An unholy union

Taken at face value, the ongoing unionization of Wal-Mart’s 60 stores across China should not come as a surprise, nor should it fill the global retail superpower with dread. Following the initial unionization by stealth of the Quanzhou city Wal-Mart on July 29, stores across China have been rapidly falling under the influence of the government-controlled All-China Federation of Trade Unions (ACFTU). At the time of writing, at least 15 stores had succumbed, and the ACFTU was predicting that the remaining 45 would soon follow.

However, Wal-Mart is unlikely to find itself at the mercy of newly empowered workers striking for better pay and conditions. The Chinese government is as famously anti-union as the shopping giant and the ACFTU is widely decried as a grotesque caricature of its brethren in other parts of the world, serving to control workers and prevent the establishment of independent labor unions rather than ensure minimum standards of employment.

In that regard, it is an unholy union promising employees nothing. But Wal-Mart should still be worried – Beijing appears to be mobilizing its pseudo-union movement to gain more leverage over the companies to which it pays host.

The key lies in a draft employments contracts law likely to soon be enshrined in legislation. Among the more contentious clauses, the law will require union approval for any regulations affecting employees, including those set out in employee handbooks. In effect, without a union to sign off procedures, companies may find themselves unable to operate at all.

More worryingly, the law will also give senior union officials access to the inner workings of foreign organizations, effectively installing a government fly on every boardroom wall.

With an unbroken chain reaching up into government and then back down again into domestic competitors, the power wielded by the official government union will dwarf that ever owned by a union truly working for the workers.

Wal-Mart is just the thin edge of the wedge, representing the first step in a push to unionize all foreign companies operating in China. Pushed on by President Hu Jintao himself, the ACFTU is aiming to organize 70% of China’s 150,000 foreign firms by the end of next year, up from 30% today.

If unions do become an essential part of China’s human resources landscape, given a choice between co-operating with the government’s stooge or teaming up with a truly independent union representing workers’ interests, the latter could be the lesser of two evils.

Foreign companies can be sure who their employees work for. The government’s interests are not so clear-cut.

Time to bid farewell to behind-the-scenes market management

The relaunch of share listings on China’s domestic bourses in June was an exercise in micromanagement.

Companies were chosen for strong financials and healthy prospects, the onus on preparing the entry of Bank of China being the US$2.5 billion acid test.

Two months, a dozen or so IPOs and more than US$5 billion later, the slowdown set in. Starved of new shares for so long, it was hardly surprising investors had queued up for a slice of debutant companies; underwriters found they could set top prices and still be overwhelmed by demand.

But the party may have ended. Investors baulked at splashing out on Air China when there was so much else on offer. Why buy into an overpriced airline when Industrial and Commercial Bank of China is on its way?

Almost as inevitable as the slowdown was the regulatory tinkering. State media said the proportion of shares allocated to institutions would increase from the current 20-50%, pricing would become more market-oriented and investment banks would be able to buy shares in offerings they were underwriting.

Most controversial was the rumor that, after the slowdown, a temporary suspension in listings was being considered to allow the oversupply to work itself out. The rumor came with a rider: such a suspension wouldn’t be made public knowledge. After all, in 2005 it took the regulator a couple of months to admit it had imposed an embargo on share listings that ran on for a year.

Intervention in a market that has suffered as greatly as China’s is understandable. A-shares have yet to become truly commercial instruments and it takes several revisions to arrive at a winning formula.

One of the main criticisms of the original share ownership system – under which the government held two-thirds of stock in non-tradable shares – was that it created doubt. Prospective shareholders were scared off by the fact that the state could, in theory, ditch its stock and flood the market with shares.

Repeated changes to the rules, when done behind closed doors, have a similarly negative effect. How can investors act boldly when they don’t know what new measures or market secrets wait around the next corner?

The best way to retain investor confidence is to be open as to how, why and to what end regulatory action is taken. Anything less and the stock market will effectively move further away from its goal of stability.

Demise of Doha

Political brinkmanship will not stand in the way of global trade

It is easy to promise to take the hungry man out for dinner at some future, and unspecified, date.

When the Doha round of negotiations for the World Trade Organization started in November 2001 the world was in the emotional wake of 9/11. There was talk of rich nations bringing relief to poor ones to cut down on general resentment. The developed world promised to take developing nations out for a meal.

Five years later, Doha is moribund. WTO director general Pascal Lamy suspended talks in Geneva on July 24 after the US, India, Brazil, the EU, Japan and Australia failed to reach an agreement.

Put simply, developing countries were unwilling to open up to savvy and well-capitalized companies through reduced industrial tariffs unless their developed world counterparts gave ground on agriculture. The protectionist attitude taken by the US, the EU, Japan and Korea towards farmers may be indefensible and China’s booming economy can be put forward as evidence that reduced industrial tariffs make long-term sense. But with such highly politicized negotiations, common sense may have taken a back seat.

As a result, the trade agreement supposed to secure a better deal for the developing world is unlikely to be sealed by the end-of-year deadline, which leaves its fate hanging in the balance.

"There is the moment when you step off the cliff," US Trade Representative Susan Schwab told the Wall Street Journal. "And it is that moment in time that scares the bejesus out of everybody."
Throughout the collapse, China remained conspicuously demure. Beijing expressed "regret" and Ministry of Commerce spokesman Chong Quan said China "will work … to resume negotiations as soon as possible". Diplomatic talk for a country that could crowd out every competitor in a barrier-free world.

"These are developing countries that are concerned about China either shipping into their markets or shipping into the markets of developed countries ? and knocking them out of those markets," said Schwab.

China is a massive exporter but is still treated as a developing nation, exempting it from the steepest cuts in tariffs and subsidies. On the other hand, its economy is growing fast and Beijing remains reluctant to open some sectors. Developing countries have never benefited from opening up too quickly – the decline of the USSR, the Asian financial crisis and Mexico’s troubles following North American free trade deals are examples. China has maintained stable growth by opening up in step with the economy.

Beijing could certainly be more proactive over Doha, using its unique position – as a developed developing country, so to speak – to bring the two sides closer. However, it is also hedging its bets by pursuing bilateral trade deals. And, partly on the back of such bilateral deals, world trade seems to be holding its own. Global GDP jumped from 24.1% to 28.1% between 2001 and 2005 while global trade rose 6.6% per year between 2002 and 2005.

With Doha on its deathbed, the best-publicized intentions of the economic superpowers to take their poor brethren in Asia, Africa and Latin America out for dinner are fast becoming nothing more than puffs of hot air. But thankfully, global trade continues to rise, despite the WTO being locked in stasis.