Human Resources Management in China: The Contemporary Period

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Introduction

The contemporary period of time is the epoch of rapid economic growth and development, with innovative technologies, strategies and techniques of conducting business affairs that let the countries succeed and gain competitive advantage in the world economic arena. The 20^th century has been marked by a series of changes that reshaped the picture of power distribution in the world – it is enough to mention the collapse of the USSR and the drastic change it brought about. Thus, the world image is evolving and the economic potential appears to become more dynamic, affluent and changing.

The country’s potential traditionally depends on a set of characteristics that include, first of all, a set of governmental policies on economic growth, the approach to arrangement of education and training, employment and working conditions, the system of attracting the intellectual potential of the country and preventing it from migrating to more attractive countries etc. It goes without saying that a country that chooses economic growth as a major perspective for the nearest future has to take all these factors into consideration – in other way the strategy of innovation and growth will become a complete failure.

The subject of the present paper is China – this country has recently moved from a reactively constructed communist structure of arrangement of economic activity, with the Chinese government realizing the power of innovative approach to conducting business affairs. The two major legislative breakthroughs that marked the beginning of the new era in economics in China were the Labor Law of 1994 and the 2007 Labor Contract Law.

Actually, these two new laws express the radical shift in the Chinese attitude to human resources that used to be highly traditional and diminished the importance of individual peculiarities, rights, freedoms and privileges of the Chinese. According to the changes undertaken in the country’s economy in connection with adoption of these two laws it is possible to efficiently assess the level of economic development of China and define whether it has successfully moved to market economy.

Within the past decade the country underwent a profound change in its economic structure, being oriented at rapid economic growth, thus adopting a set of innovative policies concerning wages, labor conditions, arrangement of the system of education and nurturing the experience at various stages of the production process. At the present moment it is possible to say that much has been done in the discussed context, so the current situation needs thorough assessment in order to understand whether the initial goals of China have been achieved.

Assessment of the current economic situation in China

The assessment of the current economic situation is a complex and multi-faceted issue in the process of which many elements have to be taken into consideration. According to the opinion of Zhou Jianxiong (2009) speaking about the innovative development stages in China the process comprises the following set of characteristics that have to be taken into consideration.

“The commonly recognized elements may include abundant capital, solid industrial bases, strategic energy and raw materials, a high level of science and technological development and, above all, talented human capitals. Of all the resources that a country can rely upon to maintain its development, talented individuals are the most vital ones”.

Thus, it is necessary to take a thorough look at the elements of the economic process that underwent the deepest change and that were realized as the prime movers of progress so desired by China. However, one should understand that the analysis should be undertaken from the point of view of legislation – the laws mentioned in the introductory section had the major impact on the change, thus becoming the main perspective of the research.

Wages

As one can see, the growth of wages was drastic within the past 15 years, affecting the overall level of well-being and public welfare very positively – with the legislative elimination of lifetime employment working places could be obtained on a competitive basis, thus the free labor market began to emerge, with growing salaries making work in particular organizations more attractive. The second figure shows that the stability in growth was achieved by the end of the period, by the decreasing tempos of change and leveling the situation with the GDP level and salary fluctuations.

Note: from Waldman, C. (2004). ‘The Labor Market in Post-Reform China: History, Evidence, and Implications’. Business Economics, 39(4), pp. 50-62.

It is notable that some specialists attribute a key role to wages in the context of economic growth of China, because this indicator has more potential than some people may have suggested. As, for example, Waldman (2004) states that “wage levels in China will undoubtedly have some impact on the future of production outsourcing from the United States and other industrialized nations, as well as the development of new Chinese consumer markets. Wage growth is fundamentally important to the future of China as a global economic force”.

However, the main emphasis of the economic breakthrough was made on the national growth, which attracted enormous sums of FDI and made the company attractive not for outsourcing but for investment and collaboration.

Note : from Waldman, C. (2004). ‘The Labor Market in Post-Reform China: History, Evidence, and Implications’. Business Economics, 39(4), pp. 50-62.

According to the results of Waldman (2004) it is possible to assess the dynamics of change in wages in the following way. Looking at the pre-reform China in 1952-1977, it was clear that no positive dynamics was observed in the growth of ages: real wages grew at the rate of 0.1%. Economy was isolated, self-focused and governmentally structured. The failure of state sector to satisfy consumer tastes was realized in 1980s, so the leading position was decided to be given to private, collective and foreign-invested ventures (Waldman, 2004).

In the 1990s weak labor market and negative conditions did not affect wages, with state sector wages growing at 11% per year, with 9-12% in the manufacturing sector. Urban collective sector was also marked with strong growth (6.5-7.5%) (Waldman, 2004). The researchers state that the main source of the Chinese wage dynamic is labor supply.

Making an inference from everything that has been said in the present section, it is possible to admit that China is moving to the market economy, but still it cannot be assessed as such. Chinese wages are still too different from region to region; the labor force movement from rural to urban areas is highly evident; the rate of wages is surely growing but still remains inadequate as compared to average payment for the same work in other developed countries. So, the forecasts for future are positive, provided the employee education is paid adequate attention to; but at the present moment too much has to be done to call the Chinese economy a market economy from the point of view of wages.

Labor conditions

The main factor to be taken into consideration while speaking about the Chinese labor conditions is the fact that before 1970s the economy was government-planned. So the change initiated in this context involved transformation from the lifetime employment to the contract-based employment. China existed under the socialist rule that presupposed security of jobs, so people were hired for the lifetime, at times even being able to pass the job down to their heirs, thus exercising employment inheritance (Ngok, 2008).

Despite the seemingly good labor conditions providing the security and protection of working places by the government (especially under the Ordinance of Labor Insurance of 1951) the result of these actions was negative – state-owned enterprises had low labor productivity as people were not motivated (Ngok, 2008).

The system was stagnating, productivity was shrinking, so the government decided to create an innovative system of employment and labor opportunities by giving workers a chance to create job opportunities themselves. The need for a labor market was continuously recognized, and the National Conference on Labor and Employment in 1980 was a logical conclusion for the tendencies evident in the state. As bonuses and wages used to be not linked to performance, it was decided to arrange an experimental innovation and to introduce the labor contract system in 1980. The first labor contracts were concluded in 1986 and were a real breakthrough for China that has never experienced such liberalization before (Ngok, 2008).

“remuneration was linked to worker’s performance. The state controlled the total amount of wages and salaries and the system of guaranteed minimum wages and salaries, but the employers had the right to determine the levels of wages and salaries… labor law began to play an increasing role in regulating labor relations. More and more labor policies took the form of labor legislation…the danwei system practiced in SOEs was dismantled, which meant that workers had to make their own contributions to their welfare and benefits” (Ngok, 2008).

The 1990s also brought about the diversification of labor relations, growth of non-governmental sector of the Chinese economy, so together with positive changes negative tendencies also began to be observed: labor disputes, strikes and protests became a natural reaction of employees to the failure of the state to keep to the rules the government created to rearrange the labor market. Everybody realized the need for a general, unified law that would protect the employees and would provide them with freedoms and rights. Finally, the Labor Law was adopted in 1994.

“To sum up, the Labor Law was China’s first attempt to establish a relatively sound basis for the development of labor relations suitable for a market economy without democratization” (Ngok, 2008).

However, the Labor Law appeared to be not completely kept to, so the number of labor disputes grew at an astounding speed and mostly concerned the issues of insurance, benefits, remuneration etc. The largest drawback of the Labor Law was in its inability to provide protection for migrant workers who were exploited and discriminated in the urban areas (Ngok, 2008).

The activist movement headed by Hu Jintao and Wen Jiabao was mostly concerned over the issues of social justice and equality of rights for migrant workers. Their activities brought about another set of regulations to be established in 2003 that cared for the abolition of discrimination of migrant workers, provision of training for them to gain a chance to struggle for better-paid jobs, and for strengthening of control of justice (Ngok, 2008).

The result of the whole process was the adoption of the Labor Contract Law in 2007 – it took into consideration both the interests of employees and employers and became a rational solution to the existing range of labor problems in China. However, looking at the current employment and labor conditions situation, one can see that even despite the adoption of these two laws that became a breakthrough for the socialist China, still there are many cases of discrimination, exploitation and unfair terms for Chinese workers. An example may be taken from observations of Hong Xue (2008) in the electronics production area of Stone Town famous for its being one of the leading manufacturing regions in China:

“Working conditions are rather terrible in most of the electronics factories in Stone Town, especially in small ones. The local government fails to enforce labor standards effectively and even turns a blind eye to the exploitation of migrant workers” (Xue, 2008).

Thus, it is possible to suppose that the dispute over labor conditions is continued in China, as the discrepancies between the legal side of the issue and the actual state of affairs are drastic, making people seek protection of the government failing to provide it. Work on the change is still being done as China is moving forward in its long-term economic growth plan, so there is still hope that the system of provision of employment will be reformed to a more sufficient level. So far it is impossible to state that the Chinese labor market corresponds to the world pattern of market economy, and this aim can be achieved only as soon as the legislation is brought into coherence with the real state of affairs in employment and provision of fair labor conditions.

Talent and education. The role of universities

It goes without saying that in the context of the contemporary change and innovation the economic system of China is going through the country badly needs talented and educated employees who would be able not only to perform some executive functions at the modernized enterprises but would be able to organize the management and marketing process in the country. China lacks administrative staff due to certain cultural peculiarities and lack of appropriate education that was not arranged on the legal basis for a long time – “the Cultural Revolution created a “missing generation” of talent aged 45 to 55, so expatriates fill most jobs at the top” (Ready et al., 2008).

Besides, the country experiences huge lack in marketing specialists because of insufficient economic education that appeared only about half a century ago thus not managing to provide substantial theoretical and empirical basis for further activities and research in the economic sphere. Marketing is one of heading professions needed in the process of economic growth and development. But China, with its socialist history, has no economic potential in education, so the question is raised on where it should take qualified personnel to perform these functions.

“Ironically, perhaps, marketing in China does have a history; it stretches back over sixty years. Marketing was first found as a course in Chinese universities in the 1940s. The first Chinese language marketing textbook was published in 1943, and a marketing curriculum had been introduced in Chinese universities before 1949” (Basu and Guo, 2007).

Curriculum for the MBA degree was created in 1998, independent doctoral degree programs were established in 2002, so the active work on the creation of local economic education and its intensive promotion are evident. So, now marketing is a very important discipline, counting for more than 15 business schools offering MBA education (Basu and Guo, 2007).

However, the practical side of this knowledge implementation is a weak point o Chinese education. Lack of empirical knowledge makes education non-applicable, depriving students of practice and diversity. This fact constitutes a grave problem because the country urgently needs practical marketers who will be able to enhance the country’s economic development, will adapt and implement innovative series of products generated in China and will detect and correspond to the changing consumer needs in the free global market of the 21^st century (Basu and Guo, 2007).

The country experiences deep deficit at upper and middle management levels, such as regional and country leadership because of lack of skills due to the recent historical and cultural background of China. The country seeks development but has no human resources to guide it. On the contrary, the lowest levels of employment are experiencing surplus in labor supply. The reason for this again lies within the borders of organization of education in China:

“Young workers are flooding the marketplace, but because education quality varies greatly among schools, many of them have inferior preparation or lack language skills” (Ready et al., 2008).

It is widely known that a developed market economy requires professionals in the economic sphere as it cannot function without the intellectual potential, having only labor resources and production capacities. Consequently, the way to establishment of a developed economy involves practical, professional education in all spheres connected with economic growth and development, which is unfortunately not observed in China so far.

Experience in various functions and levels

Technological development of China goes without saying as it is the issue being paid major attention to under the conditions of economic growth. According to the opinion of Hui Yongzheng, Vice Minister of the Ministry of Science and Technology of China voiced in 2006, the governmental plan is to revitalize the country through science and technology, thus reinforcing its economic potential. So the main focus of economic growth is made on such fields of activity as “computer software, telecommunications, environmental protection, finance, computer-aided services, technological consulting, education and professional training industries” (Zhao, 2008). The country has good opportunities for creation of technological potential, but the issue of human resources is more problematic, so it acquires central attention nowadays:

“The current conditions are as follows: first, the capacity of the market restricts the demands of corporations and society for human capital; second, physical capital assists the formation of human capital from the two aspects of employment opportunity and salary level; third, the desire and reasonable expectation for a high salary will influence the formation of human capital; fourth, time and preference have some effects on the demand for human capital formation” (Zhao, 2008).

The sphere of management also experiences lack of human resources so the country is urged to attract foreign managers to administer the process of economic formation o the country. Though education in the leading economic fields is intensified and promoted, there is still no human resources capital to provide for the growing needs of China in the sphere of top management positions.

Conclusion

Analysis of findings about China being a market economy or not, the level of its development. Assessment of risks and opportunities for partnering countries.

It goes without saying that the production potential is the guiding force in the success of China in the world arena. A set of reforms in labor legislation as well as the arrangement of education and modernization of the production process all contribute to the establishment of a new pattern of Chinese economic activity. The tempos of annual GDP growth allow international specialists in economy speak about the potential dominance of China in the world market in the nearest future. However, since the topic of the present paper is human resources management, it is worth mentioning that still the major power China has as its potential for further growth is seen in its growing labor supply.

Since infants born in 2005 will enter the work force in 2021, forecasting China’s working-age population to 2025 is not difficult (see Table 1). China’s workforce, defined to include nonstudents aged 16–65, will continue to grow slowly until about 2015 and then begin to decline, resulting in a 2025 figure that matches the projected total for 2010 (Perkins and Rawski, 2008).

In addition, it is worth mentioning that the advantage of China in labor supply is seen not only as quantitative, but as qualitative as well. It is projected that in the nearest future the rate of educated people in China will grow and senior high education diplomas are projected to be held by 20.2% (2015), 21.7% (2020), 23.2% (2025). Tertiary education is planned to become the privilege of 7.2% (2015), 10.8% (2020) and 14.7% (2025) (Perkins and Rawski, 2008).

Discussing the level of economic development of China and assessing its being a market economy, one should admit that the introduction of the Labor Law in 1994 and the Labor Contract Law in 2003, together with the movement of the country towards a more liberal and privatized economy during the past couple of decades, brought about much positive change in the framework of economic activity of the country, making it more developed as compared to the planned economy the country used to have.

However, it is surely evident that the country still experiences major problems in the sphere of human resources management because of the traditional ay of thinking and arrangement of the working process, reluctance of employers to transform to more democratic and humane working conditions and to provide the employees with fairer pay and treatment. Legislative basis for this shift has been created but its implementation into everyday practice is hard and long-lasting.

One more problem that should be taken into consideration is lack of managing personnel of local origin, which limits understanding of overall market tendencies by foreign managers occupying leading positions in Chinese companies.

Lack of local intellectual potential in strategically important spheres of economics, management and marketing moves the country backwards on the way of its economic development, so even under the conditions of economic growth and development China cannot be called country with a developed market economy. Investors and potential partners planning collaboration with Chinese organizations should surely take into consideration the fact that the manufacturing potential of the country is tremendous, the country is moving along its way to becoming an economically developed country, but it still has many problems connected with management of human resources in a democratic, competitive way.

Bibliography

Basu, K., and Guo, G.-G. (2007). The Need for Reforms in Chinese Marketing Education. Ivey Business Journal, 1(6), 7 pp.

Jianxiong, Z. (2009). All Roads Lead to Home. Beijing Review, p. 2.

Ngok, K. (2008). The Changes of Chinese Labor Policy and Labor Legislation in the Context of Market Transition. International Labor and Working-Class History, No. 73, pp. 45-64.

Perkins, D.H., and Rawski, T.G. (2008). Forecasting China’s Econoic Growth to 2025. China Business Review, pp. 34-39.

Ready, D. A., Hill, L. A., and Conger, J. A. (2008). Winning the Race for Talent in Emerging Markets. Harvard Business Review, pp. 62-70.

Waldman, C. (2004). The Labor Market in Post-Reform China: History, Evidence, and Implications. Business Economics, 39(4), pp. 50-62.

Xue, H. (2008). Local Strategies of Labor Control: A Case Study of Three Electronics Factories in China. International Labor and Working-Class History, No. 73, pp. 85-103.

Zhao, S. (2008). Application of human capital theory in China in the context of the knowledge economy. International Journal of Human Resource Management, 19(5), pp. 802-817.

Outline

Introduction
- contemporary changes of the global economy
- Chinese innovative approach to economy and HR management
Assessment of the current economic situation in China the need to perceive change in a complex way
- Wages
  - tendencies in wage growth in pre-reform China
  - the emergence of non-state sector
  - wage dynamics in 1990s
- Labor conditions
  - government-paned economy
  - creation of labor market
  - the Labor Law of 1994
  - the Labor Contract Law of 2003
- Talent and Education. The role of universities
  - lack of administrative, top management personnel
  - young sphere of marketing education
  - education promotion
- Experience in various functions and levels
  - directions of economic growth
  - crisis of management
Conclusion. Analysis of findings about China being a market economy or not, the level of its development. Assessment of risks and opportunities for partnering countries
- – the necessity of tracking Chinese development
- – predictions of labor supply
- – educational forecast
- – conclusions and implications for partnering countries.

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