Rising Inequality and its Discontents in China

There has been a meteoric rise in inequality globally over the last three decades, both in developed economies such as the United States and United Kingdom and in emerging economies such as China and India. Oxfam International calculates that the richest 1 percent of the world population has close to 50 percent of global wealth in 2015; and, unless challenged, the level of inequality is likely to rise even further.[i]

Agreement on the problem of inequality runs across the political spectrum. The International Monetary Fund (IMF) called widening income inequality the defining challenge of our time” in 2015[ii] The International Trade Union Confederation (ITUC) contends in a 2012 report that “economic inequality has become a threat to the global economy and to the life of millions of people worldwide. Redistribution of wealth and in particular of income is urgently needed both among and within countries.”[iii]

In the United States, rising inequality has been associated with the ascent of neoliberalism, the breakdown of post-War social contract and the decline of the country’s labor movement, indicated by the low-level of union density and strike activity. Something similar happened on the other side of the globe in China almost at exactly the same time. China’s state-led market liberalization since the late 1970s has dismantled the planned economy, constructed a market-oriented economy, restructured the Chinese working class and sanctioned economic inequality as a necessary price for China’s economic modernization.

China’s rising inequality has been obscured (for many, justified) by the economic boom that brought higher incomes and living standards to hundreds of millions of urban and rural people. According to the China Household Income Project, per capita income increased from $200 to $5,000 between 1990 and 2010, with urban poverty practically eliminated and rural poverty substantially reduced.[iv] But the growing disparities in the distribution of incomes and wealth inside China have been equally astonishing, with well-recognized social and increasingly political implications.

Rising inequality has sparked a multitude of efforts to challenge an economic system that so transparently concentrates wealth in the hands of a tiny minority while leaving the majority with stagnant or declining incomes. In the United States, the Occupy Wall Street movement and the Fight for $15 campaign have reflected the popular anger as well as an organized attempt to challenge the system.

In China, manifestations of surging inequality have also caused deep social disenchantment, recognized as such by the government as a threat to a harmonious society. However, blocked from engaging in the political arena, the discontent finds its expression on the street. Rural and urban protests and riots are a daily occurrence in China, estimated to be in excess of 10,000 a year. While inequality is rarely the immediate catalyst, it has underlined much of the spontaneous, if localized and diffused, revolts from below against conditions of unequal economic and by extension political power.

The scale and severity of China’s economic inequality since the 1980s are especially astonishing when judged against the relative egalitarianism from the 1950s to the end of the 1970s. Wage differentials in state employment were miniscule and politically the regime was hostile to wealth accumulation. Inequality between different types of employment and across regions and the urban/rural divide existed, but the overall level of inequality was not significant.

However, market liberalization has completely reversed this. In terms of the commonly used Gini co-efficient, China has risen from 0.3 in the 1980s to 0.49 in 2012.[v] This figure places China in the league with some of the most unequal societies in the world. In terms of wealth concentration, a 2015 survey by Peking University’s Institute of Social Sciences finds that the top 1 percent of households own one third of China’s total wealth – a figure similar to that in the United States, while the bottom 25 percent of households share only 1 percent.[vi] In addition, the wealth created by Chinese workers has been highly unevenly distributed between workers and managers/owners. A study of employee compensation as a percent of GDP found that labor’s share has been in continuous decline from 51.4 percent in 1995 to 42.4 percent in 2007.[vii]

Explaining the soaring inequality that has taken place within such a short period of time and what can be done to address it requires an appreciation of the state-led transformation of the Chinese working class since the 1980s. At the center of this transformation is a process of labor commodification,[viii] through a dual process of deconstructing the state-employed working class and constructing an exploitable new rural migrant working class.

Transforming the Chinese Working-Class

The restructuring of the state-sector economy initiated a process of labor commodification by replacing an increasing percentage of permanent workers over time with short-term contract and temp workers hired through a de-regulated labor market, and undid the relatively egalitarian wage system by widening wage differentials and encouraging management to incentivize profit maximization. Restructuring accelerated in the 1990s with massive retrenchment of state-employed workers and the privatization of state- and collectively-owned enterprises. It is estimated that 30-40 million state-employed workers lost their jobs, of which many were never able to secure equivalent ones because of their age and lack of formal education and forced to survive on meager state unemployment and low-income assistance. The destructive impact of this process on the lives of working-class communities still reverberates today in the Rustbelt regions of northeast China, and undermines the life-chances of the children of laid-off workers. Even for those fortunate enough to retain their state employment, the function of the “work-unit” (danwei), as China’s workplace was called in the Mao era– as a social welfare regime that provided education, healthcare, pension and housing has been substantially eroded.

Over the same period, the Chinese government has ushered into existence a semi-proletarianized, rural migrant working class as the core of the new labor force. Inequalities between rural and urban and between the hinterland and coastal regions at the start of market liberalization propelled massive rural-urban migration into the export-oriented manufacturing sector, urban construction and a growing urban service sector. There are more than 270 million migrant workers today, about a quarter of the national labor force, and these continue to grow although at a slowing rate. Institutionalized through a system of rural-urban household registration that restricts the urban residency of rural migrants and denies them the social provisions available to urban residents, the migrant worker system helps ensure the exploitation of rural migrant labor as low-wage and floating workers, retarding the development of stable labor organizations.

Rural-urban inequality may also have deepened gender inequality. China’s rural women migrants, long considered docile and passive by factory management, were among the first to be exploited during export-led industrialization.[ix] And they continue to be subject to gender-based discrimination in recruitment and promotion as well as wages: more than 70 percent of urban female employees have reported such discrimination according to a government study.[x] Although critics have long called for the phasing out of the household registration system and its ingrained institutionalized discrimination against rural migrants, it has only been relaxed in second and third-tier cities to allow more rural migrants to register as urban residents.

Eroding Social Protection

The Chinese government’s partial withdrawal from social protection has undermined economic security, diminishing workers’ social security, pension, housing and education, and entrenched inequality. Although the last decade has seen an expansion of basic social welfare, it is inadequately and poorly enforced for the economically disadvantaged.

The replacement of a workplace-based social welfare regime by a national social insurance and pension system has exacerbated inequality as a higher percentage of workers’ incomes now go to formerly free and highly subsidized healthcare, housing and education. While social insurance coverage has expanded to include pension, healthcare, unemployment assistance, workers compensation and maternity leave and a separate housing fund, employers’ compliance with social insurance obligations has been consistently low. This is especially the case for migrant workers: injury insurance covers 26.2 percent of migrant labor force, health insurance 17.6 percent, pension 16.7 percent, unemployment 10.5 percent, maternity insurance 7.8 percent and housing fund 5.5 percent, according to 2014 official figures.[xi]

When it comes to migrant workers, employers routinely ignore labor legislations regulating wages, overtime, work injury, severance payment and social insurance contributions. Some of the largest strikes in recent years have been to demand companies to pay social insurance, particularly old-age pensions. To further complicate things, many migrant workers prefer not to pay into the social insurance scheme so as to not give up a percentage of their very low wages, and access to pension funds across provinces for migrants remains problematic.

Another issue is housing affordability. Whereas state-sector workers before labor market deregulation might have been able to live in assigned apartments, this is only possible now for a small percentage of senior workers—and has never been possible for migrant workers. Urban housing prices have increased multiple-fold in the last decade, and affordable public housing is scarce. Millions of migrant workers, living in crowded dormitories and “villages in city” may never be able to afford an apartment, making it extremely difficult for migrant workers and their families to settle in cities.

The situation is aggravated by an unequal educational system, which excludes many children of low-wage migrant workers from the urban public school system. Those who do get in generally receive a technical instead of a professional education, thereby helping to entrench and reproduce inequality.[xii] And as the second and third generation of rural migrant workers are settling in the cities, having lost agricultural skills and becoming accustomed to urban lifestyles, there is a dire need for social services and better education and employment opportunities.

To its credit, since 2004 the government has maintained a double-digit, locally-adjusted annual increase in minimum wage, greatly improving the incomes of low-wage workers. It has recognized that raising workers’ disposable incomes will also help increase domestic consumption, which many see necessary for balancing the Chinese economy. However, regular increases in the minimum wage remain inadequate for seriously addressing rising inequality, as the cost of living increases rapidly in Chinese cities.

Political Response to Social Conflicts

The Chinese government has rightly viewed rising inequality with serious concern, fearing that the widening gap between the rich and the poor will fracture society and precipitate instability. Between 2010 and 2014, the number of labor legal disputes increased from 600,865 to 715,163 with most cases related to wage, social insurance and severance compensation, both in export-manufacturing and in the construction and the service sectors.[xiii] In the majority of these, workers are able to either win or reach a compromise through mediation and arbitration, which may help to expand migrant worker awareness across different sectors and regions. Although the government does not release statistics on strikes and labor protests, these are estimated to be in the thousands each year. For example, China Labour Bulletin’s Strike Map logged 2,774 workers’ collective actions for 2015, which based on available public and social media accounts is considered an underestimate.[xiv] An informal but reliable source of data on social protests recorded 10,425 cases of labor protests and demonstrations for 2015.[xv] And the Minister of Human Resources and Social Security cited 11,007 incidents related to unpaid wages, the single most frequent cause of labor disputes, in the first nine months of 2015, a 34 percent jump from a year ago.[xvi] While a lot of wage-related labor disputes are aimed at recovering unpaid wages, others are more direct and explicit in demanding wage increases, better working and living conditions and social insurance contributions.

Helping make workers more confident in defending their rights is the adoption of labor legislation and regulations, including the revised Labor Law, the Labor Contract Law, the Labor Dispute Mediation and Arbitration Law, the revised Work Safety Law, and the Social Insurance Law. The most significant of these, much debated at the time, is the 2008 Labor Contract Law,[xvii] which protects job security, for instance, by requiring employers to offer long-time workers longer-term contracts and by making it costly to fire workers due to mandatory severance pay. However, labor contract coverage has remained low among sectors of the rural migrant labor force, owing to lack of enforcement. According to the National Bureau of Statistics, in 2015 only 36.2 percent of migrant workers had signed a labor contract.[xviii] And it still leaves many who lack the legal knowledge and resources to challenge employers.

Skyrocketing labor disputes, and the growing capacity of migrant workers to take collective action are the most significant challenges to growing inequality to date. The migrant labor system has been predicated on creating a new working class with no history of organizing and networks. Inexperienced and disorganized, migrant workers have taken many years to become aware of their legal and labor rights, and to learn to use the laws and legal procedures to protect themselves. Rural migrant workers, who have borne the brunt of market liberalization, are spearheading a nascent working-class movement to counter growing inequality through collective action.

Stalled Union Reforms

The increasing incidence and intensity of workers taking direct action that entirely bypasses the official trade union federation has alarmed the government. While the “right to strike” was conveniently removed from the Constitution in 1982 at the precise moment China deregulated its labor market, strikes have not been made officially illegal. Indeed, workers have seized upon strikes as a way to force concessions from employers, using a combination of informal bargaining and overt forms of collective action such as street demonstrations, protests and strikes with increasing sophistication. Significantly, strikes put pressure not only on the employers but also on the local government and local branches of the All-China Federation of Trade Unions (ACFTU) to speedily resolve disputes, as those demanding wage rises, in particular, have stood out as a potent symbol of class-based economic inequality.[xix]

For many years, the reform of the ACFTU has been firmly on the government’s political agenda. Because the ACFTU has served in effect as an extension of the Party-state bureaucracy, Chinese workers are excluded from playing a role in the policy-making process. Union representation is virtually absent at the level of the workplace, mirroring the absence of workers’ political representation at the national level. The lack of institutional and organizational representation for resolving labor disputes and wage bargaining is the main reason why workers resort to direct action. In response, there have been some notable union reform initiatives by Shenzhen and Guangzhou Federation of Trade Unions aimed at improving capacity to represent workers and resolve disputes, such as campaigns to increase unionization, hold election for union representatives, and the recruit more professional union cadres as mediators of labor disputes.

One of the key union reforms in the last decade is designed to institute a mechanism of tripartite collective bargaining as recommended by the International Labor Organization (ILO).[xx] But enterprise bargaining is blocked by employers, unless forced by workers’ collective action or government intervention. It is also inherently weak and prone to managerial manipulation. An alternative to enterprise bargaining is industry-wide, sectoral bargaining, examples of which emerged in the 2000s, particularly in the Yangtze River Delta where villages are dominated by a single industry, such as textiles. One of the most important experiments was in the woolen sweater industry in Wenling, Zhejiang Province.[xxi] In the late 1990s, after escalating labor disputes and strikes for higher piece-rates over several years, factory owners decided to enforce industry-wide wage standards. But when this failed and strikes grew, the local government stepped in to establish a local, sectoral labor union and an industry association, and brought them together to hold annual collective bargaining sessions under the supervision of the local branch of the ACFTU. However, this has not been generalized across the country, largely because the conditions conducive to industry-wide bargaining are specific to the local economic structure.

Today it seems that a combination of as the export-sector slowdown and the fear of the empowering effect of collective bargaining, as well as the intrinsic limit of top-down reform, have resulted in efforts to promote collective bargaining and serious union reform being stalled, if not already taken off the political agenda.

A New Normal of Inequality?

China’s economic growth rate dropped from 14 percent a year before the global financial crisis to about 7 percent in 2015. The manufacturing industry has been especially affected by the slowdown, leading to layoffs, factory closure and relocation. In early 2015, government ministers issued statements arguing that workers’ wages were growing too fast and labor laws becoming too inflexible. Beyond this, in Guangdong Province, where export-sector manufacturing is concentrated, the provincial government is freezing wage increases for the next two years in an effort to reduce labor costs. A dozen provincial and municipal governments have lowered the percentage of social insurance contribution that companies and employees have to make to alleviate pressure on business. Moreover, a regulation aimed to limit the use of casual, temporary agency workers that went into force in March 2016 has effectively been shelved, with the government showing little appetite for enforcement.

The economic and political space for lifting workers’ incomes is shrinking. This is evident in the case of recent manufacturing sector strikes in southern export-processing zones (EPZs), which in previous years focused on wage demands, but are now limited largely to demands for severance payments and other forms of compensation as factories lay off workers, relocate elsewhere or simply close down. Employers are even less willing to make wage concessions, and local authorities have offered little support for workers, threatening to reverse previous worker gains.

As the manufacturing slowdown precipitates even more labor protests, the government has become highly vigilant about workers’ organizing. While workers have mostly limited themselves to economic demands, the fact that they organize and collectively negotiate with management presents a political challenge in the long-term. As more labor activists and worker centers intervene in strikes to help organize workers, local governments have harassed workers and staged crackdowns. During the most recent crackdown, in December 2015,[xxii] dozens of labor activists in Guangzhou were detained and questioned, and four have been charged with criminal offenses and await trials. While labor protests will not simply disappear, constraints on organizing will make it increasingly difficult to address the problem of rising inequality.

However, with the economic boom ending and social conflicts rising, inequality can no longer be justified on the ground of economic growth or tolerated by the public or the government.  As we have seen, the Chinese government has over the last decade promoted pro-labor legislation, at least limited reforms of the state-affiliated ACFTU and social policies that grant protection to workers. However, these have not seriously reduced inequality. Except for a brief moment during the global financial crisis, economic inequality has continued to soar.

More fundamental steps are needed to address rising inequality, not only as a way to boost domestic consumption but also as an issue of social justice. Thus in the short-term, minimum wages need to increase faster to keep pace with rising living costs. In the medium-term, allowing workers to organize and participate in collective bargaining at the enterprise and at the industry and sector level is also essential. For this to happen and be sustained over time, workers need to be able to democratically elect their union representatives without management interference. In the long-term, a social welfare regime, with an expanded social insurance and healthcare system covering all employees and properly enforced, is important for providing a safety net. For migrant workers, the government should act to completely eliminate the household registration system, which has prevented them from gaining access to social welfare in the cities where they work, and register their children into the public schools in these cities.

None of these reforms is possible without sustained advocacy and mobilization by Chinese workers and their allies. China’s working class movement has its own dual organizational and ideological challenges: it has to become more organized at the industrial level as a social force pushing for greater equality, and articulate not only particularistic economic demands but also distinctly social demands in relation to economic inequality. The latter requires the movement to overcome the ideological hurdle posed by the legacy of state socialism by dissociating the argument for economic equality with the much-maligned equality of poverty alleged by critics. These are monumental challenges, but an organized labor movement is the best hope against widening inequality becoming the new normal in China.

 

Notes

[i] Oxfam International, “Richest 1% will own more than all the rest by 2016”, 19 January 2015, https://www.oxfam.org/en/pressroom/pressreleases/2015-01-19/richest-1-will-own-more-all-rest-2016

[ii] Era Dabla-Norris, Kalpana Kochhar, Nujin Suphaphiphat, Frantisek Ricka & Evridiki Tsounta

Causes and Consequences of Income Inequality : A Global Perspective, the International Monetary Fund, 15 June 2015, https://www.imf.org/external/pubs/cat/longres.aspx?sk=42986.0

[iii] International Trade Union Confederation, “A new distribution of income and power – ITUC paper on inequality”,

7 November 2012, http://www.ituc-csi.org/a-new-distribution-of-income-and,12363.html

[iv] Elizabeth Stuart, “China has almost wiped out urban poverty. Now it must tackle inequality”, Guardian, 19 August 2015, https://www.theguardian.com/business/economics-blog/2015/aug/19/china-poverty-inequality-development-goals

[v] Gini coefficient is a measure of inequality as a figure between 0 and 1, where 0 equals perfect equality and 1 equals total inequality (one person owns all of the wealth); Gabriel Wildau & Tom Mitchell, “China income inequality among world’s worst”, Financial Times, 14 January 2016, http://www.ft.com/intl/cms/s/0/3c521faa-baa6-11e5-a7cc-280dfe875e28.html

[vi] ibid.

[vii] Hao Qi, “The Labor Share Question in China”, Monthly Review,  Volume 65, Issue 08, 2014, http://monthlyreview.org/2014/01/01/labor-share-question-china/

[viii] Eli Friedman & Ching Kwan Lee, “Remaking the World of Chinese Labour: A 30-year Retrospective.” BJIR : An International Journal of Employment Relations, 48.3, 2010

[ix] Jenny Chan, “Chinese Women Workers Organize in the Export Zone”, New Labor Forum 15(1): 19-27, 2006

[x] Yang Hui, “Urban Women’s Gender Discrimination Issues in Employment”, Women of China, 6 September 2012, http://www.womenofchina.cn/html/womenofchina/report/144652-1.htm

[xi] National Bureau of Statistics, “Migrant Workers Monitoring and Investigation Report 2014”, http://www.stats.gov.cn/tjsj/zxfb/201504/t20150429_797821.html

[xii] Eli Friedman, “Outside the New China”, Jacobin, Issue 11-12, 2013, https://www.jacobinmag.com/2013/09/outside-the-new-china/

[xiii] National Bureau of Statistics, China Statistics Yearbook 2015, http://www.tjsql.com/data.aspx?d=162708

[xiv] China Labour Bulletin, “Strikes and protests by China’s workers soar to record heights in 2015”, 7 January 2016, http://www.clb.org.hk/en/content/strikes-and-protests-china%E2%80%99s-workers-soar-record-heights-2015

[xv] See Wickedonna, http://newsworthknowingcn.blogspot.com/

[xvi] “Ensure the Payment of Migrant Workers’ Wages before Chinese New Year”, People’s Daily, 21 December 2015, http://finance.people.com.cn/n/2015/1121/c1004-27839815.html

[xvii] For an evaluation of the Labor Contract Law, see Mary Gallagher, John Giles, Albert Park & Meiyan Wang,  “China’s 2008 Labor Contract Law : Implementation and implications for China’s workers”, Human Relations, Vol. 68, No. 2, p. 197-235, 2015

[xviii] National Bureau of Statistics, “Migrant Workers Monitoring and Investigation Report 2015”, http://www.stats.gov.cn/tjsj/zxfb/201604/t20160428_1349713.html

[xix] See Parry Leung, Labor Activists and the New Working Class in China: Strike Leaders’ Struggles, New York: Palgrave Macmillan, 2015

[xx] See Chang-Hee Lee, “Industrial Relations and Collective Bargaining in China”, ILO Working paper No. 7, 3-4 October 2009, http://www.ilo.org/ifpdial/information-resources/publications/WCMS_158350/lang–en/index.htm

[xxi] See Xiaoyi Wen & Kevin Lin, “Restructuring China’s State Corporatist Industrial Relations System: the Wenling experience”, Journal of Contemporary China, 24 (94), 2015

[xxii] For background on labor NGOs in China, see: Yi Xu, “Labor NGOs in China: Mobilizing rural migrant workers”, Journal of Industrial Relations, 2013 (2)