China: state power vs foreign capital

STATE, CAPITAL & LABOUR IN THE CHINESE AUTO INDUSTRY:

In my previous post, I looked at recent debates among labour researchers on the progress of Chinese labour movements. At the heart of these debates are questions about the role and power of the Chinese state in attempting to influence industrial conflict in ways that they can more easily control, as well as the role of the All-China Federation of Trade Unions (ACFTU) as a branch of the state rather than a representative of workers’ interests. The role of state repression is obviously a major issue for labour movements around the world, but the specific role of China’s authoritarian one-party state is extremely important if we are to examine the future of labour movements there. No doubt, fears of an anti-democratic crackdown lie at the heart of recent protests in Hong Kong (here is one of several excellent analyses of events in Hong Kong). In this post, I want to explore how the Chinese state uses nationalism and conflict between sections of capital to sow and maintain divisions among workers in the mainland.

I want to do this by looking at recent moves by state institutions against foreign producers in the Chinese auto industry. While this is just one among many important industries in China, recent conflict between the state and foreign transnational capital tells us something about state attempts to influence industrial conflicts involving workers, as well as economic development more broadly. The pretext for this post is the fines issued against dozens of foreign carmakers in September, totalling hundreds of millions of dollars, for supposedly ‘anti-competitive’ practices.

First I want to provide some context for the enormous Chinese auto industry. China is, by far, the largest producer and consumer of motor vehicles in the world. By 2011, it was producing nearly 14.5 million passenger cars and nearly four million commercial vehicles. It surpassed Japanese production volumes in 2006 and the US in 2009. By comparison, the US was making fewer than three million cars, Japan about 7.1 million and Germany nearly 5.9 million in 2011. Average annual growth in Chinese production between 2000 and 2011 was 22 percent (Barnes, 2012). Today, China represents about a quarter of all automotive output in the world. Auto assembly plants are located all over the country and virtually all transnational carmakers have a presence.

Apart from scale, the other distinctive feature of the Chinese auto industry is the role of the state. All foreign carmakers must partner in a ‘joint venture’ with a state-owned enterprise and are limited to a maximum of 50 percent ownership under Chinese law. According to one study, there were 12 major joint ventures in China by the mid-2000s: Shanghai Volkswagen, FAW-Volkswagen, Shanghai GM, Dongfeng Citroen, Dongfeng Nissan, Dongfeng Jia, Guangzhou Honda, Chang’an Suzuki, Chang’an Ford, Beijing Jeep (now Beijing Benz), Beijing Hyundai and FAW-Tianjin-Toyota (Gallagher, 2006). Although there has been recent growth in domestic-owned operations, most passenger cars in China continue to be manufactured through joint ventures between foreign corporations and state-owned enterprises.

The most authoritative work on China’s auto industry policy is Chin (2010), who convincingly argues that the state used its 1994 Automotive Industry Plan (AIP) to leverage concessions from foreign capitalists eager to establish facilities in this emerging market. The AIP required that automotive assemblers use at least 40 percent local content in their local operations. The state also leveraged technology from foreign firms. For example, it encouraged competitive tendering between GM, Ford and Toyota in 1995, with Shanghai GM eventually establishing a Pan-Asia Technical Automotive Centre to produce ‘R and D’ for local producers (Gallagher, 2006). Chin (2010) argues that incentives for increased local content eventually succeeded in modernising the automotive sector by disciplining new and established joint ventures, while restricting the ability of foreign transnational corporations to dominate through equity investments. It also disciplined Chinese enterprises by requiring partnerships with well-established international automotive brands. Crucially, the AIP did not place any restrictions on foreign equity levels in most parts of the automotive components industry. This made is easier for foreign firms to invest with the confidence that quality automotive components would become available.

This background is important if we are to understand recent attempts by the state to discipline foreign corporations. In August, China’s National Development and Reform Commission (NDRC) fined 12 Japanese auto supply firms a total of 1.24 billion Yuan (about $AU 230 million) for allegedly anti-competitive pricing (Yang, 2014). The following month, they fined FAW-Volkswagen 250 million Yuan (c. $AU 46 million) for fixing prices for Audi car dealerships and repair shops in Hubei province and established a ‘probe’ into Daimler. Foreign firms have certainly noticed these changes. A survey of 164 foreign firms by the American Chamber of Commerce in China in August found that 60 percent felt ‘less welcome’ in the country than before, compared to 41 percent in 2013. Forty-nine percent said ‘foreign companies are being singled out in recent pricing or anti-corruption campaigns’. Targets in other sectors included Microsoft and Apple. Several foreign auto firms, including VW, Daimler/Mercedes, Tata, Fiat, Toyota and Honda have cut vehicles and spare parts prices in the wake of these fines and probes.

In my view, there are two conclusions to draw from this conflict. One is that Chinese state actions are probably designed to make it easier for Chinese-owned supply firms to compete with foreign firms. The second is that, despite complaints from foreign firms’ representatives, these moves are unlikely to dampen the thirst of foreign capital for profits in China’s enormous domestic market. For example, GM has just flagged plans to invest $US 14 billion in five new joint venture plants in China by 2018 to lift their annual sales from 3.5 to five million. As Chin (2010) argues, foreign firms have been prepared to accept fairly tough treatment in order to access Chinese markets since the 1980s and 90s.

As a labour researcher, my interest is more in the implications of this state-capital bartering for workers and labour movements. My colleague, Prof Anita Chan, an expert in Chinese labour relations at the University of Technology, Sydney, tells me that Chinese state-owned partners in joint venture companies control employment relations in these auto companies and that it is probable that Chinese nationalism is used to influence workers. The basic idea is that Chinese state-owned enterprises in the auto industry try to present themselves as representing and protecting workers’ interests against the practices of foreign corporations. If true, this role for state institutions is probably enhanced by the absence of genuinely-representative or independent trade unions in China.

As far as I am aware, this argument has not been adequately explored. There is no doubt that conditions in the auto industry, like other sectors, can be highly exploitative. Health and safety issues are often very important, as highlighted by a widely-reported gas explosion at the Zhongrong Metal Products plant in Jiangsu province in eastern China, which killed at least 75 people in August. There were numerous safety lapses at the plant, including dangerously high levels of aluminium dust in the factory. The plant supplies parts to several global carmakers, including GM as well as BMW, Mercedes, Honda and Mazda. This tragedy is also a good illustration of problems in ‘global value chains’ in which large transnational corporations rely on outsourced production to China and other industrial centres in the Global South but effectively refuse to take responsibility for poor labour or environmental standards among their suppliers.

The role of intra-capital relations and Chinese nationalism in influencing industrial conflict poses a research question that is probably well-worth exploring. In my previous post, I looked at different positions on whether there has been a shift towards a more offensive ‘class consciousness’ among Chinese workers, including within the auto industry. Perhaps one might argue that there has been as much conflict between different sections of capital (state-owned, domestic-private and foreign) as between capital and labour.

References:

Barnes, T (2012) Towards a Comparative Political Economy of Labour in the Indian and Chinese Automotive Industries, Paper presented to Indian Society of Labour Economics conference, Varanasi, December 2012

Chin, G.T. (2010) China’s Automotive Modernisation: The Party-State and Multinational Corporations, Basingstoke, Palgrave MacMillan

Gallagher, K.S. (2006) China Shifts Gears: Automakers, Oil, Pollution and Development, Cambridge, Massachusetts: MIT Press

Yang Jian (2014) Antitrust probes will become the new normal in China’s auto industry, 19 September, http://www.autonewschina.com/en/article.asp?id=12296

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