The Impact of the Economic System upon Human Resource Management Practices in China

By Zhu, Cherrie Jiuhua; Dowling, Peter J. | Human Resource Planning, December 1994 | Go to article overview

The Impact of the Economic System upon Human Resource Management Practices in China


Zhu, Cherrie Jiuhua, Dowling, Peter J., Human Resource Planning


Introduction

Presently, China's market reform is setting the stage for significant changes in management practices. The responsibility for labor allocation is being shifted from a centralized planning authority to forecasting and planning departments within enterprises. Production and reward systems are changing, with less emphasis on egalitarianism and a stronger emphasis on efficiency and performance (Shenkar & Chow, 1989). Meindl, Hunt and Lee (1987, cited in Cyr & Frost, 1991) note that managers in China are already showing an increasing interest in using human resource techniques and motivational systems which emphasize productivity at the individual, group, and enterprise level. Current best practices in HRM can make significant contributions to the process of change undertaken by Chinese enterprises.

China's market reform has resulted in the dramatic growth of privately owned enterprises ("Laoban Qiye" in Chinese), township enterprises ("Laoxiang Qiye") and international joint ventures ("Laowai Qiye"). It has been reported that by the end of 1992, there were nearly 140,000 private enterprises employing more than 2 million people while township enterprises produced 1,650 billion yuan (US$ 289 billion(1)) in goods and absorbed 100 million rural laborers (China Daily, 27 May 1993). Similarly, international joint ventures as well as wholly foreign-owned ventures were also growing rapidly. According to Premier Li Peng's Report on the Seventh National People's Congress in March 1992, more than 12,000 new joint ventures were established in 1991, with contracted direct foreign investment totaling more than US$ 12 billion and actual investment of US$ 4.37 billion. With the number of private and township enterprises as well as international joint ventures increasing rapidly, HRM is even more important as these organizations are generally outside of the state planning system and thus have more autonomy than state-owned enterprises to use HRM to assist productivity growth. Furthermore, these enterprises have fostered a new generation of entrepreneurs. They are beginning to appreciate the direct impact of HRM on productivity and organizational effectiveness. Meanwhile, as foreign investors continue to call for a greater role for HRM in their ventures in China, a new role for Chinese HRM is most likely to evolve in these enterprises and ventures.

The transition from a centrally planned economy to a socialist market economy has resulted in significant changes in the economic system, which is and will continue to have major implications for the practice of human resource management (Schuler, 1989). Moreover, as Williams (1993) notes, the role which China is playing as a global economic power is beginning to influence the emergent pattern of world business. These changes necessitate an appreciation and understanding of the different HRM practices under planned and market economic systems, the impact of the changing economic system upon present HRM practices and the implications of such a change for future trends in HRM for China. This will also have practical value for both Chinese managers and Western managers who currently have operations in China or who are contemplating a business venture in China.

However, although the literature has given attention to the impact of cultural, political and technical changes upon HRM (e.g. see Ferris & Judge, 1991: Von Glinow & Teagarden, 1990), little research has been conducted on the impact of different economic systems on management and its implication for HRM practices. This paper will first examine one of the major problems of China's centrally planned economy, that is, the low productivity levels in enterprises. especially in state-owned enterprises (also called "enterprises owned by the whole people" within China). Although the number of state-owned enterprises constitutes only 2.5% of all industrial enterprises in China, they produce 45.6% of the national industrial production and contribute over 60% of total profits and taxes to the state (People's Daily(2), 25 July 1992). …

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