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Cablegate: Wal-Mart Signs Collective Agreement in Shenzhen - a Model

VZCZCXRO6156
RR RUEHCN RUEHGH RUEHVC
DE RUEHGZ #0479/01 2210731
ZNR UUUUU ZZH
R 080731Z AUG 08
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 7488
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASH DC
RUEHC/DEPT OF LABOR WASHDC
RUEAIIA/CIA WASHDC
RUEKJCS/DIA WASHDC

UNCLAS SECTION 01 OF 02 GUANGZHOU 000479

SENSITIVE
SIPDIS

STATE FOR EAP/CM
STATE PASS USTR CHINA OFFICE

E.O. 12958: N/A
TAGS: ELAB ETRD ECON PGOV CH
SUBJECT: Wal-Mart Signs Collective Agreement in Shenzhen - A Model
for Foreign Enterprises in China?

(U) This document is sensitive but unclassified. Please protect
accordingly. Not for release outside U.S. government channels. Not
for internet publication.

1. (SBU) Summary: Wal-Mart just wanted a good contract that
burnished its reputation as a good corporate citizen. What it got,
according to the firm's senior human resources (HR) manager, was one
that the All China Federation of Trade Unions (ACFTU) hopes will be
a model for foreign enterprises throughout China. The HR manager
said the negotiations in Shenzhen were not confrontational and
pointed out that the FTU there played an active role throughout the
process. The contract sets a base for compensation and benefits for
all employees at the firm's Shenzhen stores, and its terms exceed
legal requirements. The most contentious issue was the level of
annual salary increases. End summary.

ACTU Wants to Wal-Mart to be an Example
---------------------------------------

2. (SBU) ACFTU officials termed the July 24 collective contract that
Wal-Mart signed with union representatives from its Shenzhen stores
"a model for foreign companies in China." The contract was one of
four signed by Wal-Mart on a city-by-city basis in July. The
company also signed deals in Shenyang, Fuzhou and Quanzhou.
Wal-Mart has indicated it will sign contacts in all the Chinese
cities where it operates within two months. The Shenzhen
negotiations received special attention from ACFTU national
headquarters in Beijing. Clara Wang, Wal-Mart (China) Senior Human
Resources Director, told us that ACFTU Vice Chair Xu Deming visited
Shenzhen in the early stages of the negotiations to offer guidance;
the ACFTU's new Collective Bargaining Department followed the
negotiations closely. The ACFTU indicated early on that it hoped
the contract would be a model that would help achieve its goal of
expanding collective contracts to cover 60 percent of foreign
enterprises in China. Wang said that some cities have even more
ambitious goals, noting that Quanzhou seeks to expand collective
bargaining to 100 percent of foreign enterprises in the city. She
said the city-by-city contracts vary little except in the level of
wage increases, which are based primarily on local conditions.

A Collaborative Process...
--------------------------

3. (SBU) Wang described the negotiating process as more
collaborative than adversarial. She explained that the initial
union position was not unrealistic. The goal for both sides in the
year-long discussion was a win-win solution, she said. However,
Wang pointed out that the delay in reaching an agreement was due to
the need to wait for clarification of the China's new Labor Contract
Law; the real negotiations lasted only two months.

...with Help from Your Friendly Neighborhood FTU
--------------------------------------------- ---

4. (SBU) Shenzhen's ACFTU office played a very active role in the
negotiations, according to Wang. The union negotiating team was
composed of ten chairmen of unions at Wal-Mart's Shenzhen stores.
The head of Shenzhen FTU's legal department attended all the
negotiating sessions in an advisory role. Wang told us that in some
ways it was a "three-way negotiation," with the ACFTU offering
advice to both Wal-Mart and the union team.

A Base That Exceeds the Legal Minimum
-------------------------------------

5. (SBU) Wang said that the agreed contract establishes a base for
compensation and benefits for all employees in Wal-Mart's Shenzhen
stores. Employees will continue to have individual contracts that
often have more favorable terms for the employee in some areas than
the collective agreement. She told us that Wal-Mart had to educate
its workers on how the collective agreement worked because many
believed that they would lose benefits they already had if the terms
of their individual contracts were more favorable. When the
employees voted on the contract, Wang said, some opposed it because
they didn't understand that it wouldn't reduce the benefits they
already enjoyed.

6. (SBU) Annual salary increases were the most contentious issue in
the negotiations. Wang said the unions' demands in this area were
high but not unreasonable. Wal-Mart's management felt the need to
negotiate lower increases in part because it knew the terms of the
Shenzhen contract would become a starting point for negotiations in

GUANGZHOU 00000479 002 OF 002


other cities. The final agreement brought minimum increases based
on forecasts of local wage conditions in the retail sector, cost of
living and company performance. The increases could be even higher
if the forecasts prove too low. Wang pointed out that the contract
exceeded Wal-Mart's legal obligations because there is no legal
requirement for annual wage increases.

A Good Deal for Wal-Mart
------------------------

7. (SBU) When asked if Wal-Mart's Shenzhen contract would make a
good model for other foreign enterprises in China, Wang replied, "We
don't care" as it was a good deal for Wal-Mart and that's all that
mattered. She emphasized that the process had helped Wal-Mart
maintain good relations with its employees, the government and
ACFTU, reinforcing its reputation as a good corporate citizen in
China. However, she noted that Wal-Mart would be prepared to share
its experiences with other foreign companies in the process of
collective negotiation or thinking about starting such
negotiations.

GOLDBERG

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