK98). Satisfaction with workload was also measured for 2003 (SWORK03), and as compared to 1998 (SWORK98) and included in the analysis. Aggregate satisfaction with work The final measure of quality of working life is aggregate satisfaction with work. Workers were asked, on a three-point scale (dissatisfied, it’s alright, satisfied), how satisfied they were with 10 aspects of their work: tasks, accountability, responsibility, participation, promotion opportunities, pay, overtime pay rates, workload, job security and management. Workers were also asked whether these aspects of their work were better or worse than five years ago. Two different kinds of measures were constructed from these data – the simple average score

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for 2003 (MEAN03) and for 2003 as compared to 1998 (MEAN98); and component scores from a principal components analysis of the 10 variables for 2003 (BENEFIT03 and RESPONS03) and for 2003 as compared to 1998 (BENEFIT98 and RESPONS98). In parallel with the employee interviews, we also interviewed the senior managers of the 38 enterprises. These interviews were designed to understand the managerial strategies of the enterprises, within their product and market context, with a particular focus on employment relations. Apart from contextual questions (sector, ownership form, size, year of formation, market orientation), information was collected about a variety of tangible and intangible forms of management – skills development and training, management systems, management mechanisms and enterprise culture. Chapters 3 and 5 describe in detail the calculation of these variables and the strategies that we have deduced from them. Thus the key explanatory variables are defined at two levels. At the enterprise level are variables reflecting the characteristics and the management of the enterprises in which the respondents work. There is potentially a huge number of variables that describe the restructuring of enterprise management and that may be important as control variables – ownership, sector, location, age, number of workers, level of market competition, primary market orientation, training activities, rate of productivity (sales per employee) change, workers’ evaluations of the enterprise structure, the number of management systems and mechanisms introduced, and factor scores reflecting enterprise culture. To reduce the risk of spurious correlations only those variables that exhibited at least three (at p < 0.10) or at least two (at p < 0.05) significant simple correlations with the measures of quality of work and satisfaction with work are included as candidate variables in the subsequent modelling. The resulting list of enterprise-level explanatory variables is: 1 2 3 4 5 6 7 8 9 10 11

Location: Hangzhou. Ownership: SOE. Ownership: DPE. Competition: high. Competition: moderate. Year of formation of enterprise. Logarithm (ln) number of workers 1998. Structure: effective enterprise structures (workers’ evaluation). Structure: open enterprise structures (workers’ evaluation). Number of new management systems. Enterprise culture: workers as family.

These data are defined at the level of the 38 enterprises and are drawn from the manager interviews, with the exception of the evaluations of enterprise structure, which are averages of the individual workers’ assessments. At the individual level are variables reflecting the characteristics of the 190 respondents and include:

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Gender. Hukou (whether the respondent has a local residence permit). Year in which this job started. Monthly income in 2003. Year of birth. Educational status (at least completed high school).

All dependent variables that are constrained to values between 0 and 1 (inclusive) were logistically transformed prior to analysis using the following equation: transformed value = ln [(raw value)/(1 − raw value)]. The equations that are estimated have the following forms: 1 2

3

4

For variables measuring quality of work in 2003: use independent variables (listed in the previous paragraph). For variables measuring satisfaction with work in 2003: use independent variables (listed in the previous paragraph) plus estimated variables measuring quality of work (from the first step). For variables measuring quality of work in 1998 or change in quality of work 1998–2003: use independent variables (listed in the previous paragraph) plus estimated variables measuring quality of work in 2003 (from the first step). For variables measuring satisfaction with work in 1998 or change in satisfaction 1998 to 2003: use independent variables (listed in the previous paragraph) plus estimated variables measuring quality of work 1998 (from the third step) plus estimated variables measuring satisfaction with work in 2003 (from the second step).

Thus, the first set of models are one-stage estimates; the second and third sets of models are two-stage estimates; and the fourth set comprise three-stage estimates. All analyses have used the hierarchical linear mixed modelling procedures contained in SPSS. For a review of these procedures see Garson (2008). Such procedures are designed to be used in circumstances in which the data are defined at two or more levels (workers within enterprises). All analyses included fixed and random intercepts and used restricted maximum likelihood estimation. After estimating an equation in which all explanatory variables were included, the least significant variables were sequentially removed in order to find the estimated equation which exhibited the highest adjusted log-likelihood (using Bayes’ Information Criterion).

Quality of working life in China As demonstrated in Chapter 3 the enterprises in this study have adopted to various degrees a range of ‘modern’ management practices common in Western firms. This has resulted in most enterprises adopting, to a large degree, a hybrid type of management structure. How then do individual employees view the management of their

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Table 6.1 Workers’ description of management structure of Chinese enterprises, 1998– 2003 Structural characteristic

Open communication Centralized Many management levels Democratic Works well Enables communication Makes it easy to resolve problems

Proportion reporting 2003

Proportion reporting 1998

Component loadings 2003

Mean

St error Mean

St error

1

2

0.64 0.62 0.78 0.54 0.73 0.72 0.78

0.04 0.04 0.04 0.04 0.05 0.04 0.04

0.04 0.04 0.04 0.04

0.168 −0.701 0.486 0.090 0.619 0.706 0.748

0.819 0.219 0.452 0.877 0.246 0.517 0.365

0.59 0.61 0.78 0.51

Source: Worker interviews. Note: N = 38. None of the differences in mean scores between 1998 and 2003 is significant at p < 0.05. Components are loadings derived from principal components analysis after Varimax rotation with Kaiser normalization; the two components account for 62 per cent of the variance in the seven variables.

enterprise? Each worker was asked to characterize his or her organization’s structure according to whether it offers open communication; is centralized; has many management levels; is democratic; works well; enables managers and workers to communicate well; and whether it makes it easier to resolve problems. Each enterprise has been given a score on these characteristics equal to the average of its employees’ responses. Summary details are provided in Table 6.1. The picture painted by these data is of bureaucratic and relatively undemocratic enterprises that nevertheless permit quite open communication – characteristics that have not changed significantly over the period that the workers were asked to recall. Workers appear to be characterizing the enterprises along two principal dimensions – whether they are open and democratic (component 2) and whether they are decentralized and effective (component 1). These then are the enterprises to which workers are contextualizing when they evaluate the quality of their working life. As Chapter 3 indicated, the enterprises are changing, but at a far slower rate than is commonly presented in the literature. Many enterprises remain quite bureaucratic and centralized. There has been a widespread adoption of softer management mechanisms, though employee empowerment, profit-sharing and employee stock ownership remain rare. The adoption of a unified modern management approach has been quite slow. Likewise, management structures are changing slowly, though workers considered that the structures worked quite well despite their bureaucratic nature. Aggregate employee satisfaction Nearly four out of five employees (79.7 per cent) stated they were happy with the terms and conditions of employment with a further 2.8 per cent saying they were

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probably happy. When asked to explain their answer, workers, however, appeared divided on this issue. For many the working conditions ‘are in accordance with the Labour Law and take welfare into account’, and the ‘job is relaxing’. On the other hand, some workers expressed concerns about the lack of a contract, poor working conditions, and ‘the working hours are unsatisfactory. The working hours are often extended without pay’. For one employee the working conditions were intolerable: ‘The working conditions are bad. The air-conditioner doesn’t work, the factory buildings are dilapidated and the workshop is full of dust. The health of the employees and the equipment have been affected harmfully’. The system of employment contracts was not a major concern of workers with 83.5 per cent of employees indicating they were quite happy with the length of their current employment contract. In support of their view, many workers cited increased flexibility, adequate time to become familiar with the job, job security and increases in motivation to continually self-improve. This last point was well summed up by the worker who stated that ‘my sense of crisis encourages me to keep improving and progressing’. On the other hand, there were many employees who felt insecure and that the length of the contract was too short. This insecurity led to a degree of resignation, with one employee expressing the view that ‘I have no other place to go. I am satisfied to have a job. I only have a lower highschool education degree and it is very difficult for me to find a job’. To explore this issue further, workers were asked, using a three-point scale, how satisfied they were with 10 aspects of their work: tasks, accountability, responsibility, participation, promotion opportunities, pay, overtime pay rates, workload, job security and management. Results are presented in Table 6.2. The areas that recorded most satisfaction were accountabilities (72.6 per cent), responsibilities (68.8 per cent), tasks (61.6 per cent), management (57.5 per cent) and participation (53.7 per cent). Overall three key results emerge. First, many workers were satisfied with most aspects of their work. Second, workers appeared more satisfied with the action-related components of satisfaction – tasks, responsibilities, accountabilities and participation – than with the other components considered. Third, workers appeared less satisfied with pay, security, workload, promotion and management than with other elements. These are higher levels of satisfaction than reported for the Czech Republic (Vaskova and Kroupa 2005), but lower than reported for Italy (Giaccone 2008). As in the case of the Czech Republic, promotion opportunities and pay rates are among the least satisfactory elements of work. The satisfaction of Chinese workers with the quality of their jobs can be decomposed into two principal components as indicated in Table 6.3. The first component is satisfaction with promotion opportunities, pay, overtime pay, workload, job security and management; in general, this reflects satisfaction with the benefits of the job (BENEFIT03). The second component comprises satisfaction with accountabilities, responsibilities, and to a lesser extent with tasks and participation – characteristics of the specific task the worker has to do (RESPONS03). To gauge the effects of the economic restructuring workers were also asked whether these aspects of their work were better or worse than five years ago. A summary of the responses is presented in Figure 6.1. Over 75 per cent of respondents thought that tasks,

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Table 6.2 Employee satisfaction with work (%)

Tasks Accountabilities Responsibilities Participation Promotion opportunities Pay Overtime pay rates Workload Job security Management

Dissatisfied

It’s alright

Satisfied

5.3 2.1 2.7 11.7 18.1 24.1 29.9 10.3 14.8 14.0

33.2 25.3 28.6 34.6 55.9 46.0 35.6 43.8 37.7 28.5

61.6 72.6 68.8 53.7 26.1 30.0 34.5 46.0 47.5 57.5

Source: Worker interviews. Note: N = 174–190.

Table 6.3 Satisfaction with characteristics of work, 2003, and changes in characteristics, 1998–2003 Characteristic

Tasks Accountability Responsibility Participation Promotion opportunities Pay Overtime pay rates Workload Job security Management

Conditions 2003

Improvement 1998–2003

Component 1

Component 2

Component 1

Component 2

0.535 0.077 0.163 0.463 0.712 0.801 0.751 0.711 0.701 0.662

0.565 0.865 0.863 0.591 0.255 0.193 0.094 0.299 0.160 .137

0.739 0.823 0.827 0.794 0.548 0.355 0.249 0.142 0.240 0.599

0.361 0.121 0.264 0.199 0.416 0.613 0.796 0.752 0.755 0.402

Source: Worker interviews. Note: N = 190. Components are loadings derived from principal components analysis after Varimax rotation with Kaiser normalization. For 2003, the first component accounts for 48 per cent of the variance in the 10 variables and the second for 13 per cent. For the improvement 1998–2003, the first component accounts for 50 per cent of the variance in the 10 variables and the second for 11 per cent.

accountability and responsibility were better, but fewer than 55 per cent of respondents thought that promotion opportunities had improved. In general, workers felt that job conditions are getting better, which is a trend also noticed in Europe as a whole (Giaccone 2007). Workers, however, felt that some conditions have not improved or have only improved marginally over this period, notably job security, workload, overtime pay rates and promotion opportunities. Again, this is similar to the trend identified in Europe (Giaccone 2007). Table 6.3 indicates the principal components of change in the characteristics of work over the period 1998 to 2003, as evaluated by

Economic reform and the quality of working life q29a2

q29b2

q29c2

q29d2

q29e2

q29f2

q29g2

q29h2

q29i2

q29j2

q29k2

117

Count

75 50 25 0

Count

75 50 25 0

Count

75 50 25 0 1

2

3

4

Value

1

2

3

Value

4

1

2

3

4

Value

Figure 6.1 Frequency distributions of responses to the question ‘Have the following attributes of your job improved over the past five years?’. q29b2: tasks; c2: accountability; d2: responsibility; e2: participation; f2: promotion opportunities; g2: pay; h2: overtime pay rates; i2: workload; j2: job security; k2: management. (N = 190.) q29a2 is constant and ignored. Source: Worker interviews.

these workers. In the main workers identified the improvements over the period in virtually the same dimensions as they characterized their satisfaction with work in 2003. The two principal components are the intrinsic characteristics of the job (tasks, accountabilities, responsibilities and participation) and the benefits of the job (pay, overtime pay, workload and job security). In summary, workers evaluated their jobs according to two general factors – the intrinsic characteristics of the jobs and the benefits derived from the job. These factors were identified both in the 2003 satisfaction data and in the satisfaction with changes over 1998 to 2003, though the weighting of the two factors differed between the year 2003 and the period 1998 to 2003. With this brief background sketch of workers’ satisfaction with the quality of working life in Chinese enterprises, we can turn now to examine the characteristics of jobs (and changes in those characteristics) in order to identify the manner in which various types of

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Economic reform and the quality of working life

Table 6.4 Proportion of workers receiving specified forms of training, 1998–2003 Form of training

Political Technical skill Management Career path development Refresh roles, tasks

Proportion receiving 2003

1998

0.46 0.64 0.47 0.30 0.39

0.72 0.82 0.64 0.55 0.58

Significance of difference

−6.09 (