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View from China: Unions at Wal-Mart

In a surprise move, Wal-Mart allows its workers in China to unionize.

In Beijing these days, it’s common to hear the phrase “Building a Harmonious Society” being uttered by CFOs in both public and private. This newly minted Communist phrase is being taken seriously in a way that recent party lines never were.

That’s because the phrase is not just a slogan, but also a milestone: the government has, in effect, conceded that China’s headlong rush to capitalism has created a social gap between rich and poor. It’s a slogan with teeth — new laws will be enacted to support an ambitious social agenda to narrow the divide.

The laws not only aim to strengthen the rights of workers and property owners, but also to introduce fair practices into China’s anything-goes market. A bankruptcy law will bolster the rights of creditors over workers. Much-debated legal protections for owners of private property, a first in modern China, are likely to be approved. Taxes for foreign-invested enterprises will also increase, to nearly 30 percent from a previous “holiday” bracket of 15 percent.

Not surprisingly, some foreign executives have reacted negatively to this legislation. Many view legal protections as added costs in a market that is already growing more costly. A prescient few have tempered their resistance, however, thereby gaining a competitive advantage.

Case in point: Wal-Mart, the U.S. retailer known for its anti-union stance. Earlier this year, the company was targeted by the All China Federation of Trade Unions, the governmental body that represents organized labor activity. The group wanted Wal-Mart to allow unions in its China operations.

At first, Wal-Mart resisted. That surprised some observers. In China, unions are rarely confrontational and union representatives are more often than not appointed by managers. Union leaders don’t negotiate contracts. What’s more, union dues are an important source of funding for the Communist party. After putting up a long fight, Wal-Mart switched tactics in July, okaying organized labor in its shops and vetting an exception to its own global policy.

The move coincided with Wal-Mart’s proposed $1 billion purchase of Trust-Mart, a Taiwanese-owned chain of more than 100 stores in 20 Chinese provinces. The planned acquisition would make Wal-Mart the number-one foreign retailer in China. Cynics saw a connection between Wal-Mart’s sudden switch on unions and the need for government approval of its bid. Was Wal-Mart’s shift simply pragmatic? Perhaps. But it also signaled an apparent understanding that when in China, it’s best to go along with the program.

Wu Chen is editorial director of CFO China.

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