MAC: Mines and Communities

China Update

Published by MAC on 2006-08-11

China Update

11th August 2006

China’s sulphur dioxide (SO2) emissions increased by an alarming 27% in 2005, as against the previous year, according to the regime’s State Environmental Protection Administration (SEPA). Each tonne of S02 is estimated to cause US$2,500 “economic damage” – and half the total attrition is the result of burning coal.

The government now plans to reduce S02 emissions by some 10% over the next four years, substituting nuclear power and strengthening de-suphurisation technologies. It’s also lumped carbon trading and purchasing programmes into this purportedly “cleaner” agenda.

Steel production rose nearly 20% in the first six months of this year and the regime is getting worried about oversupply and “excess fixed-asset investment.” It’s therefore urging small and outdated steelmakers to consolidate into larger enterprises, while also “tightening” foreign acquisitions in its domestic iron and steel sector (Mittal-Arcelor is currently the only foreign company with a major stake in China’s ferrous industry.) Local governments are being told to cancel expansions and new construction, not only of steel but also electrolytic aluminium, ferroalloy and coke plants. [see Interfax China updates, July 29 – August 4 2006].

However, as we have pointed out several times over the past few months, these restrictions at home run in parallel with further incentives encouraging Chinese firms to make acquisitions overseas – specifically in the aluminium sector. Nor, for the time being at least, are future fortunes to be amassed by multinational mining companies – specifically BHPBilliton and Rio Tinto – under threat.

Workers under the hammer

The program to privatize state-owned enterprises has led to unemployment, or greatly reduced living standards, for tens of millions of urban employees, according to China Labour Bulletin (CLB). Around 150 million workers have shifted from the countryside to urban areas, where their working and living conditions are as bad as before - if not worse.

To remedy this (and no doubt also pre-empt “unrest”) the central authority has drafted a new Labour Contract law, granting workers collective labour contracts.

But, says CLB, this will do little to address the roots of the crisis, since it precludes the essential rights of collective organising, bargaining, and to strike.

China's Draft Labour Contract Law: Without Freedom of Association, will Chinese Workers Be any Better Off?

China Labour Bulletin

11th August 2006

Since China's Labour Law was first enacted in 1994, major changes have occurred in China's economic structure and in the composition of the working class. On the one hand, the program to privatize or "restructure" state-owned enterprises has led to unemployment or greatly reduced living standards for tens of millions of urban workers; and on the other, the inflow of low-paid migrant workers to urban areas has now soared to a level of around 150 million. Even in economically thriving parts of the country, the working and living conditions of many workers, especially migrant workers, have remained poor or are getting worse. Workers in general have become steadily marginalised, both socially and economically, and are increasingly being represented in official discourse as forming one great "underprivileged minority" in society.

In response to the rising incidence of worker unrest and labour disputes of all kinds in recent years, the central government has adopted various measures aimed at safeguarding workers basic rights. The most noteworthy such measure has been the government's plan to introduce a Labour Contract Law – a preliminary draft of which was discussed at the annual meeting of the National People's Congress in March. A public consultation exercise to gather further input and ideas on the draft is currently underway.

Role of the Labour Contract System

The policy of making employers provide workers with individual labour contracts was first introduced in the early 1980s, and it formed a crucial plank in the government's wider drive to end the traditional "iron rice bowl" policy whereby workers in state-owned enterprises had enjoyed cradle-to-grave job security and welfare provision during the first three decades of the PRC. Instead, the labour contract system brought workers fixed-term periods of employment, which could either be renewed or not, depending on the individual worker's job performance and the employer's staffing needs; and it relieved enterprises of most of their former social welfare obligations to the workforce.

In short, the labour contract system prepared the ground for the emergence of a free labour market in China, in place of the former system of "unified job allocations" by the state. One vital element in the development of a genuinely free labour market in China, however, has to this day been conspicuous by its absence: freedom of association for workers and the right to collective bargaining – the only effective means by which workers anywhere have been able to negotiate fair, reasonable and market-determined terms of employment.

In the mid-1990s, China introduced a second regulatory tier in this area – the system of collective labour contracts, which ostensibly allowed workers to negotiate a single, factory-wide contract for the entire workforce, in addition to workers' individual contracts.

But this was only applied within state-owned enterprises, where it became largely a pro-forma exercise between the ACFTU and management. Workers were not involved at any stage of the collective contract "negotiating process" and so it brought them few if any tangible benefits.

In the course of the public consultation exercise on the draft Labour Contract Law, much controversy has arisen between two schools of thought. The first, represented by Professor Chang Kai, a labour-relations academic at People's University in Beijing, argues that the draft law is correct in seeking to set a higher standard for the protection of workers rights.

Given the currently low status and power of Chinese workers relative to their employers, Chang says, the new law should redress the balance by giving a comparative advantage to the workers in the employment contract relationship. Failure to legislatively intervene in this way in the operation of the labour market would, in his view, be tantamount to the government taking the employers' side in the labour rights equation.

The other school of thought, represented by Professor Dong Baohua of Shanghai's East-China University of Politics and Law, argues that the draft law imposes too heavy a burden on employers and so would adversely affect enterprise autonomy. He argues that the proposed labour and employment rules are, by international standards, too rigid and exacting, and in practice would cause unnecessary friction with internationally applied human-resources management principles (for example, hiring and firing on the basis of employees' performance evaluations.)

Concurring with this view, both the E.U. and the U.S. Chambers of Commerce in China have gone still further by suggesting that a withdrawal of investment and transfer of production away from China would likely follow if the new law were passed without substantial amendment.

What Role for the Workers?

What has so far been missing from the debate, in CLB's view, is any real recognition of the fact that legislative intervention of any kind, on its own, will inevitably be inadequate to the task of improving labour standards and conditions for the country's workers. More than a decade after the enactment of the PRC Labour Law and numerous other laws and regulations designed to safeguard basic labour rights and workplace safety in China, it has become abundantly clear that the adoption of such measures – in the almost complete absence of any parallel protection for workers' freedom of association and the right to collective bargaining – has led to a situation where the law is essentially falling into disrepute through a lack of implementation and enforcement. In practice, employers have been left free to disregard the law with impunity.

The introduction of more or "better" laws in the area of labour and employment will not serve to resolve this fundamental disconnect between formal legislative intent and actual non-enforcement in China today. What is needed are real measures designed to redress the severe imbalance of power between workers and employers currently found in workplaces around the country. In the overall development of China's labour regulatory system since the early 1980s, as described above, the requisite relationship between freedom of association, the individual labour contract and the collective labour contract – or rather, the specific interdependence between these three factors that is needed for normal and healthy labour relations to emerge – has in effect been reversed. Legal arrangements for the application of individual labour contracts came first; this was then extended in the 1990s with the introduction of collective labour contracts in the state-owned sector; and meanwhile, the introduction of workers' freedom of association and the right to collective bargaining – the key factors in ensuring that either type of contract could express and embody the actual needs of the workforce – have been officially postponed until some unspecified time in the future.

Without collective representation in the form of a democratic and properly functioning trade union, workers are in no position – in China or anywhere else – to obtain labour contracts from their employers that can either express the true value of their labour power, as determined by a freely operating labour market, or can serve to safeguard their basic legal rights as workers.

They are in no position to negotiate any aspect of the contract, even supposing they were offered such an option or possibility. Furthermore, the notion of grafting an additional regulatory layer, in the form of the collective contract, onto this already weak basis is clearly still more illusory in practice, since it presupposes at a minimum the presence of a representative body that could negotiate on the workers' collective behalf – something that is currently lacking in China, since the ACFTU does not play this role, and which in the case of independent unions is prohibited by law.

Freedom of association and the right to collective bargaining together constitute the animating spirit that can alone give practical meaning and impact to government legislation in the labour rights area. They are primary – not optional or contingent – elements in the labour rights equation, and in the last analysis they also depend upon a third fundamental right, one that Chinese workers are also currently denied by law, namely the right to strike.

Paternalistic initiatives by the Chinese government aimed at further "perfecting" the country's labour legislation are arguably better than nothing – but not by a very significant margin.

The days of the socialist planned economy in China are long since gone, and the reality today is that many millions of workers have been left to sink or swim in an economy dominated by private capitalism. In order to keep their heads above water in this new environment, Chinese workers urgently require three basic tools: the right to organise, the right to collective bargaining, and the right to strike.

(For further details, see "Disputes over New Labour Contract Law", available in the CLB website at:

Demand from China lifts BHP figures

By Raphael Minder in Sydney, Financial Times

26th July 2006

China's seemingly insatiable appetite for raw materials was highlighted yesterday by BHP Billiton's latest production figures, which showed the world's largest mining company boosting its metals production to record levels.

BHP Billiton yesterday reported record annual production of iron ore, aluminium, copper, nickel and natural gas. However, crude oil output fell, partly because its American facility in the Gulf of Mexico suffered hurricane damage last September.

Although the group did not provide any specific forecast for future production, BHP also reassured investors by saying that it was operating in a "strong demand environment".

The report comes as China, which has been leading demand for metals such as copper, announced earlier this month that its economy grew in the second quarter at 11.3 per cent, the strongest rate of growth in more than a decade.

BHP's share price gained 1.9 per cent to A$27.83 on the Australian stock exchange yesterday, leading a general share price climb among metals producers.

BHP also reported record output on a quarterly basis, with iron ore production climbing 3 per cent in the quarter that ended on June 30. Copper production rose 16 per cent in the same quarter, while nickel output climbed 31 per cent.

Analysts said BHP's report was particularly positive for iron ore. The company said its iron ore operations in Western Australia, a state that has become key to China's industrial expansion, achieved record annual and quarterly production.

BHP's figures followed a recent production report from rival Rio Tinto, which reported a 4 per cent rise in iron ore output in the quarter ending in June, also benefiting from better weather conditions.

The strong production report, however, comes amid increased volatility on the commodities markets as investors worry about whether the current boom in prices can be sustained.

There are also concerns about higher costs and whether miners can stick to agreed timetables to develop new sites and meet stronger demand from China and elsewhere.

BHP said yesterday that most of its projects were on track, with "some minor delays" expected in Australia. But it also warned that two of its projects worldwide - the Ravensthorpe nickel development in Western Australia and the Atlantis project in the Gulf of Mexico - would likely exceed approved budgets by more than 30 per cent.

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