Statistics from 2019 show that labour protests in China are undergoing a general transformation from large-scale strikes by manufacturing sector workers to smaller-scale, spontaneous actions by service and transport sector employees. Labour strikes now also disproportionately effect domestic enterprises rather than foreign companies.
This development has been precipitated by the decline of the country’s manufacturing sector, which has driven more workers to accept low-paid jobs in the service industry.
The CPC will aim to manage this threat through incremental increases to regional minimum wages and crackdowns on protest activity. However, the potential for salary hikes will be limited by slowing economic growth and the need to preserve economic competitiveness.
Businesses can mitigate the impact of this dynamic threat by anticipating opposition to facility closures and reviewing business continuity plans to account for potential transport and service delivery disruption.
Labour unrest in China: The background and context
China’s meteoric rise to economic superpower status has been driven by a manufacturing boom that has relied on fast production and cheap labour to maximise exports and dominate international markets. This model has created an employment culture of low wages and poor working conditions, particularly in provincial economic hubs which compete to provide the most cost-effective services for foreign investors. Over the last three decades, these pressures have resulted in periodic labour protests and industrial action by China’s lowest-paid workers, who have clashed with factory owners and state-sponsored financiers. There is no explicit recognition of the right to strike in China, and officially sanctioned ‘trade unions’ consist of state cadres which are merely branches of the Chinese Communist Party (CPC) installed into companies, factories and general management boards to regulate private sector activity. Subsequently, their primary function is to monitor foreign investments and ensure business continuity, rather than champion the rights of employees. This system has left little room for workers to voice their frustrations and make demands of their employers and has led to unsanctioned work stoppages and community protest activity in response to localised instances of wage stagnation and work-related fatalities.
Data from the International Monetary Fund (IMF) and the China Labour Bulletin (CLB), a Hong Kong-based non-governmental organisation, shows that the frequency of these strikes increased significantly between 2010 and 2015. This has coincided with a general slowdown in country’s growth rate, which had averaged 10 per cent over 30 years. China’s manufacturing and construction sectors – the traditional growth drivers – have traditionally been the most susceptible to labour unrest, although strike actions have also increased in the retail and service sectors since 2016 in line with the country’s transition to a more service-based and domestic consumption-fuelled economy. In response, the Chinese authorities have used a combination of repression and appeasement to deal with strikes. Police have often been called to deal with picketers and protesters, while in some cases officials have attempted to negotiate a settlement between the workers and the factory management.
2019 has seen more small-scale actions
Over the last year, industrial action in China has seen a general shift from large-scale strikes and protests by factory workers rallying against an inequitable system, to small-scale, spontaneous actions designed both to expose and resist employer abuses and violations of basic labour rights. These latter protests are often intended to garner media attention and generate public sympathy for a cause through social media. According to the China Labour Bulletin’s annual report on national protest activity, 95 percent of the 712 collective protests recorded in the first half of 2019 involved less than 100 workers and were predominately related to the construction (42 percent), services (19 percent) and transport (12 percent) sectors. There were also no protests with more than 1,000 workers throughout the same period. This represents a significant change from previous year’s statistics, which have typically been dominated by manufacturing sector strikes, involving large numbers of factory employees who received limited social insurance and low pay.
These changes are thought to be directly linked to a general decline in manufacturing in mainland China, which has driven more workers to accept low-paid jobs in the service industry. In contrast, the remaining factories and plants generally offer acceptable pay and working conditions by comparison. Statistics also show that the vast majority (over 95 percent) of labour disputes in 2019 were associated with state-controlled or domestically owned private enterprises, rather than international companies. This is because remaining foreign enterprises and financers are attracted to China for reasons other than minimising production costs and therefore generally willing to pay workers acceptable wages, whilst those chasing the lowest-possible bottom line are likely to have already relocated.
The increase in the rates of labour protest in the service and retail sectors is likely to continue into 2020, as workers employed in activities like street cleaning, secretarial work, accountancy, hotel and restaurant operations, sales agents, and gym/salon employees look set to replace factory workers as the lowest paid in China. Equally, individuals involved in the transport industry like taxi drivers, food delivery workers and couriers, are more sensitive to pressures other than just low pay, such as the price of fuel, excessive management fees, ineffective government regulation and company bankruptcies. Whilst the CPC’s unparalleled control of the national economy will allow the government to monitor and adjust these factors, it will be a lot more difficult to pre-empt smaller-scale protests and strike activity within these industries.
What’s the Chinese government’s management strategy?
Since 2015, the Chinese authorities have sought to implement a range of measures to address the primary societal and economic drivers which have the potential to generate de-stabilising unrest in the country’s primary industrial centres. In the past, labour protests in China have tended to revolve around two key concerns: working conditions and wages. Whilst recent studies suggest that the standards of occupational health and workplace safety have improved organically in recent years due to economic development and investments in technology, the latter issue has remained a point of contention for the employees of domestically owned enterprises. The minimum wage, which is the de facto working wage for a large proportion of the population, is set by the regional authorities and is therefore a political issue which has the potential to unite disparate workforces in opposition to the CPC. Cognisant of this fact, the central government has introduced a requirement that local administrations in China update their minimum wages rate every few years. Whilst they do retain the flexibility to adjust wages according to local conditions, the nation’s rapid economic development has meant that incremental increases have become the norm in key economic centres like Beijing, Chongqing, Shaanxi, and Shanghai. Since 2015, the central government has made provisions to ensure that this trend continues, and in 2018, 15 out of the 31 regions in mainland China increased their minimum wages, whilst 20 others did so in 2017.
The majority of these regional increases go beyond the extent necessary to keep pace with the rising costs of living and are often interpreted as a measure of appeasement to prevent wage stagnation. However, China’s current economic slowdown, which has been exacerbated by the ongoing Sino-US trade war, has threatened to diminish the levels of financial growth which are a prerequisite for wage hikes. Consequently, local authorities are likely to reduce the extent of annual increases over the coming years. Less economically prosperous regions may also opt to freeze local wages in order to maintain their economic competitiveness amid the growing uncertainty, a move which is likely to be poorly received by both manufacturing and service sector workers. It may also serve to exacerbate China’s growing regional income disparity, which is amongst the worst in the world. Whilst the city of Shanghai enjoys the highest minimum wage in China, at RMB 2,480 (US$358) per month, the fixed rate is as low as RMB 1,000 (US$145) in certain areas of Guangxi province.
If, on the other hand, wages do continue to follow the current trajectory of a year-on-year rise, there is a risk that remaining foreign companies may be forced to reduce their manufacturing footprint in China, in favour of lower-cost locations. This trend has the potential to lead to escalating unemployment, an additional pressure that the PRC is yet to properly encounter. However, such a trend can be partially mitigated against through additional investment incentives such as tax breaks and state-funded improvements to business infrastructure. Ultimately, the evolution of China’s economic landscape will have to be carefully managed by the CPC in order to minimise the impact of these pressures and reduce the potential for social upheaval. In many ways, the shift from larger, manufacturing sector protests to smaller-scale service industry strikes will make labour unrest more manageable for the government. However, it also means that protests are less likely to be limited to poorly developed regional cities and have the potential to occur in important symbolic centres like Beijing, Shanghai and Shenzhen. Local authorities are therefore more likely to take a heavy-handed approach to organised dissent in these locations, which ultimately increases the potential for violent escalation.
Corporation-level management strategies and business continuity
As more foreign companies seek to shut down their manufacturing operations in China, the closure of factories and plants can result in workers resorting to disruptive and in some cases, violent behaviour. In the past, aggrieved employees have resorted to blocking roads and traffic access to factory sites and holding sit-ins outside government offices. There have also been cases of workers taking managerial staff hostage, particularly if when they are laid-off whilst the company is in arrears over the payment of their salaries. While it is rare that any physical harm comes to the executives being held against their will, there have been instances of workers attacking government negotiators. In an extreme case in 2009, workers in north-east China beat the general manager of one of the largest steel companies in the country to death after they were told thousands would be losing their jobs due to a takeover. Foreign executives have also been occasionally targeted due to concerns that slower economic growth could lead them to relocation and job losses. Businesses with manufacturing operations in China should therefore conduct a thorough risk assessment prior to sending employees to sensitive sites.
The sharp rise in service and transport industry labour protests in 2019 has significantly increased the potential for disruption to business travel and service delivery in China’s major urban centres like Beijing and Shanghai. Although large-scale employee strikes are still relatively rare in China when compared to other developing nations, these smaller-scale protests are beginning to occur more frequently and with little or no prior warning. Businesses should therefore review routine travel plans and continuity measures in light of this developing threat and in anticipation of potential disruption to services such as railway transport, food delivery, courier services and hotels.