Moving Westwards

The New York Times reports about investments in China’s Far West:

At a conference this week, Chinese officials called the investment in western China a strategic move, designed to raise the living standards of the region’s people and shift growth away from China’s prosperous coastal areas.

The areas include Northwest China’s Xinjiang Uygur autonomous region, North China’s Inner Mongolia autonomous region, Southwest China’s Tibet autonomous region, and Sichuan and Yunnan provinces.

via Spending for Stability in China’s Far West - NYTimes.com.

And not only the government is moving westwards. Also electronics manufacturer Foxconn - moves westwards, to Zhengzhou that is:

Foxconn and senior officials of Zhenzhou and Henan are working on the details of an agreement to build the plant, said a spokesman for the municipal government.

The first phase of the plant will measure 133 (!!) hectares.

The new plant is to employ 300,000 people in the long run. About 100,000 people are to be recruited in the near future, said a recruitment advertisement on the official website of Henan’s Hebi city.

Forum on Factory Protests on NYT

The website of the New York Times has an interesting discussion on the recent problems at Foxconn and Honda in Southern China, and their backgrounds. NYT asked several specialists to give their opinions on what is happening in ‘the factory of the world’. Amongst them Yasheng Huang, professor of economics at MIT and author of the eye-opening book ‘Capitalism with Chinese Charactaristics’, about the role of the state in the Chinese economy.

Some quotes from Huangs comment on China’s labor situation:

The labor income share of Chinese G.D.P. declined from 57 percent in 1983 to only 37 percent in 2005. (…) This is to say that hundreds of millions of Chinese workers have lost relative to government and corporations, which, in terms of head counts, represent a tiny fraction of China’s massive population.

Some have argued that the U.S. firms need not worry because the labor component of their production costs is small. This is simply not true. U.S. firms themselves may not have a high labor component in their cost structure but their suppliers — and their suppliers — do. American firms, which sit at the top of the food chain, depend heavily on the labor-intensive operations down below.

Another specialist writing on the NYT forum is Leslie Chang, author of the famous book ‘Factory Girls‘, about workers in a factory in Donguan, Guangdong province. Some of her comments:

The new generation came of age when migration was already an accepted path to a better life. Younger and better educated than their predecessors, they are motivated less by the poverty of the countryside than by the opportunity of the city.

Although this generation of migrants is more demanding, that does not necessarily translate into more organized protests. Chinese workers are above all pragmatic, and the prospect of joining a large-scale demonstration seems risky and futile to most.

The universe of the factory can be a complicated place. Young people living away from home for the first time are learning to deal with co-workers, roommates, and bosses. They are adjusting to a world of material and sexual freedom, fleeting relationships and crushing loneliness. They face demands from families back home who often have little understanding of their new lives. These factors create a stressful environment from which, for a handful of workers, suicide seems the only escape. To boil this desperate act down to a protest against working conditions is to deny a worker’s complexity and humanity.

Read the whole forum here.

CNN: Foxconn to scrap China ‘factory town’ model

Interesting update on the Foxconn news on CNN today: the CEO announced that they:

are going to return these social functions to the government”.

Obviously, this is a big step in the way Taiwan and Hong Kong manufacturers are doing business in China - and it will have major impact on the physical city as well. Read the whole story here.

Suicides, wages rise and moving westwards

The recent weeks, the Chinese news has been dominated by one very sad issue: the suicides at the Foxconn factories in Shenzhen in Southern Guangdong province. Foxconn is a 800,000 people company from Taiwan, producing electronics for HP, Dell and Apple. Foxconns 400,000 people factory in Shenzhen has been hit by a series of suicides during the last months. Some argue that the suicides are the consequence of the harsh regime in the factory where working 100 hours of overtime is default, where others try to put things in perspective by saying that the number of suicides in the city-sized factory is lower than the average in China.

The company’s first reaction to the suicides was not too subtle, with their CEO Terry Gou explaining that he worked 15 hours per day, and expected his workers to do the same. Later, the company reacted more 21st century-like, by opening its doors, and also practical by installing 1.5 million square meter of safety nets around the buildings  in the campus. Now, wages are also increased in the factory by 33%.

And Foxconn is not the only one, also Honda is raising its wages with 24% after a strike last week.

Yesterday, Foxconn announced another raise:

In announcing the wage increase late Sunday, the company, a unit of Taiwan’s Hon Hai Precision Industry Company, said that within three months the basic salaries of many of its 800,000 workers in China could reach nearly $300 a month, about double what many were earning a few weeks ago.

The increase is the strongest sign yet that labor costs are soaring in China’s biggest manufacturing centers and that consumers in other countries may eventually be forced to pay more for a wide range of goods that are made here.

This combined with the increase of the value of the Yuan, leads to a raise of the costs of products worldwide, analyzes the New York Times. It might make it necessary for companies to move their business. Either to Vietnam, Bangladesh, or to western China:

Pietra Rivoli, a professor of international business at Georgetown University and the author of “The Travels of a T-Shirt in the Global Economy,” says the effects of rising labor costs will vary by industry, perhaps with lower-valued goods like garments being forced to move to western China or even to Vietnam and Bangladesh.

UPDATE 06/09:

The NYT reported that another strike hit the Honda factories in China, and this proves the increased bargaining power of the Chinese workers. The article mentions the improving inland job prospects as the reason for the labor shortage in the coastal areas.

However, the writers underestimate the size of the Foxconn campuses in our opinion:

The campus has high-rise dormitories, a hospital, a fire department, an Internet cafe and even restaurants and bank branches.

Come on, there are 300,000 people living there! Of course they have restaurants…