Lean and Mean ...

South China’s Pearl River Delta (PRD) around the cities of Hong Kong, Shenzhen, and Guangzhou– today is the largest agglomeration of manufacturing in the world.  About 25 million industrial workers – most of them migrants – churn out consumer products for global brands, such as garments, toys, furniture or electronics. In recent years, the PRD has also become a major hub for automobile manufacturing. Honda and Toyota have set up important factories in Guangzhou, which produce the familiar Accords, Civics, Odysseys, Camries and Corollas. BYD Automobile, the rising star of the Chinese electrical car industry, is residing in Shenzhen. Volkswagen has announced to build a new factory in the area, recently French auto giant Peugeot did the same in a joint venture with Chinese automaker Changan.

Supply factories have mushroomed as a consequence of this boom. Most of the factories are producing for the Chinese market, but Honda and Toyotahave started to export components such as engines to their factories in Western countries. 

Production features the latest in technologies and organization. The Japanese car makers have brought their famous lean production systems to China, featuring just-in-time production, management-by-stress, and division of workers along the supply chains. Working conditions in the main plants are comparable to modern car factories around the world, but comparatively upscale by Chinese standards. The workers are among the highest paid in the region. Base wages average around 2,500 RMB (US$400), the companies pay between 13 and 18 monthly wages; profit sharing and productivity bonuses are widespread. Overtime remains within the legal limits in China (36 hours per month, based on a 40 hour work week).

Conditions in supplier companies look much less favorable. Although the factories are mostly clean and air conditioned (still considered a luxury in South China’s subtropical climate), work is segmented and monotonous. Wages are around the legal miminum of 700-900 RMB. Overtime is extensive and often beyond the legal limits, which are not enforced by local governments. Overtime and bonuses usually contribute about 50% of the regular monthly pay, which averages between 1,200 and 1,500 RMB. Turnover in most of those factories is very high, many workers are employed as ‘interns’ on placement from technical schools.

… With Chinese Characteristics

While the lean-and-mean model maylook familiar to auto workers around the world, there are some Chinese characteristics.

First, the core factories of Honda and Toyota are co-owned in Joint Ventures with Guangzhou Automotive Group (GAG), one of the big six state-owned car makers in China, controlled by the governments of Guangzhou city and Guangdong province. This reflects the general policies of the Chinese government under which all foreign invested auto manufacturing operations have to be in joint ventures with Chinese state-owned car makers. The supplier companies, on the other hand, are directly owned by Honda and Toyota, some of them jointly with city or district governments or with private Chinese or Hong Kong-based investors.

Second, the workforces of the core companies consist of local workers from Guangzhou, whereas suppliers mostly employ migrants from rural areas. Under the existing policies in China, migrant workers have a second-class citizen status, similar to immigrants in the U.S.or Europe. They have no social or political rights, restricted access to health, accident and unemployment insurance, and no right to settle in the localities where they work. The workforces in the core factories have an average age of less than 24 at Toyotaand less than 28 at Honda. Although workers in core and supplier factories are all young, their status and living conditions are very different.

These differences are also reflected in the structure of the trade unions. In the core factories, the official All China Federation of Trade Unions (ACFTU) is well represented. An extensive trade union bureaucracy administers the generous welfare programs of the companies and acts as a consultant to the management on wages and working conditions (although there are no collective bargaining agreements that would fix general wages, working hours and benefits). In most of the supplier companies, trade unions do not exist at all, or they have been installed on behalf of local labour bureaus, party chiefs, or managers.

Honda factory union thugs wearing yellow hats attack the striking workers. Photo: LIBCOM

Honda Nanhai: Workers vs. Capital and Local Government

A Honda supplier factory in the Nanhai district of the city of Foshan became the focus of the labour conflicts in May and June 2010. About 2,000 workers manufacture gearboxes in this plant, almost all of them migrants. The trigger of the strike was a rise of the legal local minimum wage from 770 to 920 RMB, announced by the Foshan city government on 1 May in response to rapidly rising costs of living in the area. Workers in the factory were expecting a wage increase. The management added 150 RMB to the monthly base wage, but reduced monthly subsidies (e.g. for food, housing, and regular attendance) from 300 to 180 RMB. As a result, the regular monthly wage remained almost the same.

In the morning of 17 May, two male workers in the automatic transmission department halted the assembly line by pushing the red stop button, which normally allows emergency shut-downs in case of quality problems. The Japanese plant manager met with the workers in the cafeteria and promised to reply to their demands within a week. The workers went back to work during the night shift of that day. A series of negotiations between management, workers and the factory trade union (which existed unbeknown to many workers) took place during the following days, accompanied by further work stoppages.

The company offered various raises of monthly bonuses and subsidies for different groups of workers, but the workers insisted on a general raise of the base wage. Negotiations reached an impasse, after rumours had spread that the company would recruit replacement workers in some distant locations. At the same time, the company terminated employment contracts with the two workers who had initially stopped the assembly line.

On 24 May, the strike became indefinite, soon affecting Honda’s main factories in Guangzhouand Wuhanin central China. Both factories had to stop production on 26 and 27 May. This raised the attention of national and international media and made the strike a public issue in China. The local government along with the trade union and management took a more and more aggressive stance, resulting in the mobilization of a group of about 100 thugs clad in trade union uniforms, who confronted the workers physically.

As a result of this event, the workers wrote an open letter, which was widely published in Chinese media and Internet websites. This unique document explained the workers’ case for social justice and their demands. At the core was a wage raise of 800 RMB for all. In addition, some improvements in benefits were suggested, and the introduction of a seniority bonus of 100 RMB on top of the monthly wage for each year of work at the company, and guaranteed wage raises of 15% every year. At the same time workers were demanding free and open elections of trade union representatives in the factory.

Mediation or collective bargaining?

The escalation led to direct involvement of Guangzhou Automotive, the Chinese mother company of the Honda core factories. The CEO of this company, Zheng Qinghong, who is also a member of China’s legislative assembly, the National People’s Congress (NPC), took charge of the negotiations with the workers. The Japanese manager of the supplier factory was replaced by a Chinese from Guangzhou Automotive. Also, trade union representatives from Guangzhou Automotive group and from the main factories were involved in fact-finding and negotiations.

A prominent labour law professor from Beijing, who is an advisor to the NPC and the Ministry of Labour, was brought in as a legal consultant to the workers. Both appeared in the plant on 4 June in a set of dramatic negotiations. The negotiations included the plant management and 30 elected representatives of the workers, of which five were allowed to speak. In the course of the negotiations, the expert explained to the workers that strike action during bargaining would be illegal under internationally accepted rules.

According to an article in ‘Chinese Worker’, an official trade union magazine, the company had offered to raise the total monthly pay to about 2,100 RMB, up from roughly 1,500 RMB before. However, most of this would be raises in bonuses and fringe benefits, the base wage should remain unchanged. Many workers rejected this, since it would only result in higher incentive pay, which could be taken away at the next occasion. They insisted on a raise of the base wages, which would improve the regular wage in each worker’s labour contract. It would also augment overtime pay, since the extra pay of 1.5 times is calculated on the base wage, according to Chinese law. Employers’ payment for social insurance are also calculated on this base.

In the final phase of negotiations it was suggested to raise the base wage by 300 RMB instead of 200 RMB, as proposed by the company. The workers, in turn, would accept a slight reduction in the general volume of the package from 2,100 RMB down to 2,044 RMB. Under the final deal, the monthly wages were increased by 500 RMB on average. This would split up into a raise of the base wage of 300 RMB, of 66 RMB in general subsidies, and of 134 RMB as a special bonus. The wage raise would be retroactive 1 May, the workers had to resume work the next day.

From the perspective of the workers, many of their demands were not met. As the mediators had urged the delegates to concentrate on ‘essential demands’, the bargaining was narrowed down to a deal over extra pay to calm down the workers. The wage raise finally remained well below their initial demand of 800 RMB for all. Seniority pay was rejected as ‘too complicated’ and postponed to further consultations. An across-the-board wage raise and the introduction of seniority pay, as proposed by the workers, would certainly have challenged the dominant system of low base wages and high incentive pay and provided an incentive for workers to stay with the company and develop their skills. Honda and Guangzhou Automotive effectively prevented substantial changes in the wage system and avoided a precedent for car suppliers in the region and in China as a whole.

Denso Nansha: The Trade Union Taking Charge

The events at Honda Nanhai triggered a chain reaction among workers in auto supply and electronics factories throughout the PRD. According to the Guangzhou Federation of Trade Unions, more than 100 strikes occurred in the area during that time, of which only a small number was reported in Chinese and international media. Around Toyota’s ultramodern factory in Guangzhou Nansha, 8 of the 14 core suppliers collocated in that area had labour conflicts. Labour action spread to other areas in China. Several electronics factories near Shanghaiand another supplier of Toyotain Tianjinhad strikes of several days.

Most of the strikes in the PRDwere settled in similar fashion as in Nanhai, although with less attention from top management, government, and media. The wage raises were of comparable size in most cases, workers’ action effectively established some kind of pattern bargaining. Also, employers tried to coordinate behind the scene. Shortly after the Nanhai negotiations, a group of 100 representatives from car suppliers gathered in Guangzhou, in order to discuss ceilings for wage raises in case of labour conflicts.

In the course of this strike wave, remarkable changes in the attitude of local trade unions developed. As workers walked out at another supplier factory to Honda in the Nansha district of Guangzhou on 21 June, the local trade union stepped in and took over the bargaining. In this factory of several hundred workers, co-owned by Japanese auto supply giant Denso, a factory trade union existed, but it had completely lost the trust of the workers.

When the superior trade union, the district trade union of Nansha, was asked to mediate the conflict, it refused and suggested that the local labour bureau (the government agency supervising employment relations) should take responsibility. In a statement to local media, the chairman of the Guangzhou Federation of Trade Unions expressed that it would be the task of the trade union to be on the side of the workers and that the government, not the trade union that should act as a mediator.

The trade union officials first were rebuked by the workers. However, the chairman of the Guangzhou Federation of Trade Unions made clear that the trade union would speak only on behalf of the workers, although the local labour bureau had wanted the trade union to mediate. At the same time, the district trade union turned down the request by the local police to bring the workers’ representatives to the police office to discuss public security issues. The district mayor was upset about this behavior of the district trade union, which is very unusual in China.

This changed the workers attitude, and the district trade union could initiate an election of workers representatives for the bargaining process. The workers were reluctant at the beginning, but finally 6 representatives were elected. Once again, the chairman of Guangzhou Automotive was brought in as a high-level negotiator on the side of the company. A settlement was reached soon, which consisted of an across-the-board wage rise for the workers by 800 RMB.

Changes in Labour Relations

The strike movement did not only cause big concern among multinational corporations in China, it effectively challenged the existing system of labour control in the country’s booming modern industries. Typically, tacit coalitions between multinational or domestic capitalists and local governments rule over conditions inside the factories. Trade unions play a role in former state-owned enterprises and flagship joint ventures, but not in most private companies. Often, local governments back up violations of existing labour laws by major investors, as has been documented in numerous cases for suppliers to multinationals such as Wal-Mart, Apple or Nike.

Under the conditions of rapid economic growth and highly modern production, the existing methods of control have become more and more ineffective. Hundreds of labour conflicts occurred in the wake of the global financial and economic crisis, affecting millions of Chinese workers in 2008 and 2009. Following the recovery, workers are seeking a voice. As the proportion of wages in China’s national income has been falling continuously since the 1990s, the Chinese government officially is calling for higher wages in order to raise domestic demand. Even some pundits of international finance are supporting this view.

Workers are taking advantage of this situation, since it gives legitimacy to their struggles. The changing climate is also reflected in an increasing openness in the media. In the case of the Honda strikes as well as in the tragic series of workers’ suicides at Foxconn, the reporting has been unprecedented. At the same time, contradictions over the reform of the labour system in Chinaare mounting within the government and the party.

The leader of the Communist Party in Guangdongprovince, Wang Yang, openly declared his sympathy with workers’ demands for higher wages and supports attempts by local trade unions to play a role in bargaining. This attitude is reflected in parts of the union leadership at the provincial and local level. The provincial trade union has waged broad-based investigations into the perspectives of democratic election of trade unions in factories, with Honda Nanhai as a model case.

Although Guangdonghas a reputation as the most capitalist and market-oriented province in China, the provincial government is at the forefront of labour reform. In the aftermath of the strike, a ‘Draft Directive on Democratic Management’ was published, which stipulates democratic elections of factory trade unions, bargaining rights for workers at the shop floor, and a greater role for trade unions in bargaining at the local and provincial levels. The intention of these laws is to establish a new framework for labour relations, resembling Western models of cooperation between trade unions, employers associations and government, such as in Germany or Singapore.

Such policies run into tough opposition from local capitalists in Guangdong, including those from Hong Kongand Taiwan. Their cronies in local governments are joining into this fight, opposing any kind of democratic reform in local government or trade unions. The power of these local coalitions became visible in Honda Nanhai after the strike. The chairman of the existing factory trade union, who makes 260,000 RMB per year, could not be unseated until today, in spite of consistent pressure from the provincial trade union leadership.

Some recent events illustrate the difficulties for the protagonists of labour reform in the trade union and political leadership In Guangdong, city governments have produced their own draft guidelines for collective bargaining. In cities like Shenzhen, in which the power of Hong Kong capitalists and anti-union multinationals such as Foxconn or Huawei is strongest, the basic provisions in the provincial guidelines on strikes, democratic election of union officers, and wage negotiations have been watered down or eliminated completely in the local versions.

At the national level, a debate on new mechanisms for conflict resolution has been waged in political and academic circles. In a remarkable speech at the NPC in March 2011, the chairman of Guangzhou Automotive has proposed new legislation on labour conflicts, which would legalize ‘economic’ strikes and provide a legal framework for procedures in wage negotiations and labour conflict. However, in this model the right to conduct strikes would be given directly to the trade union, rather than the workers. Similar to many laws and regulations in Western countries, a host of legal regulations would define ‘acceptable’ behaviour during strikes and ban certain forms of labour action, such as street protest, blocking of factory gates or solidarity boycotts and strikes at other workplaces.1

At the shop-floor level, continuously rising costs of living have triggered new demands by workers for higher wages. At Honda Nanhai, two rounds of plant level bargaining have been conducted since the settlement of last June, with high-level involvement from the provincial trade union. As has been reported in the media (e.g. WashingtonPost, 28 April 2011), a hefty wage rise of 800 RMB had been negotiated in March of this year. However, a closer analysis reveals that only the workers in the highest pay category received a rise of this size. For the lower paid workers the increase was much less. The problem of how to secure substantial rises of the base wage through collective bargaining, the key issue raised by the Nanhai workers last year, has not been tackled yet.

The struggle for labour policies reform in Chinaremains an uphill battle. In most other provinces, authorities display a much tougher stance towards labour conflicts. The national leadership of the All China Federation of Trade Unions has not supported any substantial steps towards greater independence of trade unions, despite some high-powered efforts to establish trade union presence in multinational companies like Wal-Mart. However, the activism of young migrant workers with almost no experience in workplace organizing and bargaining is providing lessons to the trade unions – not only in China, but throughout the industrialized world.

ENDNOTES

1.      For the full text of this speech in Chinese check: http://auto.xinmin.cn/rollnews/2011/03/07/9638257.html