China’s workers raise the stakes

Striking workers in many parts of China have made international headlines in recent weeks by demanding higher wages -- and getting them. As more of them get what they want, others will be encouraged to go the same route. Is the world's factory about to go out of business? Not quite yet, but China's government has a complicated new management problem.

The surge in worker anger and a wave of wage hikes in companies ranging from
electronics giant Foxconn to fast-food icon Kentucky Fried Chicken have generated talk about the end of cheap labor in China and the birth of an independent labor movement. That's overstated-or at least premature. Higher labor costs are an inevitable result of rising living standards and expectations, a long-term trend that can't be blamed on one Honda plant. An ageing population (in part the result of the one-child policy), the urbanization of huge numbers of workers, as well as Beijing's long-term policy plans to boost the declining share of income in China's GDP had set the stage for a gradual rise in labor costs long before the recent wave of strikes. With wages stagnant for most of the economic crisis, many local governments have introduced minimum wage hikes ranging from 5 percent to 20 percent in recent months. But the trend toward country-wide wage increases will be gradual. For now, there are still enough workers looking for jobs along the coast and in the countryside to keep labor costs manageable for many producers. 

The more interesting part of the labor dispute story comes from the changing
nature of China's workforce. The country's economic boom has gradually raised expectations among Chinese workers for a better life. Opportunities to get an education (or provide one for their children), to buy a home, and to afford once unobtainable consumer goods have changed the way that millions of Chinese workers imagine their future. On an unprecedented scale, savvy workers are using the Internet and cell phones to find out what's happening in other factories and towns. They are increasingly aware of their rights and of the existing legislation designed to protect them. They're becoming much more assertive in demanding that their rights be protected.

So far, Beijing has tolerated these worker movements. Premier Wen Jiabao, known to many as "Grandpa Wen," recently spoke in support of the migrant workers who make up the bulk of China's unskilled labor. He insisted that they deserved to be "cared for, protected and respected." As long as labor disputes don't take on an overtly political tone, Beijing will leave it to local governments to deal with them. But one of the Honda strikes came dangerously close to testing the limits when, according to some accounts, workers demanded the right to form independent labor unions.

Here's where things could become more confrontational. China's formal trade union, the All China Federation of Trade Unions (ACFTU), is the only union that the government tolerates. But ACFTU doesn't inspire much confidence in the workers it was created to represent. Its main goal is to unionize most, if not all, of China's foreign-invested firms, and it tends to limit its role to mediating disputes between management and workers. Since its operation are approved by management -- and often staffed with managers -- workers tend to stake their claims independently of it. Some workers are even looking for something a bit more genuinely independent to represent their interests and protect their rights.

How will Beijing respond to these new pressures? First, it will likely keep the pressure on local governments to manage labor problems effectively, whether by brokering concessions, intimidating those who make the most aggressive demands, or both. Second, it could seek to empower ACFTU to play a more assertive role in representing workers interests, a goal that some ACFTU
representatives share. Beijing would rather ensure that its trade union can play its role more effectively than to allow for the creation of labor unions it can't completely control.

For the moment, the world's factory will continue humming along, though with
a few more jolts and bursts. But this is a story worth following as the Chinese leadership adapts to the challenges of navigating an increasingly complex political landscape.

Michal Meidan is an analyst in Eurasia Group's Asia practice.