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China Trade Union Law and Regulation and Foreign Owned Companies

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China trade union regulations is always a mysterious area of law in China employment law legal system. Some of my clients always consult me on this topic. However, even myself will sometimes be confused on the trade union laws and regulations, as well as the reality of the trade union law practice. The following text will feed those who are interested in this area.

Basic Introduction to China Trade Union

Cheap labor. Minimal regulations. Bribable officials. Foreign corporations attracted to China because of its low cost of business have avoided the unionization desired by the Chinese Communist Party (“CCP”) despite China’s history of weak trade union laws and inconsistent enforcement of union mandates. However, recent concerns of social unrest have forced the CCP to consider reforming the political tools used to control Chinese society. The CCP wants to create social stability, avoid independent unionization, and prevent the westernization of China. Foreign Investment Enterprises (“FIEs”) present new challenges for labor market regulation in China with their large number of non-unionized workers revolting at poor working conditions, as well as FIEs' importation of western values. The Trade Union Law amendment of 2001 affords the All-China Federation of Trade Unions (“ACFTU”) more avenues of enforcement through which to force FIEs to unionize and obliges the ACFTU to become a greater presence in private enterprises—especially FIEs.

Moreover, the proposed (draft) Labor Contract Law provides the ACFTU with greater oversight power through which to monitor the actions of FIEs and Chinese workers. The new regulatory environment providing greater legal authority to the ACFTU does not need to cause foreign enterprises to withdraw from China out of fear of increased unionization or further legislation. The ACFTU and CCP value harmonious relationships over striking workers and value foreign business. Moreover, unionization will help consolidate workers under the socialist regime of the CCP, creating a more stable society and working environment in China, which ultimately will benefit FIEs. China’s battle with FIEs to increase unionization is being waged by the CCP in order to enable the CCP to control the Chinese workforce and minimize outside influence, not in order to impose stricter conditions on foreign investment and take control over foreign business from enterprise management.

Recently, China’s push for unionization of Foreign InvestmentEnterprises (“FIEs”) has become big news due to the country’s unionization of mega-store Wal-Mart’s Chinese workforce.Wal-Mart, staunchly antiunion in the U.S., conceded suddenly to unionization requests by the All-China Federation of Trade Unions (“ACFTU”) after a fight lasting more than two years. Most interesting in this story, and explored in this comment, are the reasons why Wal-Mart allowed unionization in its Chinese stores and the motivations and legislation behind the Chinese Communist Party’s (“CCP”) and ACFTU’s push to compel Wal-Mart to unionize. For years, dwindling trade union membership4 has threatened the CCP’s control over increasingly agitated Chinese workers, allowing for an increasing number of strikes in China. FIEs’ increasing role in the Chinese economy, and their refusal to unionize, caused the CCP concern over possible esternization of the Chinese workforce inconsistent with socialist ideals. With large numbers of workers’ protests, widespread labor unrest, and increased independent organization, as well as a real fear of foreign influence, the CCP recognized the ability of the ACFTU to exert control over the troubled Chinese workforce. The CCP is attempting to reassert control over Chinese workers by increasing unionization through a grant in the Trade Union Law of more enforcement and oversight power to the ACFTU and by creating further legislation10 in order to improve political relations with, and labor conditions for, workers. This move is meant to strengthen the power of the CCP through national unionization and to facilitate economic development through social stability in China’s new market economy. Spurred by the CCP, the ACFTU, China’s only legal trade union, is attempting to unionize the entire Chinese workforce, with a goal of unionizing eighty percent of FIEs by the end of 2007.

The relevance of labour and union rights for investments in China

Hardly any of the world’s bigger companies does not have factories, representative offices or contract manufacturers in China. Most of the larger companies in the automotive, electronic and computer industries have built plants in China, following the credo of some of the business consultancies that no profit-oriented company could dare not to invest in China. Investigations have shown that the relevance of the Labour and Trade Union Law in companies producing in China greatly varies with their type of ownership, as mentioned above. For this reason, one needs to differentiate between wholly-foreign owned companies, sino-foreign Joint Ventures as well as private and state-owned Chinese companies.

Due to the brevity of this article, only sino-foreign Joint Ventures as well as wholly-foreign owned companies in China will be treated here. The table below illustrates the relevance of different types of ownerships for the Chinese economy, showing the decreasing importance of state-owned companies and Joint Ventures and the increasing role of wholly-foreign owned companies.

Amendments to the union law and provisions of labour related laws

Due to China’s economic reform policy and successful attraction of investment, labour relations have been transformed in the past years. Especially the introduction of the labour contract system had significant influence on the shape of the relationship between employer and employee. Although China has ratified several ILO Conventions as well as the International Covenant of Economic, Social and Cultural Rights in 2001, China has still not ratified the ILO Convention
87 and 98, which regulate the rights of freedom of association and of collective bargaining. The introduction of the Labour Law symbolized an important step as it has encompassed all employees and employers and has not differentiated any longer between employees of enterprises (public or private) and of government institutions. Although the Labour Law regulates issues such as wages, working hours and affirms nondiscrimination in the work place, in reality most of the companies still seem to follow their own guidelines.

In this context, the amendment of the Trade Union Law in the year 200131 is of decisive importance. Although many passages seem familiar, important parts have changed. Trade unions are for the first time enabled to represent workers rights. In the following paragraphs it will be discussed how the new wording is to be interpreted and how the possibilities of implementation are shaped.

Trade unions and the representation of workers’interests

As already stated in the Trade Unions Law of 1992, everybody has the right to establish a union or to join one (Art. 3 Trade Union Law). Any newly founded union needs to be approved by the union of the next upper level and needs to be integrated in the organizational structure of unions in China which is headed by the All-China Federation of Trade Unions (ACFTU). The amended Trade Union Law adds that nobody and nothing is allowed to hinder a person to join a union (Art. 9 Trade Union Law) and that nobody is allowed to dissolve a union at will (Art. 12 Trade Union Law). The establishment of a union is supposed to provide for protection against arbitrary decisions of the management of a company. Nevertheless, it still happens that companies do not allow trade unions in their plants.

Why foreign enterprises refuse to organize trade union in China?

The biggest retailer in the world Wal-Mart has become the public enemy of international trade unions for its persistent pursuit of the "no trade union" enterprise credo. In USA, Wal-Mart is criticized for "dismissing the staff who get close to the trade union", and has encountered 28 lawsuits but drawn no substantive results; in China, a pervasive phenomenon that trans-nationals refuse to set up the trade union is being condemned and Wal-Mart stands in the breach and becomes the target of public criticism, too.

The reason that Wal-Mart does not organize the trade union lies in that they think the consummate worker insurance measures inside the company has replaced the functions performed by the trade union. This kind of excuse will be strongly repelled in any countries, which has a trade union tradition or strict trade union regulations. In China, eight years after Wal-Mart's appearance, this voice finally presents itself. 

Wal-Mart's allegation is that according to Trade union Law of the People's Republic of China, the trade union is jointly made up voluntarily by the workers. The staff of Wal-Mart do not have this kind of will, so it is naturally reasonable not to set up a trade union. But external observers assert that Wal-Mart is for avoiding Article 42 of the "Trade Union Law"—"the enterprises, public institutions and government departments which set up the trade union shall pay the funds to the trade union according to 2 percent of workers'payrolls of every month". That is to say, "once the trade union is set up, funds have to be paid according to the total number of the workers, but not the number of workers who join the trade union". Taking Wal-Mart's nearly 20,000 staff in China into consideration, it is a really huge sum of costs.

Shenzhen, a southern city of China, once strongly required Wal-Mart to organize the trade union, but in order to obtain its further investment in Shenzhen, the trade union or Shenzhen city basically stopped advising Wal-Mart to organize a trade union.
If Wal-Mart is the only enterprise that refuses to organize the trade union, this debate would be meaningless. But in the list drawn up by the National Federation of Trade Unions, some multinational enterprises are seen, including Kodak and Samsung, whose parent companies have perfect trade union in their own countries. When it is a prevailing phenomenon, we should not only condemn those "don't-dos" conducts, but also inquire the systematic factors, which bread those phenomena.
The power of the trade union comes from the workers'trust. But when workers encounter contract trap, salary delay, welfare infringement, overwork, security protection danger, forces and other unlawful infringements, China sees more individual resistance of different forms. In most cases, trade unions of Chinese enterprises are quiet defective in effective actions. The loss of trade union's voice in these core areas is not going to be regained through organizing sports meetings and handing out film tickets. In a lot of companies, the week position of the trade union is an irrefutable fact.

Any behavior against sovereignties'laws should be prevented, no matter whether it is from trans-national or local enterprises. But why does this prevailing problem concentrate more on trans-nationals? One explanation is that "since Wal-Mart's source factories, trade union, insurance, laboring insurances and other factors are not counted into costs, this part of costs is paid by traditional Chinese social system. It is a hidden exploitation."

However it has nothing related to the purpose of trade union, which is to "fully protect the legitimate rights and interests of workers". It is not merely a right of choices. On this point, no matter state-owned enterprises, trans-national or private entities, they should all implement the same standard. If new entry qualification is formed or treatment is different due to investment rights, it is equally something to be regret about.

It is understood that China's National Federation of Trade Unions is planning to put forward the "Preparation Fund System". According to this system, even enterprises that are not to organize the trade union, should also pay a certain fee as the preparation fund to organize a trade union in the future. After the trade union is organized, it will be returned to the enterprise pro rata. Whether this action could get the support from enterprises and workers is still unclear. And the attitude of Chinese local governments who want to offer favorable conditions to attract foreign investment is also a key factor to determine the result.

But in any case, the core problem lies in whether the trade union could realize its functions and prove its value and reason of its existence in safeguarding workers'rights and interests and negotiating with other interest entities.

Possible Development of China Trade Union

Unions play an important role in almost every country’s political landscape. In this context, the amendment of the Chinese Trade Union Law presented a decisive signal for the further development of China. As illustrated, the text of the law enables unions to engage in various activities in order to represent the staff’s and workers’ interests. Nevertheless, the law lacks precision and the Chinese framework seems to hinder the implementation of most of the articles. In what way the Trade Union Law really represents an instrument to develop a workers’ representation inside the union structure is the crucial question. Despite the fact that China still has not yet ratified the ILO Conventions on freedom of association and collective bargaining, the government has introduced the Labour Law.

Furthermore, it significantly amended the Trade Union Law in 2001. Later, regulations on occupational safety and health standards were introduced, improving the legal possibilities to pursue occupational safety trainings and to implement international standards. Moreover, the court system will be reformed, including a qualifying examination for judges. Bilateral cooperation between China and the United States as well as Germany will improve the development of a Chinese constitutional state. These developments naturally increase the probability of citizens to know their rights and have them respected. Nevertheless, it remains to be seen whether these recent developments are comprehensive enough.

In the course of state-owned enterprise reform, the role of unions has greatly changed. Already relieved from their first assignment in the People’s Republic, the distribution and administration of social security as a sub-branch of the ministry of labour, their traditional partner, the government, has mostly withdrawn from its management role and rather supports the management as an independent institution which reacts on market forces. In spite of the newly acquired possibilities via the amended Trade Union Law, every union or union-like organization still needs to be part of the ACFTU structure. This, in turn, is heavily influenced by the Communist Party of China. Unions, overwhelmed by the new challenges as a consequence of the rampant economic reforms and developments, get confronted with a complex labour market situation (competition is paramount and leads to lay-offs and partly to a deterioration of labour conditions), in which workers are at a disadvantage and are driven to cause social instability.

There are many aspect should be think about in respect of China trade union law. However, it is so complicated that even experienced employment lawyer are reluctant to focus their research in this area. I suppose it is even harder for those foreign legal practitioner to understand and grasp it?

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I am a licensed China lawyer. Most clients are foreign nationals and companies. China Lawyer Blog have associates in Beijing, Shanghai, Tianjin, Guangzhou, Suzhou, Nanjing, Qingdao, Fuzhou, Hainan, Hefei, Wuhan, Xian, Changsha, Xiamen and Hangzhou. Learn More

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