Steel in the new Millennium - 2c - Sectoral Activities

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2 - Steel in China

By Liu Jinghai

Part c

Since the economic reform, in order to raise product quality and reduce consumption of inputs in a more open, consultative steel sector, the industry has launched successive programmes to: "rectify management"; "raise the administrative levels"; and "raise business levels". These activities have led to changes from the traditional style of production management under a centrally-planned economic system to a more market-oriented approach. The larger enterprises have been working towards obtaining ISO-9000 certification, with some products meeting ISO-9002 criteria for quality. Cost and quality control systems are increasingly used, with responsibility being devolved towards the responsible units. Computer control, particularly in administration and finance, is being increasingly used. Ambitious cost and quality goals are being set.

The Trade Union Law, 1992 stipulates that the union is a mass organization, organized by workers on a voluntary basis. Never the less, there are some differences between managers and workers in steel enterprises, all of whom are the masters of their, state-owned, enterprises. The relationship between managers and workers is different from that in other countries; the union will protect the rights and interests of some workers under the umbrella of protecting those everywhere. Over 90% of steelworkers are members of the union and all enterprises are unionized. The main tasks of the unions are to help workers solve their problems, protect their rights and interests, organize workers to attend mass meetings concerning managing and supervising the business the enterprises, and organize vocational training or education.

Employee participation in policy development

In state-owned enterprises there are several channels for employees to participate in policy-making and the managing of the enterprises. Such involvement increases morale. The congress of worker and staff representatives is organized by the representatives of workers, technicians and managers and is held at least twice a year. Its tasks are to consider development plans, annual business plans and reports, and the rules and regulations of the enterprise. Its decisions are implemented following their adoption. Suggestions from workers' representatives that are put to the congress are considered by management and implemented if agreed upon.

Different quality groups are organized by workers and technicians. They work towards raising product quality and reducing consumption of inputs. The enterprises provide support -- time and finance -- and make awards them when their proposals are successful. Subsequently, new practices are incorporated into the technical standards and production regulations.

Many enterprises practise a form of self-management by the workforce. Self-managing groups have an important role in occupational safety, quality improvement, recycling, and reducing consumption. Achievements of these groups are incorporated into production standards.

Employment reform

Since the entry into force of the Provisional Regulations on the Institution of a Labour Contract System in State-owned Enterprises in 1986, employment in the Chinese steel industry has changed from permanent employment to a labour contract system under which the rights and interests of workers can be protected by law. Most employees become contract employees. In order to settle labour disputes between the employing unit and workers with employment contracts, the Regulations on the Settlement of Labour Disputes In Enterprises were introduced in 1993. These regulations provide that all disputes should be solved following a full investigation and that all enterprises should have a labour dispute mediation committee. These committees are composed of representatives of staff and workers from the employing units and the trade union. The committees are chaired by the trade union representative. If mediation fails, or one of the parties requests arbitration, the Labour Dispute Arbitration Committee will provide legally binding arbitration.

Many of these committees have successfully settled many disputes. For example, in the early days of the contract employment system some workers at the Shanghai No.5 Steel Company did not understand the significance and legal basis of the system and signed only a one year contract with the company. They did not renew the contract before it expired and, when it did, the provisions of the contract ended, resulting in a dispute. The committee investigated, consulted with the company and helped the workers sign contracts with other units of the company.

New directions

If the industry is to seek and maintain ISO-9000 certification, it should establish regulations for production and ensure adequate vocational training for all steelworkers in order that they are familiar with the standards and relations between quality and the success of the enterprise.

The management system of state-owned enterprises does not enable quality staff and workers to assume much responsibility. The systems should be reformed so that the interests of staff and workers are closely linked to that of the enterprise. Steelworkers should be encouraged to take an interest in the management of their enterprise.

A system of employment contracts can ensure the protection of the rights and interests of workers and the employing units. However, all concerned need to be educated about the system and the law, so that they can use the law effectively.

Improving labour productivity

Wage levels in Chinese steel enterprises are much less than in advanced steel-producing countries. As the industry develops, wage increases are inevitable. Today, labour productivity is too low to enable the industry to take advantage of low labour costs when selling steel internationally. Employment levels need to fall if the industry is to become competitive. The production and productivity objectives for 2000 and beyond indicate that a crude steel output of 120 Mt will require a workforce of only 1.1-1.2 million. This means that 2 million workers in the steel industry could lose their jobs and have to find, or be provided with, other work.

In achieving such productivity improvement the industry will have to deal with several major problems. Firstly, the Chinese social security system is relatively new, is not perfect and has not the resources to give full assistance to the current number of unemployed. On the other hand, the strongly developing national economy, and the move towards a mix of state, collective, private and foreign owned economic activity mean that the demand for labour has increased markedly. None the less, new job creation is insufficient to absorb the rising number of unemployed from bankrupted enterprises, new entrants into the workforce and migrants. Overmanning in the industry will have to be settled by the enterprises themselves.

Secondly, the large projected job losses and the inability of existing institutions and society to cope mean that the steel enterprises should set up the means to resettle redundant steelworkers in parallel with increasing labour productivity. This will need massive funding and will be very difficult for the steel enterprises because they already need large amounts of capital to make the technical improvements to achieve the desired gains in productivity. Thirdly, the amount and scope of technical and vocational training required will lead the enterprises to seek outside assistance to ensure its provision, including from local, regional and national governments, and even from other countries.

Strategies for productivity improvement

In the light of the problems mentioned above, steel enterprises will need to approach productivity improvement in several ways. Firstly, there is a strong case for separating auxiliary plants and services from steel production. Iron and steel complexes in China comprise mines and processing plants, metallurgical machinery manufacture, refractory plants, hospitals and schools that are dedicated to the main production system and the enterprises, not for society. These activities do not contribute to revenue and drag down productivity. The workforces in the ancillary operations account for over 50% of the total. At the Wuhan Iron and Steel Complex, for example, the workforce was 120,000. Following the separation of non-production activities the workforce was 50,000 in 1995 and productivity rose to 120 tonnes per worker per year. At the same time, the Wuhan Iron and Steel Group was set up and the auxiliaries were reorganized as companies within the group and they serviced the region as well as the complex. Most of the companies did good business and made profits.

A second approach is to develop a more diversified economy and produce higher value steel products. This is already occurring and, as it accelerates, steel enterprises can generate employment in diversified activities and in the new steel processing plants. Thirdly, since 1978, in order to solve the employment problems of children of steel enterprise employees, the industry has set up many labour servicing companies. These companies provide services such as canteens, shops, making safety clothing, etc. and have generated many employment opportunities for surplus workers. In 1995 the workforce in these companies was 810,000 and revenue from sales amounted to $77.5 million.

Fourthly, notwithstanding the state-regulated retirement ages of 55-60 for men and 50-55 for women before 1980, steel enterprises have lowered the relevant ages depending on their individual situation. Moreover, state and local governments support the re-employment efforts of the enterprises by providing finance, giving tax breaks and supporting retraining schemes.

Lessons learned

The key to dealing with surplus workers is to ensure that adequate retraining is available. To this end, the industry needs to learn from other sectors and the steel industry in other countries where restructuring has already taken place. In developing labour service companies, enterprises have tended to focus on the re-employment of surplus workers and not on whether their activities are profitable and sustainable. Some of them have not prospered and the people concerned still rely on payments from the enterprise for their living. More attention needs to be given to ensuring that the new skills of the workers are adequate and the economic prospects of the service companies are on a sound footing, so that long-term re-employment is likely.

Technology and environmental management

Raising China's competitive ability in the international steel market is an important strategic goal. To this end the industry is increasing its output of higher value products and implementing more widely modern techniques, such as coal injection, computer control, continuous operations and sophisticated on-line quality control.

Open hearth furnaces are being taken out of service, along with smaller, inefficient BOFs and blast furnaces. New EAFs are being installed. Increased energy efficiency and environmental protection will go hand in hand with the modernization of production. More stringent regulations are likely to be introduced.

In order to realize these goals, the industry will have to ensure that its workforce is fully equipped and able to use and maintain the new equipment and ensure that the product meets the quality specifications. The steel industry will place greater emphasis on rigorous vocational training for the new techniques with workers in key production posts having to hold certificates to prove their successful completion of training courses required for the job.

Parallel to the modification of older production lines or setting up new ones, existing steelworkers will be trained in the new techniques and given a greater awareness of operations in the enterprises, where necessary by gaining experience in advanced enterprises inside and outside China.

Higher quality (e.g. education level and experience) recruits will be required. Relevant technical training will be undertaken before they take up their production posts. A consequence of reducing the workforce is that only adequately qualified and experienced workers will remain in the enterprises, others, at all levels, will be redeployed. In this way the 1.2 million workforce that will drive the industry will be highly qualified.

In addition to augmenting the skills of steelworkers, those of technicians and management will also need to be broadened and strengthened. In 1994 the Chinese metallurgical industry had 714,000 special technicians and management staff. Senior technicians and economists accounted for 7.4% of the total, engineers and economists for 26.5%, and regular technicians and management staff for 66.1%. The average age was 37 years, with 30% being under 30 (figure 6). Just under one-quarter of the group are university or college graduates. However, the proportion is expected to reach 50% by 2010 (figure 7). Overall, however, the average number of years of schooling in 1994 was 12.3. There are insufficient well-educated, technically qualified technicians and management personnel to meet future requirements. Special engineering technicians, for example, only account for 5.3% of the workforce (3.1% in 1980), which is low compared with that in international general enterprises (about 15%) and much less than in the steel industries of advanced nations (20-25%). There is a great shortage of technicians with skills in electronics, computer control and new technology and of management personnel with knowledge and experience of market analysis, financial operations and international trading.

Most of the senior technicians and economists will reach retirement age in 2005 -- 81% in engineering, 74% in economic management and 76% in technical research and development. On the other hand, there are too many general management personnel with no specific expertise. The proportion of technicians in the workforce will rise from 5.3% to 20-25% by 2010, a change partly affected by the shrinking workforce, so "only" 200,000 to 250,000 special technicians will be needed -- not far removed from the current number, making the target achievable. A combination of education, vocational training, higher education, including part-time, will be critical to achieve the required changes (figure 8).

The ratio of general management personnel to special technicians will change from 1.79 : 1 in 1995 to 0.8 : 1 in 2000.

The role of government

State ownership means that government at all levels play very important roles in the steel industry's restructuring and adjustment. In accordance with the economic development plans of the country the state is formulating industrial policies for the steel industry, and others. MMI will draft the development, restructuring and adjustment plans of the industry and ensure the steel enterprises carry out the policies. In future, together with the reform of the state-owned asset management system, the state and MMI will formulate industrial development policies and macro-economic adjustment policies, as well as managing the assets of some state-owned steel enterprises.

If a steel enterprise's restructuring is in line with industrial policy the State may provide financial support to start with. Taking into account the steel market and the Government's industrial policy, MMI will require all state-owned steel enterprises to prepare their development plans, annual business and production plans, and will assist them in becoming profitable businesses A key role of government will be to provide the necessary conditions for the enterprises to restructure successfully. These include: providing a favourable regime, including credits for new companies or enterprises that absorb surplus labour; organizing consultations and negotiations for closing unprofitable steel enterprises; and establishing conditions for the settlement of surplus workers, including those from bankrupt enterprises; and setting up a social insurance systems for the enterprises.

Conclusions

The best means to ensure the rights of the steel workforce in China is through the labour contract system, thereby leading to a change in the relationship between employees and the employing units. Workers will then be able freely to select their jobs, have equality of employment, take their vacations, attend vocational training, enjoy social insurance and welfare, and be able to apply directly to the labour dispute arbitration committee if necessary.

The State, society and the employing units should cooperate to set up an integral system of vocational training, re-education, and re-employment. State and local governments should support the system with capital and favourable taxes and produce more channels and opportunities for re-employment.

The establishment of an integral social insurance system for the medical treatment, retirement, unemployment and accident compensation is essential.

Managers of enterprises should motivate their workforce, enhance the recognition of their abilities and enable them to be involved in the management of the enterprise.

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Updated by BR. Approved by OdVR. Last update: 28 September 2000.