After two decades of transition, the architects of the reforms have established about 700 new national laws and more than 2,000 new local laws. These legal changes, added regulations, and experiments with new economic institutions have driven the reform process. A number of laws and policies in the 1980s laid the groundwork for a new set of policies that would redefine labor relations in fundamental ways. For example, the policies that set in motion the emergence of labor contracts in China were first introduced in an experimental way in 1983, further codified in 1986, and eventually institutionalized with the Labor Law in 1994. While there are economic incentives behind Chinese firms’ willingness to embrace labor contracts, including the end of lifetime employment, these institutional changes have gradually rationalized the labor relationship, eventually providing a guarantee of due process in the event of unfair treatment and placing workers’ rights at the center of the labor relationship. Incremental changes such as these have been crucial to the evolution of individual rights in China.

The obvious and most common response to these changes is that they are symbolic rather than substantive, that a changing legal and policy framework has little meaning when an authoritarian government still sits at the helm. Yet the scholarship that has looked extensively at the impact of these legal changes largely belies this view. Workers and managers take the new institutions seriously and recognize that the institutions have had a dramatic impact on the structure of authority relations and on the conception of rights within the workplace.

Other research shows that legal and policy changes that emphasize individual civil liberties are also significant. In the most systematic and exhaustive study to date of the prison system, research shows that changes in the treatment of prisoners have indeed resulted in the wake of the Prison Reform Law. And although no scholarship has been completed on the National Compensation Law, it is noteworthy that 97,569 suits were filed under this law against the government in 1999, a proportional increase of over 12,000 percent since the beginning of the economic reforms. These institutions guarantee that, for the first time in the history of the People’s Republic of China, individuals can have their day in court, even at the government’s expense.

The 1994 Labor Law and the Labor Arbitration Commission (LAC), which has branches in every urban district, work hand-in-hand to guarantee workers their individual rights as laborers. Chapter 10 of the Labor Law, entitled “Labor Disputes,” is specifically devoted to articulating due process, which laborers are legally guaranteed, should a dispute arise in the workplace. The law explicitly explains the rights of the worker to take disputes to outside arbitration (the district’s LAC) should the resolution in the workplace be unsatisfactory to the worker. Further, many state-owned enterprises have placed all of their workers on fixed-term labor contracts, which significantly rationalize the labor relationship beyond the personalized labor relations of the past. This bundle of changes has fundamentally altered the nature of the labor relationship and the mechanisms through which authority can be challenged. For more than a decade, it has been possible for workers to file grievances against superiors and have those grievances heard at the LACs. In 1999, 52 percent of the 120,191 labor disputes settled by arbitration or mediation were decided wholly in favor of the workers filing the suits. These are official statistics from the Chinese government, and therefore should be viewed skeptically. However, even if the magnitude is incorrect, these numbers illuminate an important trend toward legal activity regarding workers’ rights.

Many of these changes in labor practices were not originally adopted with workers’ rights in mind, but the unintended consequence of the changes has been the construction of a regime of labor relations that emphasizes the rights of workers. For instance, extending the example of labor contracts that were being experimented with as early as 1983, these were originally intended as a form of economic protection for ailing enterprises, allowing a formal method of ending lifetime employment. However, workers began using the terms of employment codified in the contracts as the vehicle for filing grievances when contractual agreements were not honored. With the emergence of the LACs in the late 1980s and the further codification of these institutions in the Labor Law, the changes that were in progress became formalized in a set of institutions that ultimately benefited workers in the realm of rights. In a similar way, workers’ representative committees were formed in the state’s interest, but became an institution workers claimed as their own. These institutions, which many managers refer to as “our own little democracy,” were adopted early in the reforms to co-opt the agitation for independent labor unions. These committees do not have the same power or status as independent labor unions in the West, but workers have made them much more significant in factories today than they were originally intended to be.

Foreign Investment’s Impact

At the firm level, there is a process of rationalization in which firms are adopting a number of rational bureaucratic systems, such as grievance filing procedures, mediation committees, and formal organizational processes, that are more often found in Western organizations. In my own work on these issues, I have found that joint venture relationships encourage foreign joint ventures to push their partner organizations to adopt stable legal-rational structures and systems in their organizations. These stable, legal-rational systems are adopted to attract foreign investors, but have radical implications for the structure of authority relations and the lives of individual Chinese citizens. Chinese factories that have formal relationships with foreign, and particularly Western, firms are significantly more likely to have institutionalized formal organizational rules, 20 times more likely to have formal grievance filing procedures, five times more likely to have worker representative committee meetings, and about two times more likely to have institutionalized formal hiring procedures. They also pay about 50 percent higher wages than other factories and are more likely to adopt China’s new Company Law, which binds them to abide by the norms of the international community and to respect international legal institutions such as the Chinese International Economic Arbitration and Trade Commission. Many managers openly acknowledge that the changes they have set in place have little to do with their own ideas of efficient business practices and much more to do with pressure brought on them by their foreign partners. Thus, there is strong evidence that foreign investment matters for on-the-ground change in China.