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The state and capital

Production norms in pre-reform China are often referred to as those of a ‘command economy’. The flow of investment and actual production quotas were laid down by economic planners working to a five-year plan. Almost all profits were handed back from enterprises to the centre in Beijing. The centre passed the plan down to state- and collectively-run enterprise directors via Party and government hierarchies organised into provincial, municipal, city, county, and township levels. The command economy did not exclude informal labour; historical conditions made it effectively impossible, regardless of the wishes of the new regime.

Key to modern China’s post-1949 industrialisation programme was the organised exclusion of the peasantry from the benefits of urban modernization. This took three forms: First, rural production was tightly controlled and peasants were only allowed to grow what was deemed necessary for industrialisation; secondly, the commune system of collectivized production ensured that the costs of agricultural production remained low and also allowed the state to allocate the necessary funds for industrialisation where it deemed necessary; and third, a strictly enforced household registration system was established which restricted peasants from moving into the cities for economic reasons. The most obvious result was far superior standards of living in urban areas and periods of great hardship in rural areas. As far as we are concerned here, the policy was aimed at relieving pressure on the cities to employ surplus labour from the countryside.

In general, the formal urban economy took the form of a hierarchy that began with large ‘key’ state-run enterprises (SRE) in the major cities – renamed state-owned enterprises in the mid-eighties to reflect a more market-orientated strategy – at the top and much smaller township collective enterprises at the bottom. Pay and conditions varied considerably and there was competition among workers to retain or obtain transfers to jobs in the larger SREs. Off-farm employment outside this system was referred to as the ‘second economy’ and it bore many of the characteristics of informal work. For example, SRE directors were not averse to drawing on the much cheaper surplus rural labour categorised as ‘temporary workers, seasonal workers, and transferred workers’. While the first two categories emphasized the administrative separation between this informal employment and that of the permanent urban workers, the latter stretched the length of contract to a maximum of 10 years. Coal mine safety for example requires skills and teamwork built up over a long period and as such transferred workers were a feature of pre-reform labour relations in the mines. Differences in treatment ranged from serious institutionalised discrimination in pay, promotion, welfare and medical entitlements, to petty pecking orders.

“There are four beds to a room and one person to a bed, each with his own corner. To an outsider all four people belong to the same class – the working class. To the men themselves, it is not so clear cut. There are classes within classes. Yang and Kong are formal workers; Song and Meng are peasants who have obtained a ‘transferal status’ from peasant to worker. The two formal – permanent – workers are acknowledged as such by the state; but the two informal workers are subject to various rules and restrictions imposed by the state. Their status as workers is revoked after ten years. Formal workers can work until they are 60 years old and retire on a full enterprise-based pension. Transferred workers return to the countryside after spending the spring of their lives in the mines. In the dormitory, the formal workers’ beds are against the only window and get the sunlight…”    (Translated from historical novel, Red Coal).

Despite being backed up by administrative decrees, the two sectors were not independent of each other. The use of informal temporary workers with inferior pay and conditions to their urban counterparts became more widespread in the early 1960s. An extension of municipal boundaries in 1962 that included large tracts of countryside allowed city governments to dramatically increase the employment of temporary i.e. rural workers.  The tension between the formal and informal sectors came to the surface during the early years of the Cultural Revolution of 1966-1976. Radical Maoists denounced the dual track employment practices as proof of the continued existence of capitalist social relations. Hidden in all the rhetoric was a key point: that the requirements of capital, even in a command economy, do not allow the comprehensive separation of informal and formal employment practices. They remain entirely interdependent.

Outside China some economists – looking to South America as a model – argued the opposite. It was desirable to encourage an informal labour sector which would develop separately and independently of the formal sector. Known as ‘dualism’, it was expected that the policy would facilitate the employment of people moving to off-farm work during industrialisation in developing countries. But the frequent movement of workers between the two sectors in both developed and developing economies remains an obvious flaw to the dualist model. Even in the conditions of pre-reform China where such movement was rigidly controlled and barriers to entry into the formalized labour market were very high, dualism failed as a theory. To be sure, it was more or less impossible for rural workers to achieve formal worker status, it is difficult to deny that a tension and link between the informal and formal sectors existed. Practical budgetary restraints required a degree of crossover between the two sectors and “[L]ike all dichotomies or binary oppositions, the notion that formal/informal employment were rigid categories was flawed.” (Munck). 

China’s economic reforms were formally initiated in 1978. They marked the beginning of the end of the command economy. Increased autonomy for enterprise directors and a move towards time-restrained contracts for urban workers served to encourage informalised employment practices as China began to integrate into the global economy. During the 1980s, Hong Kong lost up to 750,000 manufacturing jobs as local companies made use of the cheaper, unorganized labour in Shenzhen’s Special Economic Zone (SEZ) just to the north of the city. What characterizes this traumatic shift was not so much that it represented a transfer of jobs from the formal sector to the informal sector – the Hong Kong workers were poorly organised and labour relations frequently informal – but rather the introduction of large numbers of young rural people to obviously capitalist social relations. Hong Kong capital played an important role in creating the system of subcontracting and outsourcing in the private sector that has contributed hugely to the growth of a large informal sector around smaller numbers of core workers who enjoy relatively stable contracted employment.

Parallel with this process was the gradual entry of non-Chinese foreign capital and the freeing up of domestic private capital. In hindsight, the changes that both private capital and foreign direct investment (FDI) brought to Chinese employment practices are inseparable from the wider project of capitalist globalisation that has done so much to informalise work and working practices at the expense of labour in general and trade unions in particular.  In China itself, the globalisation project has included two fundamental policies: The laying off of tens of millions of urban workers from state-owned enterprises (SOE) mainly during the 1990s, but still ongoing; and, following the success of the SEZs experiment, the migration of tens of millions – at its peak over 100 million – of migrant workers into off-farm employment.  The former is known as xiagang in Chinese and translates literally into English as ‘to step down from one’s post’. It was an integral component to the still ongoing plan to restructure and ‘rationalize’ SOEs by shedding their non-remunerative obligations to their employees. Mergers, buyouts, and bankruptcies in the face of competition from foreign capital were, and are, all part of restructuring. Signaling the end of relative job security and enterprise-based welfare, the policy has represented a considerable transfer of public assets and capital into private hands. Almost by default, the results have been a major boost to the process of informalisation of work. A survey of re-employed laid off workers undertaken in 1999 by the ACFTU, which itself lost millions of members and tens of thousands of union officers during the late nineties, found that:

“18.6 percent were odd-job manual workers, 10 percent did various sorts of hourly work (usually refers to activities such as picking up others’ children from school);  5.2 percent had seasonal jobs;  60 percent were retailers operating stalls;  and a mere 6.8 percent had obtained formal, contracted employment. A worrisome 45 percent among the stall keepers were discovered to be highly vulnerable, mobile peddlers selling in shifting sites without a license.” (Emphasis in italics added).

As is the case in most countries, the informal sector in China presents people with challenges of legality, welfare, and insecurity. Our conversations with laid off miners in the coal city of Datong illustrate the point. There was general agreement among a group of eight former miners, now working as day labourers and tricycle goods haulers, when one of them summed up their situation thus:

“I haven’t registered [for the lay off supplementary wage entitlement] with anyone. I wouldn’t know much about that. Sure I’ve read about it but if you actually try to register, it’s a different story. I spent one morning in an office waiting to register but then they told me I was in the wrong office. That meant I earned no money that day. The mine doesn’t do anything. They said we were being laid off [xiagang] but I am still not sure what this means for us in practice. Nobody knows.”

Another former miner who bred guard dogs to supplement a welfare payment told us that he couldn’t register as unemployed as this would mean he would no longer be entitled to the welfare payment known as the minimum livelihood payment. This payment is meant as a safety net for households with no income from formal employment.

“Is breeding dogs a job? If I say it is, then maybe I will lose the welfare payment. My wife is sick and can’t work and needs me at home to look after her. How can I do a normal job?” 

Capital and the state

The loss of up to 40 million formal sector jobs was perhaps the pinnacle of a long-term squeeze on pay and conditions won by the urban working class in the years since 1949.  Given that the CPC had pinned, and still pins, its ideological banners to the working class mast, it was ultimately a political process in which long-term job security and institutionalised labour relations – albeit fundamentally flawed by the absence of freedom of association – were undermined by a combination of government policy directives and pressure from private capital, a combination we termed earlier as ‘authoritarian capitalism’. 

The policy was also aimed at further preparing the Chinese economy for membership of the World Trade Organisation (WTO), a goal that required much greater space for capital and investment to manoeuvre. This meant dismantling the permanent employment system and replacing it with a contracted labour system. The degree to which the new working conditions fall into the formal or informal sector is an ongoing battle and depends on a number of factors, not least the local government’s fear of labour militancy in any given town or city.  The following paragraphs look at how the state drew up the original battle lines.

Scholars have generally divided the history of China’s SOE restructuring into two phases. The first phase was the gradual introduction of autonomy to SOE leaders. This included a phased liberalization of prices for certain raw materials, freedom to bring in technicians from outside provinces, increased scope for the bonus system, profit retention, and responsibility for losses. Pilot schemes in Sichuan province were applied to the whole country via regulations issued by the State Council in 1984. The door was pushed open still further by allowing an open recruitment system – as opposed to government allocation of jobs – and control over basic remuneration for managerial and technical staff. These were followed by reforms to the tax system in which the simple handing over of SOE profits to the state was replaced – again gradually – with taxes based on enterprise revenue. Reforms to transport charges followed along with further liberalization of prices and the introduction of a contract and responsibility system to regulate financial dealings and trade between SOEs and the fast growing private sector.

Throughout the 1980s, the system of state allocation of jobs was gradually undermined by the introduction of labour service companies which first emerged in 1978 as quasi-governmental labour exchanges. Eight years later, the government felt confident enough to embark on the second stage and introduced four important sets of temporary regulations on employment and hiring in the public sector which covered separately: contracts, new hiring, dismissal, and unemployment – at the time this was referred to as ‘waiting’ for work due to political sensitivities regarding the extent of unemployment. Combined, these regulations set the stage for the national introduction of employment contracts on 1 October 1987. During the eighties and nineties changes to the wages system came with the introduction of productivity-related pay, and a dramatic increase in pay differentials; reforms also began chipping away at the enterprise-based cradle-to-grave social insurance system for SOE employees which has now been replaced with pay-as-you-go insurance. 

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