Labour pains

PUBLISHED : Friday, 31 March, 2006, 12:00am
UPDATED : Friday, 31 March, 2006, 12:00am

Last year, it was the 'bra wars'. This year, we have a skirmish over shoes. Aside from manipulating an undervalued currency, argue the protectionists in Brussels and on Capitol Hill, China gains an unfair trade advantage by exporting boatloads of T-shirts and trainers stitched together by poorly paid workers in unregulated, Dickensian sweatshops.

The row over cheap Chinese exports to Europe and the US has once again thrown the political spotlight onto the working practices of the mainland's manufacturing sector.

In the mid-1990s, mega-brands such as Nike were accused of using their corporate muscle to exploit cheap Chinese labour, ramping up profits by outsourcing manufacturing to a part of the world too poor to say no. Now China itself is seen as the bully, unfairly exploiting its own cheap labour to push venerable European and American textile companies and shoemakers into bankruptcy.

The European Union says footwear production in Europe has fallen 30 per cent since 2001, with the loss of about 40,000 jobs. Officially, it blames state intervention in the market - cheap bank loans, tax holidays and underpriced land rents - for China's competitive advantage.

But a more prevalent criticism from manufacturers in Spain and Italy is that competition from China is unfair because Chinese companies do not pay for expansive social welfare regulations in the workplace - all mandatory under European law. They argue that young Chinese women toil for 14 hours a day, seven days a week, without proper health and safety protections.

The central government, eager to allay international criticism that the mainland's roaring economy is built on the back of sweatshop labour, is keen to show the world that it takes labour regulation seriously.

Earlier this month, Premier Wen Jiabao told the National People's Congress that 'production safety' was a top priority. And government officials say they are gradually implementing International Labour Organisation standards across the country.

As a part of this drive, officials are promoting the concept of 'corporate social responsibility' (CSR) in medium and large state-owned enterprises - in accordance, they say, with the UN's 'global contract' programme, first advocated by Secretary-General Kofi Annan in 2000.

The result is a form of corporate social responsibility with Chinese characteristics. In the developed world, CSR refers to any number of independent company policies and actions that go above and beyond what is required by law. Examples range from law firms providing pro-bono advice to prisoners on death row to charity golf matches.

But in China, the hand of government is rarely far away. In his opening speech to a recent forum on corporate social responsibility held in Beijing, Yi Xiaozhuan , assistant minister of commerce, proclaimed the advancement of CSR in China as 'a concrete action taken by Chinese companies to implement the political aspiration of the new Communist Party collective leadership - 'putting people first to create a harmonious society''.

Building a 'harmonious society' is the mantra of a government increasingly worried that social instability poses a risk to its authority. President Hu Jintao has set out to differentiate his brand of leadership from his predecessor's by showing the Chinese people that the new regime cares about the people left behind by the mainland's breakneck growth.

Government support for CSR should be seen in this light. Throughout the recent two-day Beijing conference - jointly organised by the government journal China WTO Tribune and CSR Europe, a body that promotes corporate social responsibility around the world - mainland officials and academics couched their arguments for greater social responsibility in the workplace in the language of social stability.

Compassionate capitalism, as CSR has become known in the west, may be good for corporate profits at home, but in China it is also a useful way of selling political leadership to the unruly masses.

A number of speakers used the forum to stress government concern over the lack of social responsibility shown by many Chinese enterprises. Zheng Gongcheng , a professor at Renmin University in Beijing and a member of China's national parliament, lambasted the paucity of legal protection for workers and the poor enforcement of labour regulations.

'The lack of CSR in China is an abnormal state of affairs. In the past, when China had a centrally planned economy, each company had excessive social responsibilities. But since the period of reform and opening, some enterprises have thrown out all of those responsibilities. It's very irresponsible.

'These enterprises refuse to sign their workers up to social insurance projects; fail to protect workers from injury; and exploit employees by not signing proper labour contracts,' he fumed. 'They force people to work overtime, they delay wage payments, and they use fraudulent accounting. All these abnormal phenomena reflect a chronic lack of CSR in China today.'

The solution to the problem, he argued, was greater government supervision: 'In China we need to regulate social responsibility strictly. China has a surplus of labour, and it is too easy for companies to tread roughshod over their employees. We need to bring CSR into the legislative arena. We need new laws and better enforcement.'

In China - where trade unions are controlled by the Communist Party, labour laws are patchy at best, and the media remains tightly controlled - CSR is just another name for greater government regulation of labour practices. Corporate social responsibility means protecting the health and safety of coal miners; ensuring that employers pay social insurance premiums; and enforcing basic labour regulations in sweatshops.

Corporate philanthropy, such as white-goods maker Haier's recent investment of US$370 million in 'schools of hope' for poor children who cannot afford to go to class, demonstrates welcome progress in corporate thinking in China. But this remains beyond the capability of all but a handful of elite Chinese enterprises.

Big foreign manufacturers, on the other hand, have years of experience of bolstering their brands by appearing as a force for social good. They are also acutely aware that public acts of support can buy leverage with government authorities. Increasingly, it is foreign enterprises that are driving the real CSR agenda in China.

Since buying Harbin Brewery two years ago, for example, US brewer Anheuser-Busch has assiduously cultivated its ties with the local government in the northeast province of Heilongjiang , investing more than US$8 million in a local foreign investment promotion fund.

When an explosion at a petrochemical plant 380km up river of the city of Harbin released tonnes of benzene into the Songhua River in November last year, forcing city authorities to turn off the taps for four days, Harbin Brewery piped water direct from its private well to the street, where local citizens queued with plastic bottles, kettles and buckets. The brewery relies on its own supply of well water to brew Harbin Beer, China's oldest beer.

In addition, Anheuser-Busch sent 35,000 cases of drinking water packaged in plastic bottles to Harbin from its Budweiser brewery in the Yangtze River city of Wuhan in central China, where it was distributed to the local people by government officials.

Steve Burrows, chief executive of Anheuser-Busch International, compared the operation to the Hurricane Katrina disaster in the US, when Anheuser-Busch shipped millions of tonnes of water to New Orleans: 'Anheuser-Busch has a long, long history of more than 100 years of doing business, and when things go wrong we try to help, whether it's in the US or overseas.

'When we do business in a city, we want people to be glad that we're there ... Certainly this will reflect well on our company, and if that means someone decides to purchase our product rather than another company's, that's fine. But [the impact of socially responsible business practices] is impossible to measure.'

Nevertheless, foreign companies know that good government relations can be the key to business success in China. At the height of the Sars crisis in May 2003, the new chief executive of Daimler Chrysler China began his tenure by donating 80,000 protective suits - worth US$360,000 - to the Beijing city government to help in the fight against the spread of the deadly virus.

The delicate task for foreign managers in China is to learn how and when to co-operate with the government - and when to say no. As Google recently found, working with the mainland authorities can imperil even the most carefully nurtured image of corporate social responsibility.