Chinese Textile Workers face a lose-lose situation as China joins the WTO Sabyasachi Mitra

A recent Chinese government report acknowledges the fact that labour unrest in China is on the rise. While no official figures are available, the number of workers involved in strike actions is believed to have more than doubled in the first half of the 1990s alone. Another report says that there were 30,000 workers’ protests of significant size in the year 2000, more than 80 a day on the average. Such incidents have become frequent ever since China embarked on a path of transition from socialism to capitalism. Some observers view Deng Xiaoping’s capitalist reforms as a road to modernization. However, hundreds of millions of Chinese workers have already paid a heavy price as China aims to become the workshop of the world.

The first to be affected by this ‘modernization’ process were workers in rural China, who were dubbed surplus after the commune system was abolished. Earlier, the people’s communes that organized life in the countryside had ensured that they received at least subsistence-level incomes, and had provided for education and health care. While most elderly people were taken care of by their family members, those without families were entitled to a minimum allowance. However, China’s social security allocation, as a percentage of the GDP, has been falling since 1995. And with the rise in rural unemployment, many workers are now migrating from the countryside to cities, hoping to find employment there.

Over 100 million peasants roam China’s main cities today, dressed in rags and carrying their belongings on their backs, in search of work. While it is true that living standards seem to be far better in the towns and cities than in the countryside because of the differential treatment meted out to members of rural and urban communities, not everybody coming to stay in the cities can get a taste of this higher standard of living. Under the earlier regime, the Chinese people were registered in their places of residence and there was a system of a kind of internal passport, the hukou, which acted as a disincentive to prevent them from moving house: those who left relinquished all social rights. An important aspect of this system  was that it encouraged the peasants to stay in their communes. Such restrictions continue to exist in present-day China, but with a different impact. Most cities demand a special authorization from rural workers before they can be hired, and discharged urban workers are given priority in the labour market. Those who move to areas where they can engage in economic activity without authorization do not enjoy any protection or rights. They are often brutally exploited, having to work under inhuman conditions in factories for up to 90 hours a week or in 30-hour shifts. Further, they are underpaid and can be fired from work any day.

Even the urban workforce no longer enjoys the job security that it used to take for granted. Earlier, urban workers were guaranteed lifetime employment and they generally passed their jobs on to their children at the end of their working life. Cash wages paid by ‘work units’ (enterprises owned by the state) were only a small part of a broad income package. Basic needs were provided directly in kind by the work units, and these included housing, medical care, pre-school child care, schooling and pensions for retired workers.

The 1986 Regulation on Labour Contracts abolished guaranteed lifetime employment for newly recruited workers. Labour contracts now have a term ranging from one to five years, and there is no provision for renewal. Since 1 October 1986, state sector enterprises do not have the right to hire permanent workers. This has led to a steady rise in the number of workers on terminable contracts, going up to 50 per cent of all employees working in state sector enterprises in the year 2000.

Most of these workers, especially those working in export-oriented manufacturing units in the Special Economic Zones of China, are young women in the age-group 16-25 years. It is believed that these women are preferred because they are hardworking, have small delicate hands that can do fine work, are willing to spend long hours at a stretch on repetitive tasks, and are obedient and easy to control. Most of them are recruited from the rural areas of backward interior provinces by state-run labour bureaus or by middlemen, the motivation for both being the recruitment fee they earn from employers as well as employees.

Migrant workers generally have to work for 10-12 hours a day and are required to achieve set production quotas, in return for which they are paid abysmally low hourly wages or piece rates. They are housed in dormitories and labour under stringent working conditions: there are fines for being late, for refusing to work overtime, for chatting at work or during meals, for violating rules on wearing uniforms, and even for going to the lavatory without permission or too often. Health and safety standards are observed more in breach than in compliance, and there is frequent occurrence of accidents such as fires, with consequent loss of life. There have even been instances when all the exits of the workplace were sealed when fires started, to prevent workers from escaping with goods,  resulting in an avoidable loss of lives. In addition to all this, the workers enjoy no job security; getting the sack means returning to the village.

It is against this background that the condition of workers in the Chinese textile industry needs to be examined. Several textile factories in China have of late experienced workers’ protests, and in some cases the situation has worsened into riots. In late 2001, for example, 2,000 workers occupied the Shuangfeng Textile Factory, protesting against pay cuts and worthless stock shares, against corrupt officials and missing pension funds. They refused to vacate the factory premises despite the police trying to forcibly oust them, and work resumed only when the company promised to return to them lost savings and pensions worth US$14 million. Soon after, the company declared itself ‘bankrupt’,only to re-emerge with the erstwhile managers as the new owners. Nor did the workers get their dues.

Recently, in the last week of June 2002, the Nanxuan Wool Textile Factory in southern China witnessed a three-day riot by its workers. The Nanxuan riot brings into sharp focus the unbearable labour conditions that exist in the booming Pearl River delta near Hong Kong. While this area is rapidly becoming a hot favourite with foreign manufacturers who have discovered it to be the source of a seemingly limitless supply of cheap and diligent labour, the workers here often earn as little as US$2 a day or even less and face bleak long-run prospects. The 15,000-strong workforce at the Nanxuan factory mainly consists of young men and women who have migrated from poor Chinese provinces where, according to a recent study by the National Bureau of Statistics, the growing surplus labour force is currently estimated to be in the vicinity of 170 million. Some 30 million of them work in the Pearl River delta region alone, many of them illegally.

Such protest actions and  riots in its textile factories do not bode well for China’s future. The supposed gains from trading in textiles were a determining factor for China joining the WTO. A large part of these presumed gains is dependent on the cheap labour that Chinese textile manufacturers have access to. However, the harsh work conditions in these factories prevent workers from staying too long and there is a constant stream of new workers. As a consequence workers do not acquire the necessary skills, forcing the sector to remain dependent on unskilled, labour-intensive production techniques. If this continues, China’s textile manufacturers will lose out, rather than benefit, in the long run, from the country’s accession to the WTO.

According to the Trade and Development Report, 2002 published by UNCTAD, the textile industry in China is characterized by obsolete machines, low-quality products and low labour productivity. In 1999, this industry accounted for about 6 per cent of China’s industrial output and 14 per cent of the country’s industrial workforce. While it is true that wages in China are low compared to most of the countries that are its potential competitors, that by itself does not necessarily give China a competitive edge. Higher labour productivity leading to lower unit labour costs more than compensates the wage disadvantage in many of these countries like South Korea, Chile, Mexico, Turkey, the Philippines, Bolivia and Indonesia. China’s Revealed Comparative Advantage (RCA) in textiles has been falling, and in 1997-98 it was only 60 per cent of what it was in 1992-93.

So far, Chinese textiles were being used largely for the manufacture of clothing for domestic consumption. Once tariffs on imported textile products are significantly reduced, the clothing industry in China might increasingly switch to textiles imported from abroad. Also, the new foreign-funded enterprises (FFEs) are using more capital-intensive methods of production. These changes in the Chinese textile industry have resulted in considerable labour-shedding, with employment in the industry declining by 35 per cent between 1995 and 1999. Retrenchment has been higher in the bigger units; firms with sales of more than 5 million yuan retired 52 per cent of their employees during this period.

Many observers have argued that bad jobs, i.e. jobs under harsh conditions, are better than no jobs. They believe that those who migrate to urban centres in search of jobs are better off working in the sweatshops run by foreign entrepreneurs, as the alternative for them would have been joblessness. And that although the work conditions in these sweatshops are inhuman, opening up the Chinese economy to them has at least helped these migrants to fend for themselves. Nothing, however, can be farther from the truth. It is the process of liberalization that led to these workers being forced out of their rural occupations in the first place. Instead, if emphasis had been placed on strengthening the Township and Village Enterprises (TVEs), the problem of rural unemployment could have been tackled far more efficiently. Rural industrialization would have absorbed the surplus labour that came into existence due to modernization of agriculture, and there would have been no need for these labourers to migrate to urban centres.

Besides, it is not true that it is only the rural workforce that is being rendered surplus. Most state-owned enterprises (SOEs) are finding it increasingly difficult to continue production and are closing down, generating unemployment among a large segment of the urban workforce as well. Even if one were to ignore, for a moment, the inhuman work conditions in the new industries,  the liberalization process has left more people in China without jobs than the number of jobs it has been able to create.

Employees in China’s textile factories have been faced with a lose-lose situation ever since the opening up of the country’s economy. If these factories retain their labour-intensive technology, their products will be deemed uncompetitive by the purchasers, who will in turn find the imported textiles now available in Chinese markets a cheaper option. The textile factories would then be forced to close shop and their workers will lose their jobs. And if these factories switch to capital-intensive technology, it will lead to a massive retrenchment of existing textile workers, and to their replacement by job-seekers who are desperate to find employment even under the harshest of work conditions.

It may not be the intention of the Chinese state to subject its workers to such rigours. However, in its struggle to showcase the country as the most attractive destination for foreign investment, the government is unlikely to insist that these investors fund an extensive social security system. And with increasing withdrawal of the state from economic activities, the state will not have enough resources to take on the onus of providing welfare benefits to all its citizens. China’s accession to the WTO will definitely reduce its ability to protect its workforce from penury and hardship. While foreign investors laugh all the way to the bank, Chinese workers will find that state-provided social security, the last citadel of hope, is crumbling under the weight of their country’s acceptance of WTO conditionalities.