China's workforce: smaller, more savvy, more restive

SHANGHAI Wed Apr 16, 2014 5:10pm EDT

Striking workers are seen during a strike at a Samsung Factory near Shanghai, April 11, 2014. REUTERS/Alexandra Harney

Striking workers are seen during a strike at a Samsung Factory near Shanghai, April 11, 2014.

Credit: Reuters/Alexandra Harney

SHANGHAI (Reuters) - China's workforce is growing more restive as it shrinks.

The number of strikes so far this year is up by close to a third - the biggest surge in protests since the global financial crisis, according to one labor group - as businesses cut costs and foreign companies restructure or close operations in response to slowing growth in the world's second-biggest economy.

There are no accurate national statistics on the total number of strikes, work stoppages and protests in China, but China Labor Bulletin, a Hong Kong-based labor rights group, says there were 119 last month alone.

Employers face an uncomfortable new reality: workers who not only know their rights and will challenge management to defend them, but who also demand more than the legal minimum.

"This is going to be a very tough year for employers in China," said Lesli Ligorner, Shanghai-based partner at Simmons & Simmons. "There will be more strife and strikes. It's only going to continue."

Thousands of workers at a factory in Dongguan in the Pearl River Delta run by Yue Yuen Industrial Holdings (0551.HK), the world's largest shoe maker, have been on strike for around 10 days demanding improved social insurance payments, a pay rise and more equitable contracts.

Other companies caught up in this rising tide of worker unrest so far include Wal-Mart Stores Inc (WMT.N), which is negotiating with the union at a store it closed last month; International Business Machines Corp (IBM) (IBM.N), where staff at a Shenzhen computer server factory protested over insufficient severance pay during the transfer of the plant's ownership to Lenovo Group Ltd (0992.HK) last month, and Samsung SDI Co Ltd (006400.KS), whose supplier Shanmukang Technology negotiated with workers over social insurance contributions after a strike in March.

EXPLOSIVE GROWTH

Workers are emboldened by demographic trends - China's working age population shrank by almost 6 million in the past two years to 920 million, National Bureau of Statistics data show - and by government policies to better protect worker interests after decades of neglect.

China's family planning policy, introduced 35 years ago, has eaten away at factories' labor supply for a decade. Parents are more reluctant to allow their children to work in grueling conditions, particularly as rapid economic growth offers alternatives. Factories first responded to the shortages by adding leisure facilities like basketball courts and libraries, and later by raising wages.

Few workers globally have seen the kind of explosive wage growth that Chinese workers have experienced in recent years: the average official minimum wage has more than tripled since 2005 - to around 1,300 yuan ($210) a month - according to UBS. Wages are up 80 percent since the global financial crisis, yet workers say this has barely kept pace with the rising cost of living.

NEW RULES, FRESH DILEMMAS

China has overhauled its labor legislation in recent years.

A 2008 labor contract law strengthened worker protections, including provisions for better severance pay. In 2011, a new social insurance law strengthened requirements on companies to contribute to the national social insurance scheme on behalf of their staff, and, last month, a law was introduced limiting the use of labor dispatch agencies - or temporary workers - though companies have two years to comply. Draft legislation under consideration in southern Guangdong province would help codify collective bargaining rules there.

Ironically, a more solid legal grounding - which should in theory have clarified the rules around labor conflicts - has created fresh dilemmas for both workers and the government.

Beijing and local officials want to defuse labor protests and create a more stable workforce. But by giving workers more leverage, they also risk negotiations spiraling out of control.

Collective bargaining regulations aim to channel worker grievances into a company-specific negotiation and forestall so-called "wildcat" strikes. But the regulations still lack protection for workers if talks break down.

"It's hard for workers to really press their demands without mandatory arbitration or a strike," says Jonathan Isaacs, special counsel with responsibility for Chinese employment and labor issues at law firm Baker & McKenzie in Hong Kong. Workers who take part in collective bargaining have been fired, says He Yuancheng, editor of the Collective Bargaining Forum website.

Chinese law doesn't protect workers' right to strike, leaving them vulnerable both to dismissal by their employer and to police charges. When worker protests spill out of factory gates onto the streets, workers risk being charged with disrupting public order and detention.

ACTION, WITHOUT ACTION

Two of China's most prominent labor cases this year involve this charge. A judge in Guangzhou this week found 12 hospital security guards guilty of "gathering a crowd to disrupt social order". The guards had threatened to jump off the roof of the hospital where they worked after they were cut out of a settlement with hospital management over compensation.

Earlier this month, a Shenzhen court convened a second hearing in the case of a former furniture factory employee who joined a May 2013 protest about management's refusal to discuss compensation for workers affected by the factory's impending closure and relocation.

As a result, industrial action in China doesn't always involve much action.

At the Samsung SDI plant in an industrial area of Shanghai, where workers declared a strike last week, staff in white uniform jackets played basketball and badminton on the factory grounds while others thumbed their mobile phones under purple wisteria arbours, their hair tucked neatly under white factory caps.

The tranquil protest was a response to the battery factory's announcement of a 5 percent pay rise and, workers said in an online post, rumors that the plant was closing and moving to Vietnam. Employees said they demanded a doubling of their salary. Chen Guoyu, the factory's deputy general manager, told Reuters this was a negotiation over wages, not a strike, and no decision had been taken to close the factory. Last weekend, workers settled for a 10 percent raise and a bonus, said one employee, who asked not to be identified. If the factory closed, "we'll probably have to make a fuss again," the worker wrote in a text message.

Senior management has taken note of workers' growing sensitivity, and can use it to their advantage. When facilities are sold, senior managers sometimes goad assembly line workers to protest, using that disruption as leverage to improve their own severance packages, lawyers said.

The upshot for companies restructuring their operations in China is that paying the legally required compensation is just the beginning.

Communication is crucial, lawyers and activists say.

"The vast majority of these disputes could be resolved beforehand if management had bothered to explain what was going on to the workers, rather than just presenting them with an ultimatum," said Geoffrey Crothall, communications director at China Labor Bulletin.

(Editing by Ian Geoghegan)

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