The coming end of China's factory model

A series of strikes across China's manufacturing heartland has raised questions on the long-term sustainability of China's low-wage and large-scale factory model as migrant workers become more aware of rights and less tolerant of tough working conditions. The model's demise, analysts say, will have global repercussions.

Updated - June 13, 2010 10:59 pm IST

Published - June 13, 2010 10:58 pm IST

Workers at Foshan Fengfu Autoparts Co., a supply factory to Honda Motor in China, strike to demand higher wages in Foshan in Guangdong province on June 7. Photo: AP

Workers at Foshan Fengfu Autoparts Co., a supply factory to Honda Motor in China, strike to demand higher wages in Foshan in Guangdong province on June 7. Photo: AP

The sprawling manufacturing plant in Shenzhen symbolised much about China's two-decade rise to become the workshop of the world. Every morning, 300,000 workers would troop in past the factory gates, all dressed in identical white overalls. Over a twelve-hour work day, they would stand in silence, their hands nimbly sifting through tiny electronic parts as they efficiently worked to assemble the high-tech iPods and MP3 players that were shipped off to far corners of the planet. If China's south became the world's factory, Foxconn's massive Shenzhen plant, itself the size of a medium-sized town, was its heartbeat.

As the world's biggest electronics manufacturer, the Taiwan-based company was, in many ways, the epitome of the labour-intensive, low-wage, large-scale and highly-efficient factory model that has underpinned much of China's export-led growth since economic reforms were launched three decades ago. But in recent months, the durability of the China factory model has come under increasing scrutiny, after a series of strikes across China's manufacturing heartland. The signs of change were most evident at Foxconn's Shenzhen home, where a dramatic spate of suicides in recent weeks has stirred public debate in China on the bleak conditions of its factories. Ten workers have died, throwing themselves off the rooftop of Foxconn's factory.

The debate ignited by the suicides has intensified in recent weeks following a series of high-profile strikes at other factories over low wages. Last week, production at Japanese carmaker Honda's facility in Foshan, in southern China, came to a grinding halt as workers laid down their tools demanding higher pay. The company was forced to acquiesce to the demands, agreeing to a 24 per cent pay hike. The strike's success prompted workers at a number of other plants across China's Pearl River Delta, the manufacturing heartland, to follow suit.

On June 7, about 250 workers at another Honda plant stopped work, demanding higher wages. As of June 10, the dispute remained unresolved. The automaker, which manufactures 650,000 vehicles in China every year, has now suspended work in all of its China factories. Over the weekend, another Shenzhen-based electronics manufacturer, Taiwan-owned Merry Electronics, faced a worker uprising that led to clashes between police and protesters. More than a thousand employees blocked the factory's entrance and stopped work, calling for better pay, less demanding working hours and better working conditions.

Beijing concerned

The spreading strikes have the government in Beijing concerned. What is causing them? Labour analysts and company executives in interviews with The Hindu pointed to the convergence of a number of trends, including an increased awareness of workers' rights, growing dissatisfaction with government-controlled unions and changing demographics as a result of family planning policies that have shrunk the size of the workforce.In the 1980s, China's factory boom in the south and southeast was largely driven by the influx of millions of migrant workers from the provinces. It was, essentially, the abundance of cheap labour that laid the foundation for China's export-led growth and the unmatched competitiveness of the ‘China price'. Back then, for migrant workers who left villages that were impoverished in the aftermath of the disastrous economic planning and political upheaval of the 1950s and 1960s, the factory towns presented a way out of poverty and a better future. Indeed, China's booming manufacturing sector played a crucial rule in all but eliminating poverty in much of the country's south and southeast.

But one generation on, economic and social contexts, as well as aspirations, are much different. The pool of cheap labour has dried up, and in recent months, a number of factories have been forced to raise wages because of labour shortages. One possible reason, analysts suggest, is a shrinking workforce, a legacy of the family planning of the 1970s. Another is rising employment opportunities in rural China, particularly on the back of the $586-billion stimulus plan that has created thousands of jobs in the hinterland.

“Migrant workers are no longer so constrained for choice when it comes to finding employment,” says Geoffrey Crothall of the Hong Kong-based China Labour Bulletin (CLB), which monitors labour trends in China. “Now, if a company does not pay good wages, you can possibly go a few kilometres down the road to another town, or even go back home to work on your land.”

Labour analysts say the Chinese government will soon have to increase minimum wages across-the-board to stem growing unrest. In recent weeks, local governments have already begun doing so. The Beijing municipal government this week announced a 20 per cent rise in the monthly minimum wage to 960 Yuan (Rs.6,600 or $140). A wage increase between five and 27 per cent that affects all companies has also been put in place by several local governments.

After the Foxconn case and the strikes at Honda, a number of foreign companies are raising salaries. The rise in wages, analysts say, will have global repercussions. The wage hike will see between 2,000 and 3,000 Hong Kong-owned factories close in southern China, estimates a Hong Kong-based industry group. Labour costs in southern China now exceed average costs in seven Asian countries, including India, rising to $1.08 (Rs.50) an hour. Foxconn, which announced a 65 per cent pay hike following the suicides, has already announced it will move some of its factories out of southern China; the company is said to be considering Vietnam and India.

Not everyone is mourning

In China, not everyone is mourning the decline of the factory model. Sections of the government have been pressing for a rebalancing of the export-reliant economy following the financial crisis. Rising wages, it is argued, will help boost domestic consumption and stimulate other industries. President Hu Jintao this week called for “transforming the growth pattern” and pledged more investment in innovation. An appreciation in China's Yuan currency, which many countries say has been kept devalued to support exports, is widely expected later this year and will further hasten the process.

Labour rights advocates are also cheering, arguing that a wage hike is long overdue after two decades of growth in the 1980s and 1990s that saw manufacturing companies and local governments get rich off the backs of cheap migrant labour. The status quo, they warn, will only result in more strikes and unrest across China's manufacturing heartland. Xia Yeliang, a professor of labour economics at Peking University, says workers are now in an “extremely weak” position, and “unreasonably low” wages, coupled with the absence of substantive dispute-resolving mechanisms, will mean they have few other options besides marching out of the factory gates.

The ruling Communist Party, adds Mr. Crothall of the CLB, has restricted space for independent unions in recent years, reluctant to compromise on the growth of its industries and fearing instability at the grassroots. The official All China Federation of Trade Unions is widely seen as representing the interests of the Party over the workers. “The problem is that the All China Federation of Trade Unions essentially does not have the power to make its own decisions,” Mr. Crothall says. “It is completely reliant on the Party to tell it what to do. It cannot become more pro-worker unless it gets the go-ahead from Beijing. The Party has to tell the union in no uncertain manner, ‘Your job now is to represent workers, and not act as a third-party facilitator.' Whether or not the Party is willing to make the adjustment remains to be seen.”

A recent study conducted by a group of scholars at Shanghai's Fudan University found that dissatisfaction among China's 200 million migrant workers is rising. Part of the reason, according to Professor Lu Ming, is that incomes have failed to keep pace with the prosperity that has come to urban and coastal China. Another is restrictions on migration that limit access to social security for workers who leave their home-towns, a legacy from the days of China's centrally-planned economy. Prof. Lu believes Beijing is finally beginning to pay attention to the reforms scholars have been calling for, as evinced by a State Policy document released in March that eased some restrictions. “But far more needs to be done,” the scholar cautions. Change, he says, cannot come soon enough for China's workers.

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