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Some Scary Signs for Foreign Companies in China

Chinese workers detained their South Korean bosses for days, Chinese officials shrugged. How worried should other companies be?

November 2007

Stratfor

Stratfor, short for Strategic Forecasting Inc., is the world’s leading private intelligence company. Founded in 1996, Stratfor delivers to its clients real-time intelligence, analysis and forecasts on geopolitical, economic, security and public policy issues.

How's this for an executive's nightmare? Company managers try to shut down an under-performing factory in a foreign country and end up being seized by workers furious over the prospect of losing long-owed pay. And government authorities turn their backs on the situation, regarding the matter as an internal company matter. This happened just recently to a South Korean firm -- not in some near-lawless territory where businesses take risks to be near oil or other valuable resource, but in China.

Harsh working conditions and pay disputes -- and angry backlash from workers -- are not unusual in China, especially in remote regions still new to the rush of industrialization. But the Chinese government has always protected foreign firms in the past. "Internal considerations probably are partially behind Beijing's reluctance to get involved, but the central government's failure to act also may be a signal to foreign investors that past levels of government protection for them are no longer guaranteed," cautions the global intelligence firm Stratfor.

Such drastic action as holding a factory management team over a pay dispute is not particularly surprising. Stratfor points out that there has been long-standing tension between many South Korean companies (which have a reputation in China for mistreatment of workers) and their Chinese employees and that the issue of unpaid wages is a festering and explosive political issue in the country. Moreover, Chinese officials have the time and ability to reassure foreigners that the incident is an anomaly and that legal protections for them are intact.

However, given the loss of some tax breaks and other incentives for foreign investment in recent years, Stratfor says, the government's initial response toward the incident can be read as yet another warning signal for companies eyeing expansion into China.

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POSTED BY: Chris Reich (November 30, 2007 01:24 PM)
It's a shame that greed has driven so many companies to move their manufacturing bases to China. China is not our friend. I'd like to lead a rival of MADE IN USA. As for businesses that choose to take jobs to China? You'll get what you deserve eventually. Chris Reich TeachU.com

POSTED BY: Wolfy (November 30, 2007 02:12 PM)
Just a sign of the approaching storm that threatens the Chinese socialist "paradise". It's no secret that the Korean and Japanese bosses have only hatred and disdain for their Chinese workers. It's really a cultural situation, and not economic between these groups. For myself, I won't buy any food coming from Communist China, as I don't trust it's purity or quality. I try to buy American as much as possible. Someday, we will fight the Chinese, just like we did the Japanese. It never pays to feed the dragon, lest it bite you on the arse.

POSTED BY: Expat in China (November 30, 2007 08:12 PM)
Executive nightmare? How about employee nightmare? Abused and underpaid, they continued to work, only to be told by foreign owners that they are losing their jobs and without the pay due them! The owners should be grateful that they weren't jailed.

POSTED BY: Matt (December 01, 2007 02:32 PM)
Is the scary part that Korean companies actually have to pay their workers? Ooooh that must be scary! How about paying the poor Chinese workers what they are owed? I think it sounds rather entrepreneurial for the workers to hold the bosses until they get their paychecks. You can't leave a restaurant without paying either.

POSTED BY: Jon Frandsen (December 03, 2007 09:16 AM)
This is Jon Frandsen, the editor in charge of the Kiplinger Recommends section. Matt and Ex-Pat in China are exactly right -- the prospect of losing unpaid wages and a job is a nightmare for workers anywhere, and is an acute problem in China. There was no intent to give their plight short shrift. But the thrust of the piece was about signs that China is becoming a less hospitable and perhaps more chaotic place to operate a business. Most businesses would hope that a dispute with workers would be handled by regulation and courts, not a worker uprising. And having a dispute result in employees essentially holding bosses hostage is a nightmare scenario for any company, on several fronts. As for the observation that the plant managers were lucky to not be in jail, if they broke the law and eventually were found guilty of doing so, isn't that where they belong, rather than under control of what amounts to an angry mob?

POSTED BY: ATN (December 03, 2007 11:28 PM)
I don't think Chinese workers love to handle disputes themselves. Certainly no one,including Chinese workers, wants to resort to uprising if there is a normal channel to resolve disputes. However, past experiences told them that the court (and the government) would very likely side with the company, rather than with them. They simply did not want to take chances anymore.

POSTED BY: madmilker (December 05, 2007 08:12 PM)
Maybe they need to dress up like American Indians and have a tea party!

POSTED BY: mozo (December 08, 2007 12:36 AM)
All chinese workers were paid everything. Thie chinese gov. instructed them to riot, because they want a bribe from company's sale.

POSTED BY: Manny (December 27, 2007 09:02 PM)
This was a partially irresponsible report. That S.Korean company paid all its wages. The Chinese government slapped them with a hefty tax (80% of the company's entire initial investment when it started in China) just for being allowed to close down the company. The S.Korean company can't pay obviously - Chinese organize a riot. Chinese government confiscated all company assets. It's basically extortion.

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