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The end of the 'iron rice-bowl': Whither Chinese human

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Int. J. of Human Resource Management 11:2 April 2000 217-236

The end of the Mron rice-bowl': whither

Chinese human resource management?

Daniel Z. Ding, Keith Goodall and Malcolm Warner

.Abstract This study examines the degree to which enterprise reforms in the PRC have
affected human resource management practices over the 1990s. A comparison is made
between .state-owned enterprises and joint venture finns, involving a national sample of
sixty-two companies ranging from those in the North to those in ihe South. Our main
finding,s show how organizational inertia has obstructed the change of the mind-sets
associated with the 'iron rice-bowl' that characterized Chinese state-owned enterprises
(SOEs) before economic reform. The main conclusions of the research point to
ownership, location and size of the finn as the main factors affecting ihe evolution of
HRM in Chinese enterprises.

Keywords China: enterprise refonn.s: HRM: industrial relations; labour contracts;

management; organizational inertia; PRC; social insurance; wages.

Introduction
It is hard to know if Deng Xiaoping had a coherent strategy when he embarked on
China's economic reforms following Mao Zedong's death in 1976. After tbe turmoil of
ihe Cultural Revolution, the country was ready for change but how far this was to go
was another mailer. A number of authors (such as Naughton. 1995) doubt if there was
much strategic clarity at all. Ex post, a pragmatic coherence has been imposed upon the
move towards the 'Open Door' and the so-called 'Four Modernizations' (of agriculture,
industry, science and technology, and defence). In taking a new direction, the regime
opened itself to foreign investment at the end of the 1970s. Since that time, vast changes
have taken place in China's enterprises, including the decentralization of planning and
decision making, the introduction of responsibility systems that emphasize individual
accountability for performance, and encouragement of private and foreign-invested
enterprises. In place of the old Soviet-style "command' economy model, a unique
"socialist market economy with Chinese characteristics', as it became known in PRC
usage, came into being. National differences we know often determine stereotypical
organizational models; the People's Republic of China is no exception in this regard.
The national institutional framework, based not only on deep-seated cultural and
historical factors as well as ongoing political and economic ones, helps to shape the
evolution of organizational, managerial and human resource practices,
Ln China, the institutional change-process initially began in a piecemeal fashion. The
'new' Chinese model may in fact be seen as an 'experiment' that was first piloted in
Sichuan Province in 1979 under the leadership of the then local Parly Secretary, Zhao

Daniel Z. Ding, Department of Marketing, City University, Hong Kong. Keith Goodall,
China-Europe intemational Business School, Shanghai, PRC. Malcolm Warner, Judge
Institute of Management Studies, University of Cambridge. Cambridge CB2 lAG. UK.

The Intenuuional Joumat of Human Resource Management

ISSN 0958-5192 print/ISSN 1466-4399 online © 2000 Tayior & Franci,-; Ltd
218 The International Journal of Human Resource Management

Ziyang. In the early 1980s, those changes seen to be effective were then applied, with
varying degrees of intensity, across the whole of the PRC. Incremental change was the
order of the day, and it was not until the mid-1980s that management reforms began to
take root. State-owned enterprises (SOEs) had once dominated industrial production,
and their work-units (danwei) embodied the so-called 'iron rice-bowl' {tie fan wan)
which ensured "jobs for life' and 'cradle to grave' welfare for mostly urban industrial
SOE employees (see Lu and Perry, 1997). The system was partly derived from earlier
Chinese Communist experience in the liberated zones, and from Soviet practice, but in
addition may have had roots in Japanese precedents in Occupied Manchuria. It is clear
that there were a variety of influences which shaped the evolution of the 'iron rice-
bowl', but it had become fully institutionalized by the mid-1950s. Several writers
(Walder. 1986; Warner. 1995: Francis, 1996) have perceived the 'iron rice-bowP
relationship as 'organizational dependency', to which we will return later. Tlie 'mind-
sets' associated with this dependency became deep-rooted and, we will argue, difficult
to modify or change. Even so. with the beginnings of reform, the guarantees of the "iron
rice-bowl' began to be eroded (Chan, 1995; Cook and Maurer-Fazio. 1999).
It was not until the joint venture reforms of the early 1980s that significant changes
took place in the system (see Holton, 1990; Huo and von Glinow. 1995; Goodall and
Warner, 1997). The (irst manufacturing joint venture was Beijing Jeep in 1984 (Mann,
1997); it was to be the first of many. After that, many MNCs .set up shop in China, in
many cases with a Chinese SOE as collaborator. A wider range of ownership thus began
to be introduced, a factor which began to play an increasingly important role in the
national economy. Foreign-invested enterprises (FIEs). nio.st notably joint-venture firms
(JVs) became the major vehicles for technology transfer, including both the technical
'hardware' and managerial 'software' essential for China's modernization drive. The
FIEs today produce the majority of China's exports, a trend which is more or less in line
with Deng's original intentions.
Funds for development have fl(X)ded into the PRC over the last two decades. China
has been the main recipient of foreign direct investment (FDI) among developing
countries, and by the end of 1998 more than 315,000 FDI projects had been approved
by the Chinese authorities, representing more than $550 billion in pledged investment.
Approximately tliree out of four of these projects are in the form of joint ventures
between foreign firms and Chinese state- or collective-owned enterprises, and one in
four in the form of wholly-owned foreign enterprises. Some joint ventures took over
existing state-owned plants; others have involved *greenfield-site' investments. 'Joint
ventures' soon became a byword for modernization. Nothing like this had been seen
before in a nominally Marxist-Leninist state led by a Communist party. We will jygue
that such outside ownership has tipped the balance in changing the character of Chinese
enterprises, their management and their human resources policies.
An important feature of the transformation of the Chinese economy has been the
enterprise refonns that largely came into being in the mid-1980s and early 1990s, aimed
at phasing-out the 'iron rice-bowl': an institutionalized practice generally believed by
economists to be associated with ineffective people management, which in tum
bolstered factor-immobility and inefficiency. As part of these reforms, managers were
given more autonomy, particularly to hire and fire; decision making was decentralized
widi regard not only to personnel but also marketing and purchasing issues. State-
legislated personnel reforms in 1992, principally the so-called 'three systems reforms"
{san gaige), involved the introduction of labour conuacts, performance-related rewards
systems and contributory social insurance (see Korzec, 1992; Ng and Warner, 1998).
Many JVs had already incorporated such practices in their management systems prior to
 Ding et ai: The end of the 'iron rice-bowl' 219

the reforms (Child, 1994). Initially, A's and FIEs were each subject to separate
legislation. Recent labour legislation, however (most importantly the 1994 Labour Law),
has been directed at Chinese firms across-the-board (see Wamer, 1996). Codification of
the legal parameters (see Josephs, 1995) of personnel or human resource practices in the
PRC has been a crucial step in creating an institutional framework in which change in
people-management practices could take place (see Zhu and Dowling, 1994; Zhu, 1995;
Verburg, 1996; Yip. 1996; Ding et ai, 1997).
Although enterprise reform has brought broad changes, when different ownerships,
locations, types and sizes of enterprises are taken into accoutit, there exist wide variations
in htunitn resources practices. In this article, we take account of these variables in
examining the impact of 'top-down' reforms on the extent of change in HRM practices.
Our aim is to explore what we may call 'organizational inertia": the factors that have
served as barriers to organizational change.

Hypotheses
Foreign direct investment has brought into China not only 'hardware' such as modem
plants and equipment, but also 'software' including advanced management expertise
and human resource management systems and practices. The degree to which foreign
investment may implant new human resource management systems and techniques is
constrained by the Chinese context, particularly the cultural and institutional heritage of
the SOE. We believe, however, that foreign partners will have clear effects on SOEs
that are in the process of reform. Foreign direct investment will thus have a positive
impact on HRM practices in Chinese enterprises. Thus, we hypothesize;

Hypothesis 1: There are significant differences in HRM practices in Chinese enter-

prises of differetit ownership types.

The reform of the employment system in SOEs (see Nelson and Reeder, 1985) is
characterized by the breaking of the so-called 'iron rice-bowl', a system of unified job
allocation, guaranteed life-long employment and cradle-to-grave welfare (Wamer.
1996; Yip, 1996). This rigid employment system existed for several decades before the
economic reforms, and resulted in dramatic over-manning and low productivity in most
state enterprises. The reform process started in the early 1980s by decentralizing
management authority to allow enterprises to hire workers on contract. The 1994 Labour
Law of the PRC, which came into effect on I January 1995, eventually institutionalized
a market-oriented, extensive labour contract system that requires all firtns, regardless of
ownership, to hire their employees on labour contracts (see White. 1996).
When China opened its door to foreign investment in 1978. foreign-invested
enterprises were granted the freedom to recruit employees through a market-oriented
mechanism Irotn the beginning of their operations. Foreign-in vested enterprises are still
free to determine the size of their staff, and recruit workers and senior managerial
persotinel according to their business needs. Although the employment practices in joint
venture enterprises were constrained by the preliminary labour market, and the insti-
tutional heritage of the Chinese partners, the preferred employment systems used in JVs
are tnarket-oriented, such as recruiting workers through the external labour market (i.e.
various job fairs), advertising in the local media and campus recruitment, as commonly
seen in market economies. On the contrary, SOEs are less familiar with the mechanisms
of the labour market, and have traditionally relied on state labour bureaux for new
employees. Thus, we hypothesize:
220 The International Journal of Human Resource Management

Hla: The employment systems in SOEs tend to be less market-oriented than in

JVs.

The reward system prior to economic reform was centrally administered, its flat
structure reflecting a stKialist egalitarian mentality (Takahara. 1992; Warner, 1995).
Wage differentials between workers, technicians and managers were intentionally kept
low. There was no formal link between wages, individual performance and enterprise
profitability. The reform of the reward system centred on introducing performance-
based floating wage and bonus systems. Decentralization in the state sector gave SOEs
authority to determine their wages and bonuses according to the law and in the light of
its business operations and their profitability. Although various forms of incentive scale
appeared during the reform period, wage levels were lower and the structure Ratter than
those in JVs. Thus, we hypothesize:

HIb: The reward systems in SOEs tend to be less competitive than in A^s.

Prior to the economic reforms, SOE employees enjoyed a wide range of welfare
benefits, including social insurance fully funded by the enterprises (Child. 1994:
Warner, 1995). The social insurance programme provided a range of mandatory
benefits payable upon illness, injury, pregnancy, death or retirement. The overall costs
of social insurance commonly exceeded 30 per cent of the total wage bill {China
Statistical Year Book, 1997). Reforms have been aimed at establishing a nation-wide
social security system, and all employers and employees are now required by law to
make contributions to five separate hands: pension, accident and injury, maternity,
unemployment and medical funds. While both SOEs and joint ventures follow the IcgaJ
requirements of the new social security system, more SOEs follow the traditional
approach and pick up the lion's share of social insurance costs, with employees making
only nominal contributions. By contrast, more joint ventures demand thai employees
take increased responsibility for their own welfare and benefits. Thus, we hypothesize:

HIc: The social security systems in SOEs lend to be less market-oriented than in
JVs.

The demise of the life-time guaranteed employment system and the emergence
of a labour market has been accompanied by greater labour mobility. SOEs have
traditionally sheltered a large number of surplus employees. In the course of the large-
scale downsizing of SOEs. some workers have resigned and opened their own
businesses, or moved to foreign invested enterprises. The relatively lower wages in
SOEs have provided the prime motivation for workers lo seek job opportunities in ihe
non-^state .sector. However, the majority of surplus employees in SOBs lack a 'market'
mentality, and do not generally have the necessary technical and professional skills to
secure a decent job with higher remuneration. Therefore, we hypothesize:

Hid: Labour turnover in SOEs tends to be lower than in JVs.

The role of personnel directors in SOEs, prior to economic reform, was limited to
job assignment, record-keeping and the provision of welfare benefits (Child, 1994).
Personnel management in Chinese enterprises has, since the onset of economic reforms,
been changing to incorporate more human resource management functions (Goodall
and Warner, 1997). However, many HRM principles and practices widely accepted in
 Ding et al.: The end of the 'iron rice-bowl' 221

Western countries were unknown to a large number of Chinese personnel directors.

Thus, we hypothesize:

Hie: The role of personnel directors in SOEs tends to be less market-oriented than
in JVs.

Trade union organizations in SOEs before economic reform had the role of assisting
enterprise management in providing adequate collective welfare services, and organiz-
ing workers and staff in spare-time cultural and technical studies, vocational training
and recreational activities. Econotnic reform challenged the All China Federation of
Trade Unions (ACFTU) to become involved in promoting economic development and
maintaining social stability (White 1996; Ng and Warner, 1998). The trade union in an
enterprise is now empowered by law to sign collective employment contracts with the
employer on behalf of the employees. The trade union can also interfere in cases of
inappropriate termination of labour contracts and in labour disputes. In addition, the
trade union is the executive agency of the workers' congress, which is legally entitled
to supervise the management of the enterprise, and to represent the interests of the
workforce. In light of the observation that the pace of unionization In foreign-invested
enterprises has been slow, we hypothesize:

Hlf: The trade unions in SOEs tend to piay a more important role than in JVs.

Additionally, we hypothesize:

Hlg: The workere' congresses in SOEs tend to play a more important role than in
JVs.

Enterprises are affected by the nattu^ of their external operating environment, and
China's coastal and southern regions, with their well-developed infrastructure and indus-
trial bases, higher per capita income and higher educational levels, have attracted the
major share of foreign direct investment in China. The large number of foreign-invested
lirrns concentrated in the region, especially large multinational enterprises, has had a
strong influence on prevailing patterns of HRM there. By contrast, the northern and
inland regions of China remain dominated by traditional state-owned enterprises, since
their less-developed infrastructure, lower per capita income and lower education levels
make the region less attractive to foreign investors. The consequent lack of exposure to
foreign enterprises in northern and inland regions has led to a general pattern there of
more conservative and less market-oriented HRM in terms of employment systems,
rewards, the role of personnel managers and the role of the trade union and workers'
congress. Thus we hypothesize:

Hypothesis 2: There are significant differences in HRM practices in Chinese enter-

prises located in different regions of China.

Significant differences in HRM practices are reflected in employment systems,

reward systems, .social security systems, labour turnover, the responsibilities of personnel
directors, and the role of trade unions and workers' congress. Thus the following sub-
hypotheses are proposed:

H2a: The etnployment systems in firms in northern and inland China tend to be less
market-oriented than in southern and coastal China.
222 The Intemational Joumal of Human Resource Management

H2b: The reward systems in firms in northern and inland China tend to be less
conapetitive than in southern and coastal China.

H2c: The social security systems in northern and inland China tend to be less
market-oriented than in southern and coastal China,

H2d: The labour turnover in firms in northern and inland China tends to be lower
than in .southern and coastal China.

H2e: The role of personnel directors in firms in northern and inland China tends to
be less market-oriented than in southern and coastal China,

H2f. The trade unions in firms in northern and inland China tend to p!ay a more
important role than in southern and coastal China.

H2g: The workers' congresses in firms in northern and inland China tend to play a
more important role than in .southern and coastal China.

Large firms tend to encounter greater orgaiii/atit)nal inertia in change processes. The
size of their workforce, and a tendency towards more cumbersome organizational
structures, tends to affect the pace of change negatively. The pace of change in SOEs
is also affected by well-entrenched "non-market' cultures and traditions, and by the fact
that they are often burdened with a high proportion of under-perform ing assets. The
pace of change to market-oriented HRM practices in large SOEs, therefore, also tends
to be slower than in small firms. Thus, we hypothesize:

Hypothesis 3: There are significant differences in HRM practices in Chinese enter-

prises of different firm sizes, as measured by employee numbers.

Differences in HRM practices in hypothesis 3 are tested by a set of sub-hypotheses

covering employment systems, reward systems, social security systems, labour turn-
over, the responsibilities of personnel directors, and the role of the trade union and the
workers' congress.

H3a: The employment systems in large firms tend to be less market-oriented than
in small firms,

H3b: The reward systems in large firms tend to be less competitive than in small
firms.

H3c: The social security systems in large firms lend to be less market-oriented than
in small firms,

H3d: The labour turnover in large firms tends to be lower than in small firms.

H3e: The role of personnel directors in large firms tends to be less market-oriented
than in small firms.

H3f. The trade unions in targe firms tend to play a more important role than in small
firms.

H3g: Tlie workers' congresses in large firms tend to play a more important role than
in small firms.
 Ding et at.'. The end of the 'iron rice-bowl' 223

Sample and research methodology

Our organizational sample is derived frotn a nation-wide investigation of Chinese firms,
carried out by the present research team acros.s a representative set of major industries.
Warner (1996) originally piloted the methodology in six Beijing enterprises, and data
collection was then extended to other cities and provinces, using the same approach and
tools. It currently includes sixty-two industrial enterprises in sectors including
engineering, electrical equipment, electronics, chemicals and pharmaceuticals. We have
built the overall sample from regional sub-samples, reported elsewhere (see Warner,
1996; Goodall and Warner, 1997; Ding and Wamer, 1999).
Based on their stage of economic development and degree of openness, we classified
the regions in which sample firms are located into two broad categories: southern
coastal China and the relatively less developed northern and inland China. We believe
that the subsets of firms provide an appropriate experimental setting for testing the
hypotheses set out above, linked by the common theme of transition from one economic
modei (and its accompanying personnel practices) the status quo ex ante, to another
(and its possible HRM correlates) the .-itatus quo ex post. Thus, the study is spread not
only over space but also over time as the age of the firms in question may also be
infiuential.
Among the sample firms, the older enterprises, namely the SOEs, account for 52 per
cent, with the remaining firms being joint ventures with foreign investtnent. ln order to
make meaningful comparisons, an SOE in each location is matched by a joint-venture
company in the same industry whenever possible. Firms with fewer than 500 employees
are categorized as stnall firms (just under a third of the sample); those with between 500
and 2(XX) employees as medium (almost another third of the sjunpie); and those with
more than 2000 employees as large (well above a third of the sample). Nearly half of
the sample firms had an annual turnover of between RMBIOO million and RMBIOOO
million, while nine companies had achieved an annual turnover of over RMBIOOO
million.' The major characteristics of the firms are summarized in Table I.
The investigation was based on a case-study approach that involved on-site visits to
sample finns. BoLh quantitative and qualitative data were collected through interviews

Table 1 Characteristics of Chinese enterprises sampled'

Number of JVs Number of SOEs

Location
South and coastal 10 to
North and inland 20 22
Size of firm in 1996
(number of employees):
Small (fewer than 500) 14 A
Medium (500-2000) 10 12
Large (over 2000) 6 16
Turnover in 1996
Less than 10m {yuan) 1 —
lOm-IOOni 11 7
lOOm-KXWm 12 16
Over 1000m 4 5
Note
' Missing data is due to confidentiality of respon.ses in a small number of cases.
224 The International Journal of Human Resource Management

with senior managers, technicians, workers and trade union representatives, using semi-
structured interview guidelines and a questionnaire. Besides the IR and HRM data for
the year 1996, technical information about firm's prt>ducts. documents and statistics
related to the finn's performance were also collected whenever possible. We also
collected a considerable amount of background material and carried out extensive
interviews with govemment officials, trade union representatives and others, including
academic experts in the areas relating to economic and related reforms.

M ^ o r findings

We now set out the main findings of the study, beginning with the main relationships
between the key variables we employed in the investigation. Table 2 displays the
correlation of fourteen key variables for the sixty-two sample firms: sales volume,
employment size, age (years of establishment), ownership type. location, labour con-
tract, average monthly wage, social security, role of personnel director, recruitment,
labour tumover, dismissals, trade union participation, and the presence of workers'
congresses.
It may be noted that ownership type is significantly and positively correlated with
variables for the role of personnel directors (significant at <.OO1), social security
(significant at <.O1) and labour tumover rate (significant at <.O5). This confirms our
hypothesis (HI) that foreign direct investment will have a positive impacl on HRM
practices in Chinese enterprises. Joint-venture fimis in general adopted more market-
oriented approaches in managing human resources and in designing social security
schemes. There also tended to be a higher labour tumover rate in joint ventures than in
SOEs. It is also noted that ownership type is significantly negatively correlated with
variables for participation in trade unions (significant at <.O5) and the presence of
workers' congres.ses (significant at <.OO1). This is consistent with our observation that
joint-venture firms were less in favour of trade union aetivities than SOEs. and the trade
union and workers' congress consequently played less active roles in enterprise
management.
Size was an important variable in a number of interesting ways, both positive and
negative. The number of employees was positively correlated to sales volume (sig-
nificant at <.OOI). but negatively correlated to year of establishment (significant at
<.(X)1) and ownership type (significant at <.0I). This arose because about 75 per cent
of SOEs in our sample were established before 1979 whereas half of the joint ventures
were founded in the 1980s and half in the 1990s. Long-established SOEs had higher
manning levels than the more recently established joint ventures. For this reason, the
number of employees was also found to be negatively correlated with social security
and the role of personnel directors (significant at <.OO1 and <.O5 respectively). SOEs
tended to be committed to the more traditional welfare system and employees are
managed by a traditional personnel department. Changes towards a market-oriented
social security system and HRM practices tended to be slower and more difficult than
in joint ventures.
For similar reasons, the variable 'year of establishment' was significantly and pos-
itively correlated with ownership type (significant at <.OO1). and therefore positively
correlated to social security and the role of the personnel director (significant at <.OO1
and .01 respectively), but negatively correlated with trade union participation
(significant at <.O1) and the presence of the workers' congress (significant at <.O5).
These correlations refiect the fact that newly established fimis in the sample tend to be
joint ventures; the more recently established the firm, the more likely it is to adopt
 Ding et al.: The end of the 'iron rice-howl' 225

market-oriented social security systems and human resource management. The

functions of trade unions and the workers' congress in these firms tend also to be
relatively weak compared with the long-established SOEs.
The location of the enterprise was a very important factor in predicting its character.
The variable dealing wiih location is coded for cities on a north/south axis, and is noted
to be positively associated with labour contracts and average wage (both significant at
<.O1). This mirrors the greater popularity of labour contract systems and the greater
prosperity and higher average pay levels in coastal and southern regions, compared to
the northern and inland regions. Location is negatively but not significantly correlated
with role of personnel director, recruitment, labour turnover, dismissal, and the function
of the trade union.
We now tum to look at how the 'iron rice-bowl' is faring in state-owned as well as
JV firms. Tables 3 and 4 display the correlations for the key variables in SOEs and joint
ventures respectively. We analyse the correlation of variables in the two subsets in an
attempt to identify those variables, besides ownership type, that explain differences in
the degree of reform. For the SOEs (see Table 3), the number of employees is positively
correlated with sales turnover (significant at <.O1). Tbe location variable remains
significant in positive association with labour contracts and average wages (both
significant at <.O1). and is negatively asstxiated with trade union participation
(significant at <.OI). These findings imply that the pace of reform in SOEs in coastal
and southern China tends to be faster than that in ihe northern and inland regions, in
terms of social security and human resource management.^
For the joint-venture suKset (see Table 4). sales turnover was positively associated
with number of employees and labour contracts, but negatively related to date of
establishment. The number of employees was negatively correlated with social security
(significant at <.OI). and positively associated with dismissal (significant at <.O5).
These findings reflect the fact that larger joint-venture finns tend to make proportionally
larger social insurance contributions, and have more dismissals than small ones.
Location was significantly, but negatively associated with type of labour contract (sig-
nificant at <.O5) and positively associated with the presence of a workers' congress
(significant at <.OI). This may indicate that individual contracts are used more extens-
ively in joint ventures in the south China than in the north, and workers' congresses in
general are less active in northern joint ventures than in those in the south.
To test our hypotheses, an ANOVA test was used to identify significant differences
in means of variables by comparing sample firms by ownership. location and firm size.
Table 5 shows the result of the analysis of means of HRM variables by ownership.
Significant differences in HRM practices were found between joint ventures and SOEs
in DLir sample with regard to the role of the personnel director, recruitment modes,
labour turnover, average wages, social security .system, and the functions of the trade
union and workers' congress. The mean of the score for recruitment modes in joint
ventures is significantly higher than in SOEs (significant at >.O5), suggesting that
joint ventures in general adopted more market-oriented recruitment channels, such as
newspaper advertisements and campus recruitment. SOEs, by contrast, tended to rely on
state labour bureaux. Thus, hypothesis la is confirmed. In terms of reward systems,
joint venttires bad an average wage of RMBIOOO for workers, significantly higher than
the RMB755 in SOEs (significant at <.O5), confirming hypothesis Ib. Social security
was arranged more through market mechanisms in joint ventures than in SOEs
(significant at <.O1). Hypothesis Ic is thus supported. Labour turnover in joint ventures
was much higher than in SOEs (significant at <.O5), confirming hypothesis Id. Human
resource managers in joint ventures tended to adopt a more tnarket-oriented approach
226 The International Journal of Human Resource Management

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00 VO *o\«/iw^cN
— — ppcN

\\
a «
Avr wage
Lab contr

u dig
N T3
lion

Soc Ins.

« i s
'ta -d
c
'S °
Per.

1 a: -] Q .p
: V
 Ding et ai: The end of the 'iron rice-bowl' 229
Tahle S Comparison of Chinese HRM adopted by ownership

Means Standard deviation

SOEs JVs Sig.
Variable n=32 n=30 SOEs JVs F (2-tailed)
1 labcontr 1.468 1.267 0.507 0.521 2.396 0.127
2 recruit 2.258 2.586 0.682 0.682 3.748 0.050*
3 dismisal 12.625 7.207 18.312 22.294 1.084 0.302
4 a Vwage 755.172 1004.464 338.815 482.208 5.130 0.027*
5 socins 1.438 1.767 0.504 0.430 7.602 0.008**
6 labtum 2.556 4.5 2.789 3.815 5.230 0,026*
7 personaJ 1.156 1.867 0.369 0.434 48.410 0.000***
8 union 91.250 73.2 25.442 43.193 4.081 0.048*
9 worksc 1.938 0.733 1.014 0.868 25.066 0.000***
Notes
* <.O5 ** <.()! *** <.OO1.

thiui personnel directors in SOEs (significant at <.(X)l), strongly supporting hypothesis

le. Compared with SOEs. trade union participation and the activities of the workers'
congress were less important in joint ventures (significant at <.()5 and <.00I respect-
ively), confirming both hypotheses If and lg. Given our findings with regard to
hypotheses la to lg. hypothesis 1 (that there are significant differences in HRM
practices in Chinese enterprises of different ownership structures) is confirmed.
Table 6 shows the result of the analysis of means of HRM variables by location. The
differences in HRM practices between firms in southern (and coastal) China and
northem (and inland) China were found to be significant in three respects: labour
contracts (significant at <.O1), average wages (significant at <.00I) and trade union
participation (significant at <.O5). The average wages for workers in firms in coastal
and southern China was about RMB120(), significantly higher than the RMB702 paid to
workers in fimis in northem and inland regions, thus confirming hypothesis 2b.
Unionization in firms in the south was not as prevalent as in firms in the northem and
inland regions. The significantly lower union participation in the south supports

Table 6 Comparison of Chinese HRM adopted by location

Means Standard deviation

North South Sig.
Variable n=42 n=20 North South F (2-tailed}
1 labcontr 1.2381 1.650 0.431 0.587 9.743 0.003**
2 recruit 2.450 2.350 0.597 0.813 0.292 0.591
3 dismisal 12.600 4.421 23.494 8.349 2.159 0.147
4 avwage 702.703 1201.250 210.679 540.618 24.818 O.(K)O***
3 socins 1.524 1.750 0.506 0.444 2.923 0.092
6 labtum 3.044 4.375 3.159 3.859 2.060 0.156
7 personal 1.548 1.400 0.504 0.598 1.030 0.314
8 union 89.857 67.100 28.195 45.655 5.831 0.019*
9 worksc 1.262 1.550 1.191 0.945 0.899 0.347
Notes
* <.O5 ** <.O1 *** <.OO1.
230 The International Journal of Human Resource Managemem
13

'3
OOOOOOOOO

oo oo ^ -
O O "*' O • * 00 rJ

— or- —
t

r-r-oo—'
oJ

:s

1
I

I
I"
<*
 Ding et al.: The end of the 'iron rice-bowl' 231

hypothesis 2f. Firms in coastal and souihem Chitia were more likely to use both
individual and collective labour contracts in hiring employees.•" however, the score for
recniitment modes did not show a signilkatit differetice between the south and north,
leaving hypotheses 2a unconfinned. Similarly, the tnean scores for variables such as
social security, labour turnover, the role of personnel directors and the activities of
workers' congresses were in general only slightly higher for the south than north,
failing to provide support for hypotheses 2c, 2d. 2e and 2g. Thus, hypothesis 2 was only
p;trtially supported.
The results of the analysis of die means of HRM variables by firm size are reported
in Table 7. Significant differences in five variables (significant at <.O5 or lower) were
found among small (less thati 500 employees), tnedium (between 500 and 2000
employees) and large firms (over 2000 employees). The five variables were: the role of
personnel directors: average wages; dismissal; social security; and the functions ofthe
trade union. No particular pattern was found with regard to variation in recruitment
modes among finns of different size, thus leaving hypothesis 3a uticonfirmed. It is
interesting to note Ihat small firms rank the highest in average wage (about RMBI 1(K)).
followed by tnedium-sized firms (about RMB85O) and large firms (about RMB750),
providing support for hypothesis 3b. As reflected in their higher mean score, the social
security systems in small firms tend to be more flexible atid market-oriented thati iti
both large and medium firms. Thus, hypothesis 3c is confirmed. Similarly, personnel
directors in small firms assume a more market-orientated HRM role than their
counterparts in large and medium firms, thus supporting hypothesis 3e, The subset of
large firms had the lowest score for both the role of personnel director and approach to
social security, suggesting the difficulty such finns faced in introducing significant
organizational change. Trade utiion participation in small firms ranked the lowest,
confirming hypothesis 3f. Among firms of different sizes, variations in labour tumover
and the role ot" the workers' congress were not statistically significant, failing therefore
to provide support for hypotheses 3d and 3g. In coticlusion. hypothesis 3 (that there are
significant differences in HRM practices in Chinese enterprises of different firm sizes)
finds strong, but incomplete support. For a summary of the results of our hypothesis
testing, see Table 8. below.

Discussion and evaluation

Widespread change has clearly characterized Chinese enterprises in the 1990s

compared with the previous decade (see Warner, 1999b, 2000; Perry and Selden. 2000).
Deng's reforms have taken around two decades to take root but they have finally made
their mark. Chinese labour-management relations have experienced a 'sea-change'
since the heavily stylized, less tnarkel-driven model which was still cotnmonly found in
the immediately post-Maoist years was de rigueur (see Xia, 1991; Zhuang, 1994; Zhu,
1997). Since the 1992 reforms, the way people-management has now become less
• organizationally dependent' has beeti remarkable, even though the degree of itiertia, as
we have found in both earlier research and in the present investigation, has meant that
the process has been gradual rather than sharp.
The main props of Chinese 'organizational dependency' (see Walder. 1986; Warner,
1999a, 1999b, for example), and thus of the so-called 'iron rice-bowl {tie fan wan)\ were
the very ones that featured in the 'three systems reforms'. The first prop, the 'jobs for
life', was probably the most imptjrtant. Employment security, as we have seen, had been
a boon for urban industrial workers since the 1950s.^ The second support of the depend-
ency was the 'eating out of one big pot {daguo fan)\ The rewards system of modem
232 The Intemational Joumal of Human Resource Management
Table 8 Summary of hypotheses tested vis-d-vis Chinese HRM

Hypothesis I There are significant differences in HRM practices in Chinese Confinned

enterprises of different ownership structures.

Hla The empioymem systyems in SOEs tend to be less market- Confirmed

oriented than in JVs.
Hlb The reward systems in SOEs tend to be less competitive than Confirmed
in JVs.
Hlc The social security systems in SOEs tend to be less market- Confirmed
oriented than in JVs
Hid The labour tumover in SOEs tends to be lower than in JVs. Confirmed
Hie The role of personnel directors in SOEs tends to be less Confirmed
market-oriented than in JVs,
Hlf The trade unions in SOEs tend to play a more important role Confirmed
than in JVs.
H1 g The workers' congresses in SOEs tend to be playing a more Confirmed
important role than in JVs.

Hypothesis 2 There are .significant differences in HRM practices in Chinese Partially

enterprises located in different regions of China, confirmed

H2a The employment systems in firms in northem and inland China Not
tend to be less market-oriented than in southem and coastal confirmed
China.
H2b The reward systems in firms in northem and inland China lend Confirmed
to be le.ss competitive than in southem and coastal China.
H2c The social security systems in northem and inland China tend Not
to be less market-oriented than in scnithem and coastal China. confirmed
H2d The lab<iur tumover in firm.'; in northem and inland China tends Not
to be lower than in southem and coastal China. confinned
H2e The role of personnel directors in fimis in northem and inland Not
China tend,s to be less market-oriented than in southem and confirmed
coastal China,
H2f The trade unions in firms in northem and inland China tend to Confinned
play a more important role than in southem and coastal China.
H2g The workers' congresses in firms in northem and inland China Not
tend to play a more important role than in southem and coastal confirmed
China.

Hypothesis 3 Tbere are .significant differences in HRM practices in Chinese Basically

enterprises of different firm sizes. ctmfirmed

H3a The employment systems in large firms tend to be less market- Not
oriented than in small firms. confirmed
H3b The reward systems in large firms tend to be less competitive Confirmed
than in small firms.
H3c The social security systems in large fimas tend to be less Confinned
market-oriented than in small firms.
H3d The labour tumover in large lirms tends to be lower than In Nol
small firms. confirmed
H3e The role of personnel directors in large firms tends to be less Confimied
market-oriented than in small fimis.
H3f The trade unions in large firms tend lo play a more important Confimieci
role than in small firms.
H3g The workers' congresses in large firms tend to play a more Not
important role than in small firms. confimied
 Ding et ai: The end of the 'iron rice-bowl' 233

Chinese industry had long been more often than not unrelated to individual performance.
TTie adaptation of the Soviet eight-grade model had been fairly widespread. The third
prop was the 'cradle to grave' welfare system. The danwei provided for the educational,
housing, medical, welfare and other needs of the workers in the enterprise.
There are a number of scenarios that encompass the reform process at micro-level.
They extend from, on the one hand, no change in the status quo to, on the other hand,
a complete transformation. There are several intermediate positions. In the first, the
'iron rice-bowp status quo remains predominant. This is what has been labelled "hard
divergence', where the PRC enterprise tnodel remains very distinct and vastly different
from that found in other Asia Pacific HR contexts. It is an extreme case but is no doubt
still evident in some SOEs. It is unlikely to persist in most JV enterprises. By the end
of the 1990s, the reform prtKess had been implemented in a very wide range of tirms
and codified in the 1994 Labour Law.^
At the other extreme, the "iron rice-bowl' is no more; it has been replaced by HRM
Western/Japanese style. The residual Soviet influences from the 1950s will vanish and
be replaced by completely new and pos.sibly alien HR practices. We have .seen that this
scenario is unconvincing as yet in most of the enterprise settings we have investigated.
It is what has been described as "hard convergence'. In between, there are various mixes
of old and new status quo arrangements, with sotne retention of job security and welfare
arrangements. We have seen in previous publications (see Warner, 1995 for example)
the outlining of a possibly 'hybrid' Chinese HRM model.
We have tried in this article to show empirically where and how these mixes occur
using a substantial sample of sixty-two enterprises. The following main points emerged:
1 First, there are significant differences in HRM practices between firms of different
ownership. Joint-venture partners did have a positive impact on the changes in HRM
practices in Chinese enterprises (for parallel findings, sec Bjorkman and Lu, 1999).
Recent years have witnessed a large number of multinational companies entering the
Chinese market, concentrating in coastal city-areas such as the Pudong district in
Shanghai.*" They have brought into China not only substantial amounts of investment
with advattced technology and updated products, but also sophisticated management
systems and expertise. Their success and efficiency will, we feel, have an important
influence on other domestic firms in changing traditional people management
practices.
2 Regional differences were found to be significant with regard to average wages and
trade union participation. The speed of convergence of HRM practices throughout the
country tends to accelerate with the removal of barriers to labtiur tiiobility, the
development of a mature labour market, and the rapid technological progress in
telecommunication, transportation and other infrastructural elements.^
3 The larger firms (mostly SOEs in our sample) experienced greater organizational
inertia in chatiging HRM practices. The convergence of HRM practices in firms of
different size, we believe, depends on the successful reform of SOEs that are cur-
rently experiencing serious difficulties.
What do our finditigs suggest about the nature of and indeed the future of HRM in
China? Before attempting such an analysis it must be emphasized that our quantitative
findings should be treated with a degree of caution. Our qualitative investigations
clearly suggest that the rhetoric of change may mask organizational inertia. In one SOE,
for example, the 1993 shift from 'record wages' to 'position plus skill wages' (gangwei
jineng gangzhi zhi) met with a typically pragmatic response. Skill wages should have
been set according to the results of appraisals and tests, but, because the management
234 The International Journal of Human Resource Management

judged that there were too many employees to put through these processes, an
altemative approach was adopted; the previous record wages plus fixed subsidies were
simply renamed "skill wages'. In response to legislation the name of the wage system
had changed, but underlying processes and attitudes remained constant. Similarly, it is
worth remembering that certain JVs also retain characteristics of the older danwei
(GtXKlall and Wamer, 1997: Francis, 1996).
With these caveats in mind, we can tentatively identify certain possible trends in the
evolution of HRM in China. There are twin pressures on SOEs to reform: growing
domestic competition from JVs, WOFEs, TVEs and private businesses; and the
govemment's own 1998 refomi plan spear-headed by Premier Zhu Rongji, These
pressures for change are mitigated, however, first by falling foreign investment: 1999 is
widely predicted to be the first year in which year-on-year EDI will fall since the slart
of China's Open-Door policy. Second. Zhu Rongji's on-going SOE reforms have met
political opposition amid fears that mass lay-offs may trigger social instability.'* Our
current research suggests that there tend to be clear and significant differences between
HR practices in these SOEs and in joint ventures, most notably in employment and
reward systems, attitudes to social security and the roles of the HR director, trade union
and workers' congress (see also Bjorkman and Lu. 1999). HR however is still in its
infancy, according to a recent survey of practitioners' views (see Pang. 1999). In the
current climate, it is likely that such differences will be maintained for the next several
years. Nonetheless, there is also some evidence that SOEs are relatively more amenable
to change in those areas, notably southem and coastal, where they are in elose
proximity to other ownership types, and where infrastmcture and education systems are
relatively more developed." Furthermore, the present project suggests that, to the degree
that the downsizing of SOEs is successful, Zhu Rongji's reforms may create conditions
favourable to further change in their HR processes (see Wamer, 1999b, 20(X)) but this
is as yet uncertain.

Concluding remarks

Thus, while increased competition and govemment reform (most notably the 1992
'three systems' reforms and the 1994 Labour Law) provide undoubted stimuli for
change, we may tentatively conclude that the pace and depth of this change are
inhibited by political fears of social instability and by institutional and organizational
inertia. Whether or no! a further 'deepening" of the economic refonns is possible at the
present juncture is decidedly moot. China's leaders seem to be divided on this issue'"
and appear to be proceeding with great eaution. given that entry into the WTO may be
on the horizon.

Acknowledgements

We would like to thank Zhang Qiang for his assistance with fieldwork as well as the
China-Europe Intemational Business School (CEIBS) in Shanghai for their support.

Notes
1 The exchange rate at tlie time of writing was around eight Renminbi (RMB) to the US
dollar.
2 For further details on this point, see Ding and Wamer (1999).
3 On collective contracts, see Ng and Wamer, (1998); Wamer and Ng, (1999); there are now
over 300,000 of these contracts in operation, covering over 66 million workers, according to the
All-China Federation of Trade Unions (ACFTU) web-site. (http//acftu.org.cn/colleag.him).
 Ding et ai: The end of the 'iron rice-bowl' 235
4 The 'iron Hce-bowl' system, it must be pointed out. covered mainly workers in SOEs, urban
collective firms and government employment: most of the workforce, being in agriculture for
instance, was not included.
5 We are well aware that inclusion in legislation dues not necessarily mean that enforcement
is easily accomplished; the number of labour inspectors on hand in the PRC is relatively low
vis-a-vis the range and dispersion of factories to be inspected.
6 The Piidong district is an itrea of Shanghai which has pretensions to be a Chinese Wall Street,
with many tall, prestigious sky scraper otHce developments for. among others, JV companies;
to dale many of these remain tinrented. given the depressed state of the Chinese econoray in
1999.
7 The spread of, in particular, US joint ventures may also assist the dissemination of HRM
practices; at present, over 200 of the biggest American companies have set up shop in the PRC
(see Fortune. Special Repxirt, II October 1999)
8 The number of SOE workers who might potentially he 'laid-off has heen estimated by
unofficial sources to be possibly as high as over 30 millions. State-seclor workers are ."iaid to
be around 60 per cent of the urban workforce (see Financial Times Survey: China, 1 October
1999. viii).
9 This may be a case of what economi.sts call the "demonstration effect', where firms copy the
practices of a key enteqirise or set of enterprises after they have seen the effects of change
'demonstrated'.
10 See reports of a recent meeting of China's CP Central Committee to decide on the next steps
to reform the SOE sector, in the South China Morning Post, 26 September 1999. pi.

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