The ACFTU and factory closures

Xian Federation of Trade Unions issues bankruptcy checklist for enterprise-level unions

November 2008

Recent closures

By the end of 2008, there have been an increasing number of factory closures related to the economic crisis. Even in the first few weeks after the collapse of the banking system in the US, there were several factory closures.  Some of them – like the closure of the toy producing enterprise Smart Union, have been relatively big - forcing 7,000 workers out of their jobs.

However since the ongoing financial crisis first began to make waves in China, the ACFTU have been hardly visible or vocal. Except, that is, in Beijing where they held their 15th five-yearly Congress in the autumn of 2008, with more than 1,600 delegates attending.

This year’s event was overshadowed by the closures of factories and the media reports of impeding doom for China’s export industry and manufacturing. One report in October estimated that up to 4 million workers would lose their jobs as a result of the financial turmoil. Guangdong, which produces around one third of China’s exports was expected to be hard hit and has been facing increasing tension as factories closed doors.

Common Problems

Most of the factory closures in China happen seemingly overnight. The overall lack of transparency and oversight often means that many workers have little idea of an impeding closure until they turn up for work and find the gates locked. Other common issues include, of course, the lack of regular wage payments, meaning that in a bankruptcy, workers are often burdened with several months of unpaid wages. Thirdly, companies have also failed to pay into the social security, medical or pensions schemes

There have hardly been any reports of ACFTU intervention on any of the main bankruptcies in the Pearl River Delta – unlike the swift intervention of the Hong Kong Confederation of Trade Unions in similar insolvencies over the border. Even the pro Beijing HK Federation of Trade Unions has been active in Hong Kong.

One case however has been reported – of the ACFTU’s apparent leadership role in operationalising bankruptcy proceedings at five enterprises belonging to the state owned Tanghua Textile Printing and Dyeing Group Ltd. in Xian, Shaanxi Province.

Tanghua Textiles – the road to bankruptcy

The Tanghua Group was formed ten years ago to take control of five Shaanxi based textile and printing factories during the restructuring of SOEs in the late 1990s. Tanghau had five factories, but one was closed ten years ago (Factory No.1). The remaining four still operate but have been suffering huge losses for several years. The printing factory closed ten years ago has not however formally closed but has simply stopped production and its workers have been laid off on living allowances but remain formally employed. During these ten years there has been little support for the workers however and at least two strikes have been reported.

In August 2007, the Tanghua Group was formerly included in a national plan for shutting down failing and bankrupt SOEs. However until October 2008, the actual bankruptcy had not been implemented and Tanghua was still operating, but at a loss. On 10 October, the bankruptcy plan for Tanghua was finally passed and proceedings formally began. Three days later it was bought out by the Xian municipal government for RMB 41 million effectively turning the company into a new entity which would also take over the five existing enterprises.

A few weeks earlier, on 15 September, workers from the Shaanxi Tanghua No.4 Factory went on strike to protest against the proposed bankruptcy compensation package. The next day, workers from two other Tanghua factories (No.3 and No. 6) joined them. The workers blocked the street in protest but there were no public reports of this strike. The only details are from eye witnesses.

No details of ACFTU involvement – at either the enterprise level or the municipal level emerged until the October discussions aimed at finalising the bankruptcy process and the terms of compensation

Xian municipal FTU’s checklist

The Workers Daily[NOTE 1] (28 October) wrote about the role the Xian municipal ACFTU and the five Tanghua enterprise level unions were playing in agreeing on the final terms of the bankruptcy, the compensation terms and all deals over the reemployment of workers at the new factory. However it is still unclear what these terms are and no details of the reemployment packages are known. In many such cases, workers are often rehired at former or restructured SOEs at less than favourable terms and on new contracts, thus losing their seniority.

In this case what is interesting in the report is that the municipal ACFTU officials drew up a set of principles that ACFTU branches throughout the country should aim to follow in securing the best for workers in the event of bankruptcy and closure. Many of the steps listed below are essential for unions anywhere to undertake in a bankruptcy or possible enterprise collapse although – luckily – in many countries workers are not forced to buy shares to pay for their own wages in a failing or restructured SOE.

According to the Xian federation, the local unions adopted a series of core principles or measures to deal with bankrupt enterprises and factory closures.

Firstly, the union encouraged enterprises to endorse and promote a system of labour contracts and collective contracts; it urged enterprises to fulfill the legal requirements of the new labour contract law in terms of compensation for the termination of contracts; it also said the enterprise was required to settle all outstanding compensation issues as a priority and as soon as possible.

In addition, in order for Tanghua to provide a prompt and full compensation package, the enterprise should settle with all workers as soon as possible and ensure that the realization of any remaining assets was a top priority to secure compensation for workers; including any outstanding debts owed to the workers. Any enterprise in the process of realizing assets had to ensure that these were not used for operational expenses but for employee compensation.

Furthermore, the Xian ACFTU said in no circumstance should any workers be forced to buy shares in a restructured enterprise as a way of raising money to pay for compensation. This last is a sometimes common practice whereby many workers are forced into buying shares with their savings when their SOE is “restructured”. Generally however such deals are never made on favourable terms and sometimes workers essentially end up subsidising the company in order to pay for their own unpaid wages.

Lastly, the union urged monitoring and follow-up, including of related social security payments and responsibilities.

The various chairs of the Tanghua Enterprise level unions met to discuss the terms and conditions of the proposed redundancy and reemployment packages. The proposal concerned 37,000 directly employed workers and was the largest single bankruptcy procedure in Shaanxi Province.

Once the union chairs had discussed and agreed on the proposals and formulated a comprehensive plan, they were to convene a workers congress at the various enterprises for further discussion. The Xian municipal level ACFTU asked the enterprise unions to take a lead role in the tripartite body set up to formulate the bankruptcy procedures, oversee reemployment and compensation calculations and monitor the process. The municipal ACFTU also stipulated that the once agreed by the union chairs, the proposed plan must be given to the workers congress – meetings of which must be attended by at least 66% of members. Full details of the plan – including compensation packages and figures, reemployment options, procedural steps, social security and payments as well as the assets of the company and related issues – had to be given to all workers in full.

What prospects of protection for workers?

Whether the principles listed above were being followed in practice and whether the municipal FTU’s initiative would result in protecting workers’ interests is another question.

Given that the AFTUC at its 15th Congress heard the usual calls from chair Wang Zhaoguo for promoting “trade unions with Chinese characteristics” and for “harmonious labour relations”, there can be a good deal of doubt as to whether the Xian municipal FTU’s initiative had full and complete backing from everyone in the ACFTU hierarchy.

Terms such as “Chinese characteristics” and “harmony” are euphemisms for accepting the Communist Party’s polices and procedures set down for ‘mass organisations’ like the ACFTU without dissent. That hardly bodes well for the real interests and concerns of workers in China.

Thus notwithstanding the laudable measures elaborated by the Xian municipal trade union leaders, they might find themselves drowned out by apathy if not admonition for having overreached themselves.

IHLO