China Makes Wal-Mart Toe the Labor Line

Beijing got the biggest big-box to go union. It's a sign the government is paying attention to employees' issues, but it doesn't mean the workers are on easy street

by Bruce Einhorn

Business Week

July 25, 2008

Wal-Mart Stores (WMT) may stiff-arm unions in the U.S., but not in China. The giant retailer has just signed a new collective bargaining deal with the All China Federation of Trade Unions, the government-controlled union representing Wal-Mart's Chinese workers. Under the agreement, which for now only covers two Chinese cities (Quanzhou in the southeastern province of Fujian and Shenyang in China's northeast), Wal-Mart employees will get 8% pay raises this year and next.

The deal is a victory for the government, which successfully forced Wal-Mart to unionize its 48,000 local employees in 2006. It's also a sign that employers in China, both local and foreign, are starting to take labor, safety and environmental issues more seriously. In part, that's because Beijing wants to improve China's image after the many made-in-China safety scandals (BusinessWeek.com, 7/12/07) last year. Multinationals like Wal-Mart that spend billions of dollars sourcing goods from Chinese factories also are feeling the heat from consumers at home concerned about allegations of abuse.

Chinese workers of course still have few rights: They can't form independent unions, for instance, and they criticize the government's labor policies at their peril. The Wal-Mart deal "looks like a pro-forma agreement that is simply imposed on the enterprise from outside rather than something that was negotiated by genuine representatives of labor," says Geoffrey Crothall, a spokesman for China Labor Bulletin, a Hong Kong group promoting workers' rights on the mainland.

Labor Shortage Helps Worker Rights

Still, workers in China are benefiting somewhat from the new emphasis on corporate social responsibility, say experts in the region. "Anyone in the export supply-chain is being pushed to pay much more attention to labor issues," says Stephen Frost, executive director of CSR Asia, a Hong Kong consulting firm that works with Asian and Western companies. Some of the bigger export-oriented companies in China "have improved quite a bit on health and safety," he says. Employers also have gotten better regarding timely payment of wages, adds Frost.

One factor contributing to the improvement is the shortage of labor (BusinessWeek.com, 3/27/08) in some of China's top manufacturing zones. Factories in the Pearl River delta in southern Guangdong province, adjacent to Hong Kong, are having more difficulty hiring new workers or retaining existing ones; annual turnover rates for some manufacturers can go as high as 200%, says Frost. That's leading companies to raise wages and treat their workers better. When it comes to improving conditions for workers in China, he says, "a tight labor market probably did more than 10 years of CSR activism."

Foreign companies also need to be wary of aggressive local media eager to spotlight problems at multinationals. The Chinese press is highly restrained when it comes to critical reporting of the government but has a much freer hand in coverage of multinationals. That means reporters and bloggers can more easily write about companies that treat their workers poorly. "As the Chinese press becomes more active, [bad news] will be on the Web within 24 hours," says Melissa Brown, executive director of the Hong Kong-based Association for Sustainable & Responsible Investment in Asia.

Safety Issues in the News

No stranger to bad press, Wal-Mart bowed to government pressure to unionize its Chinese workforce and reach the new collective bargaining agreement. For local companies, Beijing uses other tools. For instance, the Shenzhen stock exchange now is encouraging listed companies to issue reports on their labor, safety, environmental, and other policies related to corporate social responsibility, or CSR. The Shanghai exchange has a similar policy regarding corporate governance. The central government's Audit Committee for State-Owned Enterprises, which oversees 160 state companies, now requires reports on environmental and social performance.

The government figures all of these moves will help China turn the page from the embarrassing news about dangerous sweatshops or poisonous toys. "China wants to build its reputation and the reputation of Chinese companies," says Martha Grossman, general manager in Shanghai for RepuTex Group, a Melbourne consulting firm focusing on corporate governance. "There's a perception outside China that Chinese companies are disgraceful. But that's not the case; there are companies that do really good work here."

Not everyone agrees on what it means for companies to be good corporate citizens, though. For state-owned China Construction Bank, which was among the first Chinese companies to start issuing a CSR report last year, it means making donations to art and culture groups, supporting disaster relief efforts such as those following the May 12 earthquake in Sichuan, and following government directives regarding loans to lower-income borrowers. "A company cannot just pursue profits," says bank spokesman Song Hailin, adding that the idea is starting to win acceptance locally. "Chinese companies are gradually starting to come around."

Crothall isn't so sure that will lead to much improvement for workers. "For Chinese, CSR is about philanthropy, doing good things in the community like building hospitals and schools," he says, rather than issues related to labor, safety, and the environment. "CSR as it's promoted in the West hasn't really translated yet."

With Chi-Chu Tschang in Beijing

businessweek.com