Wage Reform and the Web of Factory Interests

Abstract

China's industrial wage reforms, initiated with much fanfare in 1977, have currently reached an impasse. Despite large increases in wages over the past decade, the expansion of incentive pay, and several new schemes to link incentive funds to factory performance, low labour productivity and lax work discipline remain major problems in state industry. Moreover, the reforms have created consequences that were unintended: they have heightened contention over wage matters in the work place; they led in the initial years of the reform to uncontrolled increases in bonus expenditures that outstripped increases in productivity and profitability; and they have inadvertently provided an incentive for sharp business practices and financial deception, both of which hinder broader industrial reform.