[VIEWPOINT]China enters period of uncertainty

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[VIEWPOINT]China enters period of uncertainty

Although the local press did not report it prominently, in March, tens of thousands of Chinese workers in the three northeastern cities of Daqing, Fushun and Liaoyang staged the biggest strike since the Tiananmen Square protest in 1989.

In Liaoyang, a steel city, workers demanding the payment of unpaid wages and the release of fellow workers from jails rushed into city hall and had to be forced out by thousands of army troops and members of the police force. In Daqing and Fushun, workers numbering from 10,000 to 50,000 are said to have held protest rallies against the local government.

The protests were quelled through quick response by the army and the local governments. Nevertheless, that more strikes of a similar nature may recur is highly likely. Actually, since 1997, there have always been workers on strike somewhere in China, but the number of strikers and the frequency of walkouts have increased dramatically.

The biggest issue facing the Chinese government is how to successfully privatize government-run enterprises and make them competitive on a global basis. Since the early 1990s, China has been actively experimenting with a market economy, and the importance of state-run business has diminished somewhat. Nevertheless, on average, state-run companies still provide around 50 percent of jobs, and in the areas where the recent strikes were staged, regions that are home to labor-intensive heavy and chemical industries, their influence on the local population is almost absolute.

The issue of creating an efficient state-run company is directly linked to maintaining a streamlined work force, often meaning that some workers have to be laid off, an obvious potential source of discontent. In the past, when a worker at a state-run company in China lost his job, generous welfare benefits, including medical care, were provided on a long-term basis. Now, only retirement pay is given, and welfare benefits are cut, creating even more dissatisfaction. The task of firing people from state-run companies is unavoidable if efficient companies are to be created. The ideal situation would be to provide those laid-off workers with the minimum income to maintain a living, but as always, the government is short on the budget side; corruption and government red tape do not help to solve the problem either.

China's entry into the World Trade Organization has come with a time frame during which it has pledged to pursue reform. This, too, will complicate the matter. During the next five years, China will open several industries to foreign competition. For instance, the tax on automobiles will drop from 125 percent to 25 percent, forcing inefficient carmakers to close their factories unless they engage in major restructuring efforts. Layoffs are inevitable in either case.

China's labor problems will continue to grow through 2006. Another problem is that China is also the host of the 2008 Beijing Summer Olympic Games. For now, the government can control labor strikes through rapid response, with private police patrolling every corner of potential trouble spots. But how long will the government be able to keep up with the steady increase in the number of strikes, which are becoming more common day by day? Can the government risk another crackdown, like the one in 1989 at Tiananmen Square, when the country is in the international spotlight?

Considering all thes circumstances, to assume that China will face serious social unrest in the coming years is not entirely far-fetched. Needless to say, we hope that our neighbor will be able to cope with the problems, because a stable China would mean good business for the Korean economy.

In the 1980s, Korea created its middle class, and this middle class yearned for freedom. Political freedom was the catalyst that led to social unrest. China's political and social situation is somewhat similar to that of Korea in the early 1980s.

The current rush of Korean companies to set up operations in China is surely a necessary step to establish a foothold in a market that holds great potential. Nevertheless, we should expect unstable political and social conditions in China and prepare contingency plans for potential unrest.


The writer is a professor of management at Yonsei University.

by Jung Ku-hyun

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