Transnational Capital and the State in China: Partners in Exploitation

Gerard Greenfield

WHILE THE WORLD’S attention focused on 1997 as the year in which Hong Kong was reunified with China, the World Bank’s attention centered on the incorporation of its neoliberal policies on privatization and labor market deregulation into the agenda of China’s ruling elite.

Indeed, while people around the world waited to see if there would be sudden changes in Hong Kong after reunification, there were very dramatic changes within China with the announcement of a massive privatization program that would see the dismissal of 50 million workers and further deregulation of the labor market. The final remnants of the “three irons”—the iron rice bowl, iron armchair and iron wage (representing job and wage security and lifetime employment)—were thrown out; replaced by the iron heart, iron face and iron fist.1

After two decades of “gradualism,” the World Bank could finally celebrate its neoliberal “shock therapy” at the international meeting of the World Bank/IMF in Hong Kong in September. The meeting also highlighted the fact that China is now the World Bank’s biggest debtor, owing more than US$28 billion and borrowing an average of US$3 billion every year.

Behind this celebration of privatization, greater “labor flexibility,” and billions of dollars in World Bank loans, lies the interests of transnational capital and its growing influence over trade and investment in China. As the Hong Kong-based protest movement “Solidarity Against the World Bank/IMF” has pointed out, the destruction of job and income security, the sacking of tens of millions of workers, and the withdrawal of government subsidies and protection for local industry serves the interests of a ruling elite that is in partnership with transnational capital.

As in other countries around the world, neoliberal structural adjustment and economic liberalization policies serve to increase the power of Transnational Corporations (TNCs) and give them greater freedom to accumulate massive profits at great social and ecological cost to local populations.

In addition to the whip of “labor flexibility” and mass unemployment, which lowers workers wages and further weakens their capacity to take collective action to defend their rights and interests, TNCs benefit from the opening up of domestic markets, and mergers and takeovers of privatized and bankrupted firms. The neoliberal project also ensures that the central and local states continue to provide incentives for foreign investment, while having even less capacity to regulate and control the activities of foreign capital.

Of course, all this did not happen overnight. The partnership of interests between transnational capital and the Chinese state was formed during two decades of an “open door” policy of attracting foreign capital in order to “modernize” the country. When the “Four Modernizations” program was launched in 1978, it was announced that rapid development and growth would be achieved by “using capitalism to develop socialism.” This was later called “market socialism with Chinese characteristics.”

Most important of all, “Deng Xiaoping thought” declared that exploitation would be tolerated, especially in the Special Economic Zones and “open cities” which would act as “windows” on the global economy, by attracting foreign capital to a cheap and disciplined labour force.2 At the same time the local party-state bureaucracies exercising authority over the special economic zones and open cities established a direct partnership of interests with foreign capital through joint ventures and other business deals.

As a result, Deng’s “tolerance” for exploitation became unlimited, with over 30 million workers in the zones facing severe working conditions, widespread industrial accidents, and the systematic repression of their attempts to organise and protest.3

In foreign-invested factories and joint ventures a strict regime of discipline is encoded in workers’ contracts, and notices are posted in factories listing fines and physical punishments for speaking or drinking water during working hours, being late, wearing name tags incorrectly, sitting or resting, going to the toilet too often, and so on.4 In a factory where there is a complex system of forty-six rules and regulations, eighty percent of the workers are fined monthly.5

This system is policed by private security guards and officers of the Public Security Bureau and local militias within a wider system of surveillance that relies on “bird-cage management systems” (where workers are locked in factories and dormitories) and other forms of physical control and isolation both during and after working hours.6 Just recently on September 21, 1997, there was another case of workers killed in a factory fire (a Hong Kong-owned shoe factory) in Fujian Province, where they were locked in the factory and could not escape because of iron bars on the windows.

Before discussing the impact of TNCs on workers in more detail, it should be pointed out that we are not suggesting that foreign capital now dominates the Chinese economy under some sort of “new imperialism.” The ruling political and economic elite and the state are not powerless in the face of transnational capital, but have formed indirect and direct linkages to foreign capitalists which underpin a partnership of interests.

Furthermore, there are numerous large state-owned enterprises which have emerged as powerful conglomerates under the control of the family members or allies of political leaders. These conglomerates are likely to survive competition with foreign capital, and—along with some large-scale private enterprises in China—have already become TNCs themselves.

There are Chinese TNCs investing all over the world, such as the garment industry in Cambodia and Thailand, energy in Vietnam, the meat and mining industries in Australia, and steel making in the United States. As such, when we speak of the growing power of TNCs in the global economy, we must take into account the new TNCs headquartered in mainland China.

Transnational Capital and Workers

Rather than attempting an overall assessment of foreign capital in China, we will deal specifically with the way in which the investment and production strategies of East Asian TNCs have created particular problems for workers—both in their working conditions and in their capacity to organize.

Four aspects of East Asian TNCs’ activities will be discussed: subcontracting by TNCs; the role of small- and medium-scale TNCs; the relationship between TNCs and Township and Village Enterprises; and the involvement of right-wing unions from East Asia in supporting the activities of TNCs in China.

In recent years there have been many studies of TNCs in China, particularly the operations of the world’s largest and well-known manufacturers such as General Motors, General Electric, Uniliver, Samsung, Toyota and Mitsubishi. Less attention has been paid, however, to the subcontractors of these TNCs and the activities of small- and medium-scale companies which have “transnationalized” by relocating their manufacturing to China. These two categories of enterprise are of course interrelated, since the subcontracting networks of large TNCs often include smaller TNCs from their home countries.

TNCs employ different subcontracting strategies. Companies like Toyota, for example, brought their subcontractors with them when establishing operations in China rather than seeking out local suppliers and subcontractors. In other cases, the subcontractors seem to lead the shift in production—such as Nike’s subcontractors Yue Yuen (Taiwan) and Samyang (South Korea), which both established factories in China and Vietnam to produce Nike sports shoes.

Yue Yuen has four factories in China, with the factory in Dongguan employing over 50,000 workers. (Another factory with the capacity to employ up to 60,000 workers is being built in Vietnam, in addition to its existing factory in Dong Nai Province which employs 10,000 workers.) This also illustrates they way in which small- and medium-scale enterprises in East Asia are becoming large-scale TNCs through their role as subcontractors for other well-established TNCs.

Other TNCs tend to establish their own subsidiaries or joint ventures rather than subcontracting out work. This is because of the uncertainty of the ability of local producers to meet the quality standards and strict delivery deadlines of the TNCs. However, once these TNCs have established a network of trustworthy and reliable suppliers and local partners, they begin to subcontract-out work. This leads to a reduction in the number of workers in the main plant.

In many cases workers are transferred from the main plant to subcontractors, where wages are relatively lower and where workers have less job and income security. It is also common for machinery and equipment to be sold to subcontractors as part of the new production arrangements.

While these subcontracting strategies impact on working conditions and workers rights in different ways, they generally result in relatively lower wages and working conditions, longer working hours and a lack of job and income security. The reason for this is that TNCs exercise greater control over workers through indirect means:

  • TNCs encourage intense competition between subcontractors by issuing and withdrawing orders. Subcontractors must compete to meet production orders at the lowest cost and in the fastest time possible. As such workers face downward pressure on their wages, longer working hours and an increase in the pace and intensity of work.
  • Increases in production costs, including labor costs, must be borne by the subcontractor and not the TNC, so subcontractors use more repressive labor practices and prevent workers from taking collective action to demand wage increases.
  • TNCs do not have to pay bonuses, social security, and other benefits to the workers. Again, this cost must be covered by the subcontractors. They avoid paying these benefits by refusing to provide workers with contracts or hiring them only as temporary workers.
  • TNCs can increase or cut orders according to changes in local and overseas markets. Subcontractors attempt to reduce the impact on their profits by making the workforce as flexible as possible, thus denying workers even basic job and income security.
  • There is also a tendency for subcontractors to shut down and relocate according to the needs of TNCs, which means that workers are uncertain of how long their jobs will last and can easily be left jobless and with unpaid wages.

This uncertainty of workers’ employment and wages is not only a problem under TNC subcontracting. It is a widespread problem in small- and medium-scale enterprises (particularly family businesses) which have shifted production from Hong Kong, Japan, South Korea and Taiwan to mainland China.

Employing less than 100 workers, these firms have low levels of investment and often face financial problems and cash shortages. Even small increases in production costs, particularly land and rent prices, will lead to plant closure or the relocation of production to cheaper industrial areas. These problems are immediately passed on to workers.

For example, in January of this year, twenty-nine workers signed one-year contracts to work at a Sino-Japanese joint venture producing medical equipment in Chengduo. After only five months the workers were told to take unpaid holidays and to return to work when notified. According to their contracts the workers had not been dismissed, so they could not leave to find other jobs. Their lives became difficult because they were all migrant workers from other provinces and could not pay rent for their rooms or send money home.

When the workers chose a representative to try to negotiate with the management, the manager said that the worker was not a legal representative and refused to discuss their problems. At the same time, there was conflict between the joint venture partners because the Japanese partner failed to pay his capital contribution and could not be contacted. Most of the workers have been forced to go back to their provinces empty handed, while all them go without wages-—but they are still “employed”!

Even where these small- and medium-scale TNCs are not facing economic problems, they will withhold workers’ wages or pay them irregularly to prevent them from being able to leave to find better jobs. This has become common practice in the light manufacturing industry in Fujian Province.

These small- and medium-scale TNCs also employ undocumented migrant workers, who are paid less and are under constant threat of being turned over to officials by employers. Even those migrant workers who are working “legally” are forced to hand over their ID cards, residency documents and entry permits to their employers, which prevents them from being able leave on their own accord.7

Strict control over migrant workers was further institutionalised in 1996 when laws were introduced requiring that migrant workers be registered under family planning centres. Proof of sterilisation cards issued by family planning centres must be held by migrant women workers when they apply for jobs in Fujian.8

Overall, workers in small- and medium-scale enterprises face the same problems of flexibility and uncertainty as workers under TNC subcontracting. Other problems commonly faced by workers in small-and medium-scale TNCs include the following:

  • There is a higher proportion of women workers than in large-scale factories. This is based on the exploitation of the gender division of labor under which women’s work is viewed as less valuable and less skilled than men’s work, so their labor is considered to be cheaper. In addition, there are more repressive systems of control over women workers, including verbal and physical abuse.

  • Health and safety standards are generally lower due to low levels of investment in plant and equipment. Often unsafe second-hand or outdated machinery and equipment is used as a cost-saving measure.

  • Even where machinery and equipment is new, workers are subjected to capitalist time-work discipline, which causes accidents because of the speed of work and the absence of rest breaks.

  • Small- and medium-scale factories are often hidden from view, in old apartment buildings or warehouses, and many are not even properly registered. Employers can ensure their factories remain hidden from the law through bribery and corruption.

Township and Village Enterprises (xiangzhen qiye) originated in the commune brigade enterprises (shedui qiye) of the 1950s, although they only became known as such when the market reform policies of 1984 encouraged their profit-making activities. This led to a proliferation of TVEs, increasing from one and a half million in 1978 to 25 million in 1993, employing over 123 million workers.9

Despite the claim by some Western socialists that TVEs represent a form of “actually existing socialism” in China today, they are in fact capitalist enterprises characterised by the “fusion of local and foreign capital interests.”10 Many TVEs are in fact controlled by transnational capital through joint ventures (mostly with Hong Kong-based capital) or subcontracting arrangements.

Typically, foreign joint venture partners have a dominant position on the board of directors or agreements are signed which place strategic control of the enterprise in the hands of foreign capital. In addition, local political authorities including the local party secretary often receive a direct income from these foreign joint ventures. This guarantees the partnership of interests between the local state and foreign capital.11

More recently TVEs are being sold off to foreign capital. For example, the local state’s “restructuring” of 13 000 enterprises in the Guangxi Zhuang Autonomous Region over the next three years is based on “entire or part of the assets and workforces of the local enterprises in the form of buying or even holding of the stock by foreign investors or selling of the property rights in part or in whole to foreign investors.”12

In TVEs which have formed a joint ventures with Hong Kong-based capital, a high proportion of workers are temporary. A recent study of a TVE paint factory found that only eight of the seventy-eight workers have permanent employment, and the rest are contract and temporary workers who are “available on the labour market.”13 Even the contracts of permanent workers allow them to be easily terminated for “incompetence.”14 In other cases the director is free to hire and fire workers, and the only employee who cannot be dismissed by the director without the approval of the local Township Industrial Office is the chief accountant.15

At the same time workers must pay security deposits when they begin work at TVEs, sometimes paying the equivalent of two months’ wages, which is only refundable after a couple of years or, more commonly, only if the director permits them to resign.

Working conditions in TVEs are often worse than in 100% foreign- owned factories. The newspaper Hunan Workers’ News reported a case in which the manager of a TVE in Hunan carried handcuffs and an electric truncheon in the factory to deal with “dissenting workers.” Since 1993 the manager has kept a guard dog which is used to threaten and attack workers.

While the workers’ monthly wages were reduced to 50 rmb (less than half the legal minimum wage of 125 rmb), the factory pays 120 rmb in monthly expenses for the dog. One of the workers complained that: “Our lives cannot compare to that of a dog!”16

While this is an extreme case of the abusive labour practices in TVEs, it illustrates the fundamental character of these factories: the excessive power of managers; strict discipline and punishment to control workers; and the use of threats and coercion as the “engine of productivity.” This has led to hazardous working conditions and a high rate of industrial accidents and occupational diseases in TVEs.17

According to China Women’s Daily over a third of all TVEs violate official standards on health and safety.18 When a TVE lighter factory in Guangdong province burned down in September 1995, twenty-three workers were killed and over sixty were injured. All of them were women workers with the youngest only 15 years old.19

Following the privatization program announced at the 15th Communist Party Congress in 1997, the “colonization” of TVEs by local and international capitalists has been intensified. This includes the buying up and liquidation of TVEs by international private fund managers. One of these funds, the World Development Fund based in Hong Kong, is targeting TVEs for its acquisitions—buying up TVEs and sacking most of the workers—using US$1 billion worth of workers’ pension funds from Europe and the United States.

Hong Kong’s ruling political elite has responded to the current financial crisis with the bailout of large securities companies (nationalizing private sector debt), freezing migrant workers’ wages, privatizing public housing, and cutting taxes for the weathy middle class. While this will worsen the situation for Hong Kong’s working class, it is important to recognize that beneath this is a severe recession from which the Hong Kong Special Administrative Region will not recover.

This economic decline began in the deindustrialization of the 1980s, when over half a million workers lost their jobs as capitalists shut down their factories and moved them across the border into southern China. Within a ten-year period 13% of the Hong Kong workers lost their jobs, and in manufacturing more than 30% were permanently laid off.

Although laid-off workers were told they would find better jobs in the service sector, wages are lower and (like anywhere in the world) there is virtually no job or income security. Added to this is age and gender discrimination in the service sector, which means that women over 30 have found it extremely difficult to find jobs. If they do, they end up earning less than half the wages they earned in their previous factory jobs.

According to a 45-year-old unemployed woman worker, “Sometime ago, I was looking for a $5000 a month job (half of what I earned!), and I found nothing . . . .One of my coworkers found a cashier job at Hong Kong Telecom for some $3000 a month (in 1989) . . . that’s 60 per cent less than her factory job.”20

For the World Bank this represents the “successful transformation of employment opportunities” a “successful” experience that now shapes the Bank’s policy advice on “labor flexibility” in China.21

Despite the need for international solidarity and support for workers’ struggles in China, we are instead seeing growing support within the international trade union movement for the government-controlled All China Federation of Trade Unions (ACFTU)—which is actively involved in the repression of workers’ rights.

While trade union officials prevent workers from striking, independent labour activitists and organisers continue to be imprisoned for “subversion” and are subject to “re-education through labour” for up to ten years. This repression is openly supported by the ACFTU, which refuses to accept the right of workers to organise independently and their right to freedom of association.

The Secretary General of the ACFTU, Xiao Zhen-bang, announced in 1994 that “unions must try all means to eliminate instability” and ensure that “unexpected incidents” be prevented by working with the party and state to consolidate control from above.22 These “incidents” and “instability” refer to the strikes and other self-organising activities of workers.

While the ACFTU claims to be protecting workers’ rights and interests, it fosters both indirect links to transnational capital (maintaining labor discipline and industrial peace) and direct links (involvement in profit-making business activities with domestic and foreign capital).

The ACFTU has even turned labor laws and regulations into a profitable exercise. According to new regulations on trade unions in foreign-invested factories and workplaces in Shanxi province, enterprises with foreign investment must pay two percent of the wage bills to the trade union as union dues. Those enterprises that refuse to allow legal trade unions must instead pay this money to the next level up of the trade union, that is, to the local trade union federation which is part of the ACFTU. This means any foreign employer can refuse workers the right to form a union simply by paying two percent of the wage bill to the ACFTU!23

At this conference last year I made the point that right-wing unions within the Asian & Pacific Regional Organisation (APRO) of the International Confederation of Free Trade Unions (ICFTU), particularly Rengo (the Japanese federatio—-ed.), are demanding that the ACFTU be permitted to join the ICFTU. In promoting pro- business unionism throughout Asia, Rengo has found common ground with the ACFTU in China, particularly in its strategy of organising workers on behalf of management and the government.

More importantly, Rengo continues to ensure that management-controlled enterprise unions are promoted in Japanese TNCs operating in China. In fact, small- and medium-scale businesses in Japan which are seeking to relocate to China have lobbied Rengo to establish ties with the ACFTU in order to create a stable business environment.

Rengo and other business unions moved a step closer to achieving this when the ICFTU-APRO sent a high-level delegation to visit China in September. Instead of visiting arrested trade unionists as the ICFTU guidelines on visits to China require, the delegation instead visited the Great Wall.

Moreover, they praised the “unique” system of protection of workers’ rights and trade union rights in China. Despite widespread evidence of repression and the systematic violation of workers’ rights, “The delegation was particularly impressed with protections for workers and trade union rights in the Special Economic Zones (SEZ).”24

Official visits like these are an important part of the ACFTUs own strategy of becoming part of the mainstream international labour movement and receiving external support (including financial resources) and legitimation of its internal activities. Training programs and exchange visits with Rengo have already taken place, and will eventually lead to the ACFTUs entry into the ICFTU.

When I wrote about this trend towards global business unionism late last year, I concluded that:

Global business unionism promotes a very limited set of rights, while supporting the neoliberal policies that are creating a global economy dominated by transnational capital. If this new global business unionism continues to grow, there will be a danger that international trade union solidarity will become more about cooptation than cooperation.25

The formation of a new business partnership between the ICFTU-APRO and the ACFTU has confirmed this danger, as the space for a genuine workers’ movement in China is further diminished, and the interests of transnational capital are once more guaranteed.


  1. Changkai (ed.) Laodong Guanxi, Laodongzhe, Laoquan: Dangdai Zhongguo de Laodong Wenti (Labor Relations, Laborers and Labor Rights: Contemporary Chinese Labor Issues (Beijing, Chinese Labor Publishing House, 1996), 111.
  2. See Wu Jie, On Deng Xiaoping Thought (Beijing: Foreign Language Press, 1996).
  3. “Zone workers,” Asian Labour Update, 18 (May-July 1995), 5-7.
  4. “Notice to all workers of the xxxxx Enterprise Company Limited,” Asian Labour Update, 21 (April-July 1996), 24; The Flip-side of Success: The Situation of Workers and Organising in Foreign-invested Electronics Enterprises in Guangdong (Hong Kong, China Labour Education and Information Centre, 1996), 7.
  5. Labour Rights in the Pearl River Delta (Hong Kong: Asia Monitor Resource Center, 1996).
  6. The Flip-side of Success: The Situation Of Workers and Organising in Foreign-invested Electronics Enterprises in Guangdong (Hong Kong: China Labour Education and Information Center, 1996), 11.
  7. Apo Leong, “Beasts of burden,” Asian Labour Update 16 (July-September 1994), 5-8.
  8. South China Morning Post, July 4, 1996.
  9. China Statistical Yearbook 1995 (Beijing, China Statistical Publishing House, 1995), 363-64.
  10. Paul Bowles and Xiao-yuan Dong, “Current successes and future challenges in Chinas economic reforms,” New Left Review 208 (1994), 75.
  11. The content of joint venture agreements is discussed in Liu Xiao Meng, “Zhen dier nilong fuzhuang chang diaocha (Survey of a garment factory),” and Shi Xiu Yin, “Zhen yulong zhong chang diaocha (Survey of an eiderdown factory),” in Marong and Wuqing Duan (eds), Zhongguo Xiangzhen Qiye Diaocha (Survey on Township and Village Enterprises) (Oxford: Oxford University Press, 1994), 165-195, 343-395.
  12. China Economic News, July 15, 1996.
  13. Liu Shi Ding, Liu Ke Bai, Shi Xiu Yin and Wang Han Sheng, “Zhen tuliaochang diaocha (Survey of a paint factory),” in Marong and Wuqing Duan (eds), op. cit., 413.
  14. Liu Xiao Meng, “Zhen dier nilong fuzhuang chang diaocha (Survey of a garment factory),” in Marong and Wuqing Duan (eds), ibid., 183-85.
  15. Liu Xiao Meng, “Zhen neiranji peijianchang diaocha (Survey of an engine components factory),” in Marong and Wuqing Duan (eds), ibid., 100-104.
  16. Hunan Workers’ News, August 2, 1996.
  17. China Labour Bulletin (April 1996), 12.
  18. China Women’s Daily (January 3, 1996). Translated in China Labour Bulletin (July 1996), 7.
  19. China Labour Bulletin (April 1996), 4.
  20. Stephen W. K. Chiu and Ching Kwan Lee, “Withering Away of the Hong Kong Dream? Women Workers Under Industrial Restructuring.” Occasional Paper No. 61. Hong Kong: Hong Kong Institute of Asia-Pacific Studies, June 1997, 31.
  21. World Bank, Involving Workers in East Asia’s Growth. Washington: World Bank, 1996, 14.
  22. “Repression of independent unions by the ACFTU,” China Labour Bulletin (November 1995), 10.
  23. Information translated and provided by Tim Pringle, China Labour Bulletin, Hong Kong.
  24. CFTU-APRO Labour Flash, September 26, 1997.
  25. Gerard Greenfield, “Global business unionism,” Asian Labour Update 22, August-October 1996, 4.

ATC 73, March-April 1998