January 18, 2008 -- The All-China Federation of Trade Unions announced last week that it will unionize more than 80 percent of foreign-funded and private companies this year, reported the official Xinhua newswire.

According to experts, this is a political move designed to help address some of China's growing social problems.

"In China, trade unions are an extension of the government and under the guidance of the Community Party," Amy Sommers, lawyer of Shanghai office at the international lawfirm Squire, Sanders & Dempsey L.L.P., told Emerging China.

The aim of the unions may have more to do with concerns about party relevance than union control over corporate management, she added.

"With the decreasing significance of state-owned enterprises in the overall economy and the increasing presence of both foreign-funded and domestic private enterprises in China, the government is concerned about maintaining the role of the party in society and seeks to use tools such as formation of union branches and party branches in those companies as a means of preserving its position," said Sommers.

Foreign companies, however, view trade unions with concern since they may hinder efficient corporate management, according to Sommers.

"Many foreign-invested companies believe they have made an effort to apply international standards for workplace safety, training and HR management in their China operations and so wonder why there is a need for unions in their companies here," she said.

In addition, unionization usually increases labor costs -- at the very minimum, as a result of government-mandated union fees.

"China law requires that once a union is formed in an enterprise, the company must contribute an amount equal to two percent of its monthly payroll to the union for its use," said Sommers.

Currently, the law does not specify how the money should be used. Thus, unions have considerable discretion over how to use the funds and how to deal with management on operational issues, according to Sommers.

It will also take time for unions to learn how to efficiently interact with companies, she said.

The process of union formation is also unclear.

"The different understanding of the concept of trade unions by employers and regulators hinders the formation of trade unions," a spokesperson of the Shanghai branch of the Federation of Trade Unions, told Emerging China.

The communication gap between employees and employers is the key reason behind various kinds of employer and employee conflicts. Whether unions in China can in fact be helpful in resolving communication challenges remains to be seen, Sommers added.

Members of the American Chamber of Commerce in Shanghai have taken active steps last year to review their existing employment polices and practices to ensure compliance with the new law, according to Lisa Wright, director of communications and publications at the American Chamber of Commerce in Shanghai.

However, she could not comment about the effects of the new law as yet.

"We are not able to make comment on the issues at this early stage of the effective period of the new Labor Contract Law," she told Emerging China.

Last year, the Shanghai Federation of Trade Unions pledged to form trade unions at the city's Fortune 500 companies.

The organization said that it has already completed unionization at McDonald, KFC and 282 other chain stores in 2007, according to its annual report.

As of last September, Shanghai had more than 160,000 registered trade union locals, the organization reported. They included 15,200 locals located at foreign-funded enterprises, and 110 locals at Shanghai's 358 Fortune-500 companies.