The death of Chen Guojun at the hands of angry workers at the Tonghua Steel works on 24 July prompted a flurry of comment and speculation in the domestic Chinese media. Many commentators suggested that Chen, a rising star in the privately owned Jianlong Group which was due to takeover Tonghua, had antagonized the workforce with his uncompromising and combative management style. Others cited sinister conspiracy theories involving former mangers and shady scrap-metal cartels in the city.

There was one issue however that everyone seemed to agree on; namely the need to better protect the rights and interests of workers during the process of state-owned enterprise (SOE) reform and privatization - the only question that remained was how. And in addressing this issue, several analysts focused their attention on the key role of the state-owned assets supervision and administration commission (SASAC), as well as the telling lack of an effective trade union presence at the steel plant.

The state-owned assets supervision and administration commission is the quasi-governmental body under the state council charged with protecting state assets such as SOEs, and maximizing their market value during transactions with private investors. In theory, SASAC is supposed to represent the overall interests of SOEs, including their employees, in practice however this rarely, if ever, happens. And in Tonghua’s case in particular, SASAC made no effort whatsoever to consult the workers or consider their interests when arranging the sale of 66 percent of the steel plant to one of China’s largest private companies. Many commentators roundly condemned SASAC’s paternalistic approach in arbitrarily deciding what was in the best interests of Tonghua’s workers without even consulting them.

Southern Weekend (南方周末) commentator Dai Zhiyong, noted on 29 July that even after postponing the takeover deal in the wake of Chen’s death, SASAC still:

Firmly believes that Jianlong’s move to increase its stake in Tonghua Steel is the most beneficial course of development, one that coincides with the interests of the entire workforce. The truth is, up until now, they still don't understand that they are not a benevolent father, and that the workers are not children; the workers naturally will have a different opinion from the major stockholder and SASAC, as to what is advantageous for them.

Jing Chuan, a lawyer at the Gaodong Law Firm in Beijing, told the China Daily:

The provincial assets watchdog and related parties have made a huge mistake by not keeping the workers and their union representatives informed. If they had gone through the legal procedures and listened to opinions from the workers, there would not have been such a burst of anger when the staff found out. This tragedy was avoidable.

The renowned social scientist, Yu Jianrong, pointed out however that it was virtually impossible for a body like SASAC to take the interests of all parties into account when managing the sale of state assets. Writing in the Southern Metropolis Daily (南方都市报), Yu said:

In maximizing the interests of state assets, there is a conflict between protecting the interests of the enterprise and those of the workers. In theory, the correct way would be to find a balance between them. However, SASAC isn’t really equipped to perform this role... Neither does it have sufficient motivation or incentive to find that balance. As a result, ‘reducing employees to increase profit’ is not only seen as a convenient operating measure, it’s actually been elevated to the status of guiding thinking. This not only abandons the workers’ interests, it is simply not the right thing.

Yu’s solution to this contradiction was to abandon the pretence that SASAC could represent everyone’s interests, and make it solely responsible for representing the interests of capital – the job that it effectively does already. Yu proposed that another body, with the same powers as SASAC, be established to represent the interests of labour. Interestingly, Yu did not suggest that the All China Federation of Trade Unions (ACFTU) should perform this role. Perhaps he was all too well aware of the limitations and ineffectiveness of the union in representing workers’ interests in SOE restructuring.

As a 34-year-old Tonghua employee told the China Daily, even though he and most of his colleagues were union members; “I can’t remember the last time we had a conference with our union representative. The union certainly didn’t go any good the day Chen was killed.”

An elderly retiree at the plant told the newspaper that union consisted of just two people, a chairman and his assistant. “It is hard for two people to do a good job for thousands of workers,” he said. Tonghua Steel currently has about 13,000 staff on the payroll.

However, Dai Zhiyong argued that the trade union was the only realistic option for the workers, and as such there was an urgent need to revitalize that flagging institution.

If the union is ineffective, other interest groups, including SASAC and the leadership of the enterprise, will naturally ‘lower transaction costs’ and exclude the nominal owners of the SOE from the negotiation and benefit-sharing process. The workers will be left with an either-or situation: either have their teeth knocked out and swallow the blood - to be resigned to their fate - or to take irrational measures in defense of their rights and interests.

The key to averting the radicalisation of capital-labour relations therefore is to address the source of the problem - for the union to stop operating amateurishly, merely collecting a few yuan in membership fees, and sending out letters and token gifts during the New Year and other holidays.

Dai suggested that the Tonghua tragedy could be the catalyst needed to kick-start union reform in China:

One possible starting point to avoiding tragedies like Tonghua in the future, and, in addition, to provide the space for both capital and labour to negotiate fairly and resolve their problems rationally, would be trade union reform.

However, just as crucial as union reform is the need for managements to accept the union as an equal partner in negotiations, something the Jianlong Group, and Chen Guojun in particular, were seemingly unwilling to do. A detailed investigation into the Tonghua tragedy by China Newsweek (中国新闻周刊) published on 5 August described how Chen implemented a stringent new management system at Tonghua whilst deputy-general manager from 2005 to the beginning of 2009. It was a system reportedly based on that of Taiwan’s China Steel, and featured the strict separation of workers and management and the implementation of harsh fines and extravagant bonuses. Chen was a tough disciplinarian and reportedly introduced fines of between 100 yuan and 200 yuan for even minor infractions such as having a single button open on one’s uniform.

This strict new system stood in marked contrast to the more inclusive and egalitarian style of the previous SOE management. Indeed, one of the chief complaints of the workforce during Chen’s tenure as deputy-general manager was not so much that their wages decreased (which they did) but that gap between workers’ and managers’ salaries grew exponentially. Most workers earned around 36,000 yuan a year, while mid-ranking managers could earn around three times that amount, and Chen himself was reportedly paid three million yuan a year for his services, or more than 80 times the average worker’s salary.

A whole swath of workers over 50-years old, or with more than 30 year’s of service, were laid-off soon after Chen arrived in 2005, and so the news that he was to return to Tonghua as general manager, just a few months after Jianlong had pulled out because the plant was not making a profit, naturally sent alarm bells ringing.

On the morning of Friday 24 July, as news spread of Chen’s return, one of the workers laid of four years ago strung a banner across the entrance to the main office building saying “Jianlong get the Hell out of Tonghua Steel!” (建龙滚出通钢).