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from Stratfor.com
Summary
Beijing will not intervene in the detention of seven South Korean factory bosses detained by about 1,000 angry Chinese workers. While the Koreans can still talk to the press, they effectively remain under factory arrest. This is the first high-profile incident of Chinese manual laborers turning on foreign investor bosses, but it is more significant for the delayed local and central government response and lack of subsequent action. Foreign investors in China already face rising wages, disappearing tax benefits, and tighter labor contractual rules. Assuming this case signals things to come, they now also face weakened legal protection.
Analysis
Beijing will not intervene in the imprisonment and mistreatment of seven South Korean executives detained in a Shanghai cotton-spinning mill by more than 1,000 Chinese workers demanding repayment of allegedly overdue wages, China’s Foreign Ministry said Nov. 27. The ministry described the incident as an internal company dispute. The Chinese response comes a day after Hwain Spinning Co. confirmed the several-day detention of its president, Woo Young Pan, who had traveled to China to close down the loss-making factory.
The South Korean’s detention marks the first high-profile instance of Chinese manual laborers turning on foreign investor bosses. More significant is the tardy response by the local and central governments and their refusal to take action.
South Korean managers are notorious in China for being some of the harshest foreign employers, and the issue of unpaid wages is one of the most politically and socially contentious in China. The topic has triggered countless spontaneous riots nationwide, and has been personally championed by Chinese President Hu Jintao.
Woo’s detention sets a troubling precedent for other foreign operations, particularly those considering shutting down or reducing staff. Internal considerations probably are partially behind Beijing’s reluctance to get involved, but the central government’s failure to act also may be a signal to foreign investors that past levels of government protection for them are no longer guaranteed.
The latter explanation is supported by the scant attention the case has received in Chinese-language media, which stands in stark contrast to previous reports about abusive behavior of foreign bosses toward Chinese employees. The August slapping of a Chinese employee by his Japanese boss and the 2006 beating of Chinese employees by a leather-belt wielding South Korean boss received extensive media coverage, for example.
Abusive behavior by Chinese bosses towards their employees is in fact an everyday occurrence, as are sporadic violent angry outbursts toward employers by abused Chinese workers. But central and local governments keen to attract and retain foreign capital typically have cracked down hard on any dissent toward prized foreign investors.
The coddling enjoyed by foreign investors started fading in 2001 when China entered the World Trade Organization. The right to preferential taxes went first. Investment advantages in sectors Beijing no longer wanted to develop went next. The playing field is being leveled between foreign and local players in more ways than one. Privileges enjoyed by foreign investors are disappearing, while the operational hazards local companies face are materializing.
Events like the detention of the South Koreans usually happen in resource-rich locations such as Nigeria, where foreign companies put up with risk to tap lucrative profits. Elsewhere, investors pull up stakes, as the cost of dealing with this type of unpredictability outweighs any return. In China, Beijing is fighting hard to persuade foreign investors to move inland. If Beijing intervenes on behalf of foreign bosses in cities where capital is still needed, foreign investors could be persuaded to remain. But there will be no guarantee as long as domestic political winds continue to change.
If this incident is an isolated one, and if Beijing’s public decision to stay out is motivated by an extremely tense domestic situation – Shanghai is after all, watched closely by the rest of the country as a national showcase – then the Chinese government could yet follow this with subsequent moves to patch things up.
But if Beijing is using this incident to set a calculated precedent, then its refusal to get involved is aimed more at the foreign than the local audience. It would be playing a dangerous game, risking slipping down the list of attractive destinations for foreign direction investment, especially given the pool of increasingly competitive countries in the region. But China is no longer capital-hungry along its coast, and where foreign investor actions run counter to internal political considerations, the latter will be prioritized.
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