Ying Zhang-White is an attorney at King & Spalding's International Trade Regulations and Customs Practice Group in Washington, D.C. She received a L.L.M. with honors from Columbia University Law School in 1998 and a J.D. magna cum laude from Stetson University College of Law in 1997. The author would like to express her deep appreciation to her husband, Patrick, for his endless support and encouragement. The opinions expressed in this article are solely the author's own and do not reflect the views of King & Spalding.

Growing amounts of private investment are flowing from the industrialized countries of the Organization for Economic Cooperation and Development (OECD) to the "Big Five" non-OECD countries of Brazil, China, India, Indonesia, and Russia. The Chinese government has been particularly active in seeking foreign investment as part of its modernization strategy. By October 1997, pledged foreign investment in China had reached US$510 billion, while actual foreign investment has risen to US$212.2 billion. By 1994, China was the destination for 17 percent of the worldwide foreign direct investment (FDI) and one third of the total FDI for developing countries. Among the most important channels for international capital are foreign-invested enterprises (FIEs). By the end of 1996, 140,000 FIEs existed in China and employed 17 million people.

It would be inaccurate, though, to view FIEs as one homogenous group. They often vary greatly in size, location, business activity, capitalization, and ownership. These differences in turn affect the FIE's relationships to regulatory authorities, employees and the communities in which they operate. One key distinction between FIEs is the differentiation between the origin of their owners. Western Foreign Invested Enterprises (WFIEs) are owned by Western business entities, while Taiwan/Hong Kong Invested Enterprises (THK FIEs) are owned by business entities from Taiwan and Hong Kong.

This essay examines the differences between these two groups of FIEs with reference to their adherence to Chinese labor regulations, especially those concerning trade unions and worker safety at FIEs. Although a legal framework for FIE labor-management relations exists, the implementation of labor law under this framework is not consistent. One reason for this inconsistency is the acute competition among localities for foreign investment, which encourages local authorities to relax enforcement of labor standards. Moreover, the competitive business environment at the local level favors ethnic Chinese from Taiwan and Hong Kong who use regional ties to certain localities, as well as insider knowledge of unique Chinese business practices, to influence labor law enforcement in their favor.

This situation has been exacerbated by the decentralization of the Chinese political and administrative system, giving Taiwan and Hong Kong FIEs greater freedom to pressure local officials to minimize labor law enforcement at their production sites. Because Western FIEs comply more strictly (although by no means with a perfect record) with national and international labor standards, THK FIEs enjoy an unfair competitive price advantage over WFIEs due to reduced labor costs. More importantly, these practices impact negatively on the lives of workers who are employed by THK FIEs, even at times putting their lives at risk.

Part one of the paper will provide a general layout of the political institutions in which all FIEs operate. It will also point out how ethnic Chinese from Taiwan and Hong Kong manipulate these institutions to their business advantage. Part two will cover the legal framework of FIE labor management, including the general legal framework and careful examination of the issues of trade union activities and worker protection at THK and WFIEs. Part three will examine the possibilities of making working conditions among FIEs more standardized.

Institutions Affecting FIEs

The Chinese Political Structure

The 1982 Constitution of the People's Republic of China provides the legal framework for government power. At the national level, the National People's Congress (NPC), putatively the highest organ of state power, and its standing committee, makes law. Central executive authority is replicated at the provincial and local levels, where there is a division of government responsibilities between provincial and local legislative People's Congresses and executive provincial and local governments. Subordinate to the NPC are provincial and local legislative congresses, which possess the power to pass laws and adopt regulations not inconsistent with national laws. Moreover, provincial and local executive bodies can issue certain types of decisions and orders concerning economic activities.

While this framework gives the impression of clear-cut political structures and processes operating on the basis of constitutionalism, in actuality a number of factors distort local implementation of national laws. This results in inconsistent regulatory practices. From the launching of China's economic reforms in 1978, political decision-making has been increasingly decentralized to give local governments maximum flexibility in the allocation of local resources to achieve overall economic growth. In return, local authorities are responsible for maintaining political stability while the country undergoes rapid economic transformation. To affect his arrangement, the central government has deliberately drafted laws to give much discretion to those charged with implementation at the local levels. As provincial governments and localities have gained substantial rule-making power and discretion in the enforcement of national laws, they have initiated policies that differ with the central government's rules and regulations. Consequently, laws vary in their application between localities. Because they compete for foreign investment, localities often use preferential law enforcement to attract FDI. Although lax labor standards at the local level often are inconsistent with national laws, the central authorities tolerate these violations to help localities to keep labor costs low and attract foreign investment.

Advantages to Taiwan and Hong Kong Investors

Local autonomy is particularly advantageous to ethnic Chinese from Taiwan and Hong Kong who, as cultural "insiders," manipulate local officials into granting undue concessions. Many investors from Hong Kong and Taiwan possess strong regional and family ties to the local communities in which they do business. For example, people from Hong Kong often do business across the border in Guangdong province, which shares a common Cantonese culture and language with Hong Kong. The same is true for Taiwanese investors in Fujian Province.

THK FIEs also tend to be smaller, placing them under the direct jurisdiction of local rather than provincial or national authorities. Moreover, they are often engaged in the labor intensive, job-creating activities favored by localities. Combined with their access to resources needed by local governments, these factors provide opportunities for THK FIEs to influence local policy and enforcement to their advantage. If one locality tries to enforce tough labor regulations, it will only drive THK foreign investors to other, more lenient locations. In one case, when threatened with possible enforcement of worker safety regulations at their FIEs, Taiwan and Hong Kong businesses threatened to move production to Vietnam.

Laws Concerning FIEs in Theory and in Practice

General Legislation Concerning FIEs

National laws establish four categories of FIEs with each governed by a separate set of regulations. First, FIEs may take the form of Sino-Foreign equity joint ventures (EJV). An EJV must be a limited liability company with a minimum foreign equity of 25 percent in registered capital. Its distribution of profits and sharing of losses must be in accordance with the joint venture partners' respective equity positions and in cash only. Another form of FIE is the Sino-Foreign cooperative joint venture (CJV). CJV parties may stipulate in writing many of their respective rights and obligations, including profit distributions and investment recovery schedules, in the contract. There is also a minimum foreign equity requirement of 25 percent for this type of joint venture. A third form of FIE is the wholly foreign-owned enterprises (WFOE), where one or more foreign entities hold 100 percent of the equity. WFOEs are generally structured in ways that permit their classification as corporations under US tax law and are often required by the Chinese government to utilize advanced technology and equipment or to export most of their products. The fourth category of FIEs consists of "companies limited by shares with foreign investment." This is where the entire capital of a company is divided into shares of equal value, and foreign investors may be one of the promoters of the company, may purchase the stocks offered by an existing Chinese company, or may establish a new company and offer shares to Chinese investors. When foreign shares exceed 25 percent of the company's registered capital, the company will be afforded the same treatment as an FIE.

The 1995 Labor Law attempted to bring the diverse forms of business that had evolved in the reform period under uniform standards for employment relations. It was originally enacted in mid-1994, partially in response to the labor abuses at some THK FIEs in South China. Other FIE labor management laws and regulations have been issued at both national and local levels. Prior to enactment of the 1995 Labor Law, labor legislation distinguished state-owned enterprises (SOEs) and FIEs. The old FIE labor laws were designed to provide foreign investors with a market environment in which they could employ Chinese workers and staff while preserving some of the social benefits of the SOE systemjob security, housing, and other collective welfare facilities. These laws attempted to strike a balance between the interests of workers and employers during a period of economic transition.

The Theory and Practice of Trade Unions in FIEs

China has a long history of trade union involvement in industry. Trade unions in China's major cities played an important role in the early days of the Chinese Communist Party before its 1927 split with the Nationalists. The All China Federation of Trade Unions (ACTFU) was established in 1925 in Shanghai. After the Communist Party (CCP) victory in 1949, the ACTFU became part of the official governmental structure. In theory, the ACFTU functions as a mass organization embracing the whole working class and practicing "democratic centralism." According to the law, union activities are separate from the CCP. The first Trade Union Law was adopted in 1950 by the People's Central Government and remained effective until 1992. On April 3, 1992 the National People's Congress (NPC) adopted a new trade union law, which repealed the 1950 Trade Union Law. The 1992 Trade Union Law applies to all laborers performing physical or mental work in enterprises, institutions, or government agencies within China and all those who primarily earn their living from wages.

The Trade Union Law spells out the organizational structure of trade unions and defines their rights and obligations. At the lowest level are grassroots trade unions established in individual enterprises, institutions, and government agencies. If a trade union has more than 25 members, it may set up a committee to organize union activities. Otherwise, members may elect one person to be their union leader. A second tier of regional trade unions was established for localities at or above the county level. The national ACFTU resides at the top tier.

Parallel to this hierarchy, but above the grassroots level, various sectors of production may establish industrial trade unions at the regional and national levels. Thus, the Chinese union system consists of a dual network in which grassroots trade unions confederate with higher level trade unions according to geographical location, as well as by industrial classification. This allows Chinese trade unions to operate very effectively, especially in terms of organization and access to resources.

The Trade Union Law recognizes union activities in several areas: negotiating collective contracts, protecting workers' legal rights, processing grievances, mediating labor disputes, monitoring health and safety issues, managing collective welfare, and organizing vocational training. However, no established enforcement mechanism exists, nor are specific provisions on immunity for union officials when carrying out their obligations or enforcing their rights apparent. Union officials have no legal recourse in cases where the management dismisses or threatens to dismiss them for performing their functions. More damaging to the functioning of the union, organized walkouts or strikes are forbidden. Instead, unions are expected to try to defuse any potentially serious conflicts.

Trade unions also have the right to nonvoting representation at board of directors meetings by nonvoting delegates to voice workers' opinions and requests. They also have the right to representation during major decision making meetings and in matters relating to rewards, penalties, wages, welfare benefits, labor protection and labor insurance. Trade union funds are to be equal to two percent of the total actual wages paid to staff and workers. However, laws and regulations concerning FIEs consistently deny trade unions the power to either vote on or veto any matters of business policy. Therefore, at least on the surface, trade union rights seem very limited, and their power seems correspondingly unenforceable. Fortunately, trade unions are often closely connected with the labor department of the local government, whose cooperation is essential to a FIE's success.

To alleviate the weakness of unions in FIEs, the national government has made establishing trade unions in all FIEs a top priority. In November 1994, the ACFTU together with other cabinet level departments jointly issued a "Circular on Some Issues About Strengthening Work Regarding Trade Unions in Foreign-Funded Enterprises." This Circular identifies five labor policy goals: 1) to step up efforts to establish trade unions; 2) to increase the trade unions' role in safeguarding workers' legitimate interests while promoting harmonious labor relations; 3) to more effectively enforce current labor laws; 4) to strengthen party support for union activities; and 5) to promote collective bargaining and contracting.

In spite of the central authority's good intentions, less than half of the FIEs operating in China have trade unions. The ACFTU has remained cautious toward the unionization of FIEs, and overall government policy is caught between two conflicting goals: organizing trade unions in FIEs while maintaining an environment attractive to foreign investment. Chinese trade unions and government agencies are aware that many multinational corporations located in China in the first place largely to avoid the high costs associated in part with the demands of organized labor.

Most governments, including China, are signatories to international agreements establishing workers' rights. Moreover, international organizations such as the WTO are being utilized by international labor to enforce trade union agreements in member states. However, enforcement by both international and Chinese authorities of these agreements is made difficult by the devolution of administrative control to local authorities. This decentralization has caused less consistency and more unpredictability for Western FIEs doing business in China. In some cases, even THK FIEs have not been able to reduce unionization at their operations. For example, a series of highly publicized industrial accidents that occurred between late 1993 and 1994 pushed ACFTU to be more aggressive in its unionization efforts. In mid-1994 ACFTU announced plans to establish unions in all FIEs within two years. According to subsequent reports, ACFTU's targets were mainly small export-oriented "sweatshop" THK FIEs.

Unlike THK FIEs, the majority of US and Western European FIEs have established unions. As Western FIEs typically offer far better compensation packages (including take-home pay and welfare benefits) than SOEs or private enterprises, they are having very few problems with union activities. The US - China Business Council's 1994 Investment Survey of US FIEs indicates that concerns about relations with trade unions ranked last among FIE labor concerns.

The survey reported that most unions in WFIEs organize recreational, cultural, and social activities for their members. Some unions participate in meetings of the board of directors and in labor discipline cases, organize political study sessions, negotiate labor contracts, and provide a forum for employee grievances. The relationship between unions and WFIEs was considered friendly. Another survey conducted by Pacific Bridge in 1996 of both Chinese and expatriate managers at 20 joint ventures (mostly Sino-US joint ventures) located in Eastern China indicated that none of the surveyed managers expressed problems with their trade unions.

Construction workers take a break in Beijing

In contrast with WFIEs, organized labor in THK FIEs is weak. Less than 10 percent of manufacturing facilities operated by Taiwan and Hong Kong FIEs are unionized because Hong Kong and Taiwan investors tend to be hostile towards unions. Sometimes such hostility is attributed to their aversion for official union ties to the Communist Party. Overseas Chinese investors also tend to rely more on their manager's personal influence with the local government than on union affiliation to handle firm-labor relations. Another reason for such a low rate of unionization is that THK FIEs are predominantly labor intensive, low technology assembly operations. They take advantage of the large pool of unskilled and inexpensive rural labor to serve as their work force. Many of these migrant workers reportedly do not have enough sophistication to demand a union.

In response to difficult working conditions and hostility to trade unions at THK FIEs, migrant workers often resort to organizing what are known as fellow villagers associations (tong xiang hui). These associations, which often lack formal leadership structures, are organized on the basis of common residency in the same village, township, county, prefecture, or even province. Tong xiang hui are not really trade unions, but more closely resemble the underground secret societies that have existed on and off throughout much of Chinese history. Members of the associations do not want employers to know of such activities for fear of reprisals. A Hong Kong newspaper reported that over 800 of these types of associations existed in the city of Shenzhen and surrounding areas in Guangdong Province. The central government is aware that tong xiang hui exist but apparently has not taken any action to dissolve them.

Labor Safety at THK FIEs

WFIEs generally enjoy a fairly good reputation for adhering to national health and safety standards, while THK FIEs have come under more criticism in these areas. Most WFIEs are large multinational corporations having a high degree of visibility both at home and abroad. They are also closely watched by provincial or central authorities to ensure that national labor regulations are implemented. By contrast, the majority of THK FIEs are small operations with close links to the local authorities at the county or township levels. The close relationships to local regulators are especially helpful where central and provincial supervision is weak. Consequently, widespread labor abuses at THK FIEs were totally obscured until several serious industrial accidents occurred.

Since 1993, a number of serious accidents focused national attention on THK FIEs' labor practices, particularly the mistreatment of workers, unsafe working environments, and poor sanitation. In November 1993, 84 Chinese workers died in a fire in a Shenzhen toy factory owned by Hong Kong investors. It was later reported that the factory did not have any sprinklers or other fire safety features. In December, another fire in a Taiwan-funded textile factory in Fujian province killed 61 workers, all of whom were teenage women. In June 1994, another toy factory funded by Hong Kong investors in Shenzhen collapsed, resulting in the death of 11 workers and injury of 27. In another Shenzhen factory, 67 workers were poisoned by ethane gas emissions. Although the Hong-Kong firm in question was aware of the threat, it neither took protective measures nor informed the work force of the potential danger.

These accidents were widely publicized in periodicals such as China Daily, Legal Daily, Workers Daily and Economic Daily. On May 15, 1994 The People's Daily published a lengthy report of threats to worker rights and safety at Taiwan and Hong Kong FIEs. In April 1994, China Central TV aired a two-part documentary on labor abuses in THK FIEs. The result was a national outcry against these labor abuses. Some reports have, however, suggested that the media campaign was more directed at the ACTFU than at Hong Kong and Taiwan investors. The ACTFU has often been the target of criticism for its failure to organize workers at THK FIEs. Media attention concentrated on small FIEs in the southern coastal provinces of Fujian, Zhejiang, and Guangdong, which are typically owned by Hong Kong and Taiwan investors.

Complaints about these FIEs' labor abuses include horrific health and safety conditions and maltreatment of workers. Many of the THK FIEs use obsolete machinery with minimal safety features. In one 400-employee tableware factory, 38 industrial accidents occurred during four years of operation and 39 workers had their fingers crushed by punching machines. It is common for THK FIEs to locate their workshops, warehouses, workers' dormitories, and cafeterias at one location, called four-in-one factories. Passageways are often filled with goods, and gates are often locked to prevent theft and escape. A survey of seven THK FIEs in Zhuhai, Guangdong province, revealed that levels of toxic gases such as benzene, toluene and diethyl benzene in the plants exceeded national standards by eight to ten times. Disciplinary procedures at some THK FIEs include strip searches and corporal punishment. Some THK FIEs forbid workers from even drinking water or going to restrooms during work hours.

Waiting for the express train to fair labor practices

The national labor legislation pays some, although not extensive attention to worker protection. The Procedures for the Implementation of the "Regulations on Labor Management in Joint Ventures Using Chinese and Foreign Investment" does set out some rules for FIEs to follow in establishing labor protection procedures. FIEs are required to appoint "proper and sufficient personnel" to coordinate labor protection and to distribute safety equipment to workers in accordance with standards for state owned enterprises. When workers are killed, poisoned, or injured in industrial accidents, FIEs must notify local labor departments and relevant trade unions and accept the results of their subsequent investigations.

The 1994 FIE Labor Management Regulations also address labor safety and health. Local labor departments may order violating firms to rectify violations within a time limit, order suspension of their business, and impose fines for failure to stop violations after warnings have been given. Moreover, the national Labor Law gives workers the rights to refuse dangerous assignments and to criticize, report or bring complaints against employers whose actions are hazardous to life and health. The Labor Law also envisions a system for reporting statistics on handling occupational diseases and accidents. These specific enforcement tools could be used to improve compliance with labor health and safety regulations if they are enforced evenly for all FIEs, both Western and non-Western.

Local regulations in comparison are usually vague, often only briefly laying down broadly-phrased principles or guidelines. These regulations and rules thus only have administrative effects, not legal effects, as they lack an enforcement scheme to make them effective. Some local regulations contain only one to two provisions on labor health and safety protection. This includes the Trial Implementation Measures for Labor Management for Sino-Foreign Joint Equity Ventures in Shanghai, issued on October 8, 1984 by the Shanghai municipal government (Article 23); Tentative Procedures for Labor and Wage Management in Enterprises in the Guangzhou Economic and Technological Development Zone, first adopted at the Guangzhou mayor's Work Meeting on March 6, 1985 (Article 13); Interim Regulations for Labor Management in the Economic and Technological Development Zone of Shandong Province, promulgated on January 21, 1986 by the People's Government of Shandong Province ( Article 13 ); Regulations on Labor Management for Foreign Investment Enterprises in Jiangsu Province issued on March 7, 1987 by Jiangsu province (Article 14); and Provisions of the Shanghai Municipality on the Administration of Labor and Personnel of Sino-Foreign Equity Joint Ventures adopted by the Shanghai People's Congress on December 19, 1987 ( Articles 35, and 36 ).

The relative paucity of worker safety regulations at the local level suggests that these governments place little emphasis on labor protection. Since the 1980s, most local governments have concentrated on economic development. It is not uncommon for local authorities, in the intense competition to attract foreign investors, to deliberately bend rules on labor health and safety protection. At the same time, many Hong Kong and Taiwan investors, aiming at quick profits, are not inclined to invest in worker safety. The problem is further compounded by the fact that China's floating population of 100 million internal migrant workers provides an inexhaustible supply of willing and cheap labor. THK FIEs engaging in labor intensive assembly manufacturing hire the majority of their workers from this pool of rural surplus laborers. The lack of education and the need for a job put migrant workers in a relatively weak bargaining position. In one Shekou (Guangdong province) joint venture, workers were forced to work overtime in an overheated workshop. When some fell ill, they were dismissed at once. Despite reports of this nature, some statistics show that Guangdong still attracts 6.5 million migrants a year.

Rectifying the Situation

Legal Remedies

The mere strengthening of the legal framework and enforcement scheme, advocated by many, may not necessarily improve working conditions, as many laws are already on the books. The real problem lies with enforcement of these laws and regulations. Shortly after the Shenzhen toy factory fire, Guangdong authorities promulgated new worker-safety regulations. Starting first in Shenzhen and then spreading to all major cities within the province, FIEs were required to participate in a "registered safety director responsibility system" which trains and certifies personnel specialized in labor safety. By only certifying FIEs that implement this system, the new measure is designed to effectively eliminate FIEs that do not have designated personnel in charge of labor safety and health. In addition, in May 1994 the Beijing municipality issued rules on prevention and control of occupational diseases. However, it is unclear whether any of these formal measures will translate into real action.

In fact, the success of labor protection rules rely more on a local government's will and policy choice than on the actions of the central authorities. Although worker safety has been widely publicized, it is unlikely that local governments will start to strictly enforce labor safety regulations in THK FIEs for fear that enforcement may deter foreign investment. In Guangdong Province, for example, by the end of the1980s, eighty percent of investment already came from Hong Kong, and half of Guangdong's industrial work force was employed by Hong Kong invested companies. In such an integrated economy, the Guangdong government is reluctant to implement strict, drastic, or costly labor safety measures.

On the whole, China needs to keep its labor costs sufficiently low in order to remain competitive. FIEs in general have provided jobs as well as establishing a new mode of labor relations. Most WFIEs' labor relations are stable and have been able to attract qualified personnel by offering wages and benefits above the national average. Besides modifying current legislation, one solution to the widespread labor abuses outlined above would be to convince both owners and unions operating in THK FIEs that carrying out national labor policy will boost productivity.

International Pressure

Although it is the purpose of this paper to bring attention to the labor situation at THK FIEs, it can only begin a dialogue as to how the international community can correct this situation. Appropriate tools to induce change at the international level are only at the development stage. In the meantime, there are some measures which might be considered as partial steps in the right direction.

Western governments, international organizations, non-governmental organizations (NGOs) and human rights groups can begin to bring pressure on the governments of Taiwan and Hong Kong, encouraging their companies operating in China to comply with Chinese national labor regulations. Possible actions might include setting up a special task force consisting of representatives of government, industry associations, and trade unions from Taiwan and Hong Kong, to investigate the situation and make recommendations for change. This could be modeled after a similar task force put together to cover apparel manufacturers.

Concerned parties, including human and labor rights groups and woman's organizations, can make representations to the Taiwan and Hong Kong governments personally or by other means to encourage enforcement of labor regulations at their FIEs. To make their action credible, Western NGOs can compile lists of THK FIEs which violate Chinese national labor law. This list can also form a basis for possible consumer boycotts.

A Beijing Day Market

International labor and trade organizations can also begin to address this issue at meetings when delegations representing Taiwan and Hong Kong are present. American citizens can contact their elected representatives to encourage the passing of legislation to forbid the purchase in government procurements of products manufactured by Taiwan and Hong Kong companies whose Chinese FIEs do not comply with Chinese national labor regulations. At a minimum, federal agencies should be encouraged to enforce more vigorously any agreements that may have been already signed by Taiwan and Hong Kong covering this area. A yearly certification process, similar to the one used for countries suspected of not discouraging drug trafficking sufficiently, might be established for countries suspected of poor labor practices.

Instead of only looking at countries where labor abuses occur, more attention needs to be placed on parent companies and home nations who profit financially from them. Focusing just on WFIEs, which have more incentives for compliance, permits other producers to have the advantage over their Western competitors. This only encourages certain THK FIEs not to improve their standards. International monitoring of both WFIEs and THK FIEs will improve working conditions and create a fair market environment for foreign investment in China.

Conclusion: Of Winners and Losers

The Chinese Communist Party has a long history of supporting labor. Urban-based trade unions were early supporters of the party in its fight for control of the country. After the founding of the People's Republic (PRC) in 1949, many laws were passed by the government to establish the rights of industrial workers. In the original Communist model, however, formal legal guarantees were less relevant than current party policy. Since the economic reforms began in 1978, labor regulations have gained relevance as the economy increasingly operates according to market logic.

In order to manage through a period of rapid economic change with increased possibilities for social dislocation and instability, the central government has delegated much political and legal authority to its lower levels. An informal political deal has been struck between the center and the localities: local administrative autonomy in return for economic growth and stability. However, THK FIEs take advantage of the flexibility that comes with decentralized law application. By pressuring enterprise-based trade unions and local labor departments, these FIEs often obtain beneficial interpretation of labor regulations. Moreover, the low skilled laborers recruited by THK FIEs are usually not in a position to form unions to bargain for more rights. Moreover, the cultural affinity between THK FIE owners and local government officials in the South further facilitates labor abuses. Finally, the local governments in Fujian and Guangdong provinces, under pressure to develop economically, are not in a position to enforce labor regulations in their THK FIEs "sweatshops." To do so might create an exodus of FIEs to countries where labor laws are more lax.

FIEs that are owned by multinational corporations based in Western countries are usually very large and well financed. Additionally, WFIEs usually seek to recruit the best people into their organizations by offering good pay and working conditions. They also have a long history of dealing with organized labor and while not perfect, generally comply with Chinese and international labor laws.

The result of the conflict at the local level between the need for investment and the enforcement of labor regulations is that WFIEs and THK FIEs do not play on a level playing field. Chinese workers at WFIEs benefit by getting better working conditions. From a business perspective, however, where these two groups of FIEs make similar products, WFIEs are at a competitive disadvantage by complying with strict labor regulations. In addition, WFIEs, when purchasing production materials from inside China, have no cost-effective means of determining which suppliers are complying with national labor regulations.

At the present time, there are, unfortunately, not many mechanisms for the international community to help bring about changes in this situation. However, mechanisms to monitor FIEs and, if necessary, punish FIEs for labor violations are possible. While drastic improvements might be difficult, incremental changes and institution building will in the long run bring about better working conditions for the exploited workers of China.