This PhD project focuses on an important aspect of China’s embrace of globalization – the fast-growing area of Chinese outward foreign direct investment (OFDI) – and examines its effects on labor protections in China over the last two decades. Much Chinese OFDI during this period has been concentrated in advanced economies where labor protection regulations and practices are stronger, and this novel economic phenomenon of Chinese OFDI may diffuse Western labor protection regulations and working conditions from Chinese OFDI destinations back to China.
This thesis comprises four main chapters. Chapter I provides background and introduces the general research questions at the heart of the PhD thesis. It reviews the historical path taken by the Chinese economy since Reform and Opening Up in the 1980s and discusses the existing literature on labor protections on China. It also defines key terms used throughout the dissertation.
Chapter II focuses on China’s development over the past 20 years, particularly the rapid growth of OFDI and the effects of this new economic phenomenon on labor protections. It presents four hypotheses about the effects of OFDI on labor conditions in China, and then tests them with data from 31 provinces of China. The empirical analysis demonstrates that the association between Chinese OFDI and labor protections is not straightforward, though workplace occupational safety and health conditions have improved. Other types of labor diffusions may encounter political resistance from the Communist Party of China and the All-China Federation of Trade Unions (ACFTU).
Chapter III explores the effects of Chinese OFDI on labor protections by analyzing one form of China’s OFDI investing in Western Europe: Mergers and Acquisitions (M&As). It tests the hypothesis that as the amount of Chinese M&A-type OFDI enters European economies that have higher labor protection standards and practices than China, labor protections in China may increase and start to close the gap between China and Western European countries. Based on regressions with bilateral data generated from Thomson Reuters’ SDC Platinum Dataset on M&As and labor protection outcome variables, there is some support for the hypothesis that labor regulations are improving in China. But there are no clear evidence to indicate changes in practical working conditions like wages and working hours.
Chapter IV presents more detailed, firm-level case evidence on the linkage between Chinese OFDI and diffusions of labor protections. Five Chinese firms with different conditions of OFDI (the type of ownership, investment destinations, M&As) were investigated. Results show that labor diffusions are more likely for private firms that pursue M&A-type investment in advanced economies. Mandatory compliance pressure, economic incentives for improving competitiveness, and learning effects are the main diffusion mechanisms. Labor diffusions are particularly visible in areas such as occupational safety and health conditions. Evidence on the impact on industrial relations, e.g., Western-type trade unions emerging in China, is limited. The case studies also suggest that the Chinese authorities and state-owned enterprises are actively pushing back to reduce potential labor diffusions through the OFDI channel.