Strikes in China – the thin end of the wedge?

News that Malaysia’s Proton has signed new collective agreements with its unions to “encourage a harmonious industrial climate” follows a series of strikes in China, notably those in Foshan which have affected Honda. The strikes initially looked like a surprising display of civil disobedience, with workers willing to risk clashes with police and security forces. …

News that Malaysia’s Proton has signed new collective agreements with its unions to “encourage a harmonious industrial climate” follows a series of strikes in China, notably those in Foshan which have affected Honda.

The strikes initially looked like a surprising display of civil disobedience, with workers willing to risk clashes with police and security forces. Yet incidences of industrial action in China are on the rise. Strikes at multinational companies, however, are unusual; a two-week long strike is unheard of. Disputes are normally brought to an end within days.

An initial ban on media coverage meant that reports of strikes which began in mid-May only appeared a week or ten days later. It seems reporting has been allowed of strikes at foreign-owned companies, whilst reporting of strikes at domestic companies has been suppressed.

Gone are the days of a workforce willing to migrate internally for work. The new generation of young Chinese workers has grown up in the cities, knows nothing of rural life, and wants to earn money and enjoy city life. They are well-educated, savvy and, crucially, online and globally aware. They know their rights (a new labour law came into force in 2008). They know their multinational employers employ them specifically for the low wages, and that they earn less than their colleagues making the same products elsewhere.

For the government to maintain China’s status as a low-cost manufacturing base, whilst enabling its workers to be able to afford rising house prices and inflation, it must allow a (slow) rise in wages.

Much of the reporting has been of strikes at Honda suppliers, but worker unrest is not exclusive to the automotive industry. A spate of suicides at Taiwan’s Foxconn, an electronics contract manufacturer supplying Apple, Sony, Dell and HP, was blamed on stressful conditions and overwork. KFC, too, is deep in negotiations with worker representatives over pay demands.

Anxious to keep its car plants running and protect its reputation in a market which accounts for over 17% of its global vehicle sales, Honda increased wages by over 20%. Following the suicides at the 300,000-employee Foxconn plant in Shenzhen, the company offered a raise of 30%, with a second to follow in October, reportedly taking the total pay increase to up to 70%.

For the government to maintain China’s status as a low-cost manufacturing base, whilst enabling its workers to be able to afford rising house prices and inflation, it must allow a (slow) rise in wages. Indeed, several regional and municipal governments – including Foshan – have already stated that they plan to raise minimum and average wages.

However, wage rises alone are a mere sticking plaster. Workers are less willing to tolerate long, monotonous working days, few breaks and holidays, fumes, enforced silent working, and a lack of representation.

The recent strikes were not led by militant unions, since there are none. They were organized by workers using social networking sites and chatrooms. A key issue for many employees is the right to elect an independent labour union. At present, only the official, government-run All-China Federation of Trade Unions is recognized.

Could the cost of wage increases and improved conditions make multinationals in China consider shifting manufacturing to neighbouring countries like Cambodia, Indonesia and Vietnam? Unlikely. Whilst China’s USP to date has been its low wages, it is now a key market for most commodities, and the largest automotive market. For reasons of trade tariffs and logistics alone, established companies will stay, and they will make it work. An alternative is to move away from the wealthier coastal areas to inland locations where cheap labour is still easily available.

a manufacturing presence in China is now vital, even at twice the current cost

Will wage rises make companies think twice about locating new plants in China? Unlikely. That Honda and Foxconn could, at relatively short notice, implement considerable (in percentage terms) wage increases, shows that despite raising pay, foreign companies will still benefit from cheap labour. That aside, a manufacturing presence in China is now vital, even at twice the current cost. It can be assumed instead that the government and the employers will introduce a gradual change in labour policies and an improvement of working conditions.

Will the current worker unrest lead to the introduction of independent unions and collective bargaining? Quite possibly, but they will be nothing like the unions of France, Germany or the US. Expect only a moderate cessation of power to any new unions.

These were not the first strikes in China; they will not be the last. This presents OEMs in China with an opportunity to adapt pay and conditions, and make the automotive industry the most desirable in which to work. Volkswagen will be paying particularly close attention. Together with local partner FAW, it recently announced plans to construct a €520m, 300,000-unit plant employing 4,000 workers in Foshan, the region at the heart of Honda’s supplier strikes.

Proton‘s approach – to sit down with the unions and update labour agreements – appears to be the way to ensure a “harmonious industrial climate”. However, this can only be done if there are unions to sit down with…

The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.

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