Wal-Mart, the world's biggest retailer, has finally relented to pressure from the Chinese to allow its workers to set up a trade union. The US-based company bought $15 billion worth of goods from China last year and is expanding aggressively by adding stores in China. This decision underlines the importance of this market to the company.

The company has been under intense scrutiny concerning its labour practices, and this move might alleviate some of the pressure. A statement released by Wal-Mart read: "Should associates request formation of a union, Wal-Mart China would respect their wishes and honour its obligations under China's Trade Union Law." With the term associates Wal-Mart is referring to its employees. Last month China threatened to blacklist a number a foreign companies that did not comply with the setting up of trade unions in their Chinese units. Among the companies included in the list was Wal-Mart. Experts have indicated that this issue may have more to do with exercising the power of the state than with the welfare of the workers.

The trade federation is run by the state, which controls almost every union in the country. It counts 123 million members. In China, independent trade unions are illegal. However, the trade federation's power has been weakening as increasingly more workers join multinational firms or are fired due to reforms of state-owned companies. Companies from abroad, such as Wal-Mart, France's Carrefour SA, Metro AG from Germany and British retail giant Tesco Plc are all expanding their businesses in China, thanks to Beijing's more lenient rules governing foreign retail investment.

Wal-Mart claimed in its statement that it is now in full compliance with China's Trade Union Law, which states that establishing a union should be a voluntary act on the part of the associates. Wal-Mart claimed that it has only now allowed a trade union, because there had been no earlier requests for one.