china opps risks foreign cos
TRANSCRIPT
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China: Opportunities andRisks for Foreign Companies
M ORLEY FUN D M ANAGEMENT
INSIGHT INVESTM ENT
For financial advisers and investment professionals only
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Introduction
Liberalisation of China’s economy and the country’s emergence as a major global economic power are among some of the
most significant world developments of the past decade. Many experts believe that just as Britain ruled the 19th century and
the US the 20th, so China will come to dominate the next 100 years. However, China currently remains a relatively poor
country with per capita income only a fraction of that enjoyed by neighbours such as South Korea. It will also have to
overcome huge problems if it is to become a global superpower. These include weak institutions, a rickety financial system,
an inadequate legal framework, massive environmental degradation and a huge army of unemployed and underemployed
migrant workers having little stake in society.
Few major international firms can afford to ignore China’s huge economic potential. The country already has a prosperous,
100 million-strong middle class, and is rapidly becoming the workshop of the world as companies in developed countriesoutsource production to factories in China. It has also become a much more attractive investment destination since its
accession to the World Trade Organisation in 2001 and successful bid to host the 2008 Olympic Games. Over US$60 billion
of Foreign Direct Investment flowed into the country in 2004 alone; meanwhile, China’s foreign trade surged to a record
US$1.15 trillion1 and the country became the world’s third biggest trading power after the US and Germany. Although China’s
potential as a market and investment opportunity continues to intrigue and attract many foreign companies, many are also
aware of the attendant risks of this enormous and complex country.
1 http://www.chinaembassy.org.in/eng/zgbd/t181360.htm
For Financial Advisors and Investment Prof esssionals only
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Promoting responsible business in China
To investigate the risks for foreign companies operating in
China, Morley Fund Management and Insight Investment
hosted a series of seminars, involving companies, investors
and specialists, to facilitate debate on how foreign
companies can operate successfully and responsibly in
China. The aim of the seminars was to explore emerging
best practice for managing some of the key risks facing
foreign companies operating in or sourcing from China.
This paper provides an overview of the issues covered in the
seminars, and their key findings, including the experience of
some European companies that realised a tangible benefit
from putting in place effective risk management systems in
their Chinese operations or supply chains. The report also
highlights recommendations from the seminars with the aim
of encouraging continued progress and further dialogue
between investors and companies around issues relating to
operating in China.
The Seminars
Three seminars were held during the course of the year
which covered a number of themes:
• Seminar 1: Economic and Political Climate (January
2004): This seminar introduced the China Project to
participants. General macroeconomic trends, political
reforms, implications of the liberalisation of the Chinese
economy and WTO accession were major themes.
• Seminar 2: Legal and Regulatory Issues (April 2004): Thisseminar established Chinese laws and regulations that
currently affect businesses (e.g. corruption, intellectual
property rights), and looked at effective procedures that
can be implemented by companies in order to overcome
the lack of existing legal safeguards.
• Seminar 3: Managing Labour Issues (September 2004):
The final seminar was designed to increase awareness of
the risks to business posed by poor management of
labour standards in China, and to look at business
benefits that have accrued to companies who have
managed these issues effectively.
The seminars were small (between 15 - 20 participants) to
ensure that discussions remained focused and participants
were given ample opportunity to contribute their views. Allof the seminars were conducted under Chatham House
rules.
The report does not represent the formal investment view of
Morley Fund Management or Insight Investment, the
seminar sponsors. This paper is for information purposes
only and neither Morley Fund Management nor Insight
Investment can be held liable for any decisions you take
having read its contents.
Seminar Organisers
Morley Fund Management is the fund management arm ofthe Aviva Group UK, one of the UK’s largest insurance
groups. Morley manages assets in excess of £128bn2 across
world markets, and manages a range of specialist ‘Socially
Responsible’ global and regional funds.
Insight Investment is the asset management arm of the
HBOS Group. Insight manages its £77.7bn2 of clients’ assets
under management according to a responsible investment
policy
Morley and Insight take the view that as institutional
shareholders and fund managers, we have a responsibility toplay an active part in the governance of the companies in
which we invest. An integral part of this strategy is engaging
with companies to analyse risks and opportunities inherent
in their businesses to alert fund managers to any issues thatare likely to have an impact on shareholder value. We believe
this process is best undertaken through face-to-face
dialogue with company management.
For further information please contact:
Melissa Gamble or Harriet Parker at
Morley Fund Management
020 7809 6000
Rachel Crossley at Insight Investment
020 7321 1262
2 As at 31 December 2004.
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Participants
We would like to thank guest speakers and panellists for
their valuable contribution to the seminars, which helped to
generate insightful and constructive discussions. We would
also like to thank the companies and other specialist
organisations that attended the meetings and contributed to
the findings of this report.
Guest Speakers
• Daniella Gould, Director of China Office, Impactt Ltd• Dr. Gerard Lyons, Chief Economist and Head of Global
Research, Standard Chartered Bank
• Dr. Linda Yueh, Fellow and Tutor in Economics, London
School of Economics and Pembroke College, Cambridge
Panellists
• Jo Carpenter, Control Risks Group
• Dr. Stephen Green, Royal Institute of International Affairs
• Rosey Hurst, Impactt Ltd.
• Callum Macleod, Great Britain China Centre
• Peter Nightingale, China Britain Business Council
• Pierre Robert, Future Considerations
• Graham Rodmell, Transparency International (UK)
• Hilary Thompson, Kingfisher (B&Q)
• Albert Wong, Royal Dutch Shell
Attendees
AccountAbility John Lewis
Acona Kingf isher (B&Q)
Associated Brit ish Foods Marks & Spencer
Aviva MFI
Boots Rotork
Diageo Safeway/Wm MorrisonGK Goh Sainsbury
GlaxoSmithKline Shell
GUS (Argos) Somerfield
GUS (Homebase) Standard Chartered
Imperial Tobacco Tesco
Inditex
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Seminar 1: China’s Economic and Political Climate
Introduction
Despite the ever-growing importance of China to global
business, it remains a country with numerous social and
political problems including rising unemployment,
corruption, regional economic disparities and other factors
associated with capital markets in their infancy. While the
Government of China has adopted a wide range of policies
to promote market-based economic development, full
political and civil reform, through a shift towards a moredemocratic government, is still far from being realised. The
restructuring of State Owned Enterprises (SOEs) has led to
large-scale redundancies; and subsequent feelings of
resentment among former workers toward the government
could create a threat to the long-term social stability that is
essential to China’s development. China’s emergence in the
global economy over the last decade has also coincided with
the emergence of wider scrutiny of multinational behaviour,
both within and outside China, by non-governmental and
civil society organisations and extensive media exposure. This
is putting pressure on companies considering moving into
China to consider the full range of potential business risks
they face, including ‘extra financial’ risks such as those
related to human rights, corruption and environmental
issues.
Economic Background
China’s GDP per capita has risen on average by 8% per
annum over the past 25 years. The country recently overtook
the USA as the most popular destination for foreign direct
investment. China admittedly remains a low-income
economy with low productivity per head, but it also has
huge potential for sustained economic development. Thegovernment has pledged to continue stimulating domestic
demand and pursuing expansionary macroeconomic
policies. It further plans to address problems inherent in the
economic system, and to focus on rural development,
corporate and financial restructuring, and the reform of
government institutions.
But serious structural problems continue to undermine the
economy’s potential, despite China’s impressive compound
growth and marked rises in real output and standards of
living. The country’s policy of gradual free market reform, as
opposed to the ‘big bang’ approach adopted by otherformer command economies, has allowed policymakers to
delay addressing major problems such as urban
unemployment or non-performing loans. But this strategy
may be unsustainable.
Foreign Direct Investment in China
Source: International Monetary Fund, International Financial Statistics;
Reproduced with the kind permission of Dun & Bradstreet.
There are many other medium to long-term economic
problems pose direct or indirect challenges to foreign
investors:
• Regional disparities: Direct investment (both foreign and
domestic) has tended to favour coastal areas and cities,
which have thus enjoyed much faster economic growth
than inland regions. Income disparities between inner
and coastal regions have widened.
• Ongoing deregulation and the dismantling of SOEs: has
precipitated massive job losses and the emergence of a
vast army of displaced migrant workers. State-run giants
were once at the heart of the planned economy. But
these companies are increasingly forced to sink or swim
in the face of market reforms, leaving employees without
work and deprived of a system of lifetime benefits.
• Weak banking system: The current debt-to-GDP ratio is a
problem, given the need for continued spending on
social security and the domestic banking sector.
Government-pressured lending has left domestic banks
with weak lending portfolios and large numbers of non-
performing loans. In addition, the state has bailed out
many recently privatised banks, increasing levels of
recurrent domestic expenditure.
• Welfare Spending: China’s rate of population growth
has decreased since the 1990s. However, the population
is forecast to peak at 1.45 billion in 2030, and an ageingdemographic profile will put pressure on welfare
spending and government finances. Some of this cost
may fall on foreign companies operating in China in the
form of increasing welfare benefits to the workforce.
US$ billion
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• Currency: The international community strongly supports
an appreciation of China’s currency in line with WTO
accession commitments. Yet China’s domestic policies
are currently geared towards stabilising the economy,
with a gradualist approach to currency appreciation. The
currency has thus been allowed to fluctuate within
boundaries set by this policy framework. China is
currently the world’s fifth largest economy, accounting
for one-twentieth of total world exports. Three-quarters
of exporters in China are foreign (mainly US), hence aweaker currency, coupled with low-cost labour, work in
their favour. Upward pressure on the Yuan-Renminbi
would be unhelpful to foreign companies operating in
China.
Foreign companies in China
Foreign companies’ profits in China may have increased
rapidly in the past four years, but they remain modest in
comparison with other countries with smaller markets and
slower growth. China, with its billion-plus population and
dynamic economic growth, is seen a reservoir of untapped
potential by foreign companies looking for new markets.
But recent research paints a picture of a market characterised
not just by untapped potential, but by cut-throat
competition and incredibly challenging conditions. Many
foreign businesses in China are struggling to make money at
all because of low margins and local competition. Some
foreign companies have lost money in China by over-
investing too quickly, too early, and companies with smaller
investments have been successful within three to four years
because they knew where to position themselves, and make
the best use of their money.
Manufacturing has accounted for 60% of China’s GDP
growth over the past decade, with the low cost of
production, coupled with favourable economic policies and
preferential tax rates, among the drivers behind the growth.
As a result, foreign companies that make the most money
out of the China boom are those that use it as a base for
exporting or sourcing cheaply. It can be argued that most
foreign companies are neglecting 90% of the market - more
than 700 million people - by targeting just the wealthiest
minority. For example, the US companies that made the
biggest profits selling into the China market, rather thanexporting from it, were the fast-food giants Yum Brands and
McDonald’s. Major firms such as Coca-Cola and Nestlé now
record sales of over $1billion in the China packaged food
market, which is now estimated to be worth over 30 billion.
Some foreign businesses are now on the right track, and are
beginning to successfully target the Chinese mass consumer
market. These companies were able to target the mass
market after they acquired local companies that already had
channels in place.
Anecdotal evidence suggests there are some recurring
hurdles that keep tripping up foreign companies in China:
• Underestimating local competition: Domestic
corporations have less than 70% market share in only
two sectors (instruments and electrical and electronic
machinery). This suggests that mainland producers may
stand to benefit extensively by WTO entry.
• Lack of intellectual property rights: Many companies
(mostly in consumer goods, chemicals and auto parts)
have seen their Chinese markets diluted with cheaper,
fake goods.
• Underestimating the impact of company-government
relationships: For example, AT&T decided to withdraw
from China after 1989, but the State later excluded AT&T
from participating in particular JV’s so that they lost out
to rival companies.
• Concentrating predominantly on lowering labour costs:
Operating costs in China relative to the rest of the world
can be much higher than the labour cost savings that can
be made.
• Understanding infrastructure and distribution network
needs: Some companies signed JV’s before recognisingthat systems they thought were in place were not, or
were badly designed for their business needs. The effects
of this have sometimes been exacerbated when
companies have not been allowed to set up their own
systems or networks
• Inheriting demoralised workforces from SOE’s: often
these employees have not been receiving redundancy
packages/pensions. There is a need to identify what
company obligations must be met before entering into
agreements with former SOE companies, e.g. liabilities of
SOE’s to pay lifetime subsidies.
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Political Stability
China is an authoritarian state under the unchallenged
dominance of the Chinese Communist Party (CCP). The
fourth generation of CCP leaders was elected in March
2003, when Hu Jintao replaced Jiang Zemin as
President /Party General Secretary of the CCP. This new
leadership aims to focus on restructuring State-owned
Enterprises (SOEs) and developing a free-market economy, in
order to address the problems affecting rural China. Mr Huhas pledged to strengthen the rule of law and secure clearly
defined property rights - moves that will go some way
towards aiding economic development.
Yet China may need a greater level of democracy nationwide
to guarantee a stable, free-market economy over the longer
term. China’s political environment is certainly more relaxed
than in the late 1980s, when the authorities clamped down
on dissent in the aftermath of the 1989 Tianamen Square
massacre. Many subjects, once taboo, are now openly
discussed, and the Chinese enjoy relatively free access to the
Internet, albeit subject to certain restrictions aimed at
monitoring or preventing debate on issues seen by
government as politically subversive. The central authorities
also encourage discussion of environmental questions and
consumer protection - again within fairly tight boundaries.
A civil society is also emerging in the form of increasing
numbers of community organisations and monitoring
groups (similar to non-governmental organisations). These
groups represent both a threat to corporate reputations and
an opportunity for corporate-community co-operation in
addressing issues such as labour standards. Foreign
companies could indeed benefit from working with such
groups. But the emergence of a civil society also poses risksto the CCP’s dominance of the political environment. Civil
unrest could certainly ensue if the CCP failed to deliver
improved living standards and economic stability.
Tibet remains a sensitive issue. Beijing claims a centuries-old
sovereignty over the region, but the allegiances of many
Tibetans lie with the exiled spiritual leader, the Dalai Lama,
who is regarded by China as a separatist threat. Under
international pressure, China eased its grip on Tibet in the
1980s, introducing “ Open Door” reforms and boosting
investment. Beijing says Tibet has developed considerably
under its rule, but many groups say China continues toviolate human rights in Tibet, accusing Beijing of political
and religious repression.
Envi ronment al pressures
While economic growth has increased incomes and
improved health indicators as well as reducing overall
poverty levels, growth in China has not been entirely benign.
Environmental pollution from coal use is damaging health,
air and water quality, agriculture and ultimately the
economy. The World Health Organisation reported that
seven of the ten most polluted cities in the world are in
China. Sulphur dioxide and soot caused by coal combustionare two major contributors, resulting in the formation of acid
rain, which now falls on about 30% of China’s total land
area.
The Government recognises that such issues require
attention, and that rising water and air pollution, as well as
deforestation and desertification, may also threaten China’s
economic development. The authorities have issued
regulations to reduce the emission of greenhouse gases
signif icantly, and have recently launched a five-year pollution
control plan - estimated to cost around US$84 billion. The
Government has also introduced initiatives to cut back on
coal use (e.g. by introducing a tax on high sulphur coals).
Consequently, environmental regulation is expanding and is
relatively well monitored. New laws establishing
environmental regulations have been introduced. At the
national level policies are formulated by the State Council.
Managing energy and w ater scarcit y
Rising energy requirements, as well a widening gap between
oil supply and demand, have encouraged the Chinese
government to give priority to investment in energy
infrastructure. China is now the second biggest energyconsumer after the US, and the world’s third biggest oil
consumer. In 2001 China accounted for 9.8% of world
energy consumption. Of the 39.7 quadrillion Btu of total
primary energy consumer in China in 2001, 63.4% was coal,
25.8% was oil, 6.9% hydroelectricity, and 3.1% natural gas.
By 2025, the share of nuclear power used for China’s
electricity generation is expected to increase to 4% from the
lit tle over than 1% currently. The government has made
significant strides over the past few years in opening its
energy sectors to foreign capital. As yet, foreign direct
investment in energy typically involves foreign firms paired
with one of three major state-owned Chinese partners -CNPC, Sinopec and CNOOC - with the controlling interest
held by the Chinese firm.
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After coal, renewables (including hydroelectricity) account
for the second largest share (18.6% in 2001), of China’s
electricity generation. With assistance from the United
Nations and the United States, China hopes to embark on a
multi-million dollar renewable energy strategy to combat
pollution. While solar and wind power provide significant
renewable energy potential, China’s growth in renewables
will in the next decade will be dominated by hydropower,
particularly with completion of the 18.2-gigawatt Three
Gorges Dam project in 2009. Although the Three GorgesDam is seen as both an important source of energy for
China’s growing electricity consumption needs and a means
of taming the Yangtze River, notorious for its disastrous
floods, the controversial dam also could prove to be an
environmental disaster. Thus far, few attempts have been
made to address concerns regarding the accumulation of
toxic materials and other pollutants from industrial sites that
will be inundated after construction of the dam.
Possibly the most serious environmental challenge for China
is access to clean water. About 60 million people find it
diff icult to obtain suff icient water for their daily needs. Water
demand is expected to triple during 1995-2030, from 120bn
tonnes to 400bn tonnes, and by 2030 per capita water
supply will fall from 2,200cu m to below 1,700cu m.
Suggestions for companies
• Companies considering operating in China should
exercise caution and carefully balance the significant
potential the country offers against the substantial
economic challenges that remain.
• While Chinese banking practice appears to haveimproved in recent years, fundamentally little has
changed. Increased foreign presence in the financial
sector could help to promote further but gradual reform.
• Using local partners can facilitate foreign company
operations, as local people have considerable experience
of Chinese laws, business practice, culture and superior
access to information. However, choosing the right
partner is difficult, and involves a significant degree of
risk. Some companies are addressing this challenge by
buying into an SOE venture; however it is important to
consider the partners’ ethical standards as well as their
business performance.
• Companies should not underestimate the cost of
bringing manufacturing standards up to match their
brand requirements. This can include expensive
expatriate salaries for managerial roles and training, as
well as high operating costs.
• Companies that invest in China should be wary of the
risks posed to their employees who may be targeted due
to their suspected involvement in groups or other
activities that may be regarded as contrary to the CCP’s
interest of maintaining social stability. Companies should
be particularly careful if they are involved in projects in
parts of the country where civil unrest exists such as Tibet
or Xinjiang as involvement in these areas may open up
companies to criticism from campaign groups and could
pose reputation risks.
• Greater environmental regulation will involve increased
costs for companies operating in China. Companies
operating in China should be aware that they are
increasingly expected to adopt measures to mitigate the
impact of their operations on the environment.
Companies should consider implementing robust
environmental policies and practices that meet
international standards so as not to be caught out should
regulation in this area be tightened.
• Demand for power and a poor infrastructure in the
power industry are increasingly causing power cuts.
Businesses must take this into account when organising
the work schedules and expected profit streams. In
Shanghai, more than 800 factories have changed work
schedules to avoid consumption peak times and more
than 300 factories are using power on a rotating basis.
• Growing concern about environmental issues also
presents new market opportunities to those firms
offering solutions to some of China’s more pressing
environmental challenges. Technologies that will treat
wastewater, provide clean energy, reduce air pollution
and improve environmental monitoring systems will be
set to benefit from this trend.
• Civil society groups represent both an increased threat to
corporate reputations, and an opportunity for companies
to co-operate with local organisations in order to address
stakeholder questions such as human rights (in areas
such as Tibet) and labour standards.
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Seminar 2: Legal and regulatory challenges in China
Introduction
China has been strengthening its regulatory framework, but
lack of clarity characterises many areas of commercial and
economic law, a position that poses a major challenge for
foreign companies. Consistent application and transparency
of laws, regulations and practices is fundamental to a free-
market economy. Yet in spite of the need for large-scale
reforms, the government has hitherto adopted a cautious
approach to reforming the legal environment. Conversely,rising foreign investment has brought issues to the fore such
as corporate governance and accountancy standards, along
with the increased need for regulatory structures. Lack of
effective enforcement of existing laws also remains a major
concern.
China has many hurdles to overcome before it can comply
with international legal standards. Central and local
government regulations often conflict and in many cases
local lawmakers and officials interpret and implement laws
according to their own political interests. The current
devolution of power to provincial governments is
exacerbating the problem. In addition, the vast majority of
China’s judges have no legal training. Foreign companies
operating or planning to invest in China need to be aware of
several other issues that will undoubtedly affect their
activities. These include the status of China’s adherence to
World Trade Organisation (WTO) rules and continuing
reform of the state sector.
Enfo rcing t he existing legal fr amew ork
In recent years, the Chinese government has introduced a
number of economic laws to provide a framework forforeign investment activity. These include the Company Law
(1994), the Commercial Banking Law (1995) and the
Mergers & Acquisition (M&A) Law (2002). WTO accession
has heightened the need for more complex laws. For
example, China introduced the 1995 M&A Law to permit the
purchase of non-performing loans - estimated to account for
around 30% of GDP. The law authorised the State Economic
and Trade Commission (SETC) to sell and restructure various
financial instruments, thus allowing foreign firms to buy into
local firms through debt for equity swaps. This has
undoubtedly helped to attract foreign creditors, but the law
has proved inadequate in combating the endemic ‘crony
capitalism’ that still deters many potential investors.
While the regulatory framework is improving, enforcement
remains a problem. Many of China’s judges start their careers
as bailiffs and ‘work their way up’ through the system;
hence, they lack adequate legal training. Businesses can
request arbitration, which operates according to
international standards and guidelines to resolve disputes.
This mechanism is fairly sophisticated but time-consuming.
The WTO also has a dispute settlement mechanism;
however, only member countries can bring actions on behalf
of a company, rather than the company itself.
Businesses report experiencing difficulties at the local level
because local lawmakers and officials often interpret andimplement national laws and regulations to achieve their
own political ends, and operate according to a host of
unwritten cultural rules. They sometimes try to extract
bribes, or seek to protect local businesses. Furthermore,
central and local government laws frequently conflict and
local officials may lack knowledge of national laws.
Reforming the state sector
The growth of the private sector, as well as continuing
reform of the state-owned sector, is helping to liberalise the
economy. The private sector currently numbers some 2.5
million large firms - which employ 70-100 million people -
and millions of smaller enterprises. The private sector
generates 30% of gross domestic product, despite limited
access to bank capital, while foreign-owned enterprises
generate 55% of China’s exports (a figure that highlights the
level of foreign investment flowing into China).
The state has already sold off many small and medium-sized
SOEs. But around 160,000 large-scale, provincial-level SOEs
remain; these have been incorporated into the ‘State Asset
Management Commission’. This strategy allows the state to
maintain its key role in major firms, while selling off minoritystakes in smaller enterprises. Ninety percent of listed
companies are former SOEs sold to retail investors. Thus, the
stock market has essentially served as a vehicle to enhance
SOE performance, with no concomitant commitment to the
private sector. This suggests that reform of the state-owned
sector has not been as successful as might at first appear.
Yet reforms are beginning to have an impact - at least in
terms of companies regulated by the China Security
Regulatory Commission (CSRC) in Shenzhen and Shanghai.
Investors are now able to seek legal redress in the event of
fraud. Consequently, the level of foreign capital is increasingand private investment at the provincial level is also growing.
Meanwhile the gradual reduction in the state’s equity in the
industrial sector is reducing the incidence of asset stripping
and the use of soft loans to prop up unviable firms.
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WTO Accession
Some foreign companies have expressed concern at China’s
slow adoption of WTO rules. They see ambiguous property
rights, weak implementation of laws, the absence of a
framework for corporate governance and financial sector
distortions as factors constraining private sector
development. Yet China only recently joined the WTO (in
2001) and, in some respects, has made remarkable progress.
It has gradually reduced tariff rates and barriers, and has metits obligations on import regulations and the agricultural
sector. The legal environment will undoubtedly become less
risky as China’s economy opens up and rule-based trading
becomes the norm. But the impact of WTO accession and
development of the private sector varies from sector to
sector.
The diagram below highlights those industries (such as
banking) that remain highly protected.
Source: McKinsey Quarterly and China Business Council
Under WTO rules, China is committed to opening up its
financial sector to foreign competition and investment by
2006. Regulators are monitoring progress, yet much ground
remains to be covered. The majority of larger banks have a
deeply ingrained ethos of non-commercially driven lending,
with around 85% of loans going to SOEs. And the
government’s monetary policy encourages banks to maintain
old lending habits, while limiting the level of lending to the
private sector. The introduction of best practice via a foreign
presence within the financial sector could encourage such
developments.
Protection of Intellectual property right s
China suffers from serious intellectual property rights (IPR)
infringements. Ineffective laws, local protectionism and
weak enforcement by the Chinese government contribute to
the counterfeiting problem and pose a threat to the
reputation and sales of international brands. The US
estimates the value of counterfeit goods in China at
between $19 billion and $24 billion, with losses to US
companies exceeding $1.8 billion a year.
Although these problems are generally unavoidable in
developing market economies, the situation in China is
particularly concerning. For the past 40 years, until China
began putting intellectual property laws in place, all patentswere owned by the government, and could be shared with
any company that was willing to use them. The Chinese
government encouraged this, and that has left a deep
impression on Chinese companies that intellectual property
is there for anyone to use it. The practice of copycat
production is also fuelled by the fierce competition among
Chinese companies and provinces to join the global
economy.
Chinese Authorities have drafted new laws to protect
intellectual property rights. For example, protecting clinical
trial data used in the drug approval process and software
registration rules to protect copyrights of domestic and
foreign software. The State Intellectual Property Off ice deals
with IPR issues. Beijing has been improving its record in
combating piracy and counterfeiting amid mounting
pressure on the government to improve its performance in
implementing its WTO commitments. The government
signed an agreement on trade-related aspects of IPRs under
the auspices of China’s WTO accession. The EU has also
recently launched a formal dialogue with the Chinese
government to try and improve enforcement of IPR rules.
Western companies have won some legal cases, although
enforcing the judgements has proven difficult.
The country’s efforts at improving enforcement, though
steady, require more time to reach the standards of
intellectual property rights protection in many industrialised
countries. Lawyers who represent Western companies
embroiled in intellectual property disputes in China point to
major loopholes in Chinese law and in the country’s
trademark and patent system as parts of the problem. Many
Chinese patents, for example, are granted without any
examination of their originality, making it easy for local
companies to claim others’ innovations as their own.
There has been some progress towards greater protection inChina’s courts particularly in the richer provinces along the
country’s east coast. But local and provincial governments
eager to bolster their economies sometimes subsidise patent
filings for local companies and provide pointers to them on
how to beat foreign claims of infringement. One problematic
area is joint venturing between foreign and Chinese
I m p a c t o f m a r k e t i s a t i o n ,
W T O A c c e s s i o n , c o m p e
t i t i o n
Tariff and non-tariff barrier protection per sector (in China/Abroad)Low High
High
Electrical Equipment
Pharmaceuticals
Textiles Chemicals
Internet Services Banks
Insurance DistributionRetailing
Processed goods,consumer goods
Auto
Energy
Agriculture/Agrobusiness
Securities
Telecom Services
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companies. When the joint venture dissolves, or sometimes
even while it remains active, the Chinese party illegally
makes use of the technology or manufacturing processes.
Pharmaceut icals companies and IPR
The pharmaceuticals sector aptly illustrates the impact of
WTO membership on China’s investment environment. The
country’s huge population and prospective ageingpopulation profile represent enormous opportunities for
pharmaceuticals companies, but the lack of clear intellectual
property rights protection and the threat of parallel imports
pose significant risks. China has adopted trade-related
aspects of intellectual property rights (TRIPs) rules as required
by the WTO. These resemble intellectual property rights laws
in the US but are still inconsistent and incomplete. As a
result, few pharmaceutical companies currently have
manufacturing operations in China, and those that do exist
are generally joint ventures. Some companies have protected
their interests by including international arbitration
agreements within their contracts. But technology transfer
agreements are likely to materialise in the future.
Tackling corrup tion
Corruption is one of China’s biggest political and economic
challenges. Estimates suggest that large-scale incidents of
corruption between 1995 and 2000 caused economic losses
of between Rmb 988 billion and Rmb 1.3 trillion, the
equivalent of between 13.2% and 16.8% of China’s GDP.
The central authorities have taken numerous steps to fight
corruption, including forbidding government, police and
military officials from participating in business enterprises,designating different accounting channels for revenues and
expenditures, and launching a system of ‘accountant
accreditation’. Corruption is most common among lower-
level government officials, a phenomenon that results from
central government’s policy of devolving political power to
the regions. The probability of officials getting caught or
punished remains low.
Chart 2: Corruption Perceptions for Selected AsianCountries, 2003
Source: Transparency International, Corruption Perceptions Index,
http://www.transparency.org.uk
Companies are often asked to make a payment for a
contract, or related to a business deal when it is not legally
required. Companies with experience of operating in China
report that local officials are very creative in finding ways toearn a little extra and often invent payments that need to be
made. One large international company found that only
30% of licences it secured were legally necessary. Culture,
language and an entrenched and sophisticated system of
extortion means that companies often face this kind of
situation and do not know how to navigate through it. A
new Administration Permit Law, which recently came into
effect, attempts to streamline the various permits required
for business into a “ one-stop” system that will insist on
written applications and the avoidance of face to face
contacts.
Adopting an anti-bribery and corruption (B&C) policy is
essential prior to beginning operations in China.
Transparency International, the leading non-governmental
organisation working to combat B&C has produced
principles and guidelines for companies to follow - reference
and link on page 12.
0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0
Singapore
Australia
Hong Kong
Japan
Taiwan
S. Korea
China
Thailand
India
Indonesia
0.0= most corrupt 10.0 = least corrupt
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CASE STUDY
Managing Corruption - Shell’s experience in China
Shell takes the issue of bribery and corruption seriously. The
Anglo-Dutch oil giant is active in over 145 countries, many
of which experience such problems. Over 95% of Shell’s
118,000 people around the world are locally recruited and
the company has extensive, indirect influence over its
business partners (i.e. its suppliers, Joint Ventures,
contractors, customers and host governments). Shell alsoencounters ‘social corruption’, which is difficult to tackle.
This is where the company is asked to ‘contribute’ schools,
clinics, universities, etc. in local areas that do not receive
sufficient funding for such development from central
government.
Shell adopts six measures to counter corruption:
1. Upholding Shell General Business Principles;
2. Facilitating internal communication and training;
3. Creating an anti-corruption culture;
4. Adopting assurance processes;
5. Ensuring regular, transparent reporting; and
6. Engaging with stakeholders and experts.
Suggestions for companies
• Prior to investing in China, companies could undertake
extensive research into the relevant laws and regulations
governing their sector and the problems likely to arise
due to non-enforcement and corruption.
• Companies should adopt a comprehensive policy
committing to combating bribery and corruption. They
should ensure that the policy is communicated internallyto facilitate an anti-corruption culture and ensure all
reporting and processes are transparent and secure and
whistle blowing mechanisms are in place to identify
breaches.
• Companies asked to pay for a contract or any other kind
of business deal should try and establish whether the law
requires such payment.
• Where relevant, companies should take practical steps to
prevent the theft of IPRs. They can do this by splitting the
production of a component between several factories, so
that no single manufacturer has a blueprint of the final
product. In addition, international arbitration
agreements signed into contracts can be key to
protecting intellectual property.
• Companies could work to influence the central
government: but should do so carefully. A collective
effort, working with other companies or via industry
associations, is preferable in China. This is harder for the
government to resist and has been effective in the past.
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TRANSPARENCY INTERNATIONAL (UK) and Business
Principles for Count ering Bribery
Graham Rodmell, Director, Corporate and RegulatoryAffairs, Transparency International
TI is a not-for-profit, independent, non-governmental
organisation formed in 1993, whose objective is to counter
corruption, primarily in international business transactions
TI promotes the message that corruption needs to be and
can be overcome. It bases its case primarily on economic and developmental grounds. TI does not investigate and
expose individual cases of corruption.
The Global Ant i-corrupt ion “ Revoluti on”
Anti-corruption measures have assumed increasing
prominence around the world in recent years. Of most
importance to UK companies among the numerous
international conventions is the OECD 1997 Convention on
combating the bribery of foreign public officials in
international business transactions, signed by all 29 OECD
states and 5 non-OECD states, but not China. The effect is
to criminalise the bribery of foreign public officials to obtain
business anywhere in the world. China has signed the UN
Convention against Corruption.
For England and Wales, the criminalisation of foreign bribes
was included as Part 12 of the Anti-terrorism, Crime and
Security Act, which came into force in February 2002. This
extended the components of our corruption prevention
offences, the common law and statutes, so that they would
apply to UK nationals and companies incorporated under the
laws of the UK, wherever the offence takes place and even
if no part of t he offence took place in the UK. Proceeds of
corruption and the economic benefit that accrues tosomeone or a company from foreign bribery can be
confiscated under the Proceeds of Crime Act 2002.
For there to be real change, there has to be a commitment
to integrity throughout a company’s structure and this
cannot be created and sustained by criminal penalties alone.
Voluntary codes are important as part of a company's risk
management programme.
Practical measures companies can take to combat
corrupt practices
• Develop a robust integrity policy. A corporate code of
conduct should be fully and regularly communicated
throughout the company and promoted through
training, supported by internal control systems and
records designed to identify and prevent bribery. The
more transparent these measures are, the more readily
they will be communicated to suppliers, agents,consortium and joint venture partners etc. In this
situation, the easier it will be to communicate the risk of
prosecution in the UK.
• When an enterprise engages in a new joint venture, it
should use its influence to persuade other partners to
adopt its anti-corruption policies.
• An enterprise should not channel improper payments
through an agent and should ensure that agents
conform to the requirements of its policies, are hired only
for bona fide business purposes and that compensation
paid to agents is appropriate and justifiable
remuneration for services rendered.
• It can sometimes be daunting to stand out against
extortion. It might be possible to agree upon joint action
to counter corruption and perhaps in more serious cases
to enlist the help of the British Embassy.
• Set up full corporate responsibility structures, of which
anti bribery and corruption measures should be a part
and perhaps in more serious cases to enlist the help of
the British Embassy.
TI has recently published their Business Principles for
Countering Bribery. These should be valuable to businesses
(including small and medium-sized enterprises) in setting up
their own policies and codes to counter bribery and
corruption.
These can be accessed at:
http://www.transparency.org/building_coalitions/
private_sector/business_principles.html
Over time, business integrity will be seen as a competitiveadvantage.
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Seminar 3: Managing Labour Issues
Introduction
The gradual shift from a central command towards a more
market-based economy has had a significant impact on the
labour market. Millions of state workers in urban areas have
lost their jobs or seen their wages cut as a result of industrial
reforms. At the same time, rural unemployment and
underemployment (now estimated to be over 30%) has
produced a large and expanding migrant worker population.
Tens of millions of peasants have left their homes in searchof better jobs and living conditions. This ‘floating population’
was recently estimated at between 80 and 130 million
people.
Traditionally, foreign direct investment in China has been
concentrated in labour-intensive manufacturing industries,
accounting for over 50% of China’s main exports. These
industries have been attracted by government policies that
favour foreign investors and low wages that remain
suppressed by massive unemployment. The huge increase of
foreign direct investment into the manufacturing sector has
increased the demand for low cost labour.
China’s legislation covering health, safety, labour standards
and the environment is comprehensive and demanding, but
there are widespread reports of Chinese production facilities
violating health and safety standards, discriminating against
workers, paying low wages and requiring excessive working
hours. Many foreign companies operating in China have
now started to adopt ethical trading codes, modelled on
core International Labour Organisation (ILO) Conventions,
requiring their suppliers to demonstrate that they uphold
certain labour standards. These codes include provisions to
limit excessive overtime, ensure payment of minimum wages
and to freedom of association. Most companies reportfinding it particularly hard to uphold these provisions in
China due to systemic labour market problems. However,
companies recognise the commercial imperative of trying to
tackle these issues, whether it is in their own factories or in
their suppliers’ factories, to ensure high quality products and
avoid brand and reputational damage in their home markets.
Managing specif ic labour i ssues
A Company’s ability to exert influence on workplace
conditions is often correlated with ownership and thepercentage of suppliers’ production that they account for. It
is not unusual for companies to have contracts for goods
ranging across of workplaces spread across China. In many
of these cases, the company in question may only account
for 1% or 2% of a manufacturer’s total output, making it
difficult to encourage change. Suggestions have been made
that companies that source from the same supplier should
collaborate to audit the factories and develop improvement
plans, but there are as yet few examples of this approach
being taken.
Minimum Wage
Chinese law sets a nationwide minimum wage. Wages are
then determined at the local level to reflect regional
differences in economic development. But massive
unemployment means that the labour market is heavily
skewed in the employer’s favour. Comparisons between UK
and Chinese legislation on working hours, overtime and
holidays show that China’s laws are more stringent. In the
UK, the legal number of working hours per week exceeds
that of China by 8 hours, or a staggering 37 hours in the
case of workers opting out of the 48-hour week. China’s
requisite time off work is double that of the UK’s (two days
as opposed to one day). Chinese legislation on overtime pay
stipulates that workers should receive 150 percent on top of
ordinary wages for ordinary overtime, 200 percent for
weekends and as much as 300 percent for holidays. In stark
contrast, the UK provides no legal requirement for employers
to pay overtime rates.
But while Chinese labour law stipulates the number of hours
(including overtime) that employees may be requested to
work, the system is open to abuse and unreasonable hours
are not uncommon. A large bureaucracy and a lack of
communication and co-ordination between separatebureaux make enforcement difficult. The government is also
reluctant to enforce laws too stringently for fear of losing
current investors and discouraging further investment. Some
problems have arisen as a result of regions competing for
investment on the basis of lowest wage on offer. Many
Chinese workers are paid on a ‘piece-rate’ basis, which
reflects the number of items produced. Management
stipulates the number of items that a worker or team of
workers must produce in a set period (usually a day), and
workers are paid according to the pieces completed. In some
cases, quotas are so high that workers need to work double
shifts to meet them. Minimum wage requirements aredifficult to enforce, as most factories work on a low piece-
rate basis.
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Migrant worker profile
The majority of factory workers in China are young, single
migrants from rural areas who are willing to accept overtime,
given that often the sole purpose of moving to urban,
industrial areas is to make money to send home. In many
cases, workers eventually settle in industrial areas and either
create families of their own or bring family members to join
them. But since education and healthcare are increasingly
expensive in China, workers are often left with little, ifanything, to send home.
The average worker would ideally like to work around two
hours overtime each night and to have four days off each
month. In reality, many workers clock up excessive overtime,
are permitted inadequate rest and receive poor food and
wages. Dormitory conditions tend to be rudimentary and
lack adequate arrangements for married couples (these are
generally forced to sleep in separate dormitories). There are
no paid holidays or ‘days off’, and no transparency of pay on
piece rates - a key factor in the sustained depression of
wages.
Payment in arrears and excessive overt ime
While China has generally stamped out the practice of
forcing workers to pay a deposit for guaranteed work, new
devices such as payment of wages in arrears, or charging
workers for the use of machinery or uniforms have become
more commonplace. The transfer of benefits and insurance
packages between factories is often prohibited,
compounding the problem.
Impactt , a UK consultancy with an off ice in China, specialises
in helping companies to improve labour standards in their
supply chains. Their research reveals that around 80% of
factories have issues with overtime; the latter can be as
much as six times in excess of legally stipulated hours.
Companies obtain authorisation for overtime and seasonal
fluctuations in working hours by applying to local
authorities. Yet according to the central government, many
factories claim to have special permits that are neither legal
nor issued by the proper authorities. Experience has shown
that a reduction in workers’ hours is not automatically
accompanied by an increase in productivity. Factories are
often given ult imatums that add to existing problems. One
factory was asked to quickly cut working hours by 90 hours
per month, which resulted in a 10% decrease in already-low
wages, and an increase in labour turnover.
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CASE STUDY - Overtime Project
Rosey Hurst, Managing Director, Impactt Ltd.
Ms. Hurst presented the findings from the 'Overtime
project' carried out by Impactt. The project findings showed
that for improvements in labour standards to be made,
companies must meet the economic and the social needs
of both supplier factories and staff.
Impactt's experience from the Overtime project suggeststhat the high labour turnover rate in China is the key
problem affecting the management of labour issues, with
some factories incurring an annual labour turnover of 120
percent. Other common problems include excessive
overtime, ill and tired workers and low wages. The
subsequent low quality of output often results in a high
level of reworking (in some cases 60% of output needed to
be reworked) leading to low productivity. Some factories
included in the Overtime project were found to be
operating at just 35% efficiency.
A combination of poor management, poor planning and
lack of communication tends to underpin low productivity.
Fewer working hours result in higher quality output,
reducing the need for costly and time-consuming
reworking. Other factors that contribute to low productivity
include lack of training on the part of management, order
delays and late sample approval from buyers, resulting in
complete lines having to be reworked. In many cases
production lines were a fiasco, lacking any semblance of co-
ordination. Furthermore, workers were not provided with
any incentives for increasing their output.
Factories have problems attracting and retaining skilled
workers. Traditionally, labour is hired on sight, rather than
on the basis of skill. Factory management tend to use
negative techniques, such as fines, deposits and retaining
wages to keep workers at the factory. In the face of the
current labour shortage in South China, these techniques
are proving increasingly ineffective. Factory recruiters should
concentrate on attracting the 'right' workers, by offering
decent packages to retain a happy, skilled labour force,
rather than hiring cheap labour and paying more in the longterm due to low quality output and high staff turnover.
However, it is important to identify exactly what workers
want and what kind of benefits would meet their needs -
communication is essential. Hierarchy and cultural issues
can create signif icant communication barriers. If these
barriers are not dismantled it becomes difficult to find
common solutions. Facilitating discussion groups is
important.
Research shows that when working hours are higher,
productivity is lower. By reducing the amount of overtime
worked, through implementing better basic managementand production systems, four out of the six participating
factories made substantial improvements in terms of
productivit y. Overall factories incurred a 25 percent
reduction in garments/products requiring reworking (in
some cases, there was a 75% reduction) and total take-
home pay increased in all factories. Management gained a
better understanding of the labour laws, and was happier
with the increased profitability and reduced production
costs. Most of t he workers were much happier than before.
As a result, the turnover rate also declined.
For more information on the overtime project please see
http://www.impacttlimited.com/site/casestudy.asp
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Occupat ional Healt h and Safety
Before November 2002, China had no generic Occupational
Health and Safety (OHS) law to prescribe minimum health
and safety standards. Regional differences also created
confusion regarding best practice and minimum standards.
Weak factory monitoring, poor law enforcement and
inadequate public education further limited the effectiveness
of OHS in China. Factory managers and workers generally
remain unaware of health and safety issues and often do notknow that a workplace could be made safer. Corruption also
represents a serious obstacle to effective implementation,
with well-connected owners and managers able to avoid
inspections of any kind. At present, the safety net for injured
workers is virtually non-existent, and compensation
represents the exception rather than the rule. The most
effective avenue for improving working conditions is by way
of incremental steps, such as training and workforce
participation in various OHS init iatives.
B&Q’s policy of dialogue
B&Q views the factory audit as the start of a process, not an
end in itself, and identifies a need for greater dialogue with
factory managers and workers. B&Q found, for example,
that many factories in China were prepared to admit - at
small B&Q workshops - that they knew little about handling
chemicals and meeting the relevant regulatory requirements
associated with them. B&Q responded by producing a FAQ
sheet on chemicals and the hazards of working with them; it
also provided health and safety advice.
The company encourages its suppliers to ask questions
about B&Q's code of supplier conduct, and holds workshopsto facilitate problem solving. B&Q believes it is important not
to 'scare off' factories from the outset by grilling
management on employment procedures and working
conditions but prefer to work in partnership with factories to
agree a way forward that is right for all parties. For example,
on worker/employer dialogue B&Q sees worker meetings on
health and safety as a non-controversial issue, that it can use
as a starting point for discussions on broader questions. B&Q
believes that trust-building and the engagement of
managers facilitate dialogue on all issues.
But B&Q also employs factory record and factory assessmentreports with highly specific entry requirements that must be
backed up by hard evidence (e.g., pay roll sheets,
employment contracts, chemical registers, etc.). The
company sees these records as the start rather than the end
of the audit, enabling the establishment and monitoring of
action plans which are the important part of the process
leading to real and sustainable improvements in factory
working conditions.
B&Q has found that auditing home workers presents
particular problems, given the enormous difficulties in even
the fundamental requirements. Its solution has been to
engage the help of outreach workers, who go to individual
workers' homes to discuss health and safety issues and agreegradual improvements.
Audit ing and compliance
Foreign buyers tend to work with huge supply bases and, in
many cases, lack the resources to engage with factories
suppliers on an individual basis. Instead, they favour sample
audits as a tool for monitoring compliance with their ethical
trading codes. Chinese factories can find the burden of
audits immense, as they often have to deal with tens of
different customers, each with slightly different codes of
practice and approaches to auditing, as well as with an
independent assessor carrying out audits. Western
companies frequently report that Chinese suppliers engage
in elaborate cover-ups, such as double book keeping and
staged worker responses to audit questions, to create the
illusion of compliance rather than actually meeting the
necessary standards..
Companies are increasingly realising that audits typically
present a long list of problems that need to be addressed in
each factory, but they do not offer solutions. They also do
not take into account progress that has been made, as they
provide a snapshot at one point in time. And Chinese factorymanagers fear negative repercussions if they openly discuss
compliance-related problems with clients.
Another disincentive to co-operate with audits is that even
though a factory may make considerable efforts to comply
with the rigorous demands of a key supplier, that supplier
may move their business elsewhere the following season.
Auditing, can therefore, lead to factories spending a great
deal of time, money and effort in creating the illusion of
compliance with standards, rather than spending that time
more fruitfully improving productivity and working
conditions. This erodes incentives for factory managers andtheir customers to develop long-term improvement
strategies, while providing huge incentives for elaborate
cover-ups such as double book keeping and staged worker
responses to audit questions.
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Union Representation
In 1992 the Chinese Government passed the ‘Trade Union
Law’ preventing workers joining a union of their own
choosing and the 1995 Labour Law states that workers do
not have the right to strike. China has also made a
reservation to article 8(a) of the UN International Covenant
on Economic, Social and Cultural Rights (to which it is a state
party), which guarantees the right to form trade unions.
According to the Human Rights Watch, ‘China’s lawsrecognise only one government-sponsored workers’
organisation, the All China Federation of Trade Unions
(ACFTU), which exerts leadership over some 590,000 official
grassroots unions and their sub-branches.’ This makes it
particularly difficult to manage labour conditions in Chinese
factories
The All-China Federation of Trade Unions (ACFTU) remains
the only umbrella trade union in China authorised to
represent workers. However, as a quasi-governmental
organisation, it is limited in its ability to defend workers’
rights. In terms of collective bargaining, the ACFTU has
generally favoured the ‘partnership’ or collaborative
approach to solving problems rather than the
‘confrontational’ approach However, a dearth of Chinese
representatives equipped with the requisite negotiating skills
make ‘partnership’ difficult to achieve.
Cultural differences between China and the West should not
be underestimated. In China, the ACFTU is accustomed to
representing the interests of the state before those of
individual workers; in the West, unions generally aim to
reach a compromise either with the state or with private
business following negotiations on behalf of workers.
According to the Chinese system, convergence and theavoidance of confrontation between the state and the union
occur from the outset.
The ‘Advisory, Conciliation and Arbitration Service’ (ACAS)
principles currently form the basis for dispute resolution in
China, with academic and training institutions increasingly
interested in this approach. But the picture in the non-SOE
sector is unclear. Whether the traditional ‘partnership’
approach will continue to produce results as state
intervention in the corporate arena diminishes is open to
question. The rising incidence of non-standard working
conditions and irrational pay distribution may help togalvanise real trade union action. But trade unions currently
play a very limited role within companies.
Suggestions for companies
• Foreign companies entering China should familiarise
themselves with national and local labour laws.
• They should try to put in place well-enforced codes in
line with international labour laws, which guarantee
workers their fundamental rights - including the right to
organise and bargain collectively, to have limits on
working hours, to be paid a minimum wage and to befree from discrimination.
• Companies could also refrain from acceding to requests
by the Chinese authorities to discriminate against, fire or
in any way discipline workers who attempt to form their
own unions, peacefully protest about their working
conditions, or go on strike. Similar commitments should
apply to subcontractors and suppliers, and the
implementation of workers’ rights should be regularly
monitored.
• Foreign companies should attempt to understand the
issues facing Chinese factories, rather than to take a
black-and-white ‘blanket’ approach of simply auditing.
Foreign companies need to consider carefully how best
to engage with suppliers and business partners in China,
rather than whether to engage at all. They will likely have
to balance their role as ‘partner’ with that of ‘regulator’
in their relationship with their Chinese contractor. Many
foreign firms discover that a supportive/collaborative
approach to improving conditions in their Chinese
partners’ operations is more effective than an
authoritarian, ‘policing’ line.
• There is an emerging consensus among retailers sourcingfrom China (and elsewhere) that more could be done to
share audit results and lessen the burden of audits on
factory managers. Sedex, a database into which suppliers
enter their audit results and by which buyers can track
performance of suppliers against ethical standards across
their supply chain has recently been set up and could
prove an effective vehicle for driving change.
www.sedex.org.uk
• Cultural and other differences have in the past held back
foreign companies from raising labour standards issues
with the Chinese government. A direct approach doesnot work well in China. But a more subtle tack is
possible, for example, by working with Chinese think-
tanks such as the Chinese Academy of Social Science and
with experts from local universities, to find ways of
raising labour issues in policy circles in such as way that
does not offend the Chinese government.
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Further Information
For further information on topics discussed in the seminars
we provide a number of references and links to some of the
organisations that participated in the discussions:
China Brit ain Business Council
CBBC is the UK’s leading agency helping British companies
do business in China, delivering a range of practical, cost-
effective services to British companies wishing to export
goods and services to, invest in, or establish manufacturing
under license arrangements with China.http://www.cbbc.org/
Control Risks Group
Control Risks Group is the leading, specialist, international
business risk consultancy that aims to enable clients to take
risks with greater certainty and precision and to solve
problems that fall outside the scope of mainstream
management resources. Control Risks offers a full range of
value-added services to companies, governments and private
clients world-wide, including: political and security risk
analysis, confidential investigations, pre-employment
screening, security consultancy, crisis management and
response and information security and investigations
http://www.crg.com/
Dun and Bradstreet
Dun and Bradstreet’s Country Risk Services produce a
comprehensive information source for evaluating cross-
border risks and opportunities around the globe. For
information relating to the content of D&B’s Country Risk
Services, please contact the Country Risk Services Group in
the UK. Email: [email protected]
Future Considerations
Future Considerations is a management consultancydedicated to creating sustainable business results through
integral approaches, emerging ideas and new practices.
http://www.futureconsiderations.com/
The Great Britain China Centre
The Great Britain China Centre is a centre of excellence in
the promotion of understanding between Britain and China
particularly in the areas of legal and judicial reform, and
labour reform. The Centre has experience of running
exchange projects with Chinese partners and working with
many different UK organisations. The Centre is able to
respond rapidly and effectively to the need for dialogue in aparticular area and is recognised on both the Chinese and
UK sides as being a trusted facilitator.
http://www.gbcc.org.uk/
Impactt Ltd
Impactt is a consultancy working with companies,
organisations and individuals to open their eyes to new
possibilities and to develop business practice which extends
the number of people who benefit from international trade
and investment. Its role is to empower and support
individuals, organisations and companies to gradually
transform the way they work, bringing about positive social
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London School of Economics (Dr Linda Yueh)
Dr.Yueh’s areas of expertise span economics and law,
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markets and social capital. Dr. Yueh is both an economist
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http://www.lse.ac.uk/people/[email protected]/
Royal Institute of International Affairs
Chatham House is one of the world’s leading organizations
for the analysis of international issues. It is membership-
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http://www.riia.org/
Standard Chartered Bank
Standard Chartered employs 30,000 people in over 500
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19
China: Key Economic and Development Information
2001 2002 2003e 2004f 2005f
GDP (nominal)
Y billion 9,731 10,479 11,669 13,242 14,719
US$ billion 1,176 1,266 1,410 1,600 1,732
8.3 8.3 8.3 8.3
Breakdow n of GDP
Agriculture (%) 15.8 15.3 14.6 14.2 14.1
Industry (%) 50.1 50.4 52.3 51.8 53.0
Services (%) 34.1 34.3 33.1 34.0 32.9
Economic ind icators
Real GDP growth (% change) 7.3 8.0 9.1 8.9 7.5
Inflation, annual average (%) 0.7 -0.8 1.2 4.2 3.4
Government balance (% GDP) -4.4 -3.1 -2.5 -2.0 -2.2
Urban unemployment (%) 7.5 8.2 8.4 8.5 8.5
Current account balance (% GDP) 1.5 2.9 3.3 -0.4 0.2
Long-term real GDP growth potential, annual average, 2000-10: 6.0-8.0%
Development indicators China Hong Kong Indonesia Japan Thailand
Population, 2000 (m) 1,265.10 6.8 210.4 126.8 60.7
Population, 2010 (m) 1,352.20 7.4 237.6 126.3 66.3
Population, 2050 (m) 1,505.00 6.8 314.9 104.5 78.0
GNI per capita (US$) 840 25,920 570 35,620 2,000
GNI per capita (US$ PPP) 3,920 25,590 2,830 27,080 6,320
Life expectancy (years) 70 80 66 81 69
Dependency ratio, 2000 0.48 0.40 0.54 0.47 0.45
Dependency ratio, 2010 0.41 0.35 0.49 0.55 0.41
Dependency ratio, 2050 0.62 0.90 0.56 0.91 0.64
Polit ical Info rmation
Head of state President Hu Jintao
Head of government Premier Wen Jiabao
Political system Communist
Present constitution adopted 1982
Ruling party Chinese Communist Party
Last elections December 2002 to March 2003 (heavily controlled)
Next election before March 2008 (heavily controlled)
Sources: International Monetary Fund, International Financial Statistics; World Bank, World Development Indicators; United Nations Development Programme,
Human Development Report; National Bureau of Statistics of China, China Statistical Yearbook; Reproduced wit h t he kind permission of Dun & Bradstreet from
the company’s annual report on China published in July 2004
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