ESRC Pacific Asia Programme
Award No.: L324 25 3018 Period of Report: 1.1.97-30.9.97
Professor John Hassard Dr Robin Porter
Management Department Politics Department
Keele University Keele University
Keele, Staffs. ST5 5BG
Professor Jonathan Morris Dr Paul Forrester
Cardiff Business School Management Department
Aberconway Building Keele University
Cardiff CF1 3EU
Dr Jackie Sheehan
Amount of Award: £22,000
Aims and Methods of Research:
The project aimed to study the effects of the Contract Responsibility System (CRS) in the Chinese steel industry with particular reference to productivity and performance, employment systems, work organization, and corporate restructuring, using the method of intensive field visits and semi-structured interviewing at selected case-study sites. Following the replacement of the CRS with two new, interconnected reform programmes, the Modern Enterprise System (MES) and Group Company System (GCS), the team switched its attention to identifying the main weaknesses of the CRS and determining to what extent the new reform models might prove more successful in transforming large state-owned steel-makers in China into modern, internationally competitive corporations. At the same time, the Chinese steel industry was compared and contrasted with its counterparts in the Czech Republic, Romania and Britain.
Highlights of the Research and Important Findings:
Our field visits in China this year confirmed that although the introduction of a new corporate structure modelled on that of Western companies (boards of directors, shareholders etc.) is welcomed by most managers as a means of keeping government at arm's length from the corporation's operations, government interference, though reduced, remains a persistent problem for many state-owned enterprises. Shareholding status in most of the plants visited remains in its infancy and changes in power relations and accountability in enterprises are still more potential than actual. Despite the top-level endorsement of shareholding status given by President Jiang Zemin at the 15th Party Congress in September 1997, some informants in the steel industry were reluctant to see this change as a blanket solution for all SOEs, and were in favour of continued experimentation to arrive at the right pace and direction of reform for their particular company.
Several of the Chinese plants visited are doing very well both in Chinese and overseas markets, in a notable contrast to the still-struggling IMGB plant in Bucharest, for example. Where Chinese plants are in difficulties, the reasons are usually historical, having to do with the circumstances of their establishment, accumulated debt, pensions burdens, and/or difficult relations with local or national authorities. Many Chinese plants look to British Steel as their model for workforce reduction and greatly increased efficiency leading to success in the global marketplace, but they are realistic about the additional political constraints they face in shedding workers in a nominally socialist country still lacking a well-developed welfare safety-net. Human resource departments in the Chinese plants have proceeded very cautiously to date, anxious to avoid any threat to social stability from large-scale redundancies of workers who will not quickly be able to find new employment (with the former socialist countries of Eastern Europe and the Soviet Union a negative example), but the scale of the workforce reductions scheduled to take place by 2000, not just in the steel industry, means that this gradualist approach might not be viable for much longer.
In addition to the researchers named above, Mr Xiao Yuxin, formerly of the University of Science and Technology in Beijing, is presently undertaking doctoral research on enterprise reform in China while employed as a GTA in the Management Department at Keele University, and has been assisting with this project. His extensive contacts in the steel industry throughout China have proved invaluable in the arranging of field visits, and his familiarity with the development of enterprise reform in China has also provided useful input to the project.
"Enterprise reform and the role of the state: The case of the Capital Iron and Steel Works, Beijing." John Hassard and Jackie Sheehan. In Ayse Bugra and Behlul Usdiken (eds.), State, Market, and Organizational Form, Walter de Gruyter, 1997.
In preparation: An article on the human-resource implications of the MES and GCS reforms is in the final stages of preparation by Professor Jonathan Morris, and will be submitted to Administration Science Quarterly.
Professor Hassard and Dr Sheehan have agreed to guest-edit a special edition of International Studies in Management and Organizations on state-enterprise reform in China. Confirmed contributors include John Child, Max Boisot, Malcolm Warner, Fred Steward, and Athar Hussain, and the volume will also contain an article by Hassard and Sheehan on the steel industry's MES experiences. The edition will appear in late 1998 or early 1999.
13th International Labour Process Conference (Blackpool, 5-7 April 1995)
"The Contract Responsibility System at the Shougang Steel Works, Beijing" (Hassard, Sheehan, Forrester, Morris, and Porter)
ESF-EMOT Workshop: Dynamics of Industrial Transformation: East-Central European and East Asian Comparisons (Budapest, 4-6 May 1995)
"Contract Responsibility Systems in the Transformation of the Chinese and Central European Steel Industries" (Hassard, Sheehan, Forrester, Morris, and Porter)
12th EGOS Colloquium (Istanbul, 6-8 July 1995)
"From State Control to Enterprise Management: Organizational Restructuring in the Steel Industries of China and the Czech Republic" (Hassard and Sheehan)
ERU Conference (Cardiff, 18-19 September 1996)
"Manufacturing Reform and the State: The Case of the Chinese Steel Industry" (Hassard, Sheehan, Forrester, Morris, Porter, and Xiao Yuxin (School of Management, Keele))
A further paper on employment in the state-owned steel industry has just been accepted for presentation at the 1998 Labour Process conference in Manchester, and a paper has been submitted to the 1998 IFSAM conference in Madrid; outcome not yet known.
Engagement with potential research users:
Engagement with corporate users has been built into the conduct of this research project as well as the dissemination of its results. The selection of our Chinese case-studies has taken account of information and advice from managers at the plants first visited as well as that of academic and government experts on the industry. In interviews and more informal discussions during field visits Chinese managers have welcomed the opportunity to draw on the team's knowledge of corporate organization and the steel industry outside China. Professor Morris's expertise has been particularly appreciated given his extensive knowledge of the industry in Germany and Japan. These two countries have since the 1980s been the main source of advanced imported technology for Chinese steel-makers, but managers are increasingly aware that it is not only technology which accounts for the industry's success in these countries, and are now looking to emulate them in organizational and management terms as well.
In November 1996 the China Business and Policy Research Unit at Keele, headed by Dr Porter, brought together leading personnel from a number of state-owned steel-makers in China for a conference involving both academics and practitioners on energy management in Chinese enterprises and other issues, and the Chinese delegation also made subsequent field visits to British companies, including British Steel in south Wales, with Mr Xiao Yuxin and Professor Morris assisting in the arrangement of these visits. At present some members of the team are discussing their possible involvement in a new training institution for Chinese managers in Yantai, Shandong province, with Professor Chen Zhicheng of the University of Science and Technology, Beijing (China's steel-industry university).
This project has closely followed the development of enterprise reform in China over the past two and a half years, starting with the last months of the Contract Responsibility System in state-owned industry and criticism of it by both analysts and practitioners, and then turning to the latest and potentially most far-reaching phase of reform phase yet, the MES and GCS experiments (which are already being extended beyond the original groups of pilot enterprises). Although our conclusions on this latest phase can only be preliminary, nevertheless we have had the opportunity to see the groundwork being laid at a variety of major state-owned steel corporations for shareholding systems, workforce and management streamlining, and welfare reform. What we have found is that although the case-study corporations have far more autonomy from government than was the case in the early reform era, their relationship with both local and national authorities remains a complex and crucially important one, and it cannot yet be said that power within the corporation has shifted away from the pre-reform pattern of party dominance, since managers' party membership remains a complicating factor.
Since the 15th Party Congress in September 1997 it has been clear that smaller Chinese SOEs (the vast majority of some 300,000 enterprises) will no longer be supported indefinitely by the state, but will be forced to compete in the market and will have to seek mergers of bankruptcy if they cannot survive in their present form. Given the national strategic importance of the steel industry, however, and given the huge size and political as well as economic significance of some of the plants concerned, our case-study plants are likely to remain in state ownership, albeit with some outside share-holding as well, for the foreseeable future. The task of the MES/GCS reforms, therefore, will be to clarify the separation of government and management functions and property rights so that these large corporations are not unduly hampered by government interference. The issue of large workforce reductions has emerged as a particularly sensitive one in the past twelve months, as protests by laid-off or unpaid workers have become a frequent occurrence, and the more successful large state-owned corporations are likely to come under pressure to take over the smaller, loss-making enterprises which many local governments are starting to auction off.
Thanks to the good offices of Professor Chen Zhicheng Mr Xiao Yuxin, we have been able to arrange unusually extensive access to a total of nine SOEs, eight of them steel-works, and have been able to talk to a range of senior personnel, as well as meeting with academic analysts of the industry and government officials involved in its oversight. All interviewees were candid in their comments even on such sensitive issues as workforce reductions and party influence in enterprises, and only one individual in three rounds of field visits declined to have his comments tape-recorded. The quality of information we have obtained has been correspondingly high, giving us an inside view of a new reform programme not yet well known outside China. Access to the Shougang Corporation was difficult in 1995-6 owing to the changes in top management there following a well-known corruption case, but in 1997 access was not only regained, but top management at the corporation have agreed to allow Mr Xiao Yuxin to interview production workers there, a rare opportunity even for a mainland researcher. All of the plants visited have expressed their willingness to allow further research visits, and a bid has been submitted to the ESRC to continue this project for another three years in the light of the increased importance and timeliness of research on the Chinese state sector and the excellent access obtained by the research team.