China: 'Smashing the iron rice bowl' -- expropriation of workers and capitalist transformation

"Managers have powerful market-based incentives that their predecessors did not—fines, bonuses and the threat of termination." Graphic by Jon Berkeley.

By Joel Andreas

October 2011 -- China Left Review, #4 -- In debates about whether the economic order that is emerging in China after three decades of market reforms can be called capitalist, the main focus has been about trends in the relative importance of private and state enterprises and the role of the state in the economy. These are important issues, of course, involving fundamental features of capitalism. Much less attention, however, has been given to employment relations.

In this paper, which focuses on the restructuring of urban enterprises beginning in the early 1990s, I argue that the dismantling of the old “work unit” system and the elimination of permanent job tenure have effectively severed ties between labour and the means of production. This has changed not only the nature of employment relations, but the fundamental goals of economic enterprise, establishing the foundations for a capitalist economic order.

In developing this analysis, I draw on theories developed by Karl Marx as he struggled to comprehend the momentous changes produced by the rise of industrial capitalism in Europe during the 19th century, a process that has important parallels in China today.

In my reading of Marx, the most profound consequence of the rise of capitalism was the separation of labour from the means of production and the development of a capitalist-style wage labour system. In the past, the peasant had been tied to the land and the artisan to the shop. The new system expropriated the means of production from the peasant and the artisan and concentrated them in the hands of the capitalist. Previously, the relations of production had been defined by multifaceted social relationships and intricate systems of kinship and social status; the advent of capitalism, Marx argued, dissolved all these and replaced them with market exchange, a “naked cash nexus”. Complex property relations based on shared use rights were replaced by unambiguous private ownership. The petty producers, reduced to propertyless proletarians, were compelled to sell their labour power to the owners of capital in exchange for wages.

The separation of labour from the means of production, Marx reasoned, fundamentally changed the purpose of economic activity. In the past, production had been largely organised by the direct producers, that is, peasant and artisan households, and the ultimate aim had been consumption. Capitalism gave production a new purpose—maximising profit in order to accumulate capital. While peasant and artisan households could not fire household members and were responsible for meeting their consumption needs, the capitalist enterprise had no long-term obligations to its employees. It could, therefore, hire and fire employees according to the technical requirements of production and the economic requirements of the market, allowing it to make profit maximisation its ultimate goal.

In this paper, I will first discuss the work unit (danwei) system, which was the organisational basis of China’s urban economy between the 1950s and the early 1990s, and then discuss the subsequent dismantling of this system and the restructuring of work units as corporations (gongsi). In both sections, I will focus on the relationship between employees and the enterprise. I will then consider the very different kinds of social hierarchies that emerged on the basis of the two systems.

The paper is informed by several years of research on changing labour relations in Chinese factories over the last 60 years. In order to analyse change over this entire period, I have chosen to investigate older factories that were state owned or collective enterprises during the first decades of communist power. After restructuring, some of these factories have been privatised, while others remain partially or fully state owned. I have not investigated new factories established in recent years as part of the burgeoning private sector. By narrowing the scope, I have been able to focus on the changes brought about by restructuring, which—I will argue—reveal the transition from one mode of production to another.

The socialist work unit system

Marx had proclaimed that socialism would reunite labour with the means of production, and the communist parties inspired by his doctrine did exactly that after they came to power. Communist states that followed the Soviet model, including China, all built modern industrial systems based on the principles of permanent job tenure and workplace provision of a wide range of welfare benefits. Among these systems, the Chinese work unit model was at the extreme end in terms of the fixed nature of employment.

After the Chinese Communist Party (CCP) came to power in 1949, it reorganised all urban workplaces—including government agencies, schools, hospitals, factories and other enterprises—according to a model that came to be known as the work unit system. This system remained in place for nearly half a century until it was dismantled in the 1990s.

All work units were public property, managed by state and party cadres. Virtually all working-age urban residents were employed within the work unit system, and work units offered what amounted to permanent employment. Individuals were assigned to a work unit after graduating from school and usually remained in the same unit for their entire lives. It was very difficult for an individual to transfer to another work unit, as this required the approval of both units and the employee. It was also very difficult—and extremely rare—for a work unit to fire an employee. Even if a person was jailed for committing a crime, he or she usually returned to the same work unit after being released.

In addition to wages, work units provided for most of the consumption needs of their members. They were expected to provide pensions, health insurance and, if possible, cafeterias, housing, medical clinics, childcare centres, schools for members’ children, training centres for employees to take basic education and technical classes, and recreation and cultural facilities (such as theatres and libraries). After employees retired, they typically continued to live in the apartment provided by their work unit, remaining part of the work unit community. Over time, work unit members sought positions for their spouses and children, and it became common for young people to marry partners from the same unit. Vocational middle schools run by larger work units often channelled employees’ children into jobs in the same unit and for a time state policies allowed a child to inherit a work unit position upon a parent’s retirement.

Larger work units typically combined production facilities, offices, apartment blocks, and education, health and recreational facilities within one large compound, surrounded by a wall. Work units not only provided for most of the needs of their employees and their families, but they also organised political, cultural and sports activities. They became the organisational centre of urban residents’ lives a key component of their identities. The CCP urged workers to think of the “factory as their home” (yichang weijia).

Although Chinese workers were paid wages, there was no real labour market, so labour power was not a commodity. There was always a surplus of labour, but the movement of individuals was strictly controlled through household registration, food rationing and labour assignment policies. Rural residents were members of their village production brigades, urban residents were members of their work units, and there was little movement among them. There was very little room for factories to directly hire workers or for individuals to go out to look for a job.

Workers did not own the factories in which they worked, which were all public property managed by one unit of the state or another (this was also true of nominally collective enterprises, which were administered by parent enterprises or local governments and were not actually the property of their employees). Workers did, however, own their jobs, and these entitled them to consumption guarantees. They were lifetime members of their work units, which were responsible for providing for their welfare. What they had can be considered a type of property use rights, analogous in some ways to the ambiguous property rights that existed in many places before the capitalist era, which recognised overlapping customary use rights, rather than individual ownership.

The work unit system functioned like traditional household-based economies in important ways. The scale, of course, was vastly larger. These were not peasant or artisan operations in which production was organised by the direct producer. Work units were much bigger and they were part of a modern industrial system composed of interdependent units that relied on continuous, large-scale exchange of goods. Coordination, both within and among units, was provided by a bureaucratic hierarchy run by the Communist Party. Nevertheless, labour was tied to the means of production, just as it was in traditional peasant or artisan households, and this gave rise to a similar economic logic.

This was a state-centred system in which the state took responsibility for employing all urban residents and providing for their welfare. It supplied wages for all state employees, regardless of the work unit to which they were assigned. Basic wage rates were set by the state and an individual kept the same occupational rank and wage rate even if he or she was transferred to another unit or was temporarily without a unit. Even though labour had a nominal price, because it was not a flexible input for either the state or the individual work unit, it was impossible to calculate profits and losses in the way a capitalist enterprise does. Because the state and its work units were responsible for meeting the consumption needs of all urban residents, the overriding goal was to keep the population employed and fed, rather than maximising profits.

Because of permanent job tenure, workers and leadership cadres developed longstanding relationships that entailed mutual obligations, much as in traditional households. Because members’ lives revolved around the work unit, they depended on the enterprise and leadership cadres to a greater extent than is the case in a capitalist enterprise. Party secretaries, who were usually the most powerful individuals in the unit, styled themselves as paternalistic figures who took care of their subordinates. Workers cultivated good relations with leaders and leaders cultivated followings, creating vertical networks that could be used to gain advantage as individuals competed for better work assignments, promotions, raises, and goods and opportunities distributed by the work unit (including housing and educational opportunities). At the same time, leadership cadres had to work to maintain good relations with work unit members.

Because workers could not be fired and ideological constraints greatly limited the use of fines and bonuses, leaders had to rely largely on persuasion, criticism and praise to encourage labour discipline and conscientious work. Although decision-making power was concentrated in the hands of leadership cadres, under conditions of permanent job tenure, they were compelled to consult with their subordinates and attend to their concerns in order to win their cooperation.

Enterprise restructuring

In a process that began in the early 1990s and continues today, China’s state-owned and collective enterprises are being fundamentally restructured so that they function more like capitalist enterprises. Restructuring laws and policies have been based explicitly on the capitalist model and the process has been carried out under the banner of “corporatisation” (gongsihua). Market reformers had long complained that state-owned and collective enterprises were burdened by “multiple objectives” which prevented them from focusing exclusively on maximising profit. In order to allow them to narrow their focus, they had to be freed from the burdens imposed by a permanent work force and welfare responsibilities. The restructuring process has involved two main elements: restructuring ownership and doing away with permanent job tenure.

The most traumatic part of restructuring has been the abolition of permanent job tenure. This contentious goal has been carried out with reforming zeal under the slogan, “smashing the iron rice bowl” (za tiefanwan). Employees have typically been given a one-time severance payment (maiduan gongling) after which they lose their status as lifetime state workers (guojia quanmin gong). Many continue working after signing limited-term employment contracts, while others are laid off. One of the main aims of restructuring has been to “reduce employees and increase efficiency” (jianyuan zengxiao) and in almost every enterprise this has entailed large-scale layoffs. Tens of millions of workers have lost their jobs and there are very few employees who today would consider their jobs secure.

Restructured enterprises, however, have done more than layoff workers considered redundant. Factories are increasingly moving to retain a small number of core employees—management and technical personnel as well as some key skilled workers—while hiring workers on a casual basis to do most production work and other manual labour. Many enterprises have split their labour force into regular and temporary tiers, hiring large numbers of temporary workers through labour contracting agencies, while others have replaced most of the incumbent workforce with younger workers, typically rural migrants. In the most extreme cases, all production work is now done through hiring labour contractors (baogongtou). Large state-owned coal mines, for instance, award contracts to baogongtou who promise to mine a ton of coal for the lowest price and recruit rural migrants to do the work, and similar arrangements now prevail in the other types of mining, timber, construction and construction materials industries.

Enterprises no longer have responsibility for pensions or health insurance, and they have sold their blocks of apartments and spun off or closed their health clinics, childcare centres, schools, training centres, theatres, and recreation facilities. Today enterprises only have one remaining responsibility to their employees—to pay wages (and, if they choose to follow the law, to contribute to fledgling government-run insurance programs).

Changing the ownership structure of public enterprises has been a complicated and murky business. The great majority of state-owned and collective enterprises, including almost all small and medium-sized firms, have been partially or completely privatised. Most often this has involved “management buyouts” (the English acronym “MBO” is used to lend legitimacy), that is, selling an enterprise to its top leaders, but it has also involved inviting outside firms—domestic and foreign—to take control. The process of converting public into private property, which has often involved securing bank loans against future profits (since most state cadres have little of their own capital to invest) has invited widespread claims of fraud, sweetheart contracts, artificially low prices, insider deals, nepotism and kickbacks.

The state has held onto a relative handful of very large firms in sectors it considers strategic, including banking, energy and key mineral resources. In these enterprises, as well as in the many other enterprises in which the state has maintained a partial stake, restructuring ownership has involved “clarifying property rights” by turning enterprise assets into shares owned by holding companies associated with state entities at different levels. Managers of these holding companies are represented on boards of directors created to oversee restructured enterprises, and they have been instructed in principle to manage the shares they control just as a capitalist would—to maximise return on capital.

In practice, however, the Communist Party still names the key leaders of the remaining state-owned enterprises, and government entities continue to intervene in the affairs of restructured firms in ways that smack of political concerns rather than capitalist economic logic. The central government has global strategic concerns as well as worries about political and economic stability, while provincial and local governments act as boosters of local development, and both sometimes respond to demands made by disgruntled employees, retirees and laid-off workers, who act as if they still have a claim on their jobs.

In the early 1990s, just as enterprise restructuring was getting underway, one of the officially prescribed models for restructuring ownership was the “shareholder cooperative system” (gufen hezuozhi). Under this system, shares were divided equally among all employees, they could not be sold to outsiders, and decisions at shareholder meetings were made on a “one-person-one vote” basis. This model was promoted by party leaders who styled themselves as “economic democrats” and argued that enterprises should be considered the collective property of their employees, not capital. In the early 1990s, many small collective and state-owned enterprises adopted this restructuring model, but by the late 1990s it had fallen out of favour and the leaders of most shareholder cooperatives moved to concentrate share ownership in fewer hands.

Critics of the system argued that workers could not be allowed to own the majority of shares because they had interests that conflicted with those of the firm. In other words, while the firm’s overriding concern had to be maximising profit, workers were concerned about preserving their jobs and improving their compensation and working conditions. The verdict in official circles was that the shareholder cooperative system was a “second iron rice bowl”, meaning that it had failed to adequately separate labor from the means of production.

Expropriation of labour

In the terminology used by Marx, enterprise restructuring has expropriated workers from the means of production. Under the old system, workers were work unit members, which gave them a range of entitlements and guaranteed their consumption needs; although they did not own the factory, they had permanent use rights. Enterprise restructuring expropriated the workers by taking away their membership rights and reducing their status to that of contract employees.

Restructuring has transformed work unit communities into capitalist-style enterprises. The old work units were composed of an array of physical property and a set of people, all of which were an integral part of the unit. Restructuring converted the physical property into capital (denominated in shares) and the set of people into hired labour, which was no longer a part of the enterprise. This is true—to one extent or another—of all restructured firms, whether they have been privatised or remain state owned.

As a result, workers have been freed from the enterprise; their labour power has been turned into a marketable commodity, giving them mobility and allowing them to compete for jobs in newly created labour markets. The enterprise has also been freed from its employees, allowing it to treat labour as a flexible input, to be employed (or not) as technical and market conditions require. No longer burdened with the responsibility of meeting the consumption needs of a permanent workforce, the restructured enterprise can now concentrate on the bottom line.

Mutual obligations have been dissolved and replaced by a simple—and tenuous—wage contract. This change has profoundly reshaped labour-management relations. Under the old system, in which workers enjoyed permanent job tenure and individual material incentives were limited, cadres had to maintain good relations with workers in order to win their cooperation, and they could appeal to collective interests and work unit loyalty to inspire diligence. Now such appeals carry little weight, but today’s managers have powerful market-based incentives that their predecessors did not—fines, bonuses and the threat of termination. Restructuring has freed workers from the ties that bound them to the factory and, by the same token, it has led to much more coercive labour relations.

While most employees have been reduced to hired labour, many of the top leaders of privatised enterprises have been transformed into proprietors. Under a common MBO arrangement for enterprises of modest size, the director of a firm buys 51% of the shares, a small group of other leaders buy most of the rest (perhaps 5% each), and middle-level cadres and other “key employees” are expected to buy a token amount, enough to give them a stake in the company and a reason not to leave. Workers can sometimes buy shares as well, but are not expected to, and usually do not. The distribution reflects a new class hierarchy, expressed in numbers of shares in the enterprise, which also indicates the degree of attachment to the means of production.

Even in firms that remain state owned, leading cadres have grown accustomed to treating the enterprise as a means to line their own pockets. This was not possible during the Mao era, when cadres operated under harsh scrutiny and no one was permitted to accumulate private wealth. Things began to change in a big way in the late 1980s after the state started to contract out (chengbao) public enterprises (and divisions within enterprises) to individual cadres, who were expected to turn over a set amount of profit and could keep the rest. A new mentality developed, in which leadership cadres—from factory directors down to workshop directors and even shift leaders—began to look at the machinery and workers under their supervision as resources for private accumulation, generating an environment increasingly permeated with corruption and enmity.

New private enterprises

Because my research has been about the restructuring of public enterprises, I have limited the scope of this essay to the transformation of class relations in older factories that existed during the work unit era. Nevertheless, it is impossible to discuss this transformation without mentioning the new private enterprises that were never part of the public sector. In the early 1990s, at the same time that the Chinese state began restructuring public enterprises, it also began to promote the establishment large-scale private companies, with both foreign and domestic investment. These enterprises, which range from small factories to huge operations that employ hundreds of thousands of people, have played a key role in establishing new norms for wage labour based on short-term employment. Restructured public enterprises were enticed—and compelled—to break old work unit norms as they began to compete with the private sector.

There continues to be great variation in industrial employment practices in China. At one extreme there are still state-owned enterprises, somewhat protected from the market, in which remnants of the old work unit system and the “iron rice bowl” continue to exist, at least for a portion of the workforce. The other extreme is found in private enterprises, especially in the export-oriented manufacturing sector, which have perfected a high-turnover employment model featuring low wages, extreme labour intensity and highly coercive methods of labour control. It is the latter sector that has been setting the pace as employment relations have been transformed over the last two decades.

In 2007, a Labor Contract Law was enacted that contains provisions which—if enforced—would reverse the trend toward more casual employment relations. Under the law, after completing two limited-term contracts, an employee can ask for a contract without time limits. Workers, thus, might be able to once again lay claim to their jobs. The law is part of a series of recent legislation and regulatory changes that reflect concerns among China’s political leadership about the dislocation, social instability and popular discontent and protest spurred by the introduction of radical market reforms in the 1990s. It is unclear, however, whether the job security provisions of the law will be enforced. Under the banners of ensuring China’s global competitiveness and maintaining “employment freedom” (yonggong ziyou), employers and officials are mounting a formidable campaign to limit or reverse these provisions. Foreign-invested firms have been particularly vociferous, warning that they might be compelled to move labour-intensive operations to other countries.

In fact, employers will be satisfied even if the Labor Contract Law’s job tenure provisions are not repealed, as long as they are not enforced. Most Chinese labour laws are not. It is still too early to tell what impact the law will have, but my impression so far is that it has not significantly limited or reversed the trend toward labour flexibility. Enterprises have grown accustomed to laying off redundant workers, firing employees deemed to be troublesome, hiring workers through baogongtou and labour contracting agencies, and so on, and they are not likely to give up these practices, especially when they are facing domestic and global competition that compels them to reduce labour costs.

Moreover, the juggernaut of restructuring continues unimpeded. After starting with small and medium-sized firms, in recent years restructuring is reaching China’s largest state-owned enterprises, compelling workers who had hoped that they might be spared to sign severance agreements and face the prospect of immediate or future termination. My sense is that the current in China today is still moving in the direction of expropriating labour.

Changing patterns of social inequality

The corporate system of enterprise organisation has given rise to patterns of social inequality that are very different from those created by the work unit system. In the following section, I will focus on differences that are closely related to the main theoretical interest of this paper—the existence of permanent job tenure under the work unit system and its elimination under the corporate system.

Under the work unit system, permanent job tenure meant there was little mobility between units and differences in income were determined largely by state policy rather than market power. Here I will discuss two key aspects of these differences: the first was based on inequality among work units and the second on inequality within work units.

There was a distinct hierarchy of work units, and the largest units run by central ministries—especially those in priority industries—were much better endowed than smaller units run by local authorities. At the bottom of the urban hierarchy were small collective enterprises created by street committees or parent factories largely for the purpose of employing housewives and young people for whom the state had not provided jobs in state-owned units. All of the urban population was better off than the rural population, whose consumption depended on the productive capacity of their village production brigades. Labour was tied to the means of production, and an individual’s class position was determined in large part by the productive means to which he or she was tied.

The state regulated the inequality among work units. The Communist Party inherited tremendous disparities among regions and economic sectors. On the one hand, it moved to diminish these disparities by setting standard wage rates, providing basic urban welfare benefits, developing the interior provinces, promoting rural industry, building basic health and education services in the countryside, and redistributing grain to poorer rural areas. On the other hand, it set prices so that agriculture subsidised industrial development and it created new sectoral hierarchies by giving priority to favoured industries (typically in heavy industrial sectors).

There was also a distinct hierarchy within work units. Members were formally classified either as cadres or workers, and each category had its own hierarchy of wage ranks. Those classified as cadres included political leaders, administrative personnel and technical employees. Cadres were considered of special importance to the state, which paid particular attention to their appointment, promotion, transfer, training, and political education.

The top political and administrative cadres were in charge of the enterprise and they depended on middle level cadres to run day to day operations. Political and administrative cadres were almost invariably party members, which meant that they were expected to share the party’s espirit d’corps, follow its demanding ethical and political principles, and subject themselves to its organisational discipline. Party members were allowed to attend meetings and read documents to which non-members were not privy, and were expected to take responsibility for the affairs of the work unit.

Originally, the top ranking political and administrative leaders in all work units were revolutionary cadres (geming ganbu), that is, veterans of the communist insurgency, while the top technical personnel were inherited from the old regime. Younger political and administrative cadres were typically demobilised military officers or party members recruited from the shopfloor, while younger technical cadres were typically graduates of universities and technical schools.

New workers were recruited from villages and from among urban middle school graduates and they were expected to be less involved in the affairs of the enterprise. Nevertheless, for ideological and political reasons, during its first decades in power, the Communist Party placed great emphasis on recruiting workers to join the party; it encouraged them to be involved in factory affairs, and it preferred to promote workers rather than technical personnel to positions of authority. Moreover, the boundary between workers and cadres was blurred in the 1960s and 1970s by the promotion of large numbers of workers to cadre positions (yigong daigan) without giving them formal cadre status (or changing their wage rate).

Wages during the work unit era were generally low, in part because the regime was fixated on accumulation for reinvestment in industrial development. The range of wages was also relatively compressed. In factories, senior workers at the top ranks of the workers’ wage scale made more money than all but the highest level cadres (although this began to change in the 1980s). During the Mao era, the party compelled cadres to participate regularly in manual labour and to “eat, live and work” with the masses (tongchi tongzhu tonglaodong). Despite difference in status and power, workers and cadres generally wore the same clothes, lived in the same apartment complexes, ate in the same cafeterias and shared the same health clinics and other facilities. The absence of private property in the means of production, low wage policies and harshly ascetic communist ethics prevented cadres from accumulating or displaying wealth.


As might be expected, corporate restructuring has dramatically increased economic inequality within enterprises. Under the old system, wage rates were set by the government and differences were relatively modest; in the 1980s, although the compensation of top enterprise leaders increased, they were still public employees and their rewards were constrained by state regulations and work unit norms.

Today, the most successful leaders of privatised firms, who are able to directly pocket the profits generated by the companies they own, have become extremely wealthy, even by international standards in an era of neoliberal excess. Leaders of large enterprises that remain in the public realm have demanded compensation commensurate with the private sector and they supplement their formal salaries and bonuses (now sometimes 10 or even 100 times higher than those of production workers) with informal compensation that is illegal but now widely considered a normal perquisite of executive power. The top leaders of both privatised and public firms have moved out of the factory apartment complexes they once shared with workers’ families, and into elegant gated communities and exclusive high-rise condominiums.

Enterprises are now free to set the wages of managers, technical employees and workers based on the enterprise’s economic conditions and standards set in the labour market, and the range of compensation in factories has grown very wide. Some highly qualified employees have benefitted from the opening of labour markets, as enterprises have competed for their skills (although today even college graduates face daunting market conditions). Labour market competition has had the opposite effect for less qualified employees, whose jobs can now easily be filled by new arrivals from the countryside and an endless stream of urban middle school graduates. While factory jobs often used to pay more than jobs in government offices, schools, hospitals and other public institutions, the opposite is now true. Because restructuring has imposed hard budget constraints on profit-making enterprises, they now face tremendous pressure to drive down labour costs. As a result, factory jobs now typically pay less than jobs in other sectors, and industrial workers, who were accorded high social status during the communist industrialisation drive of the Mao era, are now looked upon with sympathy or disdain.

What has happened inside restructured enterprises reflects broader social trends. The old system, which established and maintained social hierarchies through state regulation, limited geographical mobility and tied people to work units and villages that provided unequal rewards, was certainly unfair. The abolition of this system and its replacement with market competition, however, has not produced greater equality. On the contrary, the introduction of market forces has resulted in much greater inequality.

On the one hand, as I have noted, open labour markets have produced a much greater range in salaries than the compressed government-set wage scales of the past. At the low end, competition for jobs has been fierce. Rural residents, who one might expect to have benefitted from gaining access to urban jobs from which they had been excluded, actually made less money at urban jobs in the 1990s than they had made working in township and village enterprises in the 1980s, because competition had so degraded wages in the industrial and other sectors to which they had gained access. On the other hand, income disparities between urban and rural areas and among regions have greatly increased since the capitalist turn of the early 1990s, for a variety of other reasons including the flow of domestic and foreign capital to large, well-positioned coastal cities.

The results can be seen in overall estimates of income disparity. In the Mao era, despite being a huge country with large disparities between urban and rural areas and among regions, China ranked among the most egalitarian countries in the world, and although income differences began to grow in the 1980s, they remained relatively modest. This changed quickly after the capitalist turn in the 1990s, and China has now passed the United States and joined the ranks of the countries with the highest income disparities.

China’s capitalist transformation

The Chinese economy today is capitalist, I have argued, because employment relations have been transformed along capitalist lines. Work unit members have been expropriated; they have lost their membership rights and are now simply contract labour. This fundamental change has allowed Chinese enterprises to act like capitalist enterprises. Freed from long-term responsibilities for their employees, they can now treat labour as a flexible input, which allows them to focus on maximising profit. This is true not only of private companies, but also of the remaining state-owned enterprises and all of the public-private hybrids in between.

The old work unit system was based on durable ties between labour and the means of production, a feature it shared with virtually every other production arrangement humanity has created over several millennia, most of which were based on the household as the basic unit. Only rarely—under some forms of wage labour and some forms of chattel slavery (where true slave markets existed)—has labour been separated from the means of production. Although market exchange of goods has been common through the centuries, the buying and selling of labour power was much less common, and before the rise of industrial capitalism wage labour had never been the predominant way of organising production. This was capitalism’s trademark feature, and the one that most thoroughly revolutionised the social order.

Unlike most pre-industrial production arrangements, the Chinese work unit system was based on large-scale production and workers were paid wages, but because they were lifetime members of their work units, labour was not really a commodity. Enterprise restructuring changed all this, and China has now fully adopted this quintessential feature of capitalism. In fact, with respect to employment flexibility, much of Chinese industry now operates in a fashion closer to the ideal-typical capitalist model than do enterprises in many countries that have long-standing capitalist traditions.

In other respects, of course, the Chinese system is less in line with the ideal-typical capitalist model. As market fundamentalists are keen to point out, the Chinese state continues to play a major role in regulating and guiding the economy and state-owned enterprises continue to dominate key sectors of the economy. These features, however, are not incompatible with capitalism. In the real world, as opposed to abstract models, capitalism has proved to be highly flexible, and the links between capital and the state have always been complex and often quite intimate. In my estimation, the present-day Chinese system, despite its peculiarities, should be counted among the many varieties of capitalism. Its fundamental qualification is the system of capitalist-style employment relations that now underpins the operations of virtually all Chinese enterprises, private or public.

The destruction of the work unit system in China, it should be noted, has been part of a global trend. The wave of economic liberalisation that has swept the world since the late 1970s has continued, with renewed energy, capital’s longstanding drive to separate labour from the means of production, demolishing socialist systems, dismantling corporatist arrangements, breaking unions, eliminating long-term job tenure and promoting the “casualisation” of employment relations in countries across the globe. This trend has involved expropriation on a massive scale of jobs that had been claimed by their occupants. Under the banner of neoliberal doctrine, wage labour norms are being reshaped in ways that conform to a purer type of capitalist relations, more in line with the harsh simplicity of Marx’s theoretical model.

The results everywhere have been similar to those in China. Labour has become more mobile at the cost of economic security, labour relations have become more coercive, and wealth and income have become more polarised. Moreover, the casualisation of wage labour has been accompanied by the ongoing expropriation of the remaining small producers, as capitalism continues to take over the realms of agriculture, petty commerce and small-scale manufacturing in the developing world, including China, as well as parts of the developed world where the state had previously protected sectors of small production from capitalist incursion.

[Joel Andreas teaches in the department of sociology at Johns Hopkins University. He received a PhD in sociology at the University of California, Los Angeles, in 2003. Recently he published a book, Rise of the Red Engineers: The Cultural Revolution and the Origins of China’s New Class, which analyses the contentious merger of old and new elites in China during the socialist era (read the book's Introduction HERE.]


This issue of China Labor News Translations (CLNT) features three excerpts from published Chinese-language articles on the labor dispatch system in China. In the past several years, the use of dispatch labor has become a contentious issue in Chinese labor relations. Under the labor dispatch system, workers sign labor contracts with labor dispatch agencies and are then “dispatched” to enterprises that are recruiting new workers.

These enterprises therefore have fewer responsibilities associated with labor contracts such as for social security payments and workplace injuries to dispatch workers. Dispatch workers are also often paid less than contract workers for the same work. When dispatch workers are no longer needed, they are easily “returned” to labor dispatch agencies receiving no severance compensation. As the labor dispatch system exists in a legal grey area, companies have exploited the loopholes to not only continue but expand the employment of dispatch workers unabated in recent years.

The first article, Labor Dispatch System in Reform, provides the background on the history and development of the labor dispatch system in China. What has become the labor dispatch system, the article points out, emerged from the use of workers in foreign enterprises in the late 1970s and early 1980s. But the use of labor dispatch has become particularly widespread and part of a trend of generalised casualisation in the past decade. The article highlights its extensive use by state-owned enterprises since the early 2000s to replace laid-off workers formerly holding long-term and non-fixed term contracts offloading their traditional welfare obligations in the process. Privately-owned enterprises during the same period have also widely adopted the use of dispatch labor to take on new workers in expanding industries like the auto industry.

The Labor Contract Law (2008) stipulated that dispatch labor is to fill “temporary, auxiliary or substitute job positions”. But this not only failed to constrain the widespread employment of dispatch labor for positions that are neither temporary, auxiliary or substitute jobs. Rather, it has had an opposite effect, acknowledged by trade union officials, of accelerating the systematic use of dispatch labor by employers. Often in response to the more stringent labor regulation of the Labor Contract Law, employers in both state-owned and privately-owned enterprises recruited new workers via labor dispatch agencies and terminated and replaced existing labor contracts with dispatch labor contracts to avoid taking on employment costs and responsibilities associated with formal labor contracts.

Click below to read the article:

Labor Dispatch System in Reform


The second article, Rights of 60 Million Labor Dispatch Workers Hard to Protect, brings attention to a new report by the All-China Federation of Trade Unions on the dispatch labor system in China. The report notes that the total number of dispatch workers nationally has reached 60 million, more than twice the previous figure of 27 million released by the Ministry of Human Resources and Social Security. The article further points out that given China’s total number of workers of 300 million, the proportion of labor dispatch workers has reached 20%. Most of the labor dispatch has been concentrated in state-owned enterprises, government organisations and public-sector institutions; in some state-owned enterprises over two thirds of the workforce is occupied by dispatch workers. Furthermore, dispatch labor is not only confined to manufacturing industries but also state-owned petroleum, chemical-engineering, telecommunication, finance, banking, aviation and railway industries, replacing formerly white-collar jobs with dispatch labor who are often recent college graduates.

There are inadequate legal requirements in the Labor Contract Law for setting up a labor dispatch agency. The law simply requires initial capital of 500,000 and registration as a limited liability company. While the number of labor dispatch agencies has been increased dramatically, there is a general lack of oversight over these agencies and protection of dispatch workers. Large numbers of labor dispatch agencies are operated by family and friends of local labor security department officials, making them both “players and referees”, according to an official from the Ministry of Human Resources and Social Security cited in the article.

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Rights of 60 Million Labor Dispatch Workers Hard to Protect


The third article, An Investigation of the Dispatch Labor System, points to the growing labor conflicts caused by the expansion of dispatch labor system. The article mentions a number of incidents since the implementation of the Labor Contract Law, such as the dismissal of 1,800 “temporary workers” from a TV station, the “collective resignation” incident at Huawei, and dismissals of employees by LG, Wal-Mart, and other foreign enterprises that have led to labor conflicts. Workers sometimes resort to desperate measures in order to draw attention to their plight, as was the case of dispatch workers from a Guangzhou beer company who threatened to jump off a bridge in a compensation dispute with the company.

In the past, CLNT has covered a number of issues and incidents related to dispatch labor. In the July 2009 issue of CLNT, we discussed labor dispatch in the case of a widely acclaimed labor dispatch agency called Quanshun Labor Dispatch Company that claims to produce a win-win situation for both workers and employers. As the use of dispatch labor became the target of criticism by labor scholars and advocacy groups in China, the September 2009 issue of CLNT focused on an investigative report by Chinese college student group, the Student Coca-Cola Campaign Team, on the use of dispatch labor in a Coca Cola bottling plant, and the subsequent international campaign launched by Hong Kong-based NGO Students and Scholars Against Misbehavior (SACOM) in support of the students. Despite such criticisms, there has not been any clear sign yet that this trend may be reversed.

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An Investigation of the Dispatch Labor System


As in other countries, the use of dispatch labour constitutes a profound threat to building or maintaining a strong labour movement. Moreover, the murky relationship between labor dispatch agency and the actually employing enterprise on the one hand, and dispatch workers on the other not only complicates efforts by workers to establish their employment relations and claim their legal rights, but also creates barriers to effective trade union activities, especially organising, at the enterprise level.


We acknowledge the significant contributions our volunteer translators make to CLNT. In particular, we would like to thank Kevin and Keegan for their superb translations in this issue of CLNT.