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Wage increases quiet worker protest - for the time being

After staying out on strike for four days, the predominately young women workers at Brother Industries in Shenzhen returned to work when management finally agreed to slow the production line back down to a reasonable speed and increase wages by around 100 yuan a month.

They went back to work but they did so begrudgingly. An extra 100 yuan a month does not go very far in Shenzhen these days, but it was as much as the bosses claimed they could afford. Moreover, several workers said they dared not ask for any more because local government officials were pushing them to accept the deal, there was no trade union at the factory to forcefully articulate their demands, and management had threatened to sack anyone else who went out on strike.

Many other factory workers in Shenzhen, and around China, are in a similarly precarious situation. Wages have gone up this year, but in nearly all cases they have not gone up enough to satisfy all of the workers’ demands. However, if workers go out on strike again, the chances of management acceding to their demands will be slimmer. The local government might not be so supportive, and even the netizens monitoring developments from their computer screens might begin to criticize them for being too greedy.

Young workers in the Pearl River Delta have certainly been emboldened by the strikes that swept the region during the summer, but they still pick their fights carefully. Workers interviewed after the recent strikes suggested that future strike action would only really work in larger, better known and profitable foreign companies, especially Japanese companies - given the widespread anti-Japanese sentiment in China at present. Their assessment was backed up by the results of the largely under-reported strikes in Dalian between May and August this year, which resulted in an average pay increase of 34.5 percent for the 70,000 or so workers involved. Of the 73 factories in the Dalian Economic Development Zone hit by strikes this summer, 48 were Japanese-owned enterprises.

Of course, there have been strikes and protests at domestically-owned enterprises, particularly state-owned enterprises in the process of restructuring and privatization. But, very often, local governments will take a tougher line against workers in these disputes. For example, on 1 June nearly 3,000 police officers attempted to break up a two-week long strike by 5,000 workers at the former state-owned cotton mill in Pingdingshan, Henan. More than 20 workers were reportedly detained and eight charged with “disrupting production” (扰乱生产).

Raising the minimum wage

But while the police were breaking up strikes and arresting activists in Pingdingshan, the provincial government was preparing to raise the legal minimum wage in the city by 23 percent from 650 yuan to 800 yuan. And even the most politically repressive regional governments have raised the minimum wage this year. Xinjiang increased its monthly minimum wage by 24.6 percent, Qinghai by 28.8 percent and Tibet by 30 percent to 35 percent. So far this year, all but one of China’s provinces have increased their legal minimum wage by an average of 24 percent, the first really significant increase since the minimum wage system was introduced nationally in 2003.

The minimum wage increases in different provinces and cities of 80 yuan to 220 yuan per month have helped ease some of the pressure felt by workers at the lowest end of the pay scale, but even the new minimum wage levels cannot be considered, by any stretch of the imagination, to be a living wage. In poorer provinces such as Anhui and Jiangxi the minimum wage still only ranges from just 500 yuan to 720 yuan a month. In major cities like Shenzhen, Guangzhou and Shanghai, the minimum wage is now around 1,100 yuan a month, but this still barely enough for a subsistence existence in cities where the cost of living, and particularly the cost of housing, is increasing all the time. Inflation hit a two year high of 3.6 percent in September, with increases mostly in foodstuffs, a category that disproportionably affects the poorest paid. Food prices increased eight percent nationally year on year in September with notably higher increases in some regions and food stuffs affected by scarcities.

An investigation by the Shenzhen Federation of Trade Unions in June this year showed that young migrant workers in the city still spend the vast majority of their income on daily necessities such as food, accommodation and transport. Additional expenses included mobile phones and the Internet, clothes, cigarettes and eating out with friends. The money left over was either sent back to their families or used to pay for skills training courses, although the majority of workers still claimed to save a small amount each month.

The growing gap between workers’ actual wages and a decent wage

The average monthly income, including overtime and bonuses, of the more than 5,000 migrant workers interviewed  was 1,839 yuan, far less than the city-wide average wage of 4,263 yuan per month at the end of 2009. This latter figure, which includes the salaries of professional and managerial staff, corresponds almost exactly with the estimates given by the young migrant workers when asked how much they would need per month if they were to settle in Shenzhen, find an apartment and raise a family.

The huge gap between factory workers’ actual income and what could be considered a decent income means that even if local governments raise the minimum wage by an average of 20 percent each year, as some in the central government are suggesting, it will be at least five years before wages begin to approach a reasonable level. And until that happens, workers will inevitably ask for more, especially if they see workers at other factories getting pay raises.

A lot has made of this year’s wage increases at Foxconn and the effect this will have on the labour market generally. Foxconn doubled the basic wage paid to its Shenzhen production line workers in a series of increases this year, the final and largest increase going into effect on 1 October, bringing the basic monthly wage to 2,000 yuan. Several commentators have asked if Foxconn can double its factory workers’ pay, and Honda’s automotive components suppliers can increase pay by 50 percent, surely many other manufacturers can raise wages to the same level. While it is almost certain that most enterprises can afford to increase the wages of their poorest paid workers, it seems unlikely that small and medium-sized enterprises will be matching Foxconn’s offer anytime soon.

The first point to note is that Foxconn’s highly publicized wage increases are not quite what they seem. While increasing wages in its Shenzhen facility, which currently employs more than 400,000 workers, Foxconn is transferring the bulk of its production inland to new and upgraded facilities in Henan, Sichuan etc, where wage levels will be significantly lower. Managers say the workforce in Shenzhen will eventually be reduced to around 100,000, mainly managers, technicians and development staff rather than production-line workers.

Secondly, the knock-on effects of Foxconn’s wage increases in other Shenzhen enterprises have been limited. Basic wages for production line workers are still barely higher than the legal minimum, although with overtime and other benefits employees can now earn between 2,000 yuan and 2,500 yuan a month. Moreover, workers have indicated that welfare benefits, accommodation and even the quality of canteen food at some factories have improved marginally over the last year.

What can employers afford to pay?

The fluctuation of the yuan against the dollar, and the Chinese government’s cancellation of many export tariffs on 15 July this year, combined with the minimum wage increases has undoubtedly put additional cost pressure on many Chinese exporters. A survey of manufacturers in the export centre of Wenzhou in Zhejiang indicated that enterprise profit margins had decreased this year from eight percent to just one percent, with bosses claiming they had no money left meet demands for wage increases. The minimum wage in Wenzhou was raised by 15 percent on 1 April this year, from 960 yuan a month to 1,100 yuan a month.

An additional burden, not often discussed in the Chinese media, is the taxation of enterprises by local governments. As CLB pointed out its most recent research report, enterprises not only have to deal with legitimate tax demands, they also have to pay arbitrary, one-off, tax demands, make donations to government causes and pay bribes to government officials, all of which can significantly eat into company profit margins. As such, many low-cost, labour intensive enterprises are currently more likely to respond to workers’ wage demands by simply closing down and relocating to a lower cost area, than by actually bothering to negotiate with their workers.

However, it is highly likely, given their excessive tax burden, that many enterprises will have additional revenue off the company books, hidden away from government inspectors. The bad news for workers, of course, is that this “grey” revenue will not be available to employees in contract negotiations. One of the most fundamental difficulties for workers in negotiating a pay rise, aside from the lack of any formal collective bargaining system, is the fact that they genuinely have no idea how much the boss can afford to pay. Some times the only gauge workers can use is whether or not the boss bought a new car that year. It is in the interests of both workers and management to conduct wage negotiations based on comprehensive and trustworthy company accounts. And the best way to ensure such transparency is for the government to take the lead by abolishing arbitrary tax demands on companies and making its own finances transparent and open to public scrutiny.

The Chinese government clearly has an interest, both in terms of economic development and social stability, in encouraging enterprises to increase workers’ wages. So far however, the government has only used administrative means, raising the minimum wage, and coercion/persuasion when intervening in strikes and protests. What it has so far failed to do is to encourage employers and to empower employees to engage in collective bargaining that could establish decent and affordable wage levels and working conditions and practices that are acceptable to both management and labour.

If the government does not take this increasingly urgent and necessary step, and continues to rely on its traditional ad hoc interventionist measures, workers demands are unlikely to be satisfied and the whole cycle of management abuses, worker protests and government intervention will start once again.