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Intensifying labour conflict in China has posed a serious challenge to the industrial relations system. Under growing pressure, the Chinese government has sought to reform the system but the results are meagre. Among the supposedly successful cases, the development of collective bargaining in Wenling, Zhejiang province has been hailed as a model of labour relations to be replicated elsewhere. Based on a detailed case study of Wenling, this study aims to analyze the process whereby local government reconstructs the industrial relations system by organizing and incorporating the interest of employers and workers, leading to regularized wage growth and reduced labour dispute. This restructuring, the study argues, is designed to create a functional state corporatist system by means of expanding union representation and instituting tripartite collective bargaining. However, the tensions in the state corporatist structure may still undermine any attempt by the government to reconstruct industrial relations. (J Contemp China/GIGA)