New rules for wage negotiation in Guangdong will smooth labour relations

By Mr Yoshiteru Uramoto, ILO Regional Director for Asia and the Pacific

Statement | 29 December 2014
It should be a good New Year for business in Guangdong. From 1 January 2015, workers and employers in the province will benefit from a new system to settle - and even prevent - workplace disputes, based around structured collective bargaining.

Guangdong has built an unenviable reputation as the most strike-prone province in China. Unofficial figures suggest that more than one in three strikes in China hits Guangdong's manufacturing sector. For too long, dissatisfied workers have seen strike action as their primary option for getting grievances addressed. Negotiations usually start only after work stoppages have begun.

Strikes are a "lose-lose" option. Workers lose pay and risk possible retaliation from employers. Employers lose productivity and profits - often continuing after a strike has ended. However, these disputes can be prevented by well-structured negotiations.

What is important about the new Regulation on Enterprise Collective Consultation and Collective Contracts is that it establishes a legal framework for collective bargaining - including the principle that such negotiations will take place "in good faith" - and sets out rights and obligations for both workers and employers.

Workers and their trade unions can insist that employers take part in a collective bargaining process. Workers can also initiate collective bargaining by requesting that their union approach the employer. If more than half the workforce makes the request, the union is compelled to act.

In common with international good practices, employers must provide company information relevant to the negotiations, and workers' representatives are protected from retaliation.

The regulation gives employers an opportunity to negotiate productivity improvements (such as skills training or flexible overtime arrangements) and foster corporate loyalty. A functioning and trusted negotiation system also relieves pressure on the government to intervene on behalf of exploited workers with a one-size-fits-all solution.

Most Chinese provinces now have some local regulations that fill the gap left by the absence of detailed collective bargaining provisions in national labour laws. These provincial-level initiatives offer lessons which could be used to develop a more coherent and effective national legislative framework.

The regulation also establishes procedures covering the failure of negotiations. For the first time, a mediation process is laid out, using a labour dispute mediation committee. However, the capacity of these mediation committees will need to be improved if they are to fulfil their role effectively.

Other areas also still need attention. The regulation is conspicuously silent on the issue of the rights of so-called "dispatch workers", a type of temporary agency worker. Yet these workers make up a significant proportion of the workforce in many Guangdong enterprises. The regulations also do not cover multi-enterprise collective bargaining (also called sectorial or regional collective bargaining), although this would deliver obvious efficiencies by reducing the amount of time spent by employers and workers at the bargaining table. Harmonising working conditions between companies could also reduce staff turnover.

The next few months will be a delicate time. Established patterns of labour relations cannot be expected to change overnight, so, as the regulation comes into force, it will be critical for the government, workers and employers to pay attention to both the letter and the spirit of the new regulation.

While the regulation gives the government an active role in facilitating collective bargaining by providing mediation services, it also raises the prospect of more decisive intervention in labour disputes. If exercised without a light touch, this could lead to arbitrary government interventions. Actions by workers and unions seeking to advance collective bargaining could also be met with disciplinary retaliation by employers, which would intensify labour disputes - exactly the opposite of what the regulation intends.
Wages in China are rising, and they should. A recent International Labour Organisation study found that despite steady and significant increases, real wages in China still lag behind output growth, so there is room for further increases. Higher wages will also boost the domestic consumer market and reduce China's dependence on exports and its exposure to global economic volatility.

It is far better that these wage rises be negotiated according to the market principles of supply and demand, rather than being imposed by the government. That should help to convert a lose-lose process into a win-win outcome. Getting used to collective negotiations will be like "crossing the river by feeling the stones", but it may be the only way for the Chinese Dream to reach dry land.