Written by Wang Ting.

In the 30 years since the economic reforms begun by Deng Xiaoping, the Chinese state has abandoned most aspects of the socialist planned economy, where all production activities and products were centrally planned for production and distribution. China has borne witness to miraculous levels of GDP growth, relying on exports and accumulation of finance from land and real estate investment, all this in spite of uneven development in economic structures and regional layouts. State-Owned Enterprises (SOEs) that used to be the main engines economic growth which employed almost all urban residents, have changed alongside this paradigm shift. SOEs increasingly pursue economic profits in the face of marketisation and rising private enterprises, and have increasingly adopted the discourse of a market economy.

Before the economic reforms and SOE transformation, Chinese workers in socialist SOEs developed an institutional dependency on the Party-State (Walder, 1988). They were employed for life, meaning that factories could not dismiss them easily and that workers could not resign or transfer to other positions without the permission of a factory committee. Nowadays SOEs have the power to recruit and dismiss labourers in the name of “human resources” and their ultimate goal is to make a profit. The incentives of the market economy and efficiency savings has prompted state owned factories to make workers redundant with the promise of social benefits.

The life-long employment with full social benefits has largely been abolished in SOEs, replaced by labor contracts without bargaining and increasing welfare commodification. SOEs are increasingly governed by shareholders, yet this process of transformation did not involve the work force. Increasingly, all the means of production, as well as earnings from the marketisation of SOEs, do not benefit workers. The result of China’s economic reforms is such that, there are enormous numbers of laid-off workers without proper pensions, and the seemingly inexorable transition of the Chinese economy from “socialism” to “capitalism”.

Within China, marketisation won its first battle when SOEs started to make profits for themselves and encouraged workers with extra wage rewards. Under the stimulus policy in factories, workers received a cash incentive far in excess of the regulated wage. The huge difference between the previous wage system and the new marketized wage stimulus allayed initial fears within Chinese trade unions of the power of market and capital. While the economic policy was made under the direction of the Central Committee in Beijing, without participation of China’s substantial working class, the latter took a long time to realize the increased disparity in wealth attained from China’s economic development.

State owned enterprises retain two distinct systems; one for old SOE workers under the socialist mechanisms of employment and social benefits, and a reformed model providing market-oriented mechanisms for employment and benefits. These reformed SOE’s sought to reduce and remove the burden of the socialist model, by recruiting newly arrived migrant workers from China’s interior. These workers ultimately received fewer rights in comparison to those living under the socialist model. In 21st Century China, workers’ congresses and factory general committees, the primary democratic agencies that were in charge of the production plan, factory budgets and workers’ benefits have been replaced by full time managerial staff. Trade unions have increasingly been silenced and marginalized, in spite of efforts to the contrary. SOEs have adjusted to the market economy by making labour a commodity and pursuing profits. From the Chinese perspective, state owned enterprises increasingly resemble private entities concerning management and tension in unfair distribution. This changing paradigm, together with the loss of state assets relating to bankruptcy has been responsible for key labor disputes in China since the 1990s.

If marketization has empowered SOE workers to become free from socialist institutions, it can be argued they have been led into the trap of a capitalist development model with Chinese characteristics. Workers are repressed by power from both the capital and the state. The state’s legislation with a direction of individualism, undermined their capacity for collective action, thus workers do not have the organisational power to negotiate directly with the SOE leadership or the political power to strike. Thus, beneath the surface of China’s economic rise, SOE workers have to endure the poor working conditions, with huge inequality in wages and social welfare between workers and management.

In socialist SOEs, factories did not have differentiated class interests or capitalist exploitation, yet there was the continuing discourse of “class struggle” where class was manoeuvred by political power. Previously when Chinese workers participated in challenges towards the SOE leadership, they were noted for not having engaged in class-orientated Marxist discourse. Nevertheless, when numerous layoffs of SOE workers in the late 1990s under Jiang Zemin, socialist discourse re-emerged in workers’ appeals for pensions and economic compensation.

This class discourse however, did not spread to remaining SOE workers or to the rising number of migrant workers arriving in China’s industrial cities. The reasons are multifaceted. First, in the field of the economy, China’s state propaganda of a socialist market economy has led to an economic discourse hegemony, that rejects the class analysis which is against the current economic reforms and seeks to maintain social harmony. Second, in the political level, the state is in fear of class unionization and solidarity which it perceives as a threat to its political monopoly, hence it repressed workers’ independent union and political leaders all along, let alone permitting them to unionize as a class-for-itself. Finally, in the ideological and cultural level, Chinese people spoke little of class out of a reverse political correctness—that class struggle reminds them of the disordered political movement with the notorious usage of “class struggle” as tools against human rights.

However, the material-based differentiation and increasing economic inequality in China have no doubt resulted in a distinct working class, though not one united politically. Although remaining SOEs workers do not express their “class identity” or “class experience”, they know that they do not own anything, factories do not belong to them any longer, also factories managers are not like old factory directors any more. Old SOE workers may be different from migrant workers but they have a common experience and understanding that they can only get paid when they work, that they are nothing but wage earners in the overwhelming logic of the market. They are distinct from the management class, instead of with other workers, and are gradually becoming aware of the huge economic inequalities and growing consciousness that they belong to a different class to their managers.

The process of turning workers from life-long to contract workers has succeeded in monetary terms. But in secretly abolishing workers’ old social benefits, SOEs now face the pressure of workers who are not afraid of losing everything, because they barely have anything.

In face of rising labor strikes and a potential nationwide trade union based political movement, the Chinese state has recently promulgated a number of labour laws. These include a labour contract law and a social insurance law, launched in the hope of easing class conflict and gradually providing a social security net. However, it is a response to workers’ actions rather than an active mediation in rebalancing the relation between labour and capital. It restricts the crucial empowerment of workers in collective bargaining and free association and collective action. It cannot regulate the form of workers’ collective action at all, which has become the party-state regime’s utmost fear.

In conclusion, SOE workers associated with the socialist model are decreasing in quantity and being replaced by migrant workers, many of whom have become homeless after the state policy of land expropriation. This new trend will witness an increasing number of proletarians in transformed SOEs as well as other enterprises in China. This will present a national wide class conflict and contribute to the future of labour movement under the uneven Chinese economic development and unbalanced state-capital-labour relationship.

Wang Ting is a PhD student in the Department of Applied Social Sciences, City University of Hong Kong. Image credit: CC by thepismire/Flickr.


Walder, A. G. (1988). Communist neo-traditionalism: Work and authority in Chinese industry. University of California Press.

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