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The structure and roles of China's party-state system in industrial relations: an updated review.

China's late leader, Deng Xiaoping reaffirmed his determination to clear the ideological obstacles to market-oriented economic reform during his "southern tour" in 1992. China's reforms have been substantial since then. To name but a few, state-owned enterprises (SOEs) began to be privatised in the mid/late 1990s, China finally entered the World Trade Organisation in 2001 after years of hesitation and negotiation, the Communist Party of China (CPC) revised the Party Constitution to accommodate private business owners in 2002 and the state revised its Constitution to provide legal protection for private properties in 2004. (1)

This series of reforms profoundly affected not only China but also the rest of the world as China's influence in the global economy increased significantly. Among various changes during China's reform era, the newly developed labour market and a subsequent series of labour issues captured much attention. The unique characteristics of China's industrial relations system, however, confuse many people. The biggest difference between China and western countries in their industrial relations systems lies in the "party-state" system.

In modern liberal democratic systems, state power is usually separated into three major areas of power--the executive, legislature and judiciary--to prevent the possible abuse of power. The concept and structure of the state in China, however, are completely different. Nominally, China also has its own divisions among the executive system (the People's Government), the legislature system (the People's Congress) and the judiciary system (the People's Court and People's Procuratorate), but there is hardly any balance or "separation of powers" among them. Instead, as we will see later, the party-state system penetrates every aspect of the political, social and economic life of the whole country. As a sub-system of the broader social system, the industrial relations system is of course no exception. The question arises then:
   What are the structure and roles of China's Party-state system,
   particularly in regard to industrial relations in China's reform
   era?


This topic is important, but relatively less studied. Though some scholars discuss the roles of the party-state in China's industrial relations, most do not analyse the matter in depth. (2) For example, Zhang discussed the role of the party-state in the union development of China, but did not look at how the party-state, as a whole, fits into the industrial relations system and functions. (3)

This paper provides an updated review of recent official documents as well as academic literature in an attempt to provide answers to the above question. A different view of the function (or dysfunction) of China's party-state in industrial relations is presented here which may act as a starting point to explore the topic in more depth in the future.

Structure of the Party-state in Industrial Relations

After the establishment of the PRC in 1949, the party-state system went through numerous major restructurings. Especially after the launch of the "reform and open-door" policy in 1979, the roles and functions of the party-state changed significantly. (4) In particular, the party-state's control over and interference in purely economic or personal areas declined greatly. The roles of the party-state in industrial relations changed accordingly. Taylor et al undertook the first attempt to provide a chart to explain the party-state's position in industrial relations (see Figure 1). The diagram and analyses that followed it, however, contain some problems:

1. They did not clarify the difference between nominal and actual leadership. This problem is reflected in the lines between the people's congresses and governments. Whereas Figure 1 seems to indicate that the people's congresses have direct power over the governments, they are usually referred to as "rubber stamps" in China, meaning that they have little real influence over the operation of the government.

2. After years of reforms, some ministries mentioned in Figure 1 were restructured. For example, the original State Economic and Trade Committee (SETC) was merged with other relevant ministries in 2003 to form the new Ministry of Commerce (MOC). In early 2008, the Ministry of Human Resources and Social Security (MOHRSS) was founded to replace the original Ministry of Labour and Social Security (MOLSS) and Ministry of Personnel (MOP). (5)

3. The diagram does not indicate the party-state's role as legislator, regulator and judicator. Neither does it take into account the National Tripartite Conference on Labour Relations Coordination (NTCLRC) which was inaugurated in 2001.

4. When referring to the central level of the party system, the diagram simply mentions the Central Committee of the CPC (CC-CPC), without further identifying two more important bodies in the hierarchy, namely, the Politburo and the Standing Committee of Politburo (SCP).

[FIGURE 1 OMITTED]

An alternative outline, which takes the above comments into account, is provided in Figure 2. It must be emphasised that this figure is about the party-state structure in industrial relations at the national level. Therefore, it does not include the party-state structure at the local level, nor does it provide an overall description of the whole party-state system.

Consistent with Figure 2, the major characteristics of China's party-state structure in industrial relations can be summarised as:

1. Leaders in the party system occupy leading positions in the state system as well as in so-called "mass organisations" such as the All-China Federation of Trade Unions (ACFTU). As the Party has the final say in major decisions, the power and position of a specific organisation actually rely on its head's power and position in the party system.

2. The arrangements of the executive, legislature and judiciary in China differ from those in liberal democratic systems. By comparing relevant officials' ranks in the party hierarchy, we can see that the executive (State Council and local governments) is the most powerful arm of the state, while the legislature and judiciary have minor representation in the power structure, acting as tools of the party and government. That is why the Chinese political vocabulary usually refers to the state apparatus as "party-government organs" without mentioning the legislature and judiciary.

3. "Mass organisations" are extensions of the party-state which purport to be "spontaneously" formed by the people in specific circles. But in reality, they are all formed and headed by party-state leaders and are in essence mass control organisations. For example, ACFTU Chair Wang Zhao Guo is a Politburo member in the party system and concurrently vice-chair of the National People's Congress (NPC), while the China Enterprise Confederation and China Enterprise Directors Association (CEC-CEDA) President Wang Zhong Yu was a former CC-CPC member and government minister.

As the party-state undergoes frequent reforms, the structure described in Figure 2 also changes (the analysis is based on public announcements since 2005, last verified in February 2009). It is against this structural background that the next section discusses the specific roles of the party-state in Chinese industrial relations. (6)

Roles of the Party-state in Industrial Relations

The essential function of a modern state is to protect and provide services to its citizens. These services involve diversified areas ranging from providing public goods to establishing social security systems. Western scholars, such as Dickens and Hall, Bean, and Noon and Blyton, summarise the state's roles in the industrial relations of liberal democracies as: (7)

* Legislator and Labour Market Regulator: The state develops a framework of collective and individual labour law that establishes obligations and rights for relevant parties, as well as legal minimum standards for wages, working hours, and health and safety conditions.

* Conciliator, Arbitrator and Mediator: The state provides services which are intended to facilitate the resolution of industrial disputes between employers and employees.

* Provider of Public Services: The state provides public services such as social securities and education. In particular, social welfare provisions in

the form of unemployment benefits and free medical care are designed to act as a safety net, preventing citizens from being left totally at the mercy of market forces.

* Employer of Labour and Labour Market Developer: The state directly employs a significant number of citizens and works to boost employment in all sectors.

[FIGURE 2 OMITTED]

Next, on the basis of relevant official documents and academic literature, the question is asked if the above roles are performed by the Chinese party-state.

Legislator and Labour Market Regulator

From 1949 to 1979, in the context of planned economy, there were hardly any labour regulations in China. As the whole population was then virtually employed and managed by the party-state, there seemed to be little need for such regulations. The majority of the employment regulations in force were issued after 1989. In light of the diversification of ownership, rapid growth of the private sector, emergent labour market and rising number of unemployed and laid-off workers, the state issued a series of employment-related laws in order to regulate the labour market and to offer a level of employment protection for workers. (8)

The Labour Law promulgated in 1994 symbolised a new era for China's labour legislation and regulation development. The legislation and regulations included not only national laws proclaimed by the NPC, but also administrative regulations and departmental rules determined by the central government, as well as local laws and regulations drafted by local people's congresses and governments, judicial explanations and approved international conventions. The relevant legislation and regulations since 1990 are listed below:

* National labour-related laws promulgated by the NPC include "Labour Law (1994)", "Union Law (1992)", "Occupational Disease Prevention Law (2002)", "Safe Production Law (2002)" and "Labour Contract Law (2007)".

* Regulations set by the State Council include "Regulation on the Settlement of Enterprise Labour Disputes (1993)", "Rules on Unemployment Insurance (1998)", "Regulation on Prohibition of Child Labour (2002)", "Rules on Work Injury Insurance (2003)" and "Regulation on Labour Security and Inspection (2004)".

* Rules formulated by the former MOLSS include "Treatment for Labour Contract Violation (1994)", "Rules on Collective Contracts (2003)" and "Regulation on Minimum Wage (2003)".

* The SPC issued the "Explanation on Certain Legal Issues in the Trial of Labour Disputes" in 2001 and 2006, respectively.

* China approved 24 International Labour Organisation conventions. Theoretically, they have the same legal standing as domestic laws.

* As the Labour Law endows provincial entities with the power to legislate over operational methods, local People's Congresses and governments enacted many local laws and regulations.

At first sight, China seems to have established an adequate labour law system, with the Labour Law as its main element, assisted by administration regulations, departmental rules, local laws/regulations, judicial explanations and international conventions. In fact, it has been argued that with "the major exception of freedom of association", the labour standards established by the series of labour laws and regulations of China "are not markedly inferior to those of comparable countries and indeed many developed nations". (9)

But in practice, there are still many problems with China's current labour law system. Lin pointed out that, firstly, few labour laws are promulgated by the national legislature (the NPC), with the system relying too much on administrative regulations and departmental rules which have less legal weight. Secondly, the abundance of local laws and regulations creates conflicts among different provinces as well as between local and central ministries. Thirdly, the Labour Law itself adopted a model of compendium legislation, which prescribes only principles and provides no detailed instructions for operation. (10) Cooke also argues that the ambiguities in the labour regulations often subject the regulations to different interpretations. This means not only that a considerable number of workers are not qualified to bring their cases to the arbitration committee or court, but also that rulings may be to the workers' disadvantage. (11)

In fact, it is China's lack of effective law enforcement, instead of the lack of law or regulation, which always attracts criticism. Inspection and enforcement functions are performed by the human resource and social securities ministry or department in the government system under the guidance of the "Regulation on Labour Security and Inspection (2004)". According to official data, in 2006 alone, there were 1.4 million inspection cases in China, but there were only 19,000 full time labour inspectors deployed nation-wide. (12) Law enforcement is thus far from satisfactory: on the one hand, staff, funds and facilities are insufficient, while on the other, local protectionism is so strong in some areas that local governments exempt certain enterprises from any inspection in the name of "protecting investment", making labour laws and regulations irrelevant.

Conciliator, Arbitrator and Mediator

In China, a labour dispute reconciliation system was established as early as the 1950s. After a period of disruption during the Cultural Revolution, the system was resumed in 1987 with the promulgation of the "Temporary Regulation for Labour Disputes Reconciliation in State-owned Enterprises". This temporary regulation was amended in 1993 and implemented as the "Labour Disputes Reconciliation Regulation". The Regulation was later incorporated into the Labour Law (1994) that forms the legal basis for settling labour disputes. (13)

The labour dispute settlement system in China is termed "One Mediation --One Arbitration--Two Litigations", meaning that whenever there is a labour dispute, the interested parties must first go through internal mediation, which is usually conducted by the official union. If unsuccessful, they must then apply for arbitration by the Labour Dispute Arbitration Committee which comprises MOHRSS officials and union and employer representatives. Only when the parties in a dispute are not satisfied with the arbitration result can they turn to the court, with the option, if dissatisfied with a primary court decision, to appeal to a higher court for seeking settlement by a second trial. Clearly, there are defects in this system:

1. The sequence of possible dispute settlement measures, from mediation to arbitration then to litigation, prolongs the process. Hence, disputes cannot be settled in a timely manner. It is not uncommon to find cases which need two years to go through all the processes. This system puts employees at a disadvantage, as they cannot afford the time and money to participate in all the proceedings while many employers make use of the procedure to delay payment, in the hope that employees will be exhausted and give up during the process.

2. The whole process is under the control of the party-state and its extensions, and there is no independent organisation representing the interests of employees. In the context of the party-state's overemphasis on economic development, already weak workers are often placed in an even more unfavourable situation when they are in dispute with SOEs or enterprises that governments are keen to attract and protect to maintain economic growth.

Despite the party-state's seemingly good intention to provide more settlement channels, the nature of labour disputes appears to be increasingly confrontational and antagonistic, marked by an increase in the proportion of cases settled by arbitration and litigation and a decrease in resolution by mediation. According to official data, the success rate of mediation is very low: in 2006, only 63,020 of the 340,193 cases were successfully mediated. More labour disputes shifted from mediation and arbitration to litigation for final settlement. However, only about half of the total cases were won completely by the workers, despite the fact that over 95 per cent of cases were lodged by the workers. (14) A relatively high proportion of appealed cases have failed. This may be due to the fact that dispute cases have become increasingly complex and resource-consuming, which can hardly be borne by individual workers, thus further widening the gulf between labour and management.

For these reasons, simplification of labour dispute settlement procedures, particularly the arbitration system, is urgently needed. Experiences in various industrialised countries show that arbitration should be treated as either binding or merely an option, rather than as a required step in a prolonged procedure. The establishment of special labour courts, which operate at a lower cost with simpler procedures, may also be another solution to the current predicament.

Provider of Public Services

The public services most relevant to industrial relations are those provided by a country's social security system. Before the reform era, especially between 1956 and 1979, China's social security system was an egalitarian system with "Chinese characteristics". Ironically, a state aiming to eliminate differences among classes founded its social security system on the basis of a citizen's classification. In the first category were people in the cadre class, especially those at the top of the pyramid who were privileged by the party-state. Second were the urban working class, 99 per cent of which were working in SOEs who enjoyed life-long employment promises, corresponding medical care and living in a socialist system though at a lower level. The rural peasants make up the third class; they relied on themselves for everything from producing basic foods to buying social services, as though living in a self-contained natural system. (15)

Since 1979, China began reforming its social security system, with the initial focus on the urban population while the establishment of a social security system for the rural population was only for preliminary discussion after 2008. According to the MOHRSS and National Bureau of Statistics (NBS), China's social security system in 2007 covered around 200 million people, among whom only about 10 per cent were rural migrant workers while the remaining 90 per cent were urban employees. China's social security system covered approximately two thirds of the urban working population but less than five per cent of the rural working population. (16)

The political report delivered to the CPC's 17th National Congress in October 2007 asserted that the development of China's social security system "should focus on (building) a basic pension system, a basic medical care system, and a subsistence allowance system ..." (17) However, even for those who are lucky enough to be covered by the social security system, all three major components have significant problems:

1. China's pension system was supported by a combination of superannuation and pension funds run by local governments. As there is a lack of supervision and a balance of power, a series of corruption cases in the pension system rocked the country. The most infamous case was in Shanghai in 2006 where the funds involved exceeded RMB 3 billion. The actual use of the funds and the real "black hole" were never made known to the public.

2. The reform of the medical care system is considered by many as a failure. The Development Research Centre of the State Council estimated that only about 50 per cent of the urban population and less than 10 per cent of the rural population were covered by the medical care system. It admitted that the retreat of government support from, and marketisation of medical services had turned such services into luxurious private goods which only a minority of Chinese people could afford. (18) Even for those who are covered by the medical care system, in most cases people still need to pay up to 30 per cent of medical care fees, for which a family may well face bankruptcy in case of a serious ailment. That is probably why, according to MOH, 35.7 per cent of ill people try to treat themselves while another 13.1 per cent simply does nothing and hopes for natural healing. (19)

3. The subsistence allowance system provides little help to those in need. According to the press release from the Ministry of Civil Affairs (MCA), in 2007, about 10 million urban households (22 million people) received a subsistence allowance from the government. However, the standard of allowance was very low. Official data showed that in 2006 the average national monthly allowance (RMB169.6) was only about one third of the already low legal minimum wage (RMB499.5). (20)

Thus, China's social security system is in its infancy and works mostly for the urban population. The lack of social security reduces the bargaining power of employees in industrial relations, and is one of the major reasons why employees, especially rural migrant workers, are generally willing to accept unreasonably low employment conditions.

Employer of Labour and Labour Market Developer

The Chinese government used to be the biggest employer in the world. By 1978 it employed 95 million workers or 99 per cent of the then working population in non-primary industries. Arguably, all of the rural working population at the time were also employees of the party-state, under the state-owned land and people's commune system. After 1979, the Chinese government began to retreat from the labour market as a direct employer. In 1992, when China headed from a planned to a market economy, there were still about 145 million employees in state- and collectively-owned enterprises, accounting for nearly 92.5 per cent of all employees in non-primary industries. By 2002, the 70 million employees left in SOEs made up less than 20 per cent of all employees in non-primary industries. (21) Therefore, from the mid-1990s China experienced a sharp swing from a once rigid internal labour market dominated by the state sector to an increasingly informal and unprotected labour market.

Deng Xiaoping's saying that "Development is the Absolute Principle" instigated the strategy of solving emerging social problems by continuous development of the economy. To render this macro policy viable in industrial relations practice, the party-state had to develop the labour market and relieve social tension by providing ever-growing employment opportunities. This is reflected in the document adopted by the 6th Plenum of the 16th CC-CPC in October 2006, entitled "Resolution on Major Issues Regarding the Building of a Harmonious Socialist Society". It devoted an unprecedented clause to "The Development of Harmonious Labour Relations", of which in a single paragraph, the word "employment" was mentioned 20 times. For decision makers, employment is much more important than other labour related issues. This strategy of emphasising economic and employment development is understandable though because China was confronted by employment pressures which no other country in the world experienced.

In a country with a poor social security system, insufficient employment means that the sheer survival of people cannot be guaranteed, and this is a severe challenge to social and political stability. "Stability overrides anything else" is another famous saying of Deng Xiaoping. This political context makes it easier to understand why in the late 1990s and early 2000s the party-state suppressed labour interests, which a "working class" regime was supposed to "represent" in order to please capital. The underlying logic for suppressing labour interests and promoting those of capital is to trade labour rights for investment and employment. However, even if the sacrifice of labour rights is rewarded by higher employment, it simultaneously creates new social conflicts. These conflicts may be a little less severe than the survival crisis in the case of unemployment, but their political importance is not to be underestimated. Therefore, since 2003, the new party-state leadership has looked into these labour-related issues and attempted to balance employment with labour rights. This can be considered as part of the background to the policy of "building a harmonious society".

Conclusions and Discussion

This paper has reviewed the structure and roles of China's party-state system in industrial relations. As we have seen, the party-state remains dominant in Chinese industrial relations, though it has been withdrawing from economic areas since the launch of the reforms in 1979. The structure of the party-state, as shown in Figure 2, constitutes an almost "self-containing" industrial relations system which includes the executive, legislature and judicial branches of the state, as well as "representative organisations" of employers and employees. These measures, however, do not guarantee that its roles as a modern state are fulfilled satisfactorily. Though to be fair, the party-state tried hard to transform itself to function more like a modern state. As we have seen, the party-state, itself being a constant target of reform in an unprecedented transitional period, did not perform most roles as legislator and labour market regulator, conciliator, arbitrator and mediator, provider of public services and employer of labour and labour market developer very well. In harsh reality, it had to compete with the need to keep the economy booming, with ever-growing job creation, to prevent labour-related social problems before they expanded into fierce political turbulence.

An attempt is made here to provide a broad description of the party-state system in Chinese industrial relations. There remain many untouched issues, especially those regarding the party-state's extensional industrial relations actors such as the ACFTU and the two semi-official employers' associations (i.e. CEC-CEDA and ACFIC), as well as those newly emerged spontaneous employers' associations. Some of the research questions are as below:

1. Does the ACFTU, as an extension of the party-state and a legally monopolistic labour organisation, have the intention and motivation to trigger self-reform of its social roles? If so, how effective would the reforms be? If the monopoly position were broken, making room for the free association of labour, would there be political chain effects such as those triggered by the emergence of "Solidarity" in Poland?

2. Why is it that in a "socialistic country" nominally "led by the working class" such as China, the breakthrough of free association reform has come not from the association of employees but from the association of employers (capitalists)? How will the civil chambers of commerce develop in the context of China's mixed system of market economy and authoritarian politics?

3. What are the backgrounds of the "red top" capitalists with enormous access to political power since 2002? How were they "elected" or selected into the core of the political circle? Can they really represent the interests of ordinary employers and capitalists?

These are undoubtedly large questions in need of enormous research efforts. Perhaps this author will tackle some of these in subsequent papers and attempt to make a contribution towards a better understanding of industrial relations in the context of China's political economy.

(1) L.C. Ma, Thirty Years' Contests (in Chinese) (Nanjing: Jiangsu People's Press, 2008).

(2) For example, G. Feng, "Institutional Weakness of Enterprise Unions and Backgrounds of its Formation" (in Chinese), Society, vol. 26 (2006): 81-99; T.Q. Feng, "Adjustment of the Relations among State, Enterprise, Staffs and Union" (in Chinese), Discussion Paper, 2003; H. Han, "Autonomous Interests of Labour Union System" (in Chinese), Discussion Paper, 2005.

(3) Y.M. Zhang, "Straightening out the Conflicts: Relations between Labour Union and Party-state in China" (in Chinese), 21st Century, Sept. 2003.

(4) "Government Restructurings since the Establishment of the P.R. China", Xinhua News Agency at <http://news.xinhuanet.com/ziliao/2003-03/06/ content_761776.htm> [Apr. 2009].

(5) "Government Restructurings since the Establishment of the P.R. China".

(6) Limitations of length preclude detailed discussion in this paper of some important party-state extensional industrial relations actors such as the ACFTU and NTCLRC.

(7) L. Dickens and M. Hall, "Labour Law and Industrial Relations: A New Settlement?" in P.R. Edwards, ed., Industrial Relations: Theory and Practice in Britain (Oxford: Blackwell, 2003); R. Bean, Comparative Industrial Relations (London: Routledge, 1994); and M. Noon and P. Blyton, The Realities of Work (London: Macmillan, 1997).

(8) F.L. Cooke, "The Changing Dynamics of Employment Relationships in China: An Evaluation of the Rising Level of Labour Dispute", Journal of Industrial Relations 50 (2008a): 111-38.

(9) S. Cooney, "China's Labour Law, Compliance and Flaws in Implementing Institutions", Journal of Industrial Relations 49, no. 5 (2007): 674.

(10) J. Lin, "China's Labour Law System" (in Chinese), Conference Paper, 2005.

(11) F.L. Cooke, "Employment Relations in China", in G. Bamber et al. ed., International and Comparative Employment Relations (forthcoming), Dec. 2008 version provided by the author.

(12) NBS and MOLSS, China Labour Statistical Yearbook 2007 (in Chinese) (Beijing: China Statistics Press, 2007), Table 9.1-4.

(13) F.L. Cooke, "Employment Relations in China", p. 17.

(14) NBS and MOLSS, China Labour Statistical Yearbook 2007.

(15) See analyses in F. Chen (2007), "Individual Rights and Collective Rights: Labor's Predicament in China", Communist and Post-Communist Studies 40 (2007): 59-79; J. Knight and L. Song, "Towards a Labour Market in China" (Oxford: Oxford University Press, 2005); J. Hebel and G. Schucher, "The Emergence of a New 'Socialist' Market Labour Regime in China", GIGA Working Paper No. 39, 2006.

(16) MOHRSS and NBS, "Statistics Communique for Labour and Social Security Development" (in Chinese), Public Paper, 2008.

(17) CC-CPC (2007), "Report to the 17th National Congress of the CPC" (in Chinese), Public Paper, 2007.

(18) Development Research Centre, State Council, "Evaluation of China's Medical Care System Reform" (in Chinese), Public Paper, 2005.

(19) MOH, "Investigation Report of National Health Service" (in Chinese), Public Paper, 2004.

(20) MOLSS, "Labour Supply and Demand" (in Chinese), Public Paper, 2007.

(21) NBS and MOLSS, China Labour Statistical Yearbook 2007, Tables 1.5, 1.16, 1.17. This paper is from the author's PhD thesis supervised by Prof. Keith Hancock and Dr. Michael Sullivan, and supported by a Flinders University Research Scholarship. The author would like to thank the editors and two referees for their useful comments on the earlier version of this paper.

Zhining Ma (ma0046@flinders.edu.au) is a PhD candidate at the National Institute of Labour Studies of Flinders University, Adelaide. His current research interests focus on China's institutional industrial relations in the reform era.
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Author:Zhining, Ma
Publication:China: An International Journal
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Date:Sep 1, 2009
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