Human Resource Management in China

Past, Current and Future HR Practices in the Industrial Sector

Cherrie Jiuhua Zhu

• Publisher: Routledge
• Year: 2004
• Topic: Business
• eBook ISBN:
  9781134447336
• Subtopic: Business General
• Index: Business

Enhancing our understanding of HRM in the Chinese industrial sector, this book explores the emerging role of HRM in China's industrial enterprises. A significant contribution to the theory of HRM, this book will be essential reading for students and researchers of Business and Management, HRM and Asian Business.

1	Introduction

The objective of this book is to explore the emerging role of human resource management (HRM) in Chinese industrial enterprises through the examination of human resource (HR) practices prior to and during the continuing economic reform that has been occurring since 1978, the evaluation of future HRM trends, and the analysis of the impact of the form of ownership on HRM. This objective is achieved by conducting systematic research through both a review of current literature and field investigations, including case studies and surveys. This introductory chapter first provides background for the book, including the rationale, objectives and significance of the research; and then outlines the structure of the book.

RATIONALE FOR THE RESEARCH

The Third Plenary of the 11th Central Committee of the Communist Party of China (CPC), held in December 1978, was regarded as a turning point in the history of the People’s Republic of China (PRC) because it initiated a major programme of reform of the Chinese economy. The meeting ‘started all the processes which put an end to the excesses of the “extreme left” policies over two decades and finally led to the emergence and consolidation of the policies of reform and opening’ (Talas, 1991: 67). Two major components of the command economy – central planning and public ownership – were targeted for reforms (Dong, 1992; Talas, 1991). Reform in planning, also called operational reform, sought to substitute the mandatory central planning system with a market-oriented system. Reform in ownership structure aimed to change the predominantly public ownership of Mao’s regime and to reform state ownership itself to establish a new form of public ownership that stimulates economic growth (Dong, 1992).

The economic reforms since 1978 have led to a ‘socialist market economy with Chinese characteristics’. The operational reform has resulted in a shrinkage of the old centralized planning system and an increasing role for the market in areas ranging from control over prices to resource allocation. The ownership reform has resulted in a rapid growth of enterprises in the non-state sector and thus more intensive competition. In particular, the enterprise reform that is focused on state-owned enterprises (SOEs) has been at the centre of reforms since the early 1990s with the introduction of a modern enterprise system incorporating restructuring, corporatization, shareholding and marketization (e.g. Chai and Docwra, 1997; Dernberger, 1997; Lo, 1997; Smyth, 2002; Smyth and Zhai, 2003). As a result, ownership is gradually being separated from the administration of enterprises, particularly in those SOEs that have been converted into financially self-sufficient businesses rather than being administered and subsidized by the state.

The series of reforms have led to rapid economic growth in China. Between the late 1970s, when China opened its doors, until 1997, its economy sustained a growth rate in excess of 9 per cent (EIU, 1997). By 1997 GDP growth was slower than the blistering pace of the immediately preceding years because of the Asian financial crisis, but was still nearly 9 per cent in 1997 and exceeded 7 per cent from 1999 to 2003. China’s open-door policy has accelerated its integration into the global economy, as evidenced by its accession to the World Trade Organization (WTO) in late 2001.

The past two and a half decades of reforms and impressive economic growth have witnessed an unprecedented enthusiasm for the establishment of foreign-invested enterprises (FIEs) in China. Many foreign companies have expanded their operations into China, attracted mainly by the sheer size of its potential market. Foreign direct investment (FDI) in China has grown from $US4 billion in 1990 to $US40 billion in 2000 and over $US50 billion in 2003. By the end of 2001, accumulative real use of FDI had reached over $US568.4 billion and employment in FIEs had increased to over 6.71 million from 550,000 employees in 1986 (China Statistical Yearbook, 2002: 629 and 121). China is the largest recipient of FDI among the developing countries and is second only to the USA in the world (Panitchpakdi and Clifford, 2002: 145). It is also ranked as one of the largest outward investors among developing economies, with a cumulative stock of outward FDI of over $US27.6 billion in 2001 (Wong and Chan, 2003). China is now considered to be the third biggest economy in the world after the USA and Japan. Its greater economic integration with the rest of the world, especially after becoming a member of the WTO, has further accelerated its market-oriented economic reforms, as it needs to open its protected markets and submit to the rule of international law.

The economic reforms and its increasing participation in the world economy have thus set the stage for significant changes in the management of industrial enterprises in China, especially in regards to HR practices. For example, the responsibility for labour allocation has been shifted from a centralized planning authority to the HR function or department within enterprises; production and reward systems are changing, with much less emphasis on egalitarianism and a stronger link to efficiency and individual performance. While China is in the transition ‘from plan to market’ (see Liew, 1997) and the reforms have substantially upgraded China’s old-style ‘command economy’ to a new ‘socialist market economy’, a number of questions arise. First, to what extent have traditional management systems and practices, especially HR activities, been changed? Second, what is the impact of both operational and ownership reforms on the management of the workforce in Chinese industrial enterprises? In particular, what is the impact of different ownership types on HRM? Finally, how will HR practices develop as a result of the economic reforms and what issues are emerging for the future? To date many researchers have addressed only part rather than all of these questions, such as changes in management practices in general (e.g. Chen, D.R., 1995; Child, 1994; Laaksonen, 1988; Strange, 1998; Warner, 1999), and changes in some HR practices (e.g. Jackson, 1992; Sun, 2000; Warner, 1995; Whiteley et al., 2000; Zhao, 1995). Many of these studies are qualitative rather than quantitative in nature. There remains a dearth of research that systematically examines past and current HR practices through both quantitative and qualitative approaches across industrial enterprises with different types of ownership. In order to contribute to this under-researched area, this research employs both qualitative and quantitative methodologies to explore these questions.

RESEARCH OBJECTIVES

The objectives of this research are threefold. The first is to enhance the understanding of HRM in China’s industrial sector by offering both qualitative and quantitative evidence of past and current practices across the major HR activities, and by indicating future trends in HR practices. The second is to contribute to the research literature on HRM in China by exploring HR practices across Chinese industrial enterprises with four types of ownership and to investigate the impact of ownership type on HRM. The third is to construct a transitional HRM model for Chinese industrial enterprises to illustrate possible paths of development of Chinese HRM. To this end, three related research questions were identified for investigation:

•   Question 1. How were human resources in Chinese industrial enterprises managed before and after the commencement of economic reform with respect to major HR activities, including: human resource planning; recruitment and selection; performance appraisal; compensation and welfare; training and development; and labour relations?

•   Question 2. What impact does ownership type have on HR practices in Chinese industrial enterprises?

•   Question 3. What are the possible future development paths of HRM in Chinese industrial enterprises?

SIGNIFICANCE OF THE RESEARCH

Given the size of its growing economy and its vast population, China has become increasingly significant in international business decisions and ‘has become a focus of interest for Western organization and management researchers’ (Shenkar and Von Glinow, 1994: 56). This is because the changes that have occurred in China hold profound consequences for different groups including managers, management researchers and policy-makers at both government and company levels.

This research is significant for managers, especially foreign managers who are working or going to work in China, as the escalation of FDI in China has resulted in greater involvement of foreign companies in technology transfer and in the injection of managerial expertise into China’s economic development. FIEs, including foreign joint ventures and wholly foreign-owned ventures, have become the most widespread form of foreign investment in China. However, many FIEs in China have experienced substantial problems, which have prevented them from reaching the expectations of parent companies (e.g. Deng, 2001; Goodall and Warner, 2002; Skopal and Zhu, 2003). These problems often stem from differences in political, economic and social systems, national culture, and conflict with the traditional Chinese management practices that are a legacy of the pre-reform days (Deng, 2003; Vanhonacker, 1997).

Various researchers have pointed out differences between Chinese and Western work attitudes, behaviour and concepts such that cooperation between Western managers and Chinese local employees could be seriously hampered (Fung, 1995; Shenkar, 1994). Also, Chinese HRM policies and practices are quite different from those used in both developed and other developing market economies (e.g. Ding et al., 1997; Goodall and Warner, 1997; Paik et al., 1996). Careful consideration of local idiosyncratic practices is thus required to operate successfully in China. Current HR practices in China have a distinctive ‘Chinese’ flavour, as they have been grafted onto the old system (Warner, 1995; Zhu et al., 2004). Therefore, the study of Chinese enterprise management ‘promises not only to provide information of direct relevance to those who are active in that economy, but also to illuminate the relevance of Western thinking on management’ (Child, 1994: 2).

The results of this research will allow better appreciation of the effect of transition to a market economy on management and HR practices. An understanding of China’s past and present management, particularly concerning HR practices, will be of value to foreign managers and their local Chinese counterparts. The results of this research will assist their understanding of the changes that have occurred and the emerging role of HRM in enterprise management, and recognize the inefficiencies in current HR practices for future improvement.

This research is also significant for management researchers as China represents a most attractive site for research on management, especially in the area of comparative and international management. Shenkar and Von Glinow (1994) present three compelling reasons for this. The first reason is that, as China has the largest workforce in the world, current management theories and methodologies cannot claim to be universal unless ‘they can explain the structure and processes of PRC enterprises, as well as the attitudes and behaviour of those who work in them’. The second reason is that China, because of its numerous differences compared with Western countries, ‘potentially represents the most serious challenge to paradigms developed in the West’. Finally, China’s integration into the world, albeit slow, has made the relevance of Western models ‘a practical matter as much as a theoretical issue’ (Shenkar and Von Glinow, 1994: 56–7). Though raised a decade ago, these reasons are still relevant today as China’s period of reform towards a more market-oriented economy continues.

While moving from a highly centralized command economy to a more market-driven economy, China retains its socialist one-party government system as well as its socialist ideology (e.g. Burns, 1999; Pye, 1999; Starr, 1997; Story, 2003). It can be used as a test case for socialist and post-socialist economic reform. Its enterprises can be studied to assess the universality of the macro and micro theories of management and organization that have been developed largely in the West or derived from Western experience. In this research, the HRM function and major HR activities (as defined in the West by Schuler et al., 1992) are applied to examine how Chinese employees have been managed both prior to and during the economic reforms. In addition, a survey questionnaire built upon the work of Western researchers (see Von Glinow, 2002; Geringer et al., 2002) is adopted to study a range of HR practices in China’s industrial enterprises. This study will facilitate management researchers’ understanding of the application of Western-developed management and HR practices in the Chinese context and related problems.

This research, based on both qualitative and quantitative data, also explores the impact of ownership forms on HR practices in different types of industrial enterprises. The findings of this study will address the dearth of research on the relationship between ownership types and HR practices in China. Finally, this research constructs a model of HRM for Chinese industrial enterprises under transition. In this respect, the results of this study should add significantly to an understanding of Chinese HRM and its transformation.

Policy-makers will also find this research useful as the study reveals that the impact of economic reforms and subsequent changes in traditional systems and practices on the management of human resources are profound. It therefore offers some important insights for policy-makers in companies and governments. For example, foreign companies that might look to transfer their home country HR policies and practices to their subsidiaries in China will find that this research supports the argument that foreign companies should not assume that identical HR practices can be applied to their Chinese enterprises (e.g. Child, 1993; Fung, 1995; Huo and Von Glinow, 1995; Paik et al., 1996). This research examines the degree to which some Western-style HR practices have been employed in Chinese enterprises and their perceived effectiveness, thereby providing a framework for ascertaining the extent of transfer of foreign company policies to their Chinese subsidiaries.

This research also highlights issues for government policy-makers in terms of the regulation of enterprises. These issues include the enforcement of social security policies, further reform of managerial appointments for senior enterprise managers, and consistency and transparency of regulations for private-owned enterprises to improve their business environment. An awareness of these issues could help government policy-makers re-evaluate their current policies to facilitate development of HR practices in industrial enterprises.

STRUCTURE OF THE BOOK

As the reform of the traditional command economy is regarded as a turning point in the history of the PRC, with a profound impact on management and HR practices in the industrial sector, it is necessary to understand the two major components of the command economic system (a centralized planning system and a socialist ownership structure), the transition of the economic system since the reform in the late 1970s, changes in ownership structure and government regulation of HR practices, and the consequent impact on management practices, especially HR practices. These issues are addressed in Chapter 2, which also compares the pre-reform personnel and labour administration with current HRM in terms of the categorization of human resources and a range of HR practices. A traditional PRC model of personnel and labour administration (built up from a literature review) is presented, which is in contrast to the HRM model proposed in the last chapter.

The research methodology of this study is detailed in Chapter 3. It includes the rationale for adopting both qualitative and quantitative approaches in the research, and discusses the design and conduct of four major case studies in 1995 and two questionnaire surveys 1994–5 and 2001–2 in China that examined HR practices. The results of four case studies are presented in Chapters 4, 5, 6 and 7. Each of these chapters focuses on an enterprise with a different type of ownership, ranging from state-owned enterprise (SOE) to collective-owned (COE), private-owned (POE) and foreign-invested enterprise (FIE). These four major case studies have similar objectives, that is, to examine past and current HRM in the enterprise with respect to six major HR practices (i.e. human resource planning; recruitment and selection; performance appraisal; compensation and welfare; training and development; and labour relations); to explore the impact of ownership type on HR practices; and to analyse probable paths of HRM development in the future.

While Chapters 4–7 provide qualitative results, Chapter 8 presents quantitative data obtained from surveys conducted in 1994–5 and 2001–2. The survey questionnaire is based on the work of Von Glinow and colleagues on best international HRM practices (see Geringer et al., 2002; Teagarden et al., 1995). It investigates the status quo of the HR function/department and the existence of HR activities in the industrial enterprises, examines the extent to which HR activities were conducted and were expected to be conducted in the future, explores the impact of ownership type on HR activities, and analyses future probable paths of HRM development.

In Chapter 9, the research findings obtained from both the qualitative case studies and quantitative surveys are analysed and discussed in relation to the research questions posed above. The comparative analysis across the four cases and surveys enables an integration of research findings obtained from different research methods. Implications of the research findings are drawn with regard to government regulation of enterprises, contribution to the literature on Chinese HRM, and HRM practices in China. This final chapter concludes with a strong indication that a role for HRM is emerging in China, albeit one still in transition along with the economic system.

2	Economic reform and its impact on HR practices

Since the late 1970s China has been going through a transition which has resulted in significant changes in the economic system and management practices. This chapter first reviews briefly the transition of the economic system and changes in the ownership structure in China. It then examines the impact of economic reforms on HRM in the industrial sector by comparing the pre-reform personnel and labour administration with current HR practices.

TRANSITION OF THE ECONOMIC SYSTEM AND CHANGES IN OWNERSHIP STRUCTURE

The economic system and ownership structure during Mao’s regime

After the PRC was founded in 1949, the Maoist Chinese model was developed and maintained until the comme...

Table of contents

• Cover
• Halftitle
• Title
• Copyright
• Dedication
• Contents
• List of figures
• List of tables
• Acknowledgments
• Preface
• 1 Introduction
• 2 Economic reform and its impact on HR practices
• 3 Research methodology
• 4 Case study 1: HR practices in a state-owned enterprise (SOE)
• 5 Case study 2: HR practices in a collective-owned enterprise (COE)
• 6 Case study 3: HR practices in a private-owned enterprise (POE)
• 7 Case study 4: HR practices in a foreign-invested enterprise (FIE)
• 8 Surveys of HR practices in Chinese industrial enterprises
• 9 The role of HRM in transition
• Notes
• Appendix I: Case study interview questions
• Appendix II: Survey questionnaire
• Glossary
• References
• Index