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Is Chinese Investment Good for Workers?

A ChinaFile Conversation

China’s Belt and Road Initiative is a $1 trillion plan to deepen economic relations between itself and up to 60 other countries worldwide through large investments in infrastructure, construction, and other projects. Many commentators have considered the significance of Belt and Road from a political, economic, or even environmental perspective. This discussion, conceived and led by Aaron Halegua, considers a largely neglected topic: what are the initiative’s implications for labor in China and the target countries? To what extent do China’s investments create jobs for local workers versus Chinese workers? Are the projects positively impacting labor conditions in participating countries or driving down labor standards? Does it matter whether the Chinese investor is state-owned? And how do the answers to these questions vary across jurisdictions?

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One recent case comes from the island of Saipan, a U.S. Commonwealth in the Pacific Ocean. At least three major Chinese contractors—including state-owned (Metallurgical Corporation of China), publicly-listed (Gold Mantis), and private (Nanjing Beilida) companies—were hired to construct the Imperial Pacific casino and hotel there. Although the U.S. is not technically part of the Belt and Road Initiative, each company identified their work in Saipan as a “One Belt, One Road” project.

Awarding contracts to these Chinese companies resulted in thousands of construction jobs for Chinese workers, but very few for Saipan residents. The managers, foreman, and workers were all brought in from China. After the supply of work visas was exhausted, rather than offer a wage high enough to attract local residents, the companies arranged for more Chinese construction workers to enter Saipan as “tourists.” Some estimate that over 1,000 Chinese heigong (undocumented laborers) worked on the site. Many of them paid thousands of dollars in recruitment fees just for the opportunity to work in Saipan, underscoring how Belt and Road also serves as an important outlet for China’s surplus of unskilled labor in a slowing economy.

Hiring Chinese workers allowed the employers to impose exploitative labor conditions that locals would never tolerate. Many of the company practices resembled those in China, but violate the U.S. federal laws applicable in Saipan. For instance, these workers labored 13 hours per day, seven days per week; they were only paid once per month, if at all; compensation was below the applicable minimum wage; and overtime was rarely paid. Safety conditions were atrocious, resulting in high injury rates and even worker deaths. The companies resisted taking injured workers to a doctor unless absolutely necessary. Employers also confiscated workers’ passports—a legal violation as well as an indicator of forced labor. Accordingly, contracting with these Chinese companies cannot be said to have positively impacted labor conditions on the island.

In this case, the Chinese employers ultimately received some punishment and the workers achieved some modicum of justice. But this result is quite surprising given the lack of labor unions or worker centers in Saipan and the fact that most heigong, themselves in Saipan illegally, are terrified to complain to government agencies. Indeed, these abusive conditions persisted for a long time before a few brave whistleblowers came forward, including hospital doctors and workers themselves, prompting federal law enforcement agencies to intervene. Some of the largest fines for workplace safety violations in 2017 were imposed on the companies and several managers were criminally prosecuted for harboring and employing illegal aliens.

The contractors also agreed to compensate the workers millions of dollars for the minimum wage and overtime violations in settlements with the U.S. Department of Labor. But their motivation to settle was driven at least as much by the attacks on their public image than a fear of legal liability. The exploited workers continuously protested outside the casino for their wages without interference from the police; they received support from labor rights organizations in the U.S. and Hong Kong; and major media outlets reported on their plight. However, this tandem of worker support from law enforcement agencies and civil society institutions does not coalesce in every instance of abuse in the United States and may be particularly hard to achieve in some other Belt and Road target countries.

COSCO, the China Ocean Shipping Company, is the largest Chinese state-owned marine transportation provider, and the state exercises control over the enterprise through government loans and by influencing personnel decisions. COSCO has made several overseas investments that are viewed by the Chinese state as key steps in building the Maritime Silk Road portion of the Belt and Road. Three such major projects include a joint investment in a container terminal in Kumport, Turkey, a recently launched offer to take partial ownership of a terminal in Hamburg, Germany, and the focus of this post, the partial acquisition of two container terminals in Piraeus, Greece.

COSCO first entered into Piraeus in 2008 with an agreement to upgrade and operate an existing container terminal (T2) and construct a new one (T3). (The first terminal (T1) remains owned and operated by the Greek Port Authority.) The plan also called for COSCO to take a two-thirds ownership stake of these two terminals. At present, it has already acquired a majority stake. COSCO also upgraded the port infrastructure and constructed a connecting railway, causing the volume of shipping traffic to substantially increase. But what has this takeover meant for labor conditions at the port?

When COSCO acquired T2, a collective agreement existed between the Union of Port Workers and the Greek Port Authority, which included provisions on wages, tenure, hiring family members, pensions, working hours, and health and safety standards. COSCO initially recognized the agreement and continued to employ 500 Greek workers.

But as projects to upgrade the port infrastructure began, Chinese workers were brought in by specialized employment agencies on temporary contracts. A number of senior managers were also expatriated from China to supervise the projects. These temporary workers were part of a COSCO company union, designed to help monitor the implementation of safety measures, but not the Union of Port Workers. Indeed, COSCO purposefully avoided hiring such union workers.

The Union of Port Workers organized several rounds of strikes, demanding the end of practices that hire temporary workers and deny locals access to jobs. While most Chinese workers were eventually withdrawn, they were not replaced by local Greeks, but rather workers predominantly from Eastern Europe hired through employment agencies on temporary contracts. By the end of 2016, only 261 of the 1,200 workers were locally recruited. Wages, however, did not differ significantly between T1 workers and the temporary ones hired by COSCO.

COSCO explained that the use of temporary agency workers was common practice in the logistics and transport sector. While such arrangements may cause delays in responding to emergencies, a workforce on temporary contracts allows greater flexibility. Indeed, these labor practices are also consistent with trends in the operation of state-owned enterprises (SOEs) in China—namely, the casualization of employment and segmentation of the workforce. The existence of some collective worker body, but not a robust, independent union, also mirrors practices in China. Thus, while COSCO’s expansion coincides with the state’s Belt and Road Initiative and other objectives, such as promoting economic growth and upgrading the capability of its firms, the impact on Greek workers is more mixed. While some union members kept their jobs and benefits, new positions were filled by foreign contract labor.

To date, trade has played a much larger role than investment in China-Latin America commercial relations, and simply due to geography, Latin America remains largely tangential to Belt and Road. Nonetheless, going forward more Chinese investment projects in the Americas are likely to be placed under the Belt and Road umbrella.

One sector in South America that has seen significant Chinese investment is mining, particularly in Peru and Ecuador. In those countries, the labor impact of these projects has varied. In a longstanding negative example, labor conditions at the Shougang-Hierro Peru iron mine in Peru gave rise to local protests as far back as the 1990s, when I first did research on the project. Labor tensions existed almost from day one of Shougang’s management of Hierro Peru, largely due to underinvestment, including in worker safety, but also because the Fujimori government of the day threatened to replace Peruvian with Chinese workers. Tensions with the union have continued to linger, most recently because of the company’s use of temporary contract workers.

Yet other Chinese mining investments in Peru, for example by Chinalco (China Aluminum Corporation), have a much more positive track record regarding labor relations and environmental impact. Perhaps learning from Shougang’s negative example, Chinalco did not bring in Chinese workers and guaranteed local employees both quality housing and a minimum compensation level.

It is notable that these labor-related concerns are almost entirely focused on local workers, not Chinese labor. A key reason for this is because a number of China’s main commercial partners in South America have strict laws, sometimes including constitutional restrictions, against importing foreign labor. So, for example, even though China is the top importer of Chile’s main export, copper, Chinese direct investment in that sector has been negligible and the number of Chinese laborers in Chile therefore minimal. The same phenomenon exists in other countries, such as Colombia, with strong legal and regulatory systems, including governing the contract bidding process. If, in neighboring Venezuela Chinese loans and investments have been largely obscured from public oversight, in Colombia Chinese investments have been much more open to public and media scrutiny, with the result that many extractive industry deals have been scuppered.

The primary exception to this trend is the Caribbean, where host countries (like many in Africa) are much more likely to be offered, and to accept, a package involving Chinese finance, materials, and labor. In the contentious Baha Mar casino deal in the Bahamas, a country with double-digit unemployment, the China Export-Import Bank provided $2.4 billion in financing to a state-owned construction firm that brought in 4,100 Chinese workers—some of whom later staged protests in a dispute over their wages.

So despite its geographic distance from China, and the tenuous connection to Belt and Road, the experience of Latin America may offer some important lessons. It may sometimes be best for the host country to just say no to projects that do not fit local legal, economic, or social conditions. For approved projects, it’s of paramount importance that host governments and communities monitor and regulate the practices of foreign firms, Chinese or otherwise, including their labor practices. As Belt and Road goes forward, other countries and local communities more directly in the initiative’s pathway could do worse than learning from some of their Latin American counterparts in this regard.

There is an ongoing debate in Australia about whether or not it should join the Belt and Road Initiative. While policymakers have certain geopolitical concerns about China, the reality is that our economy depends on exports to China and the tuition of thousands of Chinese students. In light of this, in 2015, Australia signed a Free Trade Agreement (FTA) that, among other provisions, permits Chinese firms investing $150 million in Australian dollars ($A) in infrastructure projects to bring in their own workforce. The FTA also has a labor mobility chapter allowing Chinese companies to send workers to perform a range of “services” on short-term visas.

The Australian labor movement opposed the above measures, fearing they would be exploited and provide an easy route to importing cheap Chinese labor. This fear already appears to be well-founded. For instance, a recent scandal revealed how a Chinese company brought in workers under this FTA provision claiming they were the only people with the skill needed to perform the job—a claim hotly contested by Australian workers. These Chinese employees then received less than the minimum wage and no pay slips, pension payments, or injury insurance as required by law. Instead of installing equipment, as their visas required, these workers were sent to work on a construction site six days a week.

Australian labor groups have long been concerned about the employment of temporary foreign workers, including Chinese, driving down labor standards. Australia currently has 1.3 million such workers, constituting 10 percent of its workforce. The number of Chinese with work visas has rapidly increased since the signing of the FTA, and there are now 47,000 such workers. Another 140,000 Chinese students with working visa rights are also currently in Australia, and investigations show that they receive as little as A$8 an hour (less than half of Australia’s minimum wage), but fear reprisals if they speak out.

A recent example from the mining sector also shows the potential of Chinese workers displacing local ones. Prior to the FTA with China, the large number of Chinese companies in Australia’s mining sector still hired local workers, largely due to pressure from state governments and unions. But, it was recently revealed that after the Indian company, Adani, failed to find sufficient investors in a coal mine project, it would secure funding from the Chinese state-owned enterprise China Machinery Engineering Corporation (CMEC), which expected to be able to get a loan from a Chinese development bank. However, the CMEC investment was expected to carry requirements of importing Chinese materials and workers. If this was to come true, it would be particularly damaging because approval to build the coal mine was premised on the additional jobs that would be created for Australians.

Chinese investment in Australian agriculture, infrastructure, and other sectors is already growing, and there is talk of the country becoming more closely linked to China’s Belt and Road. At present, the employment of temporary Chinese workers in Australia has led to fears of worsening labor conditions overall. Further, Chinese investment seems to be deepening this problem by bringing in more Chinese workers, rather than solving it by providing decent jobs to Australians. Therefore, based on the experience thus far, the labor movement is quite skeptical about the potential impact of Belt and Road extending to Australia.

The labor implications of Belt and Road in Cambodia must be understood in the broader political context of China’s involvement in the country. Likely to face significant opposition in the 2018 national elections, in recent months Prime Minister Hun Sen has launched a crackdown against political adversaries, media, and civil society. In a significant break with the past, at every turn of events he has shrugged off widespread international condemnation citing China’s unwavering support for his actions. For instance, after the dissolution of the main political opposition party, when the U.S. government announced the intention to cut funding for the 2018 election and threatened sanctions, he boasted that China would fill the gaps and alleged that the U.S. is “afraid China is taking its seat.” Indeed, at that time China’s Foreign Ministry released a telling statement: “China supports the Cambodian side’s efforts to protect political stability and achieve economic development, and believes the Cambodian government can lead the people to deal with domestic and foreign challenges, and will smoothly hold elections next year.”

Belt and Road complements and reinforces these displays of Chinese political support for the authoritarian turn of Cambodian politics. While Belt and Road is expected to bring in massive investments in much-needed infrastructure projects, such as highways, railways, and dams, Belt and Road’s signature project in Cambodia to date remains the Sihanoukville Special Economic Zone (SSEZ), established back in 2008 by two state-backed companies. Today, the industrial park hosts more than 100 firms and employs 16,000 workers, but expansion plans call for 300 companies and 100,000 employees (Cambodia’s entire garment sector currently employs around 600,000 workers). The SSEZ is comprised mostly of Chinese-owned garment and footwear factories with an almost entirely Cambodian front-line workforce managed by Chinese managers.

Despite increases to the minimum wage in Cambodia, wages remain far below those in China (see my research comparing the two countries) and social insurance is virtually non-existent, making it attractive to Chinese investors. Furthermore, companies in the SSEZ need not worry about the threat of labor activism. While Cambodia nominally allows union pluralism, according to an unpublished research by Gavan Blau at the University of Amsterdam, SSEZ factory owners have “a coordinated strategy of labor disempowerment and exploitation.” The factories only hire workers on short-term contracts of three to six months, although this is increasingly common throughout Cambodia’s garment sector. More troubling is how owners blacklist labor activists: employers fire workers who organize union or similar activities, and then circulate their photos and details to other managers in the SSEZ. This anti-unionism causes even more alarm than other “ordinary” instances of labor rights violations, such as discrimination against pregnant women, unfair dismissals, and forced overtime.

All of this allows us to say that Chinese Belt and Road investment is definitely not improving, if not altogether worsening, Cambodian labor practices. Cambodia’s labor movement is already under assault due to a new set of restrictive laws on trade unions and NGOs, which is also being enabled by China’s growing influence in the country. The last thing that Cambodian workers need today is to be sacrificed on the altar of Belt and Road.

Over the past two decades, China has quickly emerged as Africa’s largest economic partner, with direct investments by Chinese state-owned and private firms growing at an annual rate of 40 percent since 2000 (even based on conservative estimates). At the same time, there have been growing controversies over the social impacts of Chinese investments in Africa, including the labor practices of Chinese firms. There is a common perception that Chinese firms have engaged in the en masse dispatch of Chinese workers without hiring local workers, as well as frequent violations of local laws that have led to labor disputes and strikes. However, the picture of Chinese investments on job creation, skills development, and labor relations in Africa is more complex.

A recent McKinsey report involving a study of 1,000 Chinese firms in eight African countries found that a vast majority (89 percent) of firm employees were African and almost two-thirds of the firms provided some form of skills training to its employees. This drive to employ Africans is linked to rising labor costs in China. Nonetheless, the report also highlighted particular challenges, especially the failure of many Chinese firms to promote local workers to management positions, the competitive threat of Chinese firms to longstanding African enterprises (and the jobs the latter provide), and instances of serious breaches of labor, health, and safety regulations.

A study by the African Labor Research Network noted problems of tense labor relations and inferior working conditions and wages in Chinese firms compared to other foreign multinationals across different sectors. The resource and extraction sector has witnessed numerous labor incidents involving Chinese firms stemming from the widespread use of short-term employment contracts, Chinese managers’ treatment of local workers, and safety and sanitation conditions, among others. One incident involved a series of violent strikes at the Chinese-owned Collum Coal Mine in Zambia. In 2010, two Chinese managers shot and wounded 13 striking African workers. In a 2012 wage dispute-induced riot, local workers killed a Chinese supervisor and injured two others. While wages exceeded the Zambian minimum wage, workers demanded a “living” wage to support themselves and their families.

In light of growing criticisms, the Chinese government has introduced various measures to influence the conduct of Chinese firms abroad. In the mining sector, the Chamber of Commerce of Metals, Minerals and Chemicals Imports and Exports and the Ministry of Commerce issued the “Guidelines for Social Responsibility of China’s Outbound Mining Investments” in 2014. These Guidelines direct Chinese firms to comply with a range of “international standards” on labor, environmental protection, supply chain due diligence, community engagement, and human rights, and to strictly “observe the UN Guiding Principles on Business and Human Rights during the entire life-cycle of the mining project.” The actual impact of such measures to date seems to be mixed. But it raises the important question of whether Chinese firms in Africa will be able to shake their negative image and instead become “standard makers” on the continent and other places touched by the Belt and Road.