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