Changes in the role of government in human resource practices in China: implications for multinational corporations

Although reforms in human resource (HR) practices in China have been discussed in the literature, few articles have systematically examined the role played by the government in the two major HR practices (staffing and compensation) since the founding of the People's Republic of China (PRC) in 1949. Furthermore, there has been little analysis of the changes that have occurred in the government's role since the commencement of economic reforms in 1979. A number of questions arise. First, how has the government changed its traditional practices in staffing and compensation? Second, what are the implications of such changes for multinational corporations (MNCs) which currently have subsidiaries in China or are planning to invest in China? This paper seeks to answer these questions in four segments. First, the dual role of the government and its subsequent relationship with industrial enterprises during Mao's regime is examined, reflecting on the administrative, rather than economic, nature of such a relationship. Second, the transition of staffing practices from highly centralised labour allocation to 'two-way* selection in a newly emerged tree labour market is reviewed. The radical changes in the compensation system and practice is the focus of the third part, highlighting how centrally fixed wage scales have shifted to enterprise-determined pay packages. Finally, the implications of these changes for MNCs in China are discussed, including the issues of obtaining a skilled workforce, distribution of rewards and decision-making with regard to performance-related pay.