Economy, Talking Point

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Suicides at Foxconn, strikes at Honda. Is the ‘Made in China’ model broken?

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Bowed but not broken: Gou

“Definitely not a sweatshop“ is Terry Gou’s defiant response to accusations that employee misery is behind the 10 fatalities this year at Foxconn’s Shenzhen factory.

But Gou, chairman of Foxconn’s parent Hon Hai Precision Industry, might prefer the sweatshop epithet to another label – the “Suicide Express” – now being used by sections of the Chinese press.

In response, factory bosses have called in psychiatrists and Buddhist monks, set up telephone hotlines and strung up safety nets to deter further jumpers. But the suicides have continued to generate extensive media comment.

Does some of the reporting lack perspective? The number of suicides is in line with the national average. Comparisons are also being drawn to the 46 France Telecom employees who have killed themselves since January 2008.

Some argue that if the deaths had occured in a city with 400,000 people instead, they’d have generated far less attention. That they occurred in a single factory (albeit a massive one) makes them look like an epidemic. This has provoked discussion of their wider significance, indicative of a deeper malaise within the low-cost ‘Made in China’ manufacturing model itself…

Is Foxconn unusual?

Only in terms of its size – which makes it a leading candidate to be the poster-child for ‘Made in China’.

Taiwan’s Hon Hai – employing 800,000 people across China, and accounting for close to 4% of Chinese exports – is a heavyweight example of the contract electronics manufacturers that are now firmly embedded in the global supply chain. Buy an iPod or an iPhone, and there’s a decent chance it was assembled by Terry Gou’s workers. HP, Sony, Dell and Nokia are all on the list as Foxconn clients too.

Like others, Foxconn has faced worker calls for higher pay, a trend that we have reported on recently in WiC. And also making headlines this week: a strike at a Honda component factory in Foshan, not far from Shenzhen. Employees were angry at salary levels and working conditions, says the 21CN Business Herald. It ended on Wednesday, but at the price of a 24% pay increase reports the Wall Street Journal.

Wages on the Foxconn assembly line are around Rmb5 an hour (less than $1) during the week, with Rmb8 for overtime, although the company has just announced plans for a 30% wage increase (not connected to the suicides, it claims).

Perhaps this will offset some of the criticisms that meagre pay has played a part in the factory deaths – by forcing employees into long hours of overtime.

But Foxconn has also faced reproach for paying out Rmb360,000 in compensation to family members of the suicide victims. That’s the equivalent of years of toil in a factory, Xinhua points out, the implication being that others might kill themselves for the money.

But aren’t low wages crucial to the ‘China Price’?

Studies of how Chinese firms compete usually have low wages high on the list of contributing factors, making up as much as 40% of China’s competitive advantage (see WiC Focus 1, From Made in China to Made for China). Certainly, low pay fits with the country’s ‘sweatshop’ reputation. Moreover, many employers rule with an authoritarian writ, with workers expected to follow the rules unquestioningly.

This is an accusation that has been levelled at Gou himself, with mutterings that his military-style management approach has contributed to the dark mood at the factory. The disciplinarian ethos was evident enough in the farcical request that workers sign contracts promising not to kill themselves (since dropped, after media outcry). There has also been disquiet at the Honda factory in Foshan, following accusations that workers have been pressured to sign anti-strike pledges.

Both cases have prompted soul-searching in the domestic editorials. A Xinhua piece on the Honda strike has argued that it highlights the unsustainability of reliance on cheap wages. The China Daily has chipped in with a critique of the export-oriented processing model as failing to “create brands, develop advanced technology, generate high profits or pay high salaries”. And the People’s Daily has asked if more should be done to protect workers’ welfare. In particular it has questioned whether the All-China Federation of Trade Unions (the only national trade union allowed by law) is doing enough to represent their interests.

It is a topical question, as striking workers at the Honda plant are said to have scuffled with their own union officials this week. “We pay union fees every month. You should represent us, so how come you’re beating us,” one employee shouted, reports the South China Morning Post.

Change is required, then?

A competitive retooling for China’s manufacturers will take time, and it is hardly the ideal moment to start out on the journey, with the renminbi on the rise against many currencies.

But the gloom and doom can also be overdone. International firms have actually been opening R&D facilities in China, in part to benefit from lower costs but also to be closer to a fast-growing consumer market. This constitutes meaningful change; from a country once thought of almost entirely as a manufacturer of export goods to one in which millions of new customers now make it a marketplace in its own right.

Then there is the specific question of whether wage increases will derail the Made in China juggernaut. Reuters reports differing views of Foxconn’s proposed pay rises: one that they will erode Hon Hai operating profits by up to 12%, the other that the impact will be limited because labour accounts for a fraction of operating costs.

In the longer term, productivity improvements might eventually offset higher wages. Leslie Chang – author of Factory Girls, a study of female assembly workers in Guangdong – has similar confidence in the local workforce. “Every time China goes through an economic shift, there is a heightened sense of alarm and exaggerated declarations in the press that the Chinese manufacturing system is no longer sustainable,” she told the China Daily. “But Chinese companies and Chinese workers are flexible and quick to adapt to changing circumstances, and they will do so again.”

So workers will adapt?

Most likely, although there is also talk of a generational change, with fewer migrants ready to commit to the monotony of factory life. It is something that WiC has mentioned before (see issue 50). That is not to say that the labour supply is drying up completely, although higher staff turnover is being reported by recruiters. Better living conditions in some inland provinces might make labour shortages more of an issue in future.

But right now Foxconn is arguing that working conditions at its Shenzhen plant cannot be that bad, as it is still getting 8,000 new applications a day. “Nobody cares whether you like the job or not,” one worker told China Newsweek. ”A lot of people are waiting to work outside the factory.”

This discussion of a disenchanted workforce also gets a mixed airing in the newspapers. Yes, there is sympathy for some of the complaints about pay and working conditions. But there is also a sense that the workers of yesteryear were a considerably hardier lot. Li Ping, a Shenzhen government spokesman, commented that the suicidal employees were born in the 1980s or 1990s, and had weak “self-adjustment capability” when under emotional or working pressure. Many Chinese, like Li, think the one-child policy is to blame – having created a generation of spoiled kids.

Then again, the deeper issue, argues the Financial Times, is that China’s cheap labour force is shrinking; that’s why workers can up their demands. Over the past decade, the population of 20 to 39 year-olds has shrunk by a fifth, it reports.

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