McUnions in China

After a public accusation by the All-China Federation of Trade Unions (ACFTU) that McDonald's (MCD) paid unlawfully low wages to employees, the international fast food institution offered an olive branch and agreed to work on establishing a union in Guangdong Province.

The ACFTU originally accused McDonald's of paying part-time employees less than the 7.5 yuan ($0.97) per hour mandated by law in Guangzhou, the capital of Guangdong. McDonald's denied any wrongdoing and asserted that the accusation had no connection to the company's decision to form a new ACFTU branch.

So what does this announcement mean in the big picture? First off, it means that McDonald's wants to finish shedding its potential image as a conglomerate that doesn't negotiate with employees, a process that began with McDonald's efforts to establish union branches in Shanghai, Jiangsu, and Anhui provinces. In addition, unionizing in Guangdong gives McDonald's some positive publicity after subsidiaries of rival Yum Brands Inc. (YUM), which owns KFC and Pizza Hut, joined the ACFTU.

While the new union branch appears to give employees leverage, don't assume that wages will rise. The Chinese government backs the ACFTU and has banned private unions. As a result, analysts view the ACFTU's growing influence as a way for the state to take back control over employees who have defected with increasing frequency from state positions for jobs in the private sector. Furthermore, the union branch will need time to grow and cultivate strong leadership that can negotiate higher wages.

As fast food's health hazards come under fire from documentaries like Supersize Me, and healthier dining alternatives such as Subway, McDonald's doesn't need another blow to its corporate image. The announcement reflects the company's understanding that it can't afford to have investors wonder whether McDonald's own employees can afford to order off the Dollar Menu.