2

Human Resource Management in China

Fang Lee Cooke

Introduction

Despite a history of more than 5,000 years, the People’s Republic of China (under the control of the Chinese Communist Party) has a history of just over 60 years. It is within this period that the current employment system and the current labour relations system were established, undergoing transformation since the mid-1980s as part of the radical economic reform. The assessment of the evolution of the personnel management/human resource management (HRM) practices of the country needs to be situated within this broader context of historical changes of key institutions.

In this chapter, we first review major changes in the HRM practices in China. We then examine key legislative, social, cultural and business factors influencing HRM policies and practices, such as recruitment, training, performance management and reward. We also evaluate the extent to which the HR function may have evolved from a personnel administration function to a more strategic role in line with what is prescribed in Western HRM literature. The chapter then contemplates key challenges facing HRM in China, notably the issues of motivation-performance-reward; skill shortage and its associated problems of recruitment, retention and training; and the absence of strategic HRM. The chapter finally explores the implications of all of these for the HRM function in the near future.

Historical Development of Personnel/Human Resource Management

The personnel management system in China was set up in the early 1950s after the founding of the Socialist China in 1949. For the first three decades until the opening up of the economy in 1978, the system was highly centralised under the state-planned economy regime. Personnel management during this period exhibited two major features in terms of its governance structure and the content of the personnel policy.

First, personnel policy and the practice of organisations were strictly under the control of the state through its regional and local labour departments. Centralisation, formalisation and standardisation of the personnel policies and practices were the primary tasks of the then Ministry of Labour and Social Security (responsible for manual workers) and the Ministry of Personnel (responsible for clerical, professional and managerial staff) – these two ministries were merged into the Ministry of Human Resources and Social Security in 2008. The state not only determined the number of people to be employed and the sources of recruitment but also unilaterally set the pay scales for different categories of workers. State intervention was also extended to the structure and responsibility of the personnel function at the organisational level. Managers in the latter largely assumed an administrative role to implement policies from the top under rigid policy guidelines (Child, 1994).

Second, for the majority of the urban workers, employment was imperative as an obligation to the country. A job was for life. Wages were typically low but heavily supplemented by a broad range of workplace benefits, including housing, pension, health, children’s schooling, transportation to and from work and employment for spouses and school-leaving young people, as part of the responsibility of the ‘nanny’ employer (Warner, 1996, p. 33).

Major changes began in the early 1980s. The opening up of the economy and the ensuing rounds of downsizing in the state sector until the end of the 1990s led to the divergence of ownership forms and the significant shrinkage of the state sector in the share of total employment. For example, in 1978, the state sector employed nearly 80 per cent of the urban workers. By 2009, this had reduced to less than 21 per cent (National Bureau of Statistics of China, 2010).

The shift from state ownership towards private ownership and the rapid growth of foreign-invested firms in China have brought major changes to the patterns of personnel management and industrial relations at both the macro level and the micro level (see below). The socialist employment and welfare regime characterised by full-time employment and extensive welfare benefits as the rights for those employed in the urban sector was gradually replaced by a situation in which employment is no longer guaranteed and welfare is largely insurance-based.

Within the state sector, from the mid-1980s the managers of enterprises were given more autonomy to manage their businesses (Child, 1994). The ‘three systems’ reforms were implemented in most (state-owned) organisations in the mid-1990s, those being: fixed-term individual and collective labour contracts instead of jobs-for-life; new remuneration systems to reflect performance, position and skill/competence level; and new welfare schemes in which all employers and employees are required by law to make contributions to five separate funds: pension, industrial accident, maternity, unemployment and medical insurance (Warner, 1996). The new welfare system is intended to shift the huge financial burden from the state employer towards individual employees. In addition, a system called ‘competing for the post’ was introduced in the mid-1990s in which employees would be assessed (through tests) once a year on their competence to work (Cooke, 2005). Those who came last would be laid-off and would receive training to increase their competence while they were waiting for a post. These changes marked the end of state commitment to egalitarianism and the end of workers’ dependence on the state (for example, Hassard et al., 2007; Lee, 1999). They have also led to fundamental changes in the psychological and social contracts of the state sector workers.

In the next section, we examine the macro level factors that influence the HRM policies and practices adopted by firms in different ownership forms. We assess the role of the key institutional actors and their interactions in shaping the policies and practices. We also highlight the enduring role of societal culture in the configuration of HRM practices and how their affect may be contingent upon the demographic characteristics of the employees.

Key Factors and Actors Shaping HRM Policies and Practices

Following three decades of economic and social policy reform, the Chinese economy has been transformed from a state-planned economy to one that is market-driven, government-controlled and guanxi (relationship)-based (Si, Wei and Li, 2008). The creation of the external labour market and the conditions under which it was created and under which it operated has not only attracted millions of surplus rural labour to the urban area to seek employment but also enabled employers to take advantage of this readily available labour force by offering sub-quality jobs without penalty (see Table 2.1). After years of single-minded pursuit of economic growth at the expense of environmental protection and workers’ well-being, the Chinese government is now turning its attention to improving workers’ employment rights and levels of incomes in the hope of reversing the trend of widening inequity and the consequent rising level of social unrest.

Meanwhile, the one-child policy enforced by the government since the early 1980s and improved living standards in the rural areas have caused labour shortages in the Eastern developed areas, particularly in the export manufacturing zones. The increased level of awareness of their labour rights among the younger generation of Chinese workers has led to a string of self-organising and spontaneous industrial actions in foreign-funded plants across the country. These actions present a direct challenge to the global production sector and force employers to readjust their employment practices with respect to immediate concerns and to rethink their labour strategy for the longer term. More significantly, the series of high-profile strikes and protests in 2010 signals an important power shift towards labour and marks the beginning of the end of the era of cheap manufacturing in China. More broadly, the labour market has been transformed from a once rigid internal labour market with restricted labour mobility to a more fluid external labour market that favours those who possess desirable skills and educational qualifications, leading to immense challenges for many firms in terms of talent attraction and retention.

As summarised in Table 2.1 with simplification, there are significant differences (and some similarities) in the types of HRM policies and practices adopted by firms in managing workers at the two ends of the labour market spectrum. With competition intensifying, the polarisation of employment conditions and outcomes between these groups of workers is likely to continue, with widening gaps, despite efforts by the state to reduce social inequality.

The Role of the State

State intervention in shaping HRM policies and practices is universal to all countries, although the level and forms of intervention may differ across states and over time. State intervention often takes two forms: i.) direct intervention through HRM laws and regulations and ii.) soft or normative intervention through government-led initiatives and campaigns aimed to promote certain desirable HRM practices and managerial behaviour (for example, Martinez Lucio and Stuart 2004). The effectiveness of both forms of intervention varies but should never be over-estimated. This is particularly the case in the latter due to ‘the lack of enforcement powers’ of the state (Mellahi, 2007: 87).

In China, the change of government leadership to Premier Wen Jiabao and Chairman Hu Jintao in 2003 marked the beginning of the pursuit of an economic development policy that emphasises social justice, social harmony and environmental protection. This is a significant departure from an efficiency-driven economic development policy pursued by their predecessors typically influenced by the economic thinking of Deng Xiaoping – the architect of modern Chinese economic development. As part of the reform, visible changes can be seen in the role of the Chinese state in the employment sphere, for example, from a dominant employer to a regulator. Its intervention approach is also becoming more sophisticated, from the heavy dependence on administrative regulations towards a combination of legislation, standard setting, best practice sharing and the promotion of ‘progressive’ HRM practices and corporate social responsibility (CSR). In addition, the state has been mobilising other institutional actors in more subtle and strategic ways in order to promote, with a level of success, certain HRM practices and managerial behaviours.

There are two main objectives in the state intervention in employment relations and HRM practices in China. One is to facilitate enterprises to establish harmonious employment relations as part of an agenda to build a harmonious society (Li and Xiang, 2007; Warner and Zhu, 2010). The other is to combat the problem of severe skill shortage and raise the skills level of the workforce in order to enhance the competitiveness of the nation through innovation and high value-added production. This includes raising the level of management competence, raising professional standards and improving craft skills. In order to fulfil these objectives, a number of labour regulations and state-led human resource management and development initiatives have been launched. They are implemented via other institutional actors in coercive, directive, cooperative and voluntary manners (see Table 2.2).

Trade Unions

Trade unions are an important institutional actor in employment relations. Only one trade union is recognised by the Chinese government – All-China Federation of Trade Unions (ACFTU). The ACFTU is one of the eight ‘mass organisations’ (non-government organisations) in China that operate under the leadership of the Chinese Communist Party (see Warner, 2008; Cooke, 2012b for detailed discussion). Like many other trade unions in the socialist regimes, the primary function of the grassroots ACFTU organisations during the state-planned economy period was to facilitate the enhancement of productivity by participating in the democratic decision-making and organising skill developments of the workers. They also assumed the social actor role by engaging in the education and moral teaching of workers and by providing workplace welfare services in the state sector. They provided essentially the extended HR function in state-owned firms.

As China’s economic transformation deepened from the mid-1980s, the function of the trade unions broadened to include their legal role in representing workers in the collective negotiation of contracts and terms and conditions, and in tripartite consultations and the delivery of welfare and other services. ACFTU grassroots organisations become an active labour market broker, providing training and employment services to displaced state sector workers as well as rural migrant workers. They are responding to, albeit belatedly and slowly, the changing nature of employment relations by adopting new initiatives and strategies to organise the workers, with particular reference to the rural migrant workers.

In conjunction with high-profile national campaigns backed by the state, two major strategies have been adopted by the trade unions to organise migrant workers. One is ‘workplace organisation’, that is, to gain recognition at the workplace and then unionise the workers with the support of the company. However, gaining employer recognition remains a difficult task given the persistent resistance of private firms. The other way of organising is ‘distant organisation’, that is to recruit migrant workers (those already in employment or who are seeking jobs) outside the workplace with services packages, such as free training and job referral, as inducement. This is usually carried out by operating in the labour market and in ways similar to what Kelly and Heery (1989: 198–9) classify as a ‘distant expansion’ recruitment strategy.

However, these organising techniques are essentially logistic innovations, whereas the key issue here is for the trade union to gain power and to be able to prevent rampant exploitation and mistreatment at the workplaces. Without recognition by the employer, union effectiveness is questionable as it is more difficult for the union to represent workers collectively outside the workplace. In addition, workers’ dependence on the trade union and union impact are likely to be weakened where union organising attempts are duplicated and diluted by other functional bodies offering similar services in the labour market. While this service-oriented mode of organising has some tangible effects in increasing union memberships, rural migrant workers may be unionised but not necessarily organised in the strict sense.

Political, institutional and organisational constraints determine how far the ACFTU can make changes (Liu, Li and Kim, 2011) in view of its utmost responsibility to the Party-state in maintaining ‘social harmony’ by containing labour unrest. As Warner (2008) observed, the ACFTU plays multiple and at times conflicting roles, including being labour market actors, vehicles of anti-capitalist mobilisation and agents of social integration. The absence of legality of collective actions in the collective negotiation, collective consultation and collective agreement process (Feng, 2006) is perhaps the biggest constraint of the ACFTU in representing workers. Not surprisingly, existing studies on the Chinese trade unions have mostly been critical of their institutionally incapacitated position and operational inefficacy (for example, Clarke, 2005; Hishida et al., 2010; Taylor, Chang and Li, 2003). This inefficacy image of the trade union decays into a more grotesque one when grassroots union officials play an active role in preventing strike actions from the workers. For example, during the strikes at the Honda plant in Foshan in 2010, ten trade union officials tried to physically shut down the workers’ picket line, although a thin apology from the local government was made afterwards (Watts, 2010). This suggests that peace keeping rather than defending workers’ rights is the main priority of the trade unions’ function.

In spite of the widely held view of the ineffectiveness of the grassroots unions, research findings show that the Chinese workers believe that it is necessary to have trade unions (for example, Cooke, 2011a; Nichols and Zhao, 2010). In other words, workers are supportive of the idea of unionism and the associated ideology of collectivism and representation to safeguard their rights and interests. They are not necessarily critical of the union officials/representatives as individuals. Rather, they are critical of the powerless position of the trade unions in fighting for their rights and interests. In workplaces where workers are satisfied with their work environment and pay and conditions and where union representatives play an active role in organising welfare services and social events, employees actually hold positive views of the trade unions and desire more services from them (Cooke, 2011a). It is reasonable to suggest that the social function of the trade unions remains beneficial to enhancing employee satisfaction and productivity. As this function does not present any challenge, employers are receptive to this role of the trade unions.

Employment Agencies

Despite being in existence for more than two decades (see Xu, 2009 for an overview), employment agencies represent a relatively new institutional actor in shaping HRM practices in China, although their role in the labour market is not always positive. An understanding of the role of employment agencies will shed light on the HRM policies and practices adopted by firms.

The majority of employment agencies and job centres have been set up by, or under the auspices of, the local governments since the mid-/late 1990s to provide services at the lower end of the labour market. In 2009, there were 37,123 employment agencies nation-wide. The number of employees working in the employment agencies increased from 84,440 in 2001 to 126,000 in 2009 (National Bureau of Statistics of China, 2002, 2010). This significant growth was a response to the large-scale downsizing in the state sector, the continuous inflow of rural migrant workers to urban areas to seek employment and the growing number of unemployed school leavers and college graduates (Li, Xu and Zhu, 2006). The employment agency industry is highly unregulated (Li, Xu and Zhu, 2006). They are governed mainly by administrative regulations issued at the local level and implemented with considerable discretion. Agency workers normally register with the employment agency for work. They only enter an employment relationship with the agency firm when they are sent to work in client firms (Li, Xu and Zhu, 2006). It was anticipated (by the state) that the enactment of the Labour Contract Law in 2008 would see the reduction of those hired by employment agencies, promoting a more direct and stable employment relationship between the worker and the firm. The reality so far has been a stark contrast. To pre-empt the negative impact of the new law on employment cost, many employers dismissed their long-serving workers and rehired them under new temporary contracts. Others dismissed their workers and rehired them as agency workers through employment agencies. As a result, employment agencies have prospered and the number of workers registered with employment agencies continues to grow. Agency workers often receive lower wages and much less social security protection than employees of the user firms. And agency employment is becoming a major form of labour deployment, contrary to the objective of the Labour Contract Law.

HR Consultancy Firms and Outsourcing Providers

Not all employment agencies are controlled by the state or private firms; neither are employment agencies confined to the lower end of the labour market. The opening up of the labour market to foreign-owned HR businesses has led to the growth of foreign-owned recruitment/head-hunting agencies and HR consultancy firms in China. In 2002, the Chinese government issued the ‘Regulation on Talent Market Management’, which allows foreign-owned employment agency firms to enter the Chinese market and provide services, initially through the joint venture of Sino-foreign employment agencies (Zhou, 2002). The entrance of well-established foreign-owned HR operators facilitated the creation of an HR outsourcing/consulting market, albeit one that is still in its infancy. Together with multinational corporations in other industries, they play an important role in trend-setting and raising the HR standard and competence level of the country in a short period of time, given the low starting point of the profession. Western-originated HRM practices, such as assessment centres for recruitment and promotion, 360-degree appraisals and performance management systems, coaching and mentoring, work–life balance initiatives and HR outsourcing (see Table 2.2), are now becoming popular among Chinese firms. However, transferability remains the key challenge, as shown in the chapters that follow. The enactment of the Labour Contract Law and the Labour Disputes Mediation and Arbitration Law in 2008 also created opportunities for HR consultancy firms to provide administrative and legal services for firms that are keen to avoid operational hassles and that lack the legal knowledge required. In short, despite being in an embryonic form and, as private agencies with limited influence, HR consultancy firms and outsourcing providers can be seen as an emerging institutional actor in shaping HRM practices. As the HR consultancy and outsourcing industry becomes more developed, these firms are likely to help create some form of isomorphism in the development and implementation of HRM techniques in China.

The Role of Societal Culture

According to Westwood, Chan and Linstead (2004: 365), employment relations in western economies ‘are characterized by a model of impersonal rational economic exchange’, whereas ‘Chinese employment relations remain more fully embedded in the wider socio-cultural system of which reciprocity is a vital and integral part’. For example, employee care in exchange of obedience to the authority is part of the paternalist reciprocal expectations. Studies of the organisational behaviour of Chinese employees and managers has revealed some interesting differences between them and their counterparts in other countries, indicating the influence of culture in moulding these behaviours. For example, in their comparative study of employees in Germany, Romania and China on the influence of cultural differences on employees’ commitment and its impacts, Felfe, Yan and Six (2008: 230) observed that ‘employees with a collectivistic orientation appreciate being part of a group and have a stronger striving to belong to a social entity’. This desire of social belonging fosters positive relationship-building behaviours in the organisation and ‘leads to a stronger affective commitment’ (Felfe, Yan and Six 2008: 230). Felfe, Yan and Six (2008: 230) also found ‘a clear relationship between collectivism and normative commitment’ and argued that ‘persons who generally tend to accept norms, obey rules, and value loyalty to the group also experience a stronger duty and obligation to fulfil organizational requirements’. Similarly, Wang’s (2008: 916) study that investigated ‘the contribution of the emotional bond a Chinese worker has with his supervisor and with his co-workers in accounting for employees’ organizational commitment in foreign-invested enterprises’ highlighted the importance of ‘personal relationships in shaping the linkage between employees and firms in China’.

Despite the prevalence of Chinese traditional culture, the cultural distance between Western societies and China is shrinking in part due to globalisation. Chinese employees’ cultural values and personal goals are evolving as the economic and social reform of the country deepens. This is especially the case for the younger generation of the workers who were born and raised in the reform period.

The Influence of Demographics on HRM Outcome

Age and gender are important factors for career opportunities and labour market outcomes of individual workers. They also influence the perception of individual employees with respect to HRM practices in the organisation. For instance, Li, Liu and Wan’s (2008) survey of 316 Chinese employees found that older workers, managers, better educated workers and male employees tend to hold higher work values than younger, less well educated, non-managerial and female workers. This finding has important implications for employers because many of them tend to discriminate against older workers during recruitment and in the selection for redundancy without realising the extra value they may get from the older workers. Li, Liu and Wan’s (2008) study further revealed that neither generation of the workers feel satisfied because the younger employees recognise that they are often considered less experienced and the older employees are led to believe that they are of less value to the organisation. In a similar vein, Qiao, Khilji and Wang’s (2009: 2,311) study of 1,176 workers in six manufacturing firms in two Chinese cities revealed that the perceived existence of high-performance work practices is correlated with organisational commitment. In particular, ‘age, marital status, and education, but not gender, correlated significantly with organizational commitment’; and interestingly, ‘male and unmarried Chinese employees were significantly more affected by the existence of HR practices than female and married employees’ (Qiao, Khilji and Wang, 2009: 2,311).

By contrast, Peng et al.’s (2009) study of 582 employees in Beijing showed significant gender differences in organizational commitment with women displaying a lower level of commitment than their male counterparts. Women informants in this study clearly felt a level of discrimination. They were assigned to less challenging tasks and were ‘engaging in a low level of leader–member exchange’ (Peng et al., 2009: 323). It is this perceived discrimination and lack of opportunities, rather than their marital status and family commitment, which contributed to female employees’ lower level of organisational commitment relative to their male counterparts. It is clear that organisations that wish to enhance their competitiveness through effective HRM need to develop HRM practices that are sensitive to demographic differences in their workforce.

The Role of HRM and the HR Function

Given the significant changes in the labour market environment and challenges to talent management, are Chinese firms becoming more strategic in managing their human resources? Are we witnessing a level of convergence of HRM practices in Chinese firms towards the Western-originated HRM practices? Has the role of the HR function and HR personnel become more strategic and professional in recent years? We discuss these issues in this section.

Towards a Strategic Approach to HRM

Earlier studies of HRM in Chinese firms found that they tended to be less strategic than their Western counterparts in their approach to HRM (for example, Child, 1994). As the competition for talent intensified, Chinese firms are reported to have become more strategic in linking their HRM practices to organisational performance (for example, Wei and Lau, 2005; Wang, Bruning and Peng, 2007). They are now more market-oriented, with growing evidence of adaptation of Western HRM techniques (for example, Zhu and Dowling, 2002).

Studies by Wei and Lau (2005) and Wang, Bruning and Peng (2007) found that the differences in key HRM practices among firms of different ownership forms in China are diminishing, indicating a trend of convergence in the HRM practices adopted by foreign-invested and Chinese-owned firms. There is a continuing trend and increasing movement away from the traditional Chinese HRM practices to the Westernised HRM practices, and the gaps in the HR competence between Chinese-owned private firms and MNCs are closing. In addition, Wang, Bruning and Peng (2007: 699) found that ‘while foreign-invested companies emphasize humanistic goals the most, it was private-owned enterprises that linked these goals most tightly with the high-performance HR practices’. This is in spite of the fact that they have adopted fewer high-performance HRM practices than the foreign-invested companies.

Evidence from a number of studies as cited above and elsewhere (for example, Warner, 2009) suggests that HRM practices in China are, in general, becoming more mature, systematic, relevant to organisational needs and a reflection of the labour market trends. These include, for example, the adoption of more sophisticated recruitment methods such as assessment centres and psychometric tests; the introduction of mentoring and coaching schemes; and the use of performance management systems and employee financial participation as a high-performance, but not necessarily a high-commitment, model of HRM (see Table 2.2). In addition, there is evidence that well-performing domestic private firms are adopting commitment-oriented HRM practices (for example, Ngo, Lau and Foley, 2008). The ability of the private firms to understand and align their HR strategy with the employees’ expectation appears to be a crucial factor in managing talent effectively. This expectation is shaped by the need for personal growth. It is also informed by the deeply embedded traditional Chinese cultural values on the one hand and the emerging (modern) values of materialism and social elitism on the other. Social elitism is a Confucian value that had been suppressed during the first four decades of egalitarian socialism.

The Role of the HR Function

Despite growing evidence of the adoption of more strategic HRM practices, the role of the HR function in China remains far from being strategic and effective. For example, Cooke’s (2012a) interviews with senior managers from 65 well-performing private firms in 2007–08 found that at least 16 firms did not have a formal set of HR policies in place. Eight managers reported that there was a formal set of HR policies but it was not effective. While a handful of managers believed that their firm had a strategic approach to HRM, few could articulate what that meant. A number of managers saw the absence of a comprehensive set of HR policies as a barrier to effective HRM in their firm. In addition, there was a broad consensus among those interviewed that line managers lacked people management skills. Insufficient understanding of the importance of HRM by line managers and the deficit of HR professional skills were commonly reported as the major stumbling block to talent management. Some managers also reported that the HR department had little power and was too much influenced by the business departments. There was a consensus that the HR department merely played a supporting role ‘to execute the top management thinking’. They became the scapegoat when HR plans failed. The remarks below summarise the perceived inadequate role of the HR departments:

The lack of strategic importance and competence of the HR function has a direct impact on the resources allocated for HR activities. For example, a career development planning scheme was introduced in a wine-making company. According to the manager interviewed, each employee was given opportunities to have private conversations with their line manager every month to review their performance and to identify development needs. The effect was good but, unfortunately, the scheme ended after one year due to the lack of funds (Cooke, 2012a).

Key Challenges Facing HRM

HRM in China faces some major challenges. These include, for example, skill shortages and the related problems in talent management; the alignment of HRM practices with the demands and needs of the younger generation of employees whose work ethics and career aspirations have diverged from that of the older generation of workers; and the need to professionalise the HR function. In this section, we outline some of these challenges.

Skill Shortages and Talent Retention

The challenge to recruiting, developing and retaining managerial and professional talent in China has been widely noted (for example, Dickel and Watkins, 2008). Foreign MNCs and privately owned Chinese firms alike are facing difficulty in attracting and retaining managerial and professional talent due to the shortage of their supply at the national level. Talent shortage has become the bottleneck of business growth for many firms. Despite the fact that China is now producing about three million university graduates each year at home in addition to thousands of graduate returnees from abroad, the skill shortage problem is exacerbating. For example, a study of Chinese graduates returning from their overseas education revealed that half of them had no formal work experience – a major constraint for their employment opportunities. Only half of the companies were satisfied with the performance of their overseas returnee employees. Employers from industries that require China-specific knowledge, such as real estate, construction, consultancy, legal, finance and banking, and manufacturing were far less satisfied with their returnee employees than employers of other industries.

In addition, foreign-invested companies were less satisfied (less than 30 per cent were satisfied) with their returnee employees compared with state-invested firms (more than 60 per cent were satisfied) (cited in Development and Management of Human Resources, 2008).

Acute skill shortage encourages both employers to poach talent and individuals to make demands with job quit threats. In order to attract and retain talent, many firms have reported that they have to offer job candidates job titles, salaries and responsibilities that are well beyond their current capability and level of experience (for example, Cooke 2012a). A study conducted by Manpower in China revealed that two-thirds of respondents made their job move for better career development opportunities. Only 15 per cent of respondents indicated that their main reason for leaving was the prospect of better pay and benefits (Arkless, 2007). However, other research studies revealed that pay is actually far more important in people’s job choices and behaviours than we are led to believe and that financial reward is one of the most important factors in retention and motivation in China (for example, Chiu, Luk and Tang, 2002). Nevertheless, career development opportunities, training programmes, mentoring and a positive working environment remain crucial in attracting and retaining talent.

Training and Development

Paradoxically, to train or not to train to develop their key employees is a major issue that troubles employers. Many managers interviewed by the author expressed the dilemma of whether to invest in training their key staff or not. Many firms are cautious in spending money on training for fear of staff turnover. This has resulted in insufficient training provided to employees. For example, Yang and Li’s (2008) study found that a significant proportion of university graduate employees in the Beijing area had never received any training from their employer due to the latter’s concern about retention problems. Judging from job advertisements and the recruitment behaviour of firms, we can see that employers prefer to recruit those who are ready trained, with at least two or three years of work experience. For firms that have graduate training programmes in place, the quality of the trainees may be less than satisfactory. For example, a CEO of a large private firm interviewed by the author in 2008 believed that the one-child policy enacted in the 1980s by the Chinese government to control the population growth has produced a generation of young people (known as the ‘post-80 generation’) who are spoilt by their family, dependent, incompetent, inexperienced and unwilling to endure hardship but who are eager to have early success. Firms have to inflate job titles and pay well above the competence/experience level of the young employees for retention.

Performance Management and Rewards

Performance management and performance-based reward is perhaps one of the most challenging HRM functions reported by firms (see Cooke, 2012a for more discussion). Chinese employees in enterprises are becoming more receptive towards performance-oriented rewards and welcome career development opportunities through the implementation of a performance management system. However, the implementation of such a system in China is challenged by a number of factors that are generic or cultural-specific. In particular, Chinese cultural values seem to have a profound and enduring influence throughout the various stages of the performance management system. In general, the traditional performance appraisal system in China is reward-driven (that is, it focuses on retrospective performance) and tends to focus on the person’s behaviour. By contrast, the performance appraisal system promoted in Western HRM literature takes a developmental approach (that is, prospective performance oriented) and focuses on the alignment between individual performance and organisational goals. The adoption of the Western approach in China is further hampered by the lack of strategic orientation of many Chinese firms and the deficiency of HR skills to design and implement an effective performance management system.

As noted earlier, pay remains an important factor in the Chinese labour market that is sensitive to skill and unemployment levels. Pay determination is perhaps the most crucial and challenging aspect of HRM that firms have to grapple with in attracting and retaining talent. Research evidence suggests that firms are primarily rewarding existing performance instead of investing in their employees for development and future productivity gains. This short-term orientation of the reward strategy is not conducive to human capital development for both the individuals and the firm in the long term. Research evidence suggests that many private firms are still non-strategic in their reward management and that their motivational mechanisms are simplistic, non-systematic and lack varieties and perceived fairness. There is insufficient consideration of what employees desire in order to match the reward practices with their expectations (for example, Ding, Akhtar and Ge, 2009). Nevertheless, there are clear signs (for example, Cooke, 2012a) that private firms are beginning to commission market surveys, via HR consultancy firms, to benchmark their wage levels. Moreover, benefits as an important component in employees’ reward packages are used more strategically to elicit higher levels of performance and as a way to control labour cost more flexibly.

However, paternalism and egalitarianism remain two enduring values that influence the reward system. They reflect not just the traditional Chinese cultural values but also the socialist values. Employers are expected not only to take care of their employees but to also do so in a fair manner. As Confucius articulated in his Analects, ‘he is not concerned lest his people should be poor, but only lest what they have should be ill-apportioned’ (Waley, 1995 cited in Wu, 2009: 1,038). There is a strong perception that farmers and workers are underpaid and that ‘senior government officials and executives in large state-owned companies are overpaid by a large amount’ (Wu, 2009: 1,051). And much of the social unrest and discontent has been fuelled by this growing income disparity and distributive unfairness.

Professionalising the HR Function

The role of the HR function/department in the firm has a strong bearing on how strategic the firm views HRM as part of its strategic management. As noted above and reported elsewhere (for example, Zhu et al., 2005), the HR capacity of firms in China remains relatively low. There is limited training and professional development for HR officers. Few of them possess HR qualifications and experience. Most come from the personnel administration background. As a result, HR personnel have little capacity or input in formulating HR strategies and policies, implementing HR initiatives and in aligning the HR outcomes with business performance. Instead, HR issues are often dealt with in a fire-fighting approach.

The absence of a well-developed nation-wide HR professional association in China to date also means that there is no central influence on the HR direction or coordination in the sharing of good HRM practices. By contrast, Western countries such as the United Kingdom, the United States and Australia have well-established HR professional associations that have become international bodies to provide effective forums for research and knowledge sharing among the organised HR professional and academic communities. At the national and organ-isational level, the low capability of HRM is undoubtedly a significant deficiency in the light of the rising number of Chinese-owned national and multinational firms and the important role of strategic HRM to organisational competitiveness.

Conclusions

This chapter has reviewed the development of the personnel/HRM function in China. It examined the role of the state and other key institutional actors in shaping the HRM environment and practices. We also highlighted a number of key characteristics of and challenges to people management during a period of economic and social transformation. There is clear evidence that HRM in China is becoming more strategic, although the capacity is still generally low. There are also signs of adaptation of Western HRM practices on the one hand, but Chinese cultural and social values appear to remain influential on the other.

Useful Websites

51job.com:

www.51job.com/bo/AboutUs_e.php

China Data Online: http://chinadataonline.org/member/yearbooksp/default.asp?StartYear=1981&EndYear=2010&ybcode=CHINAL

ChinaHR.com:

www.chinahr.com

Human Resource Association for Foreign and Chinese Enterprises:www.china-hrm.com/china-hrm-association.htm

Ministry of Human Resources and Social Security of China:

www.mohrss.gov.cn/index.html

Acknowledgements

This chapters draws heavily from Cooke (2012a).

References

Arkless, D. (2007) ‘The China talent paradox’, China–Britain Business Review, June: 14–15. Child, J. (1994) Management in China during the Age of Reform. Cambridge: Cambridge University Press.

Chiu, R., Luk, W. and Tang, T. (2002) ‘Retaining and motivating employees: Compensation preferences in Hong Kong and China’, Personnel Review 31(4): 402–431.

Clarke, S. (2005) ‘Post-socialist trade unions: China and Russia’, Industrial Relations Journal 36(1): 2–18.

Cooke, F. L. (2005) HRM, Work and Employment in China. London: Routledge.

Cooke, F. L. (2011a) ‘Gender organizing in China: A study of female workers’ representation needs and their perceptions of union efficacy’, International Journal of Human Resource Management 22(12): 2,558–2,574.

Cooke, F. L. (2011b) ‘Unions in China in a period of marketization’, in G. Gall, R. Hurd and A. Wilkinson (eds) International Handbook on Labour Unions: Responses to neo-Liberalism. Cheltenham: Edward Elgar, pp. 105–124.

Cooke, F. L. (2012a) Human Resource Management in China: New Trends and Practices. London: Routledge.

Development and Management of Human Resources (2008) ‘Review’, Development and Management of Human Resources 10: 4.

Dickel, T. and Watkins, C. (2008) ‘To remain competitive in China’s tight labour market, companies must prioritize talent management – and track compensation trends’, China Business Review, July–August: 20–23.

Ding, D. Z., Akhtar, S. and Ge, G. L. (2009) ‘Effects of inter-and intra-hierarchy wage dispersions on firm performance in Chinese enterprises’, International Journal of Human Resource Management 20(11): 2,370–81.

Felfe, J., Yan, W. and Six, B. (2008) ‘The impact of individual collectivism on commitment and its influence on organizational citizenship behaviour and turnover in three countries’, International Journal of Cross Cultural Management 8(2): 211–237.

Feng, G. (2006) ‘The “institutional weaknesses” of enterprise trade unions and their formative context’, Society 26(3): 81–98 (in Chinese).

Hassard, J., Sheehan, J., Zhou, M. Terpstra-Tong, J. and Morris, J. (2007) China’s State Enterprise Reform: From Marx to the Market. London: Routledge.

Hishida, M., Kojima, K., Ishii, T. and Qiao, J. (2010) China’s Trade Unions: How Autonomous Are They? London and New York: Routledge.

Kelly, J. and Heery, E. (1989) ‘Full-time officers and trade union recruitment’, British Journal of Industrial Relations 27(2): 196–213.

Lee, C. K. (1999) ‘From organized dependence to disorganized despotism: Changing labor relations in Chinese factories’, The China Quarterly 157: 44–71.

Li, B. A. and Xiang, S. Q. (2007) ‘Harmonious labour relations: An important foundation of building a harmonious society’, Labor Economy and Labor Relations 6: 40–42 (in Chinese).

Li, W., Liu, X. and Wan, W. (2008) ‘Demographic effects of work values and their management implications’, Journal of Business Ethics 81(4): 875–885.

Li, X. J., Xu, Y. D. and Zhu, J. X. (2006) ‘Employment relationship under the form of employment leasing’, Labor Economy and Labor Relations 1: 5–8 (in Chinese).

Liu, M. Li, C. and Kim, S. (2011) ‘The changing Chinese trade unions: A three level analysis’, in P. Sheldon, S. Kim, Y. Li and M. Warner (eds), China’s Changing Workplace. London: Routledge, pp. 277–300.

Martinez Lucio, M. and Stuart, M. (2004) ‘Swimming against the tide: Social partnership, mutual gains and the revival of “tired” HRM’, International Journal of Human Resource Management 15(2): 410–424.

Mellahi, K. (2007) ‘The effect of regulations on HRM: Private sector firms in Saudi Arabia’, International Journal of Human Resource Management 18(1): 85–99.

National Bureau of Statistics of China (2002) China Labour Statistical Yearbook 2002. Beijing: China Statistics Press.

National Bureau of Statistics of China (2010) China Labour Statistical Yearbook 2010. Beijing: China Statistics Press.

Ngo, H. Y., Lau, C. M. and Foley, S. (2008) ‘Strategic human resource management, firm performance, and employee relations climate in China’, Human Resource Management 47(1): 73–90.

Nichols, T. and Zhao, W. (2010) ‘Disaffection with trade unions in China: Some evidence from SOEs in the auto industry’, Industrial Relations Journal 41(1): 19–33.

Peng, K. Z., Ngo, H. Y., Shi, J. and Wong, C. H. (2009) ‘Gender differences in the work commitment of Chinese workers: An investigation of two alternative explanations’, Journal of World Business 44(3): 323–335.

Qiao, K., Khilji, S. and Wang, X. (2009) ‘High-performance work systems, organizational commitment, and the role of demographic features in the People’s Republic of China’, International Journal of Human Resource Management 20(11): 2,311–2,330.

Si, S. X., Wei, F. and Li, Y. (2008) ‘The effect of organizational psychological contract violation on managers’ exit, voice, loyalty and neglect in the Chinese context’, The International Journal of Human Resource Management 19(5): 932–944.

Taylor, B., Chang, K. and Li, Q. (2003) Industrial Relations in China. Cheltenham: Edward Elgar.

Wang, X., Bruning, N. and Peng, S. Q. (2007) ‘Western high performance HR practices in China: A comparison among public-owned, private and foreign-invested enterprises’, International Journal of Human Resource Management 18(4): 684–701.

Wang, Y. (2008) ‘Emotional bonds with supervisor and co-workers: Relationship to organizational commitment in China’s foreign-invested companies’, International Journal of Human Resource Management 19(5): 916–931.

Warner, M. (1996) ‘Human resources in the People’s Republic of China: The “Three Systems” reforms’, Human Resource Management Journal 6(2): 32–42.

Warner, M. (2008) ‘Trade unions in China: In search of a new role in the “harmonious society”’, in J. Benson and Y. Zhu (eds), Trade Unions in Asia: An Economic and Sociological Analysis. London: Routledge, pp. 140–156.

Warner, M. (ed.) (2009) Human Resource Management ‘with Chinese Characteristics’. London: Routledge.

Warner, M., and Zhu, Y. (2010) ‘Labour–management relations in the People’s Republic of China: Seeking the “harmonious society”’, Asia Pacific Business Review, 16(3): 285–298.

Watts, J. (2010) ‘Chinese workers strike at Honda Lock parts supplier’, guardian.co.uk, Friday 11 June 2010, www.guardian.co.uk/business/2010/jun/11/honda-china, accessed 28 August 2010.Wei, L. and Lau, C. M. (2005) ‘Market orientation, HRM importance and competency: Determinants of strategic HRM in Chinese firms’, International Journal of Human Resource Management 16(10): 19,01–19,18.

Westwood, R., Chan, A. and Linstead, S. (2004) ‘Theorizing Chinese employment relations comparatively: Exchange, reciprocity and the moral economy’, Asia Pacific Journal of Management, 21(3): 365–389.

Wu, X., (2009) ‘Income inequality and distributive justice: A comparative analysis of mainland China and Hong Kong’, The China Quarterly 200: 1,033–1,052.

Xu, F. (2009) ‘The emergence of temporary staffing agencies in China’, Comparative Labor Law and Policy Journal 30(2): 431–462.

Yang, H. Q. and Li, J. (2008) ‘An empirical study of the employment quality of university graduates’, Labor Economy and Labor Relations 2: 87–90 (in Chinese).

Zhou, F. (2002) ‘What does it mean when foreign investors enter the talent market?’, Development and Management of Human Resources 2: 4–6 (in Chinese).

Zhu, C. and Dowling, P. (2002) ‘Staffing practices in transition: Some empirical evidence from China’, International Journal of Human Resource Management 13(4): 569–597.

Zhu, C., Cooper, B., De Cieri, H. and Dowling, P. (2005) ‘A problematic transition to a strategic role: Human resource management in industrial enterprises in China’, International Journal of Human Resource Management 16(4): 513–531.