Human Resources in the People's Republic of China: the ‘Three Systems’ Reforms

HUMAN RESOURCES IN THE PEOPLE’S REPUBLIC OF CHINA: THE ‘THREE SYSTEMS’ REFORMS

Malcolm Warner, University of Cambridge

China’s economy has grown at an unprecedented rate since Dengist reforms were introduced in 1979 (see Rawski, 1994). Over most of this period, official Chinese sources claimed that the average annual growth rate for its national income was nearly nine per cent and for total industrial output over 13 per cent, though a healthy scepticism is advised when dealing with aggregate statistics from the People’s Republic of China (PRC). Such rapid change has led to the development of a defucto ‘market economy’ in many of its sectors although, given its political parameters, some critics have called it ’market Leninism’ (see Kristof and Wu Dunn, 1995). This article sets out to look at ongoing reforms of the management of human resources in China in the fast-changing economic conditions associated, as they are, with moves towards a greater use of labour markets. Its main conjecture is that the system is moving towards a hybrid form of labour-management relations ‘with Chinese characteristics’ blending either Western or East Asian practices (see Verma et u1.,1995) with indigenous ones (see Chld, 1994; Warner, 1991, 1992, 1993).

China’s ‘iron rice-bowl’ employment policy which was set up in the early 1950s had its immediate roots in the Soviet IR system. It was also shaped by Japanese employment practices in Manchuria pre-war and under the Occupation and may arguably have very old Chinese antecedents. Originally intended for skilled workers, it spread to cover the majority of urban industrial employees. The ’iron rice-bowl’ syste.m was basically an enterprise-based employment system which guaranteed Chinese workers jobs for life and cradle-to-grave welfare protection, including housing, medical care, nurseries, schools and so on. The wage grade system had been copied from the Soviet model, but a Maoist egalitarian wage-payment arrangement was later introduced and incentives were frequently limited to the minimum (see Takahara, 1992). This system was referred to as ’everyone eating out of one big pot‘ (for a fuller account, see Leung, 1993).

Enterprise reform in the mid to late 1980s led to a more market-oriented approach being adopted, with greater power given to factory managers and greater reliance on material rewards (see Groves et a1.,1994). Many of the larger state-owned enterprises have formed strategic alliances and joint ventures with Western multinationals (see Child, 1994). Performance related criteria were introduced and more efficient factor allocation became ’de rigueur’ (see Naughton, 1995). As state enterprises were made more economically responsible, the less productive ones were encouraged to shed labour, particularly on the ’pilot’ or ’experimental’ sites selected to try out the most recent management reforms (see Warner, 1995).

The introduction of contracts for personnel, based on either Western or East-Asian practices, became a noteworthy feature of the labour market reforms of the second half of the 1980s (see Zhu, 1995). As will be made clear later, these contracts did not imply employment would be discontinued but mainly clarified the tasks to be carried out and the rights and duties of the employer. There was a signal that lifetime employment could not be taken for granted. In many cases, the occupational inheritance of jobs (dingti) from parents to offspring had already been phased out. By the end of the last decade, it was estimated that at least one in 10 workers in the labour force was employed as a contract worker (hetong gong) rather than having jobs for

32 HUMAN RESOURCE MANAGEMENT JOURNAL VOL 6 NO 2

HUMAN RESOURCES IN THE PEOPLE’S REPUBLIC OF CHINA: THE ’THREE SYSTEMS REFORMS

life (guding gong), seeing themselves in mirror as having a second-class status in a ‘dual’ labour market (see White, 1986; Korzec, 1992). By 1993, this number had risen to one in five (see State Statistical Bureau, 1994). While labour contracts were then to be found in many state-owned enterprises (SOEs) - but until recently only for newcomers - they were more common in non- state owned economic organisations such as town and village enterprises (TVEs). The labour force in these factories is more likely to be young, and/or female, as well as of recent rural origin. Lower overhead social costs means, in theory, cheaper labour costs for enterprises, but higher money-wages are sometimes also on offer for such recruits in order to compensate for limited tenure.

With the onset of the Dengist economic reforms, material incentives were gradually introduced (Warner, 1986). New practices were perhaps welcomed by the workers who stood to benefit but others, who were potential losers, were surely resentful. China began to move away from the Soviet-style grading system and to build in greater rewards for flexibility.

We can see from figure 1 the changes from the older Chinese industrial model to the newer experimental one. In this figure, the characteristics associated with the ’iron rice-bowl’ system are set out, such as job security, job assignment, egalitarian rewards etc. In the second column, we find the reformist innovations contrasted with each of 12 characteristics, such as ‘iron rice- bowl’ against ‘labour market’, ‘grade-based’ wages against ‘performance based’ ones and so on. For many SOEs however, the contrast between the old and the new was not necessarily clear- cut.

By 1987, the State Economic Commission had implemented extensive wage reforms (see Korzec, 1992). State enterprises were able to set their own reward levels: workers now received a basic wage, topped up by bonuses and productivity deals. Such reforms were not well- received in trade union circles however (see Chan, 1993). Under the old labour system, dismissals had been very rare (Granick, 1987). With the reforms they became somewhat easier in principle but, in reality, were not extensive - often less than one per cent per annum, with several forms of dismissals varying in severity and depending on the gravity of the offence (Zhu, 1995).

FIGURE 1 Sumrnary ofdifferences in characteristics of the labour-management reforms System

characteristic 1. Strategy 2. Employment 3. Conditions 4. Mobility 5. Rewards 6. Wage system 7. Promotion 8. Union role 9. Management

10. Factory party-role 11. Work organisation 12. Efficiency

Status quo Experimental Hard-line Reformist Iron rice-bowl Job security Job assignment Egalitarian Grade based

Consultative Economic cadres Central Taylorist Technical

Seniority

Labour market Labour contracts Job choice Meritocratic Performance based Skill-related Co-ordina tive Professional managers Ancillary Flexible Alloca tive

HUMAN RESOURCE MANAGEMENT JOURNAL VOL 6 NO 2 33

MALCOLM WARNER, UNIVERSITY OF CAMBRIDGE

THE FIELD INVESTIGATION

In order to better understand the changes taking place, an empirical field-study was carried out by the author in Beijing and the North-East of China (in Heilongjiang and Liaoning provinces) the implementation of the above reforms could be further examined. It covered 10 large to medium sized SOEs as its main focus (see table 1). The firms chosen were located in the cities of Beijing, Dalian, Harbin and Shenyang. In addition, background data was collected from discussions with experts at the Chinese Academy of Social Sciences (CASS) and visits were carried out at three provincial academies, four major municipal and provincial labour bureaux, five university departments, six economic and social science research institutes, as well as one economic development zone and one trade union federation headquarters. Structured interviews were undertaken with senior managers, labour bureaux personnel, researchers and union officials. The fieldwork was completed during July and August 1993.

The enterprises studied The extent of the comprehensive labour reforms implemented within the cities visited was important because of the number of large state firms located there. The pilot enterprises were selected on the grounds that they nearly all play a critical role in the economies of the cities in question and may be seen as role-models for the rest of the state sector.

The variation in age of the organisations investigated was interesting. Four were founded pre- 1914 by the Russians and then run by the Japanese in the North-East, two by the Japanese in the 1930s and four after the liberation, in the late 1940s and 1950s. They were all, therefore, established organisational entities, with the ‘iron rice-bowl’ system well institutionalised.

All the enterprises investigated were state-owned enterprises and were previously either run directly by ministries or bureaux. One of them, Harbin Power Equipment, was still formally under the direction of a provincial-level industrial bureau. Dalian Port was run by the Ministry of Transportation and the City Government. Otherwise, the others were corporations or parts of similar groupings.

Although many state enterprises operate at a loss (it was claimed, for example, that four out of every 10 enterprises in Shenyang were ‘in the red’) nearly all of the enterprises in this sample said that they had made a profit. The average sales turnover in 1992 was just over nine billion RMB and the average profits plus tax were allegedly just under 0.90 billion RMB, a ratio of 1 : l O approximately. However, it is probably wise to take such claims ’with a pinch of salt’!

The range of enterprises’ products was also relatively wide, ranging from iron and steel to pharmaceuticals, but most were in the heavy industrial sector. Seven out of the 10 were in the metallurgy-based sector. Only one was exceptional, Dalian Port, as it provided a service rather than a product, albeit very heavily capitalised.

The size of workforce ranged from 1,300 to 60,000 employees (and 220,000 if the entire Anshan Iron and Steel complex was taken into consideration). The data reported in this article refers to the whole workforce in each of the 10 SOEs studied and not just to sections or departments. This makes the average size just under 20,000 (though it would, of course, rise considerably if the latter was included). The size of such state enterprises also included large numbers who are classed as employees (and who enjoy housing, welfare and other benefits) but who may be actually ’inactive’, namely with little or no work to do. The Chinese use the



phrase ’awaiting work’. In the companies visited, this figure averaged at least 10 per cent of the total work force and increasing, given the recent tighter deployment of manpower.

THE ’THREE SYSTEMS’ REFORMS

Here we look at the specific implementation of the human resources reforms in SOEs in greater detail under the headings of labour and personnel, wage system and social insurance reforms, respectively. The extent of adoption of the ‘three-system’ reforms in the firms investigated may be summed thus: six out of 10 enterprises had placed all their employees on labour contracts and six out of 10 had fully adopted the ‘post plus skills’ wage system. The latter consisted of a basic wage, added to by increments for technical skill-levels achieved, with further bonuses for individual and /or collective productivity achieved. None of the enterprises had failed to adopt the social insurance reforms (see table 1).

Most of the enterprises studied gave an impression of industrial backwardness, with plants frequently dating back to the 1950s (or before). The Dalian Slupyard, for instance, used rather old-style technology. Shenyang Smelting Works and Shenyang Transformers Factory in turn re- called the earlier days of the PRC‘s industrialisation. Some of the Angang Iron and Steel complex was modemised, however (even more of Shougang was). The Harbin pharmaceutical site was also recently built. The industrial plants, as well as the products, mostly belonged to ’first-wave’ industrialisation and to what in the West are called ’sun-set’ industries. The description of ’rust-belt’ may be a little exaggerated but, apart from a few exceptions, many of the SOEs might be dubbed ’yesterday’s’ enterprises. The organisational culture also gave an impression of old-fashioned but worthy industriousness.

On the other hand, a great deal in Chinese industry had improved. Management on the whole appeared to be a great deal more professional and technocratic and, above all, younger than encountered on previous field-trips to China (see Warner, 1986, for example). Managers were also freer to manage under the new reforms and this point was repeatedly made in interviews. Greater autonomy to hire, promote (and even fire) was apparent, although ’lip service’ was usually paid to consultation with the representatives of the workforce, namely the trade union and workers’ congress. Ji and Murray (1992: 164) have, however, argued that the economic reforms have actually undermined participative management. They claim that consultation has declined with the introduction of both the ‘direct responsibility system‘ and ’management contracting system’. The unanticipated effect of these measures, they argue, has been to centralise management decision making. They cite a survey of 386 managers of state and collectively-owned firms, of whom two-thirds were opposed to having to consult workers in the decision-making process (Wang, 1989; 1994).

Labour contracts What then had changed in Chinese workplace relations? The extension of labour contracts to the whole of the workforce in many cases was clearly the most noteworthy finding of the field research. Six out of 10 of the firms studied had all their employees on such contracts, compared with one in five of the state-owned industrial workforce (see table 1). This development may be interpreted in a number of different ways. On the one hand, it represents a parity between new and existing (or long-serving) employees and between workers and staff. There was, however, a separate contract for cadres with a greater emphasis on values and attitudes.


MALCOLM WARNER, UNIVERSIlT OF CAMBRIDGE

According to Easterby-Smith et a1 (1994) managerial selection in Chinese SOEs was based on four criteria ‘good moral practice’ (de), ’adequate performand (neng), ’working hard’ (qin), and ’excellent performance’ (ji) - the first of these being seen as the most important, linked to ’political loyalty’ and ’ability to get on with others’ (1994: 13). Article 4 of the 1986 Regulations on Labour Contracts laid down that workers should also be selected on the basis of virtue, health and knowledge. Virtue (de) has implications of political reliability and correct attitude, but such phrases were not apparent in the workers’ contracts examined in the field work of 1993.

Labour contracts for workers were set out in a matter-of-fact styIe and were restricted to mutual obligations vis-a-vis a set of defined expectations. On the company side, a typical contract stated that:

With regard to production and job requirements, and after entry, the company will employ [name] on the worker’s side to make a labour contract. Both sides willing to obey the State Labour Contract System Regulations have made the following agreement.. .

Sample contract, Shenyang Municipal Labour Bureau, 1992; (for further details see Warner, 1995).

TABLE 1 Summary of selected SOE case studies Labour

workforce Contract Wage SOC. ins

Shougang Dalian Port Dalian Rolling

Dalian Shipyard Harbin

Pharmaceuticals Harbin Power

Equipment Angang

Senyang Smelting Shenyang

Stock

Gold-Cup Auto

Transformers

Enterprise Product(s) 1992 system system system Iron and steel 60,000* 10% Post & skills (16 grades) new Goods handling 25,000

Locomotive 12,000 Tankers, etc 17,000

Penicillin, etc 5,000

Transformers, etc 1,300 Iron and steel 220,000 Auto 39,000 Non-ferrous metals 7,000

Transformers 12,500

100%

10% 20%

100%

100% 10%

100% 100%

100%

Basic & hourly bonus new

Post & skills new Post & skills new

Post & skills new

Partial post & skills new Post & skills new

Basic & hourly & bonus new Post & skills new

10 grades new

* 120,000 employees in city; 220,000 nationally

The company then states how long it will employ the worker, including a probationary period. After this followed clauses relating to management procedures, safe conditions for work and study, protection of worker benefits, bonuses and sanctions and so on. On the workers‘ side, the clauses deal with benefits, discipline, safety and the economic targets. Targets, payments, safety-gear, labour insurance and welfare and contract enforcement details are duly listed. The company received a copy of the contract, as did the worker. Provision is made for labour arbitration or, if settlement of disputes cannot be resolved there, to go to a local court, as now set out explicitly in the new Labour Law of 1994. The copies have to be registered at the Contract Certification Office of the Municipal Labour Bureau. The labour contracts were then


HUMAN RESOURCES IN THE PEOPLES REPUBLIC OF CHINA: THE 'THREE SYSTEMS REFORMS

to be set out in line with Article 8 provisions of the 1986 Regulations, stating that performance targets, contract-period, working conditions, wages, insurance and welfare, discipline, penalties etc were to be listed. The 1994 Labour Law further spelled out the full formal status of these contracts, as well as the provisions for redundancies (for full text of this law, see ILO, 1994).

We must contrast individual labour contracts with collective ones. Many firms had collective contracts in the 1980s and early 199Os, but these did not imply 'Westem-style' free collective bargaining. Such contracts regulated rights and conditions of employment for a whole enterprise's work-force including limited say in management decision-making concerning production matters. The new post 1994 Labour Law collective contract explicitly excludes such formal involvement; very few of the firms visited by the current writer in Beijing in late 1995 had such agreements, the older ones having been rescinded.

The sectoral spread of labour contracts should be noted (see table 2). In 1993,21.9 per cent of all staff and workers in SOEs were contractual, whereas in urban collectively owned units this figure was 15.5 per cent; however, in other units 37.4 per cent had contracts. In Beijing, the figure was 18 per cent; in Guangdong, 19.3 per cent; in Liaoning, 24 per cent. But in Shanghai the figure was 44.1 per cent, the highest incidence (see SSB, 1994 99). By the end of 1995, a survey reported that around 55 per cent of SOE workers and 73 per cent of TVE employees were contractual (China Daily, 26 November, 1995). In addition, many SOEs and other companies took on temporary workers but no firm statistics were available in the Dongbei (Nortbeast) firms visited .

To sum up, labour contracts represent a move away from an institutionalised Mamian world of employment rights - where the industrial worker enjoyed life-time employment as an extension of social rights and where the 'right to work' supplemented the 'right to vote' - towards an economy characterised, in greater part, by market and hence contractual arrangements (see Korzec, 1992 26). Labour contracts of limited duration directly signal, at least at the level of policy intentions, the demise of 'iron rice-bowl' status for workers and 'iron-chair' tenure for state cadres, although actual employment may be extended beyond the period of the contract and assured in a formal or informal way, other than when extreme circumstances like bankruptcy or state policy decisions led to cuts in staff numbers.

TABLE 2 Contractual staff and workers in Chinese industry Year end figure (millions) Percentage (total staff and workers=100)

State owned Urban collective Other State owned Urban collective Other units owned units d w units p- u n i t s w

'83 0.65 0.57 0.08 0.6 0.6 0.3 '84 2.09 1.74 0.32 0.08 1.8 2.0 1.0 8.1 '85 4.09 3.32 0.72 0.05 3.3 3.7 2.2 11.4

'86 6.24 5.24 0.92 0.08 4.9 5.6 2.7 14.5 '87 8.73 7.35 1.25 0.13 6.6 7.6 3.6 18.1 '88 12.34 10.08 2.06 0.20 9.1 10.1 5.8 20.7 '89 14.68 11.90 2.45 0.33 10.7 11.8 7.0 25.1 '90 17.02 13.72 2.87 0.13 12.1 13.3 8.1 26.3

'91 19.72 15.89 3.23 0.60 13.6 14.9 8.9 28.0 '92 25.41 20.58 3.99 0.84 17.2 18.9 11.0 29.8 '93 31.23 23.96 5.26 2.00 21.0 21.9 15.5 37.4

Source: SSB, 1994: 99



Payment systems reforms What have been the main changes for Chinese workers in their working lives in the early 1990s? Even if Westem-style labour markets seem far away, what the Chinese call a ‘labour service market’ has now been slowly introduced (see Gao, 1994): Many workers have fixed-term contracts; apprenticeships have been reformed; training has been expanded for both workers and managers in most SOEs. Even so, some workers have remained resistant to change and the seasoned observer will remain sceptical about reforming entrenched personnel practices in the short to medium term. There has been a fundamental change in the way Chinese workers are rewarded, however. Reward systems now stress material benefits, a move welcomed by the more productive workers. As some firms did much better than others, a bonus tax was introduced to make sure personal incomes did not get out of line. Many enterprises have frequently paid equal (or almost equal) bonuses to all their employees. Workers are said to have become increasingly calculative and that the ‘red-eye disease’ (another term for jealousy) had consequently become widespread within the ranks of the lower-paid as a reaction. So as to stress ‘fair play’, bonuses were rotated on a monthly rota around different groups of workers. Perhaps differentials were greater than in the past, but they seem to have been much less than in Western firms, according to Child’s (1990; 1994) research. Average pay in his sample, for example, varied with age, seniority, job level, and enterprise bonus levels.

It can be seen from the earlier accounts of the ’three systems reforms’ (see Warner, 1994) that the new personnel changes had set out to enhance promotion possibilities according to merit and performance, or so it was claimed. As the reforms had only recently been introduced and as no hard statistics were available to reveal significant shifts in practice, one must remain sceptical for the moment as to the degree of change.

TABLE 3 Stufjlworkers‘ wages in Chinese industry (% total wages) 1978 1993

Total - 100 - 100 Time and standard wages 85 46.6 Piecework wages and bonuses 3.1 23.3 Subsidies 6.5 25.1 Others 5.4 5.1

Source: SSB, 1994: 115

The reforms followed on the heels of an earlier ‘set reform of wages’ (gongzi tuogui) by which the grades were systematised and streamlined into a uniform national scheme designed by the Ministry of Labour and Personnel in the mid-1980s. This move occurred because the earlier ’structural wage reform’ (linking wages to enterprise profits) had led to various kinds of problems, notwithstanding inter-unit pnnbi (namely, seeking higher wages without economic justification) often due to the lack of labour mobility as managers tried to maintain staff morale. Indeed, across-the-board wage increases followed to compensate for rising prices in the mid and late 1980s, often triggered off by protest from both staff and workers (see Takahara, 1992: 157 ff). As a result, new wage-scales for workers in SOEs were promulgated (1992: 172).

The post-1992 wage system reforms were more or less consistent with a new standard model, again imposed from the top by the reformers, namely the ’post-plus-skills’ formula (see Warner 1995). This package involved awarding points, as noted earlier, towards a basic wage


HUMAN RESOURCES IN THE PEOPLES REPUBLIC OF CHINA: THE ‘THREE SYSTEMS REFORMS

for the responsibility of the post, plus technical skills acquired as well as a bonus for performance targets achieved. However, as noted earlier, only six out of the 10 firms investigated had adopted the full scheme.

Since 1993,16 provinces and cities have already set their minimum wage levels, although such minima are very difficult to enforce (see China Labour Bulletin, April 1995: 10). Among them are Beijing, Fujan, Guangdong, Shandong, Shanghai and Zheijang. The highest minimum rates in early 1995 were 380 yuan per month in Zhuhai, in the coastal areas of Guangdong province, and the lowest 120 yuan further inland in Shaanxi.

In the 10 casestudies investigated, it was clear that the ’post-plus-skills’ element varied by firm and individual bonus-payments in 1993. For example, in Angang the average monthly wage of approximately 350 yuan incorporated bonuses amounting to around 80 yuan; in Harbin Power Equipment it was 280 yuan and approximately 90 yuan respectively; in Shenyang Smelting, there was a wage of 300 yuan with a bonus of 110 yuan.

These proportions for performance-linked bonuses (in the last three examples) somewhat exceed the proportion in the official statistics concerning wage composition in SOEs for the end of the 1980s, when 16.9 per cent was cited for bonuses (SSB, 1991) which had lately risen, if piecework wages are included, to 23.3 per cent (SSB, 1994). Over the period, the percentage workers gained through their basic wage fell from 85 per cent to just under 50 per cent, representing the expansion of the ’floating wage’ (see Takahara, 1992: 124 ff) - it is now below this figure (see table 3). At the same time, the level of subsidies went up three-fold in the 1980s (see Leung, 1993: 65-65) and are now four-times higher, if 1978 and 1993 are compared. Real wages, however, rose less rapidly in the period of the Seventh Five Year Plan covering 1986-90.

Nonetheless, the wage system appears to suffer from incoherence and arbitrariness as opposed to oversystematic management (Korzec, 1992: 54-74) and this view has been endorsed by other observers who have carried out recent fieldwork in the PRC (for example see Leung, 1993: 66). Inter-group conflicts were increasingly noticeable. The growing inequality of income distribution has reportedly led to greater worker resentment and even industrial action (see Chan, 1993: 39 ff). The losers were ’the old, the physically weak and women, deprived of the welfare to which they had previous access’ (Takahara, 1992: 151). The workers in SOEs were often not exactly quiescent, even though they were relatively well off vis-a-vis their counterparts in TVEs.

Social insurance reform What then has happened to the ’cradle to grave’ social protection Chinese workers had enjoyed since the 1950s? With the ‘iron-rice bowl’, comprehensive welfare coverage had previously been the privilege of SOE employees mainly in the urban sector (Minami, 1994 217). Total work related insurance and other welfare costs amounted to as much as over 500 yuan per worker per year, even excluding low-cost housing. Rents were very low, absorbing just under 1.5 per cent of the average family income. A state employee in a 50 square-metre flat might have benefited to the tune of nearly 100 yuan per annum for administrative and maintenance costs (Minami, 1994: 217). Until recently, SOEs had run their social welfare scheme on behalf of their own employees, but a transfer of such costs to the individual worker was in train. In the enterprises studied in the Northeast, all of the sample had implemented the 1992 social insurance reforms, but they had complied less consistently vis-a-vis the labour contract and wages reforms. At the time, few large state firms had taken up the social insurance changes nationally.



TABLE 4 Unemployment in urban areas Unemployed youth as

Year percentage of unemployed 1952 1957 1978 47.0 1980 70.6 1983 81.8 1984 83.1 1985 82.6 1986 79.2 1987 85.0 1988 82.8 1989 81.8 1990 81.6 1991 81.9 1992 83.2 1993 79.0

Unemployment rate percentage

13.2 5.9 5.3 4.9 2.3 1.9 1.8 2.0 2.0 2.0 2.6 2.5 2.3 2.3 2.6

Source: S S B , 2994: 206

The introduction of unemployment insurance was a wholly new and crucial part of the 1986 labour contract regulations - 'without precedent in the history of labour relations in state socialist countries' (Korzec, 1992: 43). It affected workers made redundant in SOEs reorganising so as to avoid being closed down or becoming bankrupt or where labour contracts had expired or where they had been sacked. The 1994 Labour Law (implemented in early 1995) fully legitimised redundancies for the first time (see LO, 1994; Zhang, 1994; Warner, 1996). The unemployment insurance fund was to be one per cent of the total standard wages in the enterprise as relating to workers and staff but excluding temporary employees. The standard and time wages represented, in 1978, over 85 per cent of earnings of workers and staff but was down to just over 45 per cent in 1993 (see table 3).

If unemployed, workers (of five years standing) would receive between 60 to 75 per cent of the standard wage for the first year, and then 50 per cent of the remaining period up to the end of the second year. If workers had their contracts terminated they would officially be entitled to one months standard wage for each year worked up to 12 month's share, but this would be deducted from their dole. In reality, most workers outside SOEs have little or no unemployment protection.

The unemployment insurance fund also has to cover welfare benefits and pensions for those whose SOE has had to close (a limited number, however). As well as this, re-training expenses for displaced workers had to be met out of the fund to support those 'waiting for work' and to help re-integrate them into the working population. Many SOEs have no funds to pay pensions or welfaxv benefits, maybe one in three, or even as many as one in two (see China W o u r Bulletin, various issues in mid-1994). Only just under 80 million urban workers (about half of those eligible) are participating in the old-age insurance scheme since it was reformed in the mid 1980s. Peasants (of whom there are 500 million) are not included, unlike the former Soviet Union (see Walder, 1995: 971). However, in the field of social insurance, a recent report



concludes that ‘substantial progress has been made towards defining some degree of consensus concerning the overall direction and mechanisms of reform’ (see White and Shang, 1995: 17). Currently, a national social security reform is in preparation. Creating such an unemployment insurance scheme clearly recognises that ‘fullemployment‘ is now off the agenda in urban China and that a ‘labour market’ is most certainly on it. The official statistics of unemployment (of whch a high percentage were youth) are set out in table 4. The urban jobless total may be much higher, let alone the rural equivalent figure. An urban figure of 2.8 per cent overall has been cited from 1995, but estimates made by Hong Kong based Chinese labour dissidents (see China Labour Bulletin, various issues in 1995) claim these figures may well be higher. Official estimates envisage urban unemployment rising to 3.4 per cent in 1996 (Reuters news-agency report, 2 January 1996). While officially at 5 million, the urban unemployment total is much higher, notwithstanding the 30 million or more who have little or nothing to do at work. In addition, between 60 and 90 million peasants have moved to the towns and cities to find work, leaving many others idle in the countryside.

CONCLUSION

China now faces a trade-off between modemisation and full employment. The ‘three-systems’ human resources reforms of the early 1990s were an attempt to accommodate this dilemma. Three points may be made: firstly, although individual labour contracts were introduced, these were mainly to clanfy the nature of tasks given to workers and their rights in work as well as the responsibilities of employers; secondly, the wage system moved to a more performance based one, although it seems to suffer from ‘incoherence and arbitrariness as opposed to oversystematic management’ (Korzec, 1992: 54-74), and finally, there was a move to introduce social insurance to protect workers where the ‘iron rice-bowl’ at the enterprise level was phased out but as yet had not been extended to all. Since the fieldwork was completed in the Dongbei, it has been claimed that the labour contract and social insurance reforms have now been extended to a wide number of large and medium size SOEs across China. Over 40,000 state enterprises have reformed their systems ‘to keep them in line with the emerging market economy, affecting over 15 million workers’ (see Beijing Review, 29 August 1995: 4).

Additionally, the wage reforms were extended to over 30 million workers in such enterprises (1995: 5). Even so, many SOEs investigated by the author in late 1995 in the Beijing area had not yet adopted individual labour contracts and very few had implemented the new collective contracts. China’s goal, however, is to adueve 100 per cent labour contract coverage in its enterprises nationally by the year 2000. The reforms present a number of problems for the policy- makers in Beijing. Walder (1995: 973) argues that if ‘economics is now in command’, and this involves substantial downsizing in SOEs, the political fall-out could be considerable . Similarly, if subsidies are taken away from loss-making SOEs and the standard of living undermined by rising prices and growing joblessness (without a nationwide welfare safety net in place) China faces a difficult period of transition in the mid and late 1990s (Gittings, 1995: 8-9). On the other hand, moves towards a nascent labour market are a first step towards greater ‘convergence‘ with either Western or East Asian personnel practice and are of no small interest to HRM managers in overseas companies interested in business collaboration with Chinese state-owned enterprises (Child and Lu, 1996). Such changes, even if ‘with Chinese characteristics’, are positive steps towards the search for a more flexible use of human resources.



ACKNOWLEDGMENTS The field-work reported in this article is based on research in Northeast China which was sponsored by the British Academy / ESRC/ CASS exchange scheme, whose generous support was appreciated. I must acknowledge the contribution of Ms Ding Yi and Ms Wang Wei, who acted as interpreters and translators during the visits to enterprises and the Institute of Industrial Economics, Beijing, for their collaboration.

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