Following a decision of its Asia/Pacific Regional Committee in 1982, and with the support of the LO/TCO Council for International Co-operation, the IUF started a trade union organising project in Hong Kong in 1983 in co-operation with the HK Christian Industrial Committee. Eventually other ITSs (ITGLWF-TWARO in 1986, ITF in 1987 and ICEM from 1988 to 1991) co-operated with the project.

The project led to the creation, in 1984, of the IUF Hong Kong Education Office, later to become the Hong Kong Trade Union Education Centre (HKTUEC), as a joint operation of the HKCIC and the IUF, and to the establishment of the Hong Kong Confederation of Trade Unions (HKCTU) in August 1990. The HKCTU affiliated to the ICFTU in December 1992.
Following the reversion of the territory to China on July 1, 1997, the question has arisen what could be the most appropriate and effective international trade union policy in Hong Kong in the light of the new situation. Since Hong Kong is now a part of China, albeit a Special Administrative Region, such policy is now linked, even more closely than before, with international trade union policy with respect to China.
Mandate
Dan Gallin was asked by the IUF, on a mission supported by the LO/TCO Council for International Co-operation, to go to Hong Kong to report on the trade union situation in the context of current economic, social and political developments in that territory and in China.
The purpose of the report, which also includes information on the trade union situation in China, is to provide information and views to assist in developing a strategy for international trade union action in Hong Kong and in China for the foreseeable future.
Scope of Investigation
Dan Gallin was in Hong Kong from December 10 to 18, 1997. He met with representatives of the HKCTU, of the Democratic Party, of Frontier; of a pro-Beijing think-tank, of independent Chinese trade unions, of a Western human rights organisation; as well as: a Western diplomat, a leading
journalist, an independent left-wing activist, a former provincial-level ACFTU official, an ILO official, a HK business man with investments in China, a HK conservative (and pro-Beijing) economist, HK labour rights activists and researchers and, coincidentally, with visiting Western trade unionists (names, addresses and meetings schedule available).
Scope of the Report
The report covers, in conformity with the mandate received, recent economic, social and political developments in Hong Kong and China. It seeks to analyse their relevance to the trade union situation and, consequently, to international trade union policy. It describes the current trade union situation in Hong Kong and in China, also in its international context, and formulates recommendations for a future policy.
China and Hong Kong: Economic Uncertainties and Rising Social Tensions
China
Official Chinese reactions to the speculation and devaluation crisis which has crippled the Asian “tiger” economies in the second half of last year have been reassuring and even complacent: “the impact on China will be negligible because the currency is not fully convertible (i.e. domestic finance is separated from international capital and therefore protected against speculative pressures), foreign debt is manageable, the current account is healthy, exports are up and foreign exchange reserves are strong”. (Financial Times, December 8, 1997, China supplement).
However, irrespective of regional problems, the Chinese economy is facing difficulties of its own: slowing growth, a debt-ridden and fragile banking system, loss-making state enterprises and rising unemployment.
In the non-state sector (urban collectives and township and village enterprises), which accounts for 40 percent of the gross value of industrial output, investment growth (8.4 percent in the eight months to August 1997) fell below that of investment in industry generally, for the first time since 1989.
As for the state sector, about half of the state-owned enterprises (SOEs) are in the red and many of the rest are barely breaking even. SOEs made a combined CNY21.7 billion (USD2.6 billion) net loss in the first eleven months of 1997, up from CNY1.8 billion in all of 1996. One of the problems is a continuing build-up of unsold goods, demonstrating once again (as in the former USSR) the incapacity of bureaucratic central planning to meet consumers’ needs.
Foreign investment has also slowed down and may decline in 1998. The reasons include the lack of adequate infrastructure in inner China, continued uncertainty over investment regulations, increased competition from Chinese companies and low returns of existing investments. According to a recent study (European Investments in China, Fiducia, 1998) more than half of the 96 companies surveyed failed to reach their performance targets. Nearly two-thirds of the companies said that they had overestimated the potential of the Chinese market.
To what extent the Chinese economy will remain immune to the Asian financial crisis remains to be seen. The government has repeatedly insisted that, unlike 1994, it will not devaluate the yuan in order not to trigger off another round of competitive devaluations in Asia and depress the entire region, but “the markets are dubious”, according to Business Week (February 16, 1998).
In the SOE sector, the government is facing a dilemma which may be impossible to solve within the present political framework: on the one hand the debts and inefficiencies of the country’s 370,000 state enterprises are now too great a burden for the state to bear; on the other hand, privatisation will involve massive unemployment which, in the absence of any serious welfare system, is bound to create social tensions with political consequences.
The stated policy goal of the government, following the 15th Congress of the Communist Party of China (CPC) last September, is to privatise the great majority of SOEs within the next two years or so, leaving about 3,000 or less core enterprises in state ownership. The banking system is expected to play a leading role in allocating capital for the restructuring but at this time it cannot play that role: an estimated 25 percent (or CNY1,000 billion worth) of leading state bank loans are non performing, a heritage from an era when bank managers had no choice but to accept “policy-oriented” loans under the direction of government officials.
Raising capital on foreign markets (notably through Hong Kong) is an option that is practically ruled out for the time being as long as the financial turmoil in Asian markets is not resolved. Chinese companies raised a total of USD10 billion last year in Hong Kong, double the total of 1996, and have lost heavily in the stock market. Their borrowing is expected to drop to USD3 billion in 1998.
Selling SOEs is also made difficult by confused lines of ownership and responsibility (between municipal, provincial and national entities). Given the lack of clear ownership relations and the concerns about lay-offs SOEs have transformed their enterprises into shareholding businesses forcing workers to buy stock in the company or face dismissal. This is also a limited option, in view of the low purchasing power of the workers (in Shanghai, a high-wage area, workers in SOEs earn about CNY800 a month, or USD97, whereas a share may be sold at CNY5-8,000) In addition, it does nothing to solve the social problem: SOEs stop paying wages and invest the workers’ welfare fund as operating capital, so workers become “share holders” by default without any say in the management of the enterprise and in addition risk losing their share when the company is sold.
The state sector employs 112m. people in Chinese cities, or 56 percent of the urban workforce. The current five-year plan provides for the dismissal of 30m workers, over a 2-3 year period. At the same time, the number of destitute Chinese peasants expected to migrate to cities in search of low-paid work during the same five-year plan period exceeds the entire labour force of Indonesia.
The present official unemployment rate is 3 percent, but this does not include the redundant workers kept on the books of SOEs. If these were added, unemployment would stand at about 7.5 percent. By the end of last year, the government’s figures showed 5.5m workers officially unemployed, 9m temporarily laid off and 11m with wage arrears. According to a World Bank survey last year of five large Chinese cities, unemployed and redundant SOE workers together accounted for 13 percent of the labour force. Translated into national figures, this would mean an estimated 60 to 100m unemployed.
The government is making much of its efforts to retrain laid-off workers for re-employment, but regional evidence suggests that the state industries are being restructured faster than jobs are being created.
In Shenyang, an industrial center in North East China (Manchuria), just over 1.3m people work in SOEs, of whom 380,000 are laid off and 200,000 face imminent redundancy. According to the municipal government, within a relatively short time redundancies may affect 30 percent of Shenyang’s total workforce and more than 45 percent of workers in SOEs. In Shanghai, according to official figures, 7 to 8 percent of the city’s 4.7m workforce is unemployed; according to unofficial estimates, twice as many. In Chongqing, where wages are about a third of those in the coastal provinces, between 10 and 20 percent of the workforce is estimated to be either unemployed or living on subsistence wages provided by factories operating well below capacity.
Unemployed workers cannot survive on the dole and must depend on the informal economy. In Shanghai, unemployment pay is CNY270 per month (USD33) and subsistence pay for redundant workers still carried on the books of SOEs but not required to report for work is CNY400 a month (USD48). Older workers are forced to take a lump sum on retirement representing a few months’ wages; after that, the state recognises no further obligation.
Apart from re-training, other measures are being taken to cushion the impact of restructuring: SOEs are declared bankrupt, sold to a new owner and the new owner must take over a significant percentage of older workers. In some cities, enterprises which allocate at least half their vacancies to redundant workers are given a three-year tax break, while people who find their own jobs are promised one year’s tax exemption. Some towns have ordered new firms to offer 80 percent of jobs to laid-off workers.
The official trade unions have also been drafted into the job creation drive. At the fifth session of the 12th Executive Committee of the All-China Federation of Trade Unions (ACFTU), on December 6, Hu Jintao, a leading CPC official, urged trade union leaders to “arouse workers’ enthusiasm about reforms in SOEs, especially about turning losses into profits and to complete the tasks set forth during the recent 15th party congress”. He added that trade unions should “encourage workers to contribute to the development of new products and technological improvements”, that they “should provide more job opportunities and professional training for laid-off workers, and encourage them to change their old ideas and find new jobs themselves.” ACFTU Vice President Zhang Dinghua, also said that trade unions must intensify their efforts to promote the re-employment of laid-off workers.
In that way, the function of the unions is defined by the party to persuade the workers of the wisdom of the decisions of the 15th CPC congress whereas responsibility of dealing with the social consequences of SOE restructuring is shifted by the party and by the state on to the workers affected themselves.
The bottom line is, in any event, that large-scale and rapid SOE privatisation, rural migration to urban centers and existing unemployment will combine to create within the next two or three years a mass of over 100m unemployed (130-150m according to some forecasts) for which no social safety net exists and which cannot be absorbed in the economy at present rates of development.
Workers are not accepting these developments passively (see below: China: Trade Unions and Workers).
Hong Kong
Unlike the Chinese economy, the economy of Hong Kong has been directly affected by the Asian financial crisis. Since last July, the Hang Seng stock index has fallen 37 percent, wiping out USD230 billion in equity wealth, more than the territory’s gross domestic product of USD175 billion.
The Asia crisis has exposed two weak points in the Hong Kong economy: one is that its currency is pegged to the US dollar at a fixed rate of HKD7.74 to USD1 (one USD is kept in reserve for every HKD7.74 in circulation). To defend the currency at this exchange rate interest rates increased from 5.2 percent last year to 12 percent or higher (they now stand at 10.25 percent) leading to higher mortgages, more expensive credit and business failures.
The other option (abandoning the USD peg and devaluating) would cause massive capital flight with interest rates still staying high to defend the currency. Should China devalue its currency, the pressure would further increase on the Hong Kong government to end the USD peg or push its rates even higher to defend it.