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How Chinese labour practices can benefit from OBOR
Labour issues and practices in overseas markets are key areas that should be major concerns for Chinese enterprises who undertake engineering projects under the One Belt One Road (OBOR) initiative.
Agnes Zhou 9 Feb 2017

Labour issues and practices in overseas markets are key areas that should be major concerns for Chinese enterprises who undertake engineering projects under the One Belt One Road (OBOR) initiative.

According to China’s Ministry of Commerce, in 2016 Chinese enterprises signed 8,158 contracts for infrastructure and engineering projects with 61 countries along the belt-road in, with the total annual new contract value of US$126, billion increasing by 36%, which is 51.6% of the nation’s total foreign engineering contract value.

Dealing with labour issues is a sore spot that accompanies these engineering projects, since it is highly related to both cost and efficiency, which may significantly affect the success of these projects for both Chinese enterprises and their local counterparties. Labour practices and standards in China can be different from those in other markets.

Even prior to OBOR, Chinese enterprises had undertaken large-scale infrastructure and engineering projects overseas, mainly in Africa. Also known as “aid construction projects”, these projects faced a lot of challenges in terms of labour and worker-related practices, that were not suitable to the local environment.

The first challenge they faced was labour strikes. According to Chinese media, the local labour unions normally have a lot of power and influence when negotiating with employers, including Chinese enterprises. The Chinese enterprises, on the other hand, lack experience in terms of dealing with these issues, since labour strikes are relatively rare in China.

For instance, Cosco Pacific suffered frequent labour strikes in Greece between 2008 to 2010. Shougang Steel Group also suffered continuous strikes in Peru since it acquired an iron ore company owned by the Peru government in 1992.

The second challenge facing Chinese enterprises, is ensuring the safety and welfare of their workers, especially in regions where peace and order may be an issue.

According to statistical data from 163.com, the Chinese media reported 20 cases of kidnapping or assaults on overseas Chinese employees working with overseas engineering projects in countries such as Sudan and Afghanistan between 2004 to 2015.

The third challenge is the cultural and language gap between Chinese workers and their local counterparts. Although cultural and language gaps between different regions are a universal problem, this is often exacerbated by the relatively low level of education among construction workers in general, especially in under developed areas.

But in recent years there are signs that Chinese enterprises have been working to address these challenges, by improving their internal systems and procedures when undertaking infrastructure projects overseas.

One case study is the China Railway Group, an infrastructure company listed on both the mainland and Hong Kong stock exchanges, with an annual revenue of 621 billion yuan in 2015, including 30 billion yuan from overseas.

China Railway has been relatively successful in enhancing its labour management model for its overseas projects. In 2012, China Railway Group undertook an EPC (Engineering Procurement Construction) project for a Venezuelan company, with a value of 7.6 billion yuan. This project involves three sub-projects, a port construction, a railway, and a mining project. China Railway hired thousands of local workers, since Venezuela regulated the quota of foreign workers must not exceed 1 foreign worker for every 9 local workers.

China Railway implemented a system of responsibility cost management for this project, according to a paper by Luo Feng Yan on an open Chinese academic platform (CNKI.com.cn). After detailed engineering design and cost analysis, it gave the goal of cost control to each engineering team. China Railway gave quarterly bonuses or penalties to each team after comparing actual costs with the goals. By linking up the costs and benefits, the efficiency of the project improved significantly.

Training and education are also important. In addition to educating Chinese workers on local culture and customs, China Railway also designed specific training plans. For local workers, China Railway trained them on construction safety, mechanical equipment maintenance, and China’s technical standards. For workers from China, China Railway trained them on Venezuela’s culture and customs, environment, and public security.

Aside from precision management, China Railway also takes active part in Venezuela’s public welfare, such as donations for the construction of schools, hospitals, and roads.

Through these efforts, the proportion of labour cost for the mining project was reduced from 60% in 2012, to 31% in 2014. The port construction project saw a 9% net profit in 2014, which is higher than the average net profit of its overseas projects in 2015. However, the railway project was suspended because the management team from the Venezuelan side changed frequently.

The paper also summarized lessons in labor management learned from China Railway. First of all, foreign enterprises should adapt to the local environment. In China, it is relatively common to ask workers to work overtime for catching up with the deadlines, and the labour union is more like a nominal organization, whilst the opposite is true in Venezuela.

China Railway also hired local lawyers to ensure the accuracy of employment agreements, and actively participated in the project design at early stage. By combining design with construction, it brought convenience and proficiency to the construction team, which is very helpful for achieving cost saving. The paper also mentioned that enterprises need to carefully deliberate, and should not be too fainthearted when embroiled in situations in which they lack experience, such as strikes.

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