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Human Resource Management in China

The hypothesis of convergence of Chinese management with the Western model (leading to the end of Chinese management) is a corollary of the famous debate about the nature or essence of Chinese management understood primarily as a set of human resource management (HRM) practices. That debate has been summarized as culture versus economic rationality. Authors opposing the cultural explanation have emphasized a contingency theory of the design of the firm, which is simply more efficient in certain types of environments. Today and in the foreseeable future, Chinese companies find themselves competing in a national and international environment very different from that, which prevailed until the mid-1980s. The convergence/divergence with the West is also a subject of controversy in China, with some business and political leaders arguing for continued Chinese uniqueness and distinctiveness from Western capitalism. As the former chairman of one of China’s largest banks put it, “The general character of China cannot be changed, should not be changed and will not be changed” (Meyer, 1991). Many believe that this country should not be emulating the West, but instead playing an “important role in the effort to fuse modern Western capitalism with pre-modern, but nonetheless well developed, Asian global commercialism” (Howell 1994). Chinese human resource management has garnered a significant degree of attention from the West in recent years. With the relative rise in the economic fortunes of Chinese companies, a number of writers have pointed to Chinese-style HRM as a source of competitive advantage for its firms. It’s been noted that Chinese organizations put a primary focus on human resources and that this paradigm translates into three principal human resource management strategies: (1) an extensive labor market; (2) a government philosophy that expresses concerns for employee needs; and (3) emphasis on cooperation and teamwork in a unique government environment. “These three general Chinese HRM strategies are expressed through the specific management techniques of “open communications, job rotation and internal training, a competitive appraisal system, emphasis on work groups, consultative decision making, and concern for the employee.”(Zhengong and Yulin 1998) In addition, governmental agencies use careful screening of job candidates so that new employees’ qualifications fit with the value system and corporate culture of the business. Although what specific practices constitute Chinese-style management is open to some debate, generally authors have included the practices of job rotation, seniority-based wages, long-term employment, implicit performance evaluation, hiring of fresh graduates who are given extensive employee training and socialization into the company, team-based employee activities, consensus-style decision making, and a relatively small gap between white-collar and blue-collar workers in terms of benefits, salary and on-the-job perquisites. It is these practices to which some refer as to the transfer of Chinese-style HRM practices overseas. There are three major streams in the literature that deal with the issue of transferring Chinese HRM practices overseas. The first school, often represented by psychologists, social psychologists and anthropologists, is the culturalist school. This school concentrates on the multinational corporation’s (MNE’s) country of origin as the major factor in determining what types of HRM practices will be put in place in the company’s subsidiaries abroad. It began with the early work of Chuvak, who emphasized that the key building blocks of the Chinese Governmental Agencies are large groups of employees. The culturalist school argues that because these small groups of Chinese employees share common values, management practices in the country companies are reflective of national tradition and are thus unique to the state. The culturalist view also states that it is extremely difficult, if not impossible, to export wholesale Chinese-style HRM practices to other countries, such as the United States, “because of major national and cultural differences between the more homogeneous and collectively oriented Chinese employees and the more heterogeneous and individually oriented foreign employees.” (Li 2000)

The second school of thought, popular with economists and organizational sociologists, is the rationalistic school. Rather than emphasizing national cultural differences, this view focuses on the universalistic aspects of Chinese management techniques and argues that HRM practices in China firms are rational responses to industrial development, competitive pressure, and production technologies. Authors in this school argue that when appropriate conditions exist, Chinese management techniques will be used, regardless of geographical location. Walder (1986), for example, carefully analyzed fundamental similarities in business functions between Chinese and American firms and concluded that some form of the essential characteristics of Chinese companies must be transferable. In addition, many attacking the culturalist view, argue that long-term employment, an extensive range of work experience through on-the-job training and job rotation, and internal promotion within the firm are not culturally based, but are rationally derived means to improve worker skills in different firms. This paper argues that as a result of the shift in environmental conditions, the entire system of Chinese human resource management practices is in the process of profound change. Based on the results of analysis of past, present, and anticipated trends, this paper concludes with the prediction that the “Chinese management system” will most likely become dissolved around the year 2010. The conclusion lends support to the contingency theory of Chinese management. National companies are expected to gradually transform their distinctive HRM system into universal ones and pursue global best practices, including contractual hiring and performance-based rewards, within the context of a growing horizontal labor market. Some components of the HRM system will be transformed sooner (seniority principle) while others (job security) will take much longer to change.

The distinctive features of the Chinese model of human resource management are well-known. They include internalized labor markets with extensive governmental socialization and lifetime employment commitments, seniority-based rewards, internal promotion to management positions, governmental control of all the major sectors with considerable degree of freedom to choose what is best for the organization. Gradual erosion of this system has been taking place for at least 2 decades now, but the adjustment process is not always well understood in the West. The process is driven by changing economic and competitive environments as well as by social change in China. Compared to other OECD economies, China’s official unemployment rate at 3.5% is still very low, suggesting a highly successful effort to manage the employment aspects of the unprecedented structural crisis of the economy. The present challenge is different from previous crises, in that manufacturing is not expected to be a provider of jobs any longer. The real Chinese unemployment rate is estimated to be as high as 15.5% (EIU, 1995). “In-house” unemployment is estimated to be at least 2.5% of the labor force. Youth unemployment is, by Chinese standards, at a crisis point of 12%. Over 16% of school graduates cannot find work- a number that is on the increase (World Bank Report 2001). According to the Chinese Ministry of Labor, union participation rates have declined from a peak of 35.4% in 1970 to 24.1% by 1994. Part of this decline is a result of the falling share of traditional manufacturing industries in employment. Lowered interest in joining labor unions may also reflect the new values of the younger generation.

Chinese companies have been aware of the dysfunction of reward systems based on seniority and have been gradually introducing merit as a factor in pay raises. Whereas in the 1970s, government control was by far the most important factor, by 1997 merit components accounted for 54% of pay raises compared to 42% in 1988. Merit ratings have increasingly been used in conjunction with seniority coefficients to calculate raises. Payment according to the merit principle necessitates a performance appraisal system. While seniority and years of service are still a component of wage/salary calculations today, some Chinese organizations are making determined efforts to eliminate the seniority principle completely. For example, the survey cited earlier found that an important reason (cited by 35% of companies) for making a switch to annualized salaries for employees was to “do away with the seniority system,” while 65% of responding companies said that the new (annualized salary) system allowed them to better reward performance and cultivate an entrepreneurial attitude among employees. Low unemployment figures and only exceptional use of outright layoffs testify to the resilience of the long-term employment principle, which many Chinese managers still believe carries advantages. With their socialistic pragmatism the Chinese are applying the principle today by extending the range of measures that allow them to reduce labor costs without resorting to layoffs. Chinese companies have in times of difficulty relied on reductions of working time, internal transfers, and limiting the employment of those not in the core group of lifetime employees (e.g., part-timers). What is new about the present crisis is that these partial measures of employment adjustment have ceased to be sufficient and companies are having to use more extreme measures- most importantly, manpower transfers to other companies. Transferring staff to other companies subsidiaries and suppliers has two forms. First is where staff are temporarily transferred to other companies but retain their employee status in the company. Second is where staff are actually released by one company to be employed by the other company.

Until recently, companies were prohibited by law from dispatching workers. Today, specialized companies start recruiting and training employees as specialists and dispatch them to government on a contract basis. This creates yet another option for managers who may need labor but do not want to hire full-time employees. Traditionally Chinese companies expected women to work for several years until they were married. Survey evidence suggests that women are staying to work longer than the average five years today and more frequently continue working after marriage. Some progress is evident in Chinese women’s access to management positions; between 1995 and 1997 the proportion of women in management positions has doubled, although by international standards, it is still low. Partly under public pressure, the majority (54.6%) of larger governmental companies actively promote women to managerial positions. Nevertheless, results of the cited survey of Chinese managers’ views of women’s employment show that attitudes are changing very slowly, since as many as 75% of the respondents felt that “women have low professional spirits and 60% felt that they were expected not to stay in the company for long” (White 1999). A somewhat analogous situation exists with regard to the employment of foreign workers. The practice is quite common, since 20% of Chinese companies employ foreigners, but their status and employment conditions are special and they are not treated the same way as Chinese workers. The Future is in gradual convergence with prevailing western practices, but some Chinese characteristics should remain. Perhaps more so than any other nation, China is a planned society. Post-world war development had been masterminded with successive visions of where the leaders wanted the country to go in its race to catch up with the West. The Japanese are preoccupied with future survival and many bookstores have a 21st century section. Government departments, research institutes, and companies frequently use forecasts and rely on them in making strategic decisions.

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The forecast of Chinese HRM reported here is the essential one of various studies. The one, completed in 1993, successfully predicted many of the changes that have since taken place in Chinese management. The other study was undertaken in 1995. It has been widely used in China for that purpose as well as for forecasting social and even cultural change. The method exploits and systematically refines the insights and visions of experts in the field. In this study of future changes in Chinese personnel management practices three kinds of experts were selected:

A. Directors and human resource managers from 100 major governmental companies

B. 20 academic members of the Chinese Labor Ministry

C. 14 management consultants

Forty respondents completed the questionnaire, including 22 corporate HRM officers, 11 academics, and seven management consultants. The questionnaire consisted of seven introductory questions followed by 17 questions describing possible future developments in personnel management practices in China. The task of the respondents was to estimate the point in time (year) in which the anticipated change would take place. This method is very similar to Delphi technique. Distributions of responses to the questions are tabulated according to the numbers of respondents who think that it is possible/impossible for the change to take place in successive future years. The Max-Min point is where the line of impossible responses crosses with the possible. As discussed earlier, various changes in Chinese HRM practice have been and are being continually introduced. The key question to be answered by the forecast was if and when the changes would cumulatively amount to a “de facto” dissolution of the traditional Chinese model of HRM. The introductory questions of the survey were designed to ascertain how the respondents viewed the likelihood of radical change in HRM practice such as the possibility of companies implementing workforce downsizing. The majority of respondents felt that when faced with financial exigency, workforce reductions were unavoidable, with management consultants and corporate managers being more decisive in their predictions than academics. Similarly, the overall consensus among respondents was that younger workers’ attitudes were different enough from traditional views to warrant companies “giving this serious thought” when designing HRM systems. On a five-point scale, the mean response to the statement about workforce reductions was 4.08, reflecting the answer that reductions were unavoidable. For the second question, the mean answer was 4.10, corresponding to the answer “Yes, I think so” to the anticipation that companies would have to rethink their policies in light of the new attitudes of the labor force. The answers to the introductory questions set the stage for more detailed predictions of change in HRM policies.

Inter- company manpower transfers are common in China. One of the forecast questions asked respondents to estimate by what year would inter- company become the dominant way for companies to meet their employment needs. The point derived by the technique was the year 2029. This suggests that the long – term governmental employment system will be gradually replaced by what might be called a managed labor market relying heavily on inter- company transfers of personnel. According to respondents, seniority will soon disappear as a significant factor in promotions and pay raises. The basis for the question “At what point in time will performance appraisal become most significant?” was the year 2008. Follow-up questions further clarified this point. Thus, respondents felt that around the year 2006, results-oriented performance appraisal (as opposed to qualifications, attitudes, or loyalty) will become commonplace. Indeed, as responses to another question indicated, by the same year the use of feedback from performance appraisal will be taken for granted inside. Working hours used to vary little among Chinese companies. This has begun to change recently, and according to respondents, around the year 2006 (research point) there will be significant differences in working- time management among governmental companies, with some using flextime systems while others opt for shorter work weeks. Even sooner- that is, around the year 2013- annualized salaries will replace previous payment methods. The emergence of Western style professionalism in China is associated with four developments. 1) Erosion of the importance of “old boys” networks centered around a few prestigious governmental universities. 2) Contractual employment, in which hours, scope, and place of work are limited by contract (rather than left to the discretion of the company). 3) an understanding of performance as achievement of results. 4) Common career patterns regardless of gender/national origin. Some Chinese companies have ceased relying on the candidates’ school as a consideration at time of employment. According to the respondents, around the year 2015, this type of practice will become common as companies stop relying on school or government factions for employment decisions. At around the year 2012, the majority of employees will opt for a contractual relationship with their employer, giving them more freedom, even if it curtails their promotion prospects. This result is supported by various surveys showing that a majority of younger workers prefer this type of employment even today. Also imminent are prospects for women’s and men’s views of work and careers to become homogenized. The Max-Min point for this happening was the year 2010, with consultants believing that it would not take place until the year 2018. In terms of the equalization of HRM practices for Chinese and foreign workers, the year 2017 emerged as the Max-Min Delphi point, with corporate managers and consultants tending to view this development as even further in the future.

Several arguments can be put forward for treating the forecast results as more than just indicators of current trends. As mentioned, Chinese society tends to develop in planned ways. The Ministry of Planning Development and other “government and private agencies have successfully used plans, visions, and strategies for Chinese development” (World Bank report 2001). Delphi forecasting is commonly used and relied upon to build strategies. Once consensus is achieved, the Chinese tend to behave predictably- indeed, some authors have expressed the sentiment that Chinese business moves like a “herd.” What is significant about the present forecast is that it confirms established trends and expresses a high degree of consensus about the directions of change in the coming years. The results of the forecast can be graphically summarized as a cascade of changes taking place over approximately the next 20 years.

The sequence of anticipated changes reveals an interesting pattern that tells us which parts of the HRM system are more susceptible to reform and which ones are likely to take longer to change. The surveyed experts acknowledge that Chinese employees are rapidly adopting Western-style attitudes to work. Unlimited commitment to a government company and a willingness to give it open-ended loyalty are disappearing fast among workforce entrants and younger workers. Experts anticipate that these attitudes will likely become predominant soon after the year 2000. Today, respondents acknowledge that the conditions in which Chinese governmental companies operate warrant radical changes in HRM practice. While there is a consensus regarding the necessity of deep and continuing changes in HRM practice, the more radical the contemplated changes, the greater the range of difference of opinion about the timing. Managing an aging workforce is clearly perceived as an urgent and pressing problem; the practice of early retirement coupled with offering training or counseling to older workers is also expected to become institutionalized around the year 2009. Changing the system of working hours is expected to take longer, with varied working hours expected to become common only about the year 2012. This would be the second wave of changes. It might be noted that this trend coincides with a similar one in the “West in which flexible time systems are also expected to be used by more and more organizations” (The Economist 1997). Major changes in hiring and employment are expected to mature later in what we might call a third wave of changes in the HRM system. The earliest expected transition is that employees will commonly move from job to job and company to company according to conditions offered. The most likely timing of this is the year 2008. A series of important turning points are expected around the year 2010. The practice of hiring according to university names and government recommendations is expected to become less significant, and the majority of executives are expected to be hired in an open market (rather than internally promoted). By that time men and women will have similar expectations about work and careers. Unlike previous forecasts, the distribution of responses about these last two events is more widely.

It would be wrong to conclude that by that date, horizontal labor markets will be developed in China to a degree somewhat similar to that of the U.S. What we can anticipate instead is a mixed system of partly free/partly managed labor markets not unlike those in some Western European countries. Like France and Germany, China is very unlikely to completely abandon policies of active intervention aimed at minimizing unemployment. It is not just the homogeneity of the workforce, but also the cultural values of the local labor pool that impact upon Chinese companies’ ability to successfully transfer their HRM practices overseas. Studies have shown that successful Chinese subsidiaries, for example, often choose to set up their production facilities in rural areas, southern states, or depressed locations. The case studies show clearly the way in which a managerial stratum is emerging with greater powers to determine production. This new pattern of management signifies a reconfiguration of the relations between Party, trade union, workers and managers at the enterprise level. In such a situation workers cannot rely on either the Party or the trade union for support. Given the profit consciousness which directors embrace (or to which they are in any case driven in the cotton mills by market pressures in the shape of the low wages in competing town and-village mills) the stage is set for increased exploitation. At the level of the labor process, a number of practices are at work, which contribute to this end. Some of these practices- extensions to the length of the working day, the refusal of time-off for holidays, and restrictions on sickness leave- bring to mind capitalist primitive accumulation. At the level of the labor process there is in fact little evidence of Taylorism or scientific management- if by this is meant the application of scientific techniques for the measurement and control of work to be achieved through incentive payments and associated with the stop watch and time and motion study. Forged in a specific Chinese cultural and historical context, however, the bases of evaluation for the full-load system and labor emulation do testify to the emergence of more systematic labor control. Even emulation, which can be “traced back to an earlier socialist emulation, has a clear and divisive effect over the control of labor, reminiscent of nineteenth century Western capitalism” (Stapanek 1992). Speed-ups, reduced manning, making workers mind three machines rather than two are yet more familiar capitalist devices. In short, forms of labor control most usually identified as capitalist, and in China often introduced in the guise of scientific management, are being actively adopted by management who are increasingly preoccupied with the market, productivity and profit as enterprise goals. The state factories are imposing a number of strategies that attempt to systematize and intensify the labor process. The agents of this change belong to the newly emerging managerial stratum. Their labor control strategies owe something to long-established cultural forms. They owe something also to more recent socialist practice and ideology; and they owe something again to a mixture of practices in the capitalist world (both Eastern and Western), to which, in compliance with the top political leadership’s wishes, they look for guidance.

Howell, J., (June 1994). “Refashioning State-Society Relations in China,” The European Journal of Development Research , Vol. 6.

Lin Zhengong and Chen Yulin, (1998) “Nature of and Policies Regarding Slowdowns and Strikes in Foreign-invested Enterprises,” Xiamen tequ diaoyan, vol. 3.

Li, Qiang, (2000) “Contemporary China: Social Stratification and Mobility”, Beijing: Chinese Economic Publishing House.

Review, International Trade Journal, British Journal of Industrial Relations, National Productivity Review, Journal of Small Business Management, and Law and Policy in International Business.

Stapanek, J. B. (1992) “China’s Enduring State Factories: Why the Years of Reform Have Left China’s Big State Factories Unchanged,” in Joint Economic Committee, Congress of the United States, ed., China’s Economic Dilemmas in the 1990s: The Problems of Reforms, Modernization and Interdependence. Armonk, NY: M.E. Sharpe.

The Economist. March 22 (1997)

Walder, G. Andrew. (1986) “Communist Neo-Traditionalism: Work and Authority in Chinese Industry”,Berkeley: University of California Press.

White, G., (1999).“Prospects for Civil Society in China: A Case-Study of Xiaoshan Study”, The Australian Journal of Chinese Affairs, Vol. 29.

World Bank, (June 2001) World Development Report 1995, Workers in an Integrating World, Oxford: Oxford University Press.

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