Chinese Labor Market in the Late 1990S

Chinese Labor Market in the Late 1990s

(This article will appear in The Journal of Contemporary China)

Fei-Ling Wang, Ph.D.

The Sam Nunn School of International Affairs Georgia Institute of Technology Atlanta, GA 30332-0610, USA 404-894-1904 404-894-1900 (fax) [email protected]

Abstract:

A national labor market has emerged, as one of the most fundamental institutional changes, in the PRC. Foreign direct investment has played a direct role. The Chinese national labor market, albeit noticeable distortions, has provided a stable and abundant supply of cheap unskilled or low-skilled labor and subsidized skilled labor and professionals, and enhanced labor mobility and autonomy in general. The national labor market has been strongly blessed by Beijing as it feels it can effectively rely on the hukou (household registration) system to stabilize the massive underemployment at a time of comprehensive dislocations caused by the advancing market economy. The sociopolitical impact of the national labor market, however, is mounting as urban unemployment rises, the floating laborers grow and become increasingly restless, and the PRC government has become more apparently pro-employers at the expenses of the labor.

The Author:

Fei-Ling Wang is assistant professor at the Sam Nunn School of International Affairs, Georgia Institute of Technology. Graduated from the University of Pennsylvania (1992) and taught at the United States Military Academy, West Point (1992-93), he is the author of From Family to the Market: Labor Allocation in Contemporary China (1997) and Institutions and Institutional Changes: Premodernity and Modernization of China (1998) and co-editor of In the Dragon’s Eyes: China Views the World and Sino-American Relations (1998). He has published several articles and book chapters in English and Chinese on international politics, development, Chinese political economy and foreign policy.

Chinese Labor Market in the Late 1990s (This article will appear in The Journal of Contemporary China)

Fei-Ling Wang * The Sam Nunn School of International Affairs Georgia Institute of Technology

Labor market is usually the last and perhaps the most regulated component of a market economy. As a market-oriented economic reform deepened, a labor market emerged in the People’s Republic of China (PRC) by the end of 1980s. Like in other countries, the Chi- nese labor market has been heavily distorted and regulated by political and social forces, as compared to the goods, services, and capital markets. Unlike in most market economies, the labor market in the PRC has thusfar demonstrated some very peculiar “Chinese characteristics” that seem to offer interesting clues to under- standing of the prospect of the Chinese political and economic de- velopments. In late 1990s, the labor market in the PRC appears to have two parts. First, primarily practiced by collective enterprises and township-village enterprises (TVEs), there is a host of small community—township, district, village, city, or even large danwei (unit)—based local labor markets that have high community-based barriers and discriminations against outside job seekers. The community-based local labor markets have evidenced the powerful distortions of the Chinese labor market caused by strong political and social institutions and rationales in the PRC (Fei-Ling Wang 1997, chapter 3). The other and more genuine part of the Chinese labor market has been a rapidly growing national labor market that features a gigantic army of floating laborers, a pro-employer sociopolitical environment and the related policies, a coexistence of massive yet stabilized underemployment, and a state subsidy mainly in the form of moonlighting by the state employees. The national labor market has been essential to the operation of foreign invested enterprises and native private enterprises, both have been the main force driving the economic boom in the PRC. Sociopolitically, it tends to have greater propensity and potential to facilitate some fundamental changes, compared to the dispersed small community-based local labor markets. This paper analyzes the national labor market of the PRC. As one of the most fundamental institutional changes in the PRC in the past two decades, the emergence and operation of a national labor market have closely associated with the entry and operation of foreign direct investment (FDI). The Chinese national labor market, albeit noticeable distortions and still poor institutionalization, has greatly raised the productivity of the Chinese labor force to enable and sustain the rapid growth of a market economy. It pro- vides a stable and abundant supply of cheap unskilled or low- skilled labor and subsidized skilled labor and professionals. Both labor mobility and autonomy have been greatly enhanced on the national labor market. Ironically perhaps, this national labor market has been strongly blessed by the CCP (Chinese Communist Party) regime, as Beijing still feel it can effectively rely on tools such as the ethically questionable hukou (household registration) system to stabilize the massive underemployment thus its sociopolitical system at a time of comprehensive dislocations caused by the advancing market economy. The sociopolitical impact of the national labor market, however, is mounting as urban unemployment rises, the floating laborers grow and become increasingly restless, and the CCP regime has become more apparently pro-employers at the expenses of the labor.

The Emergence of a National Labor Market in the PRC Market-oriented labor allocation was systematically eliminated and a national labor market disappeared in the PRC by mid-1950s. The Chinese reform especially the new policies that allowed and encouraged the growth of private employment and “self-employment” led to the emergence of a national labor market. The rapid agricultural decollectivization (1978-80) released huge numbers of surplus rural labor, which gradually and steadily flooded the cities as the hired workers or floating laborers to form the supply pool for the national labor market. Reform measures aimed at increasing the efficiency of the state-owned enterprises, started in 1984, enabled certain relaxation of personnel flow control, competition among the danweis and workers, contract employment, and legalization of the status of unemployment initially under the cover of “waiting-for- job.” More important, however, the emergence of a national labor market in the PRC seemed to have directly related to the entry and operation of FDI. To use foreign investment and thus import foreign technology were a main component of Deng’s reform strategy. An ambivalent CCP first attempted at a politically motivated control policy of SEZs (special economic zones) to contain the “alien” FDI. Yet FDI snow- balled in the PRC. In 1978, China only had twenty foreign-invested enterprises including some join-ventures with then “socialist” countries such as Poland. By 1994, China became the second largest recipient (second only to the United States) of FDI in the world. More than 221,777 FDI enterprises were registered and 129,900 were in operation in 1995. The contracted FDI exceeded $303.3 billion with $95.6 billion already invested. FDI enterprises have developed in literally every corner of the PRC. Hong Kong and Macao ranked a distant number one among the 150 foreign countries that invested in China, followed by Taiwan, the U.S., Japan, and Singapore. The largest wholly-owned FDI enterprise by 1995 was Motorola (China) with $200 million assets (RMRB-O 3/24/1995, 5). Most of the FDI enterprises were labor-intensive and small- scale businesses. On average, an FDI enterprise had only $950,000 investment from foreign investors in 1993. Only 4 percent of the more than 13,000 FDI enterprises in operation in 1990 had “advanced technology” and only 18 percent had products for export. The main purposes of these foreign investors were to explore a huge and cheap labor force. A survey of 1,066 foreign investors in China concluded that 91.89 percent of them were drawn there by the Chi- nese labor resource (50.56 percent of them believed that was their number-one motivation) (RMRB-O 3/28/1994, 1). It was reported that Chinese workers in FDI enterprises were paid only 10 to 40 percent of the wages of similar workers in Hong Kong, even with the same productivity (Mao 1990, 27). Almost all foreign investors insisted on having independent authority and terms in labor recruitment and management based on market conditions. In spite of finding such requests “foreign” and “nonsocialist,” the PRC nonetheless decided to grant them, thus creating market-oriented labor practices in China. The strong political endorsement and support from the PRC state have helped FDI in its interactions with the bureaucrats con- cerning the development of a national labor market. Step by step, FDI enterprises were granted the rights to hire, pay, promote, and dismiss as they see economically fit. They also won the crucial right to hire anybody from anywhere with little regard to the employees’ legal residency. One year after Beijing passed a law recognizing FDI enterprises in July 1979, the PRC adopted its first measure granting legal status to the FDI employment: the “Regulation on the Labor and Wages Management in Sino-Foreign Joint Ventures.” According to that regulation, local labor bureaus must “approve” any labor contracts between an FDI employer and its employees. The wage level of FDI enterprises was set at 120 to 150 percent of similar state- owned danweis in the same locality (article 8). FDI employers, though granted “autonomous rights” in recruiting and managing labor, were only allowed to hire from local hukou holders who were either “approved” by the labor bureaus or were unemployed. Largely due to persistent demands from foreign investors and local leaders in the unfortunate non-coastal regions, Beijing quickly made numerous retreats. In October 1986, the State Council issued a “Direc- tive on Encouraging FDI” in which FDI employers were allowed to hire from existing (but still only local) danweis. They only had to “file” or report hiring and dismissal decisions to the local labor bureaus (article 15). Cross-province hiring was still subject to approval of the provincial labor bureaus. In less than two years, in May 1988, Beijing adopted a further relaxed regulation. This regulation clearly stated that any FDI employer could hire from any danwei anywhere in the nation, without even asking for approval from the local or provincial labor bureaus. Danweis and local cadres were ordered not to obstruct labor recruiting and management of the FDI enterprises. Any such obstruction could be viewed and punished as a criminal offense. The harsh language here may well re- flect substantial resistance to a national labor market inside the CCP leadership and among the local cadres. This regulation finally signaled the full legalization of a previously nonexistent national labor market in China. Local legislation gradually operationalized the national labor market. A huge surge of FDI thus took place from 1988 to 1990 and again from 1992 to 1994. Benefited significantly from the concessions acquired by FDI employers, native private employment grew substantially in the rural and urban economies. To minimize political risks and social costs, many private enterprises were hiding under the cover of “collective enterprises” or TVEs (Zhang Houyi 1994, 100). As an “expedient” policy for dealing with urban unemployment and rural underemployment, Beijing first in 1980 “allowed” each private employer to hire no more than five, then eight unrelated workers. By the mid-1980s, the limit was relaxed to thirty unrelated employees per private business. That limit was soon exceeded by so many private employers that it quickly became irrelevant. Through an amend- ment to the PRC Constitution in 1988, the CCP finally legitimized native private enterprises in both the rural and urban areas, over- coming substantial political resistance (Liang 1990, 10-14). By the time Beijing issued its “Provisional Regulations on Private Enter- prises” in 1988, the quantitative limit of private employment disappeared. Almost ten years after native private enterprises had emerged, their legal status was acknowledged. Regulations on private employment were modeled after that for FDI enterprises. Native private employment finally merged with FDI employment to form an emerging national labor market. By mid-1990s, the national labor market became an important way to allocate the Chinese labor resource. To see the actual size of this market, however, requires a careful reading of the official statistics, which are often contradicting each other. Perhaps motivated by ideological and political reasons, the PRC often calcu- lated the labor working in the FDI enterprises (other than the wholly owned) as part of the “urban workers” (zhigong), thus mixing them with the state employees and the employees of the collective enterprises. The widespread “collective” cover-up of many private enterprises also reduced the accuracy of official statistics. To make things even more difficult, official statistics of the FDI enterprises often only cover those in urban areas and leave out the large number of industrial workers with rural residency. Officially, the State Statistical Bureau (SSB) reported 6.71 million urban private employees and businessmen (“self-employed”) and no rural private workers for the year of 1990. But the official Xinhua News Agency reported that there were more than 22.65 million urban private workers in 1990, more than three times as many. An internal report by the State Council estimated that, by 1991, there were about 23.9 million private employees in China, and the Chinese private economy grew at a rapid annual pace of 13 to 59 percent in the 1980s, much higher than that of the whole national economy. Moreover, rural private employees, previously not reported at all, were estimated in 1992 to be nearly 20 million, and they grew by more than two million every year after that. The actual size of the total Chinese native private employment by the mid-1990s, therefore, may be safely estimated to be about twice the official SSB figures of 37 million. FDI employment is even more underreported. Officially, there were only 659,392 workers employed by FDI enterprises in 1990 nationwide (SSB-LB 1991, 407). But in the same year, the official Xinhua News Agency reported there were more than two million workers employed by Hong Kong investors in Guangdong province alone, and estimated the national total to be nearly 3.6 million. An estimate based on reports about FDI employment in other parts of the PRC led us to believe that by the early 1990s, at least four million Chinese were employed by FDI enterprises, roughly five times the officially recorded numbers. The numbers of FDI enterprises and the volume of FDI grew astonishingly, more than eightfold, from 1990 to 1995. Thus it may be safe to estimate that the four million FDI employees at least tripled during the same time to become 12 million or more by 1996. Therefore, the Chinese national market may have been allocating more than 80 million workers by mid-1990s, roughly 15 percent of the total Chinese labor force. The speed of the development of this national labor market has been genuinely striking. Based on official figures, the urban private employment grew from a negligible 150,000 (0.16 percent of the urban labor force) in 1978 to more than 13.2 million in 1994 (8.9 percent of the urban labor force)—an 88 times increase in 14 years. Together with the rural private employment and FDI employment, the national labor market expanded by more than 250 times. If we use the more accurate unofficial estimates, this speed would be more than 500 times in those 15 years. Surplus Labor and the Hukou System: Unique Causes for Peculiarities Other than the common regulations by the state, the Chinese national labor market develops in a unique environment that features with a massive surplus or underemployment labor force, a hukou (household registration) system that restricts the geographi- cal and professional mobility of Chinese labor force and maintains an institutionalized rural-urban division, and the existence of several nonmarket or quasi-market labor practices. Those unique conditions have therefore determined that the Chinese national labor market will inevitably have some very peculiar “Chinese characteristics.” According to official statistics, the population of China in

1993 was almost 1.2 billion (1,195.8 million). The labor force—all the men from 16 to 59 and women 16 to 54—was more than 705.49 million. More than 487.68 million laborers live in the rural area, separated by the strict hukou system from the 217.8 million in the urban area. The unemployment rate in the urban economy was about 2.9 percent in 1994. A much larger underemployed labor force, however, exists especially in the rural areas, institutionally con- tained by the family-based rural economy and the powerful hukou system. The massive rural surplus labor has an almost zero marginal productivity while consuming more than 12.2 percent of the net pro- duction of the rural economy every year (Wang Guichen 1988, 98). Estimates of the size of the surplus vary. Official statistics reported 25 to 30 percent of the 487.68 million rural laborers to be underemployed (SSB-PB 1993, 66& 88). A study by Chinese scholars based on three econometrics models concluded that there was 10 percent to 16 percent “irrational or useless employment” in the Chi- nese agriculture sector in 1993 (Niu 1993, 145-149). A five-year study by the Chinese Social Sciences Academy in fifty-nine counties of eleven provinces revealed that as many as 220 million rural laborers had no meaningful work to do (Yao and Murong 1993, 34). The Ministry of Agriculture estimated in 1985 that to have “full employment” in the rural areas, 160 million laborers would be enough for the 140 million mu (about 23.06 million acres) of cultivated land. That would leave at least 240 million workers needing to find jobs outside the agricultural sector. In 1994, it was officially estimated that there were “250 million surplus laborers” in the rural area. The population of the rural areas still continues to increase at a rate of 100 million per decade. Unban underemployment is also a clear existence. There were at least 30 million “more than needed” (fuyu) underemployed workers in the state-owned enterprises (Xin 1992, 39). As a result, the massive existence of surplus labor is likely to continue in the PRC for the years to come. To employers especially those came from abroad with a motivation of taking advantage of cheap labor, the massive surplus Chi- nese labor is a very good news. It ensures the constant supply of very inexpensive laborers and give the employers a dominant bargaining position . The legal minimum wages of the PRC in 1995-96, for example, was only 120 rmb to 440 rmb per month (less than $0.09-0.33 per hour). Therefore, the supply of laborers and the cost of labor have rarely been big problems for foreign investors.

This factor has fundamentally determined the weak position of the Chinese workers on the national labor market and implies great potential of sociopolitical destablization. The possible scenario of hundreds of millions jobless peasants raiding the cities and the millions of urban underemployed workers starting a riot, however, have been rather remote since the au- thoritarian PRC state (through the highly legitimized institutional barriers such as the hukou system) and the strong Chinese family structure have managed to work together to largely stabilize the surplus labor through maintaining an army of underemployed rather than unemployed and controlling the flow of labor in general. Started in 1952, the hukou system has institutionally separated the rural Chinese form the urban residents and controls the mobility of the populace. In 1958, a nationwide hukou system was finally implemented. It has contributed institutionally to the maintenance of a typical dual-economy that still exists in today’s PRC. This system requires every Chinese citizen to have a registration with the hukou authority or the hukou police at birth. The categorization (urban or rural), location or unit affiliation are documented and verified to be the person’s permanent hukou record. A person’s hukou is determined by his mother’s rather than the birthplace. A mother with a rural hukou, for example, could only give her children a rural hukou despite that the children may have been born in a city and even fathered by an urban resident. One cannot acquire a legal permanent residence, thus generally a job and all the community-membership based benefits and privileges, in places other than where his hukou is. Only through the proper au- thorization of the government can one change his hukou location and status especially his categorization from the rural type to an urban category. There are a few other very narrow channels for cross- ing the hukou barriers: passing the college entrance exams, joining the military and becoming an officer (thus a cadre who was qualified to have an urban hukou), or some marriage schemes. The increasing gap between the rural and the urban economies, caused by the hukou system, has led to increasing disparity between living standards in the “two Chinas.” Although it was formally adopted by a communist regime, the hukou system has been a “Chinese” system with deep historical roots that can be traced back centuries even millennium. To migrate from the excluded areas (generally the rural and small or remote towns) to the “better” areas (mainly the major urban centers and coastal cities) has been strictly controlled and even practically impos- sible. As a consequence of decentralization caused by the reform, the hukou-based exclusion has evolved to be mainly along the bound- aries of the smaller communities such as the danweis or townships and even villages, in addition to the still existing rural-urban division. As a result of the reform and a key factor to the forma- tion of the national labor market, the hukou system has experienced some changes that have allowed it to accommodate the advancing market economy through allowing certain controlled migration of the people even across the rural-urban division, while effectively making the majority of the millions of laborers with zero marginal productivity to be underemployed instead of unemployed floating people who have been traditionally very threatening to the Chinese sociopolitical stability. The most relevant changes of the hukou system have been the adoption of two special types of residential registration to allow increased yet controlled labor mobility. The first is the so-called “zanjuzheng” (temporary residential permit). The other is the so-called “blue-stamp hukou or blue card.” Other reform ideas have been debated but have yet to be tried on a large scale. These two special types of legal residence require the holder to pay a one-time and then an annual registration fee, have valid local jobs, and be reviewed annually. The dif- ference is that the blue card (or stamp) hukou requires the spon- soring employer to be a major enterprise (in Shenzhen, the government set one blue hukou sponsorship per one million rmb investment or 100,000 rmb annual tax payment). If not a cadre or without a college or higher degree, one must first be employed with a zanjuzheng for three years before becoming eligible to apply for a blue hukou. The blue hukou functions more like the regular hukou, and its holders are allowed to enjoy basically all the community- based benefits and rights. They can have the same local wages, resident tuition for elementary and middle schools, and political rights, and most importantly, the chance to get a regular hukou in two to five years. But they must pay a high annual fee, which was set at 2,000 rmb in Shenzhen in 1995-96. Once they are ready to apply for a regular local hukou, they have to pay a substantial “urban enlargement fee” or “urban construction fee,” which was set in Shanghai in 1996-97 at 20,000 to 100,000 rmb, roughly one to six years’ average local wages. In the summer of 1995, to cope with the estimated 80 million floating peasants who were causing tremendous social and political problems, the PRC Public Security Ministry expanded the zanjuzheng system to cover all migrating nonurban hukou holders. Since then, anyone who works outside his hometown for longer than one month must register for a zanjuzheng. Any job applicant must have his personal identification card and his local hukou card or blue hukou card or zanjuzheng. Employers and employees would be punished if nonlocal residents were found working without a zanjuzheng. Other than the massive surplus labor force and the hukou system, a strong existence of non-market labor practices has pro- foundly affected the Chinese national labor market. First there still is the politically and economically predominant state employment in the urban economy (officially estimated to be about 120 million in 1995). Despite attempted reforms, the state-employment retains its “socialist” features hammered out by the PRC central- planning economic system and the CCP Leninist administration. Per- sonal dependency, labor immobility, nonmarket management and, of course, gross inefficiency and significant underemployment are some of the hallmarks. In the vast Chinese countryside, there is the restored family-based economy, i.e., the “family responsibility system” and zhuanyehu (specialized households). In the cities, a substantial number of getihou (individual households) are practic- ing a family-based labor practices with an increasing color of market mechanisms. The family-based labor allocation currently covers about 400 million workers with about half of them underemployed. Closely related to the socialist system and influenced by the traditionally local-exchange-oriented socioeconomic structures, there is the community-based labor markets used by the TVEs and many urban collective enterprises, currently covering nearly 140 million workers. Those nonmarket labor practices especially the family- based practices have contributed fundamentally to the stabilization

of the massive surplus labor in contemporary China. The community- based labor markets can be viewed as quasi-market oriented that reduce the direct flooding of the millions of peasants to the cities. Because of the limits and economic instability of the family- based economy, the gross inefficiency of the state-owned enterprises, and the limited scope of the community-based labor markets, millions of laborers are ready to join the national labor market at the earliest call. Yet the pushing force is still institutionally mitigated. Those nonmarket or quasi-market labor practices, especially the state employment, have not only been the main feeder to the national labor market but also in fact substantially subsidized the advance of a national labor market, as a distinctive “Chinese characteristic.”

The National Labor Market and the State The CCP government has become very pro-employer and anti-labor on the Chinese national labor market. On the one hand, the PRC state subsidizes the national labor market through allowing its employees, usually skilled workers and professionals, to join the national labor market as moonlighting workers. On the other hand, Beijing has basically neglected the rights of labor and very forcefully suppressed labor movement and independent labor unions. One year after the urban economic reform started in 1984, about 10 percent of state-owned enterprises lost money. Ten years later, the money losing state-owned enterprises increased to be over 50 percent, despite more than 7.43 million state employees were either dismissed or xiagang (off duty). Severe underemployment exists in those enterprises, estimated to be around thirty million, or about 30 percent. Increasingly many underemployed state employees have started to look for diverse and “creative” sources of income in a number of ways. A secure job to return to, higher social status and thus connections, access to public power and informa- tion, and especially the state provided benefits (such as housing, health care, pension, child schooling) have in fact subsidized the state employees in their plunge into the sea of the national labor market as moonlighting workers for FDI and native private employers and even for other more profitable state-owned or collective enterprises. In some places like Beijing, college professors all had “gray income” which often constituted 30 to 80 percent of their total income. There was clearly an increase in this trend in the late 1990s. According to an authoritative “handbook,” as long as it was “approved by one’s danwei leadership,” practically any state employee, with the exception of government officials, judges, pros- ecutors, and active-duty military personnel, could have a “second job.” (Wang & Li 1992, 2-4) A common way of making money while keeping the secure state job was “tingxin liuzhe“(leave without pay). The employee, working in another job which was usually higher-paid but less secure and perhaps less socially prestigious, got to keep his original position and all related benefits, including the housing allocation, by paying his original danwei a fee. Another way for skilled state employees to plunge into the sea of the labor market without losing the safety net of their danweis has been through so-called “naitui” (internal early retirement), some- times more than ten years before the legal retirement age. The CCP regime, ironically at first glance, actually encouraged such a state-sponsored market reallocation of capable workers. The Anhui provincial government, for example, ruled that all those who wanted to “leave without pay” should be allowed to do so. Their state employment and associated seniority, regular pay steps and other benefits were to be continued. In some more “open and reformed” areas such as Shenzhen, with the proper approval, a cadre could resign from his danwei and job to work in nonstate sectors while maintaining his “state cadre” identity and status. His dangan salary, privileges and regularly scheduled raises would be recorded to be used in the future if and when he decided to return to a state job. Selfishly and openly having a foot in either camp, however, was not exactly popular among one’s danwei comrades. Thus many be- gan to moonlight without authorized leave, without even telling their original danweis. Many college professors “secretly” worked outside the classrooms on an almost full-time basis, making five to ten times as much money in totally unrelated jobs such as inter- preting, trading, brokering and general office work. Government officials massively engage in open or hidden business activities, preferably with foreigners. A news reporter of a major TV station in Shanghai made roughly three times as much gray income as his salary in 1994-96, secretly running a small trading company. An- other newsman in the same danwei made nearly twice as much as his salary from unspecified “outside” works in 1996. A high-level official in Shanghai was an active and semi-open agent for two overseas investors. Some senior analysts in the Chinese central government earned nearly half of their income in 1994-96 through outside work such as teaching and private tutoring. The mayor of a major city acknowledged to the author in private in 1995 that “gray income” was a common phenomenon among the government employees; he said he would not be surprised if some of his bureaucrats earned as much as 400 percent of their salary that way. It may be ironic to note that the PRC state provided the security, facility, time and often names and connections for massive numbers of its employees to become a de facto market-allocated labor force. This “gray” advance of labor market may be smoother and more effective, thus more enduring. The mayor mentioned above defended gray income and moonlighting of state employees as a “better use of resources” and an effective “stabilization of government employees.” The massive surplus labor force, the still controlled domestic migration, and a government that seeks to maximize employment and economic growth have led to a very poorly developed labor protection and an almost nonexistent implementation of labor laws on the national labor market. It is easy to expect that in a “communist neo-traditional” country (Walder 1986) of the PRC, one might see a strong sense of labor protection. On the paper, the labor protection in the PRC indeed appears to be higher than in many other more advanced countries in East Asia. For example, Korean workers had 52-hour work week even by the end of the 1980s. But the CCP decided in 1994 (arguably prematurely) to let Chinese workers have a 44- hour workweek and to reduce that further to 40 hours in 1995. The PRC, which is much less developed than Taiwan, “leaped forward” this time since Taiwan kept a 44-hour workweek for many years. More importantly, after fourteen years and thirty versions, a “PRC Labor Law,” one of ten “major laws” proposed by Deng Xiaoping in 1978, finally took effect on January 1, 1995. Nine related laws and about two dozen regulations, regarding wages and promotion, were to be made before 1999 (Yuan 1994, 397-398 & 408). Beijing hailed this

“great achievement” of protecting labor in a “socialist country.” Like many other PRC laws, the twelve chapters of the Labor Law only lay out some basic principles and policy preferences and leave many crucial “details” and authority to the government and its offices “in charge of labor affairs” (clauses 9 & 11). A significant prob- lem is that the law does not even mention some of the fundamentals regarding China’s labor allocation and management. There was no mention of hukou or dangan (dossier). It said nothing about the barriers between the urban and rural labor forces, the danweis (units), and the fact that “unemployment” in the PRC refers only to the jobless in the cities. Constitutionally, Chinese workers do not have the legal right of strike. There is no independent labor union in the PRC. With those legal and institutional problems, it would be very difficult for the new PRC Labor Law, like many other PRC laws, to be effectively enforced. Therefore, the enforcement of the seemingly high labor protection, however, has been very weak and lacking, partially because of the lack of lawyers. Some Taiwanese merchants reported that, by 1995, they solved 78 percent of their business disputes in China through guanxi (connections) and only 11 percent through legal means. While most of the so-called “socialist millionaires” and many private employers have become either People’s Congress deputies or People’s Political Consultation Conference members or CCP members, the CCP has largely ignored or neglected the labor’s demands and treated independent labor union as a dangerous enemy. Beijing has always been very actively suppressing any sprouts of a genuine trade union representing the new Chinese working class. Labor move- ments and independent unions are some of the most sensitive items and thus major taboos for the Chinese media to report. Even the suppression of the genuine labor unions have been carefully con- cealed from the public. One only reads in the overseas-based dissi- dent journals, for example, that the founder of a “Shenzhen Dagongzhe (Laborers) Association,” a 28-year old Li Ming, was sen- tenced to jail for ten years in a secret trial in late 1996. In Guangzhou, even a self-organized school by the floating laborers for their floating children who could not attend the local schools without paying a high fee, were forcefully dismantled in 1996. At local levels, as in the largest city, Shanghai, certain more market-oriented measures of labor protection have been adopted. Besides legalizing unemployment, Shanghai established an unemployment relief fund contributed by the government, the employers and the workers. Any unemployed urban hukou holder would become ineligible for unemployment benefits, however, if he failed to take two “proper” jobs referred by the official job referral service run by the labor bureaus. Starting on January 1, 1996, every Shanghai urban worker and unemployed worker was required to have a “Labor Handbook” recording his “employment, moves, unemployment, training, and claiming of unemployment relief money.” The Shanghai Labor Bu- reau ordered every danwei and other employers to use this handbook, in addition to dangan (dossiers), to record and report when they hire or fire anyone. To control, rather than protecting, the urban labor seems to be the more important policy objective.

The Labor and the Employers By late 1990s, the relationship between the labor and the employers has become clearly unfavorable to the labor especially the unskilled and low-skilled floating laborers from the rural areas. In the work places, a leading characteristic of the Chinese national labor market has been the fact that the employers have a dominant position supported by, ironically, the “socialist” PRC Government. The FDI employers and especially the native private employers have treated the labor in a strikingly pre-Keynsianism capitalist way. The CCP regime has been generally suppressing labor demands and even prohibit the media from covering the rising labor disputes. In the very few cases of labor disputes reported, the government tended to adopt a pro-employer stance. FDI employment constituted about 20 percent of the Chinese labor market but has clearly been setting the general rules and leading the trends. The main attraction to the Chinese labor is the significantly higher pay, despite that the Chinese workers generally are paid only one percent of the pay to the expatriates. FDI employees normally make about 50 percent or higher than those privileged state employees and at least 20 percent higher than native private employees. (SSB-LB 1991, 409). In Beijing, a typical FDI employee earned two to three times as much as a similarly qualified state employee in 1995. Furthermore, the recorded and reported wages often are just the “known” part of their income, since there are numerous unrecorded “bonuses,” “subsidies,” and “fees.” As a result, FDI employment has become the “hottest” item on the labor market even in Beijing. When some 250 positions were posted in the spring of 1995, more than twenty thousand qualified people applied. The Chinese labor thus has a weak bargaining position versus the FDI employers. Consequently, there is a clear lack of labor protection and labor rights in the FDI enterprises. Young and female workers are the most welcome labor for the primarily assembly- line factories. Many managers frequently ask their female job applicants to be young (under 25), “good-looking,” unmarried and of a certain height. Photos are generally required as part of the appli- cation package (Sun 1993, 87-98). In the small assembly-line type of FDI enterprises, commonly seen in the Pearl River Delta, piece- rate wages are the norm. Weierfu, a Shanghai-based women’s consult- ing telephone hotline, reported that 50 percent of the female employees in Shanghai’s FDI enterprises experienced sexual harassment by their bosses. Sick leave, growing older (in many cases means the age of 28) , getting married, and having children are usually reasons for firing. The workers, in the words of some interviewed managers, have “no rights and no labor protection.” The turnover rate, especially in the massive small FDI enterprises, was thus very high (Mao 1990, 26). Among the ten thousand or so FDI employees recorded by the Beijing Municipal Government, about 20 percent left their jobs every year in the 1990s (RMRB-O 6/30/1995, 2). In Shenzhen, we found that in a Sino-Singaporean-American joint venture, among the first group of 300 employees hired in 1988, only seventeen were left in 1992. In a Sino-Australian joint venture, fewer than eighty of the first group of nearly 600 employees remained after two years. Most FDI enterprises did not have even a company union despite laws requiring them to have one within six months of begin- ning operation. Many small FDI firms do not even register for a business license or pay taxes. The CCP organization generally had only minimal existence in FDI enterprises and often became an arm of the management. Many FDI employers have learned to use the peculiar Chinese institutions such as the hukou system to gain even more control of the workers. It is easier for the FDI employers to verify and control the local-hukou holding employees. An FDI employer may even physically hold the hukou proof of his employees, in addition to some cash deposit, to prevent costly turnovers. Job applicants from other localities usually need to have local residents as “guarantors” in order to be hired. To prevent the workers from leaving the plant and “illegally staying” in the locality, the employers commonly sponsor their zanjuzhen (temporary residential permit) only for three months at a time. The native private enterprises are generally small and even more unfavorable to the labor. In the early 1990s, a private employer on average only employed sixteen people, many only employed 1-2 workers. Less than one percent of the native private enterprises employed more than 100 workers (Liang 1990, 15-16). Many private employers employed people based on family connections or referrals. In Wenzhou of Zhejiang province, a town known for its booming private economy, 50 to 59 percent of private employees were either the relatives or friends of the employers. Many of the private employees came from the rural areas and worked in the cities as “temporary hukou” holders or simply “illegal residents.” They have become the residents of some newly emerged urban slums. Non- economic exploitation and a hazardous lack of labor protection were commonplace. Many private employers never signed any labor contract with their employees. Those who did often included in the contracts anti-labor clauses such as those saying that employees would be completely responsible for their “sickness, on-job injuries and accidents and death.” (Zhang Zhongying 1994) It was a common prac-

tice for private employers to force the workers to pay a substantial “working deposit,” “learning fee,” or imposts on apprentices (can be as high as one year’s wage) subject to the employer’s numerous “deductions.” Some, allegedly learning from the Taiwanese, regularly fired senior workers right before their retirement to evade financial responsibilities. Like in many FDI enterprises, most private enterprises do not even have any company unions, although by law the businesses should all fund and support company unions. Laborers, therefore, were left in the hands of the managers driven by hunger for profits. The dispersed small private employment, the strong pro-employer government, and the seemingly endless supply of the floating laborers as unskilled or low-skilled labor have made the national labor market very crude to the job seekers. The skilled labor and professional, many of them are the subsidized thus secure moonlighting state employees, have little real incen- tive or motivation to challenge their private employers beyond earning supplementary income. As a result, the real income of the private employees, especially those floating labors came form the rural areas, has been stagnant in the 1990s despite an economic growth of over 9.5 percent annually and a double-digit inflation rate. There is clearly a long way before those workers can have any meaningful, let alone equal, bargaining position on the Chinese national labor market versus their employers.

Conclusion A national labor market has emerged in the “socialist” PRC. It grows rapidly, fueled by the advent of a market economy, the massive existence of underemplyed laborers, and the state subsidy through maintaining the mammoth unprofitable state-owned enterprises. The Chinese national labor market is deeply distorted by the powerful hukou system for political purposes and social values. The labor, however, has appeared to be paying for the most of the cost for the distortions. Among all the peculiar “Chinese characteristics” of the national labor market, the CCP’s strong pro-employer policy is especially peculiar and profound. On such a national labor market, foreign and native private employers are likely to continue taking advantage of the massive supply of a cheap labor force. The employers have enjoyed such a dominant position on this national labor market that rarely exists in most other national labor markets. Their position has been even further enhanced by the regional competitions for FDI and jobs in a decentralized country. Recently, the PRC state is forced by financial pressure to reduce its subsidy of the national labor market through increasingly turning the still massive underemployment in the state-owned enterprises into unemployed. More relaxation of the controlling mechanism of the hukou system is also currently under experiment. One may then logically speculate that, while the overall efficiency of the Chinese labor resource is likely to rise further, the sociopolitically destablizing and alteration forces generated by the Chinese national labor market may eventually turn out to be indeed an incoming train which is now perhaps only re- motely heard over the horizon.

Notes.