Tens of thousands of workers have been striking at Yue Yuan factory, in Dongguan, China, since April 14. They have demanded the Taiwanese-owned company pay for social welfare programs for staff members. Yue Yuan produces shoes for Addidas and Nike.
The Chinese government is gaining an unlikely ally in its effort to overhaul the economy: striking Chinese workers.
So far this year, the China operations of International Business Machines Corp. (IBM), PepsiCo Inc., Wal-Mart Stores Inc. (WMT), and Yue Yuen Industrial Holdings Ltd. (551), a major supplier to Nike Inc. and Adidas AG (ADS), all have been idled by labor protests.
“This is not a blip,” says Dan Harris, a Seattle-based attorney representing companies operating in China. “It’s going to continue and get worse.”
While China’s communist party was founded to benefit the country’s “workers and peasants,” Chinese leaders aren’t known for their patience with protest. This latest wave of labor unrest -- at least when confined to pocketbook concerns -- might be different. The government wants to rebalance the slowing economy to rely more on consumption. Higher incomes for workers would be a good start.
“The government is trying to play a game that uses worker demands to push its broader economic goals,” said Mary Gallagher, director of the Center for Chinese Studies at the University of Michigan. “They have a belief they can use this kind of activism.”
That’s a gamble. Six years after a new labor law gave workers greater rights, Chinese labor remains in a twilight world. While the central government wants workers to see income gains, local Chinese officials -- often promoted based on their ability to maintain stability and generate growth -- usually side with employers in any dispute.
Lin Dong, a volunteer with the Shenzhen Chunfeng Labor Dispute Center, an independent group that trains workers in collective bargaining techniques, was pulled from a hotel dining room on April 13 and forced to leave town by police before he could meet with striking Yue Yuen workers.
“In China, there is a common saying,” says Lin. “The government doesn’t help the people fix their problems. They fix the people who point out the problems, instead.”
A more vocal Chinese labor force could help Chinese President Xi Jinping achieve his economic goals. Wage gains in China’s manufacturing heartland would support the government’s efforts to promote consumption and also encourage some factories to move to the undeveloped interior, Gallagher said.
Chinese leaders in November endorsed weaning the economy from its addiction to investment, which has resulted in overcapacity in industries such as steel and cement. The aim is to have domestic demand “play a greater role in driving economic growth,” Premier Li Keqiang told the Boao Forum April 10.
Workers who were valued principally as inexpensive production cogs during China’s initial economic flowering are now expected to star as consumers. Consumption accounts for only 35 percent of the Chinese economy, well below the 50 percent-plus characteristic of East Asian countries such as South Korea, which modernized earlier.
“It’s like that old Henry Ford story: I’ve got to pay my workers enough so they can buy my product,” said David Dollar, a former U.S. Treasury Department official in Beijing. “China’s reaching that Henry Ford moment.”
It can’t come soon enough for Heng Jiwei and his colleagues on China’s assembly lines. For four years, Heng, 27, has helped make tens of thousands of pairs of Nike (NKE) and Adidas shoes at Yue Yuen’s eight-factory complex in Dongguan, yet he’s never worn one.
“A pair of these shoes costs half my monthly base wage,” he said. “How am I supposed to afford one?”
The monthly minimum wage for production workers, who spend at least eight hours a day stitching and assembling shoes for the company’s customers in China and abroad, is 1,310 yuan -- not enough to cover the 1,469 yuan retail price for a pair of Nike running shoes.
Heng, a married father of a two-month-old son, was among the Yue Yuen workers who left their jobs April 14 after word spread that the company had been systematically underpaying workers’ mandatory social insurance benefits. The shortfall was discovered April 5 when a Yue Yuen retiree went to the bank to withdraw some of his benefits.
Though profitable, Hong Kong-listed Yue Yuen has been feeling the pressure of economic change. Rising personnel costs helped shrink the shoemaker’s 2013 profit margin to 5.2 percent from 9.3 percent four years earlier during the worst global recession since the 1930s.
Under pressure last year from an appreciating Chinese currency, which made their exported footwear more expensive in the U.S., company managers struggled to trim costs. Yue Yuen shifted some production to other countries last year in an operating environment its annual report called “difficult.”
As outrage spread over the benefits shortfall, workers began using the QQ messaging service to spread protest plans. Many Yue Yuen workers already had other complaints, ranging from poor hygiene in the factory cafeteria to employment contracts that described them as “temporary” workers no matter how long they’d toiled there. Without proper full-time agreements, the workers were unable to register their children in the local schools.
“A lot of us have been here a long time and built our lives around this factory, this city,” said Xiang Feng, 28, who has worked at the factory for eight years. “We would prefer not to go out on strike. We just want what we are legally entitled to.”
The strike wave comes as Chinese labor is enjoying demographic and technological tailwinds. No longer is there an endless line of potential replacements for dissatisfied workers; China’s once bottomless labor pool is in its third year of shrinkage, according to the National Bureau of Statistics.
China has 35 million fewer 15- to 39-year-old potential factory workers than it did five years ago, according to one U.S. estimate.
“Workers definitely have a stronger bargaining position now,” said Eli Friedman, a specialist on the Chinese labor movement at Cornell University. “The glory days of limitless cheap labor are really over.”
The proliferation of inexpensive smartphones -- a basic model can be bought online for 200 yuan -- has made it easier for leaderless groups of workers to mobilize. They draw inspiration from online accounts of other strikes while sharing photos and videos via social media.
One thing workers don’t yet have is a genuine union. Though China’s state-sanctioned All-China Federation of Trade Unions counts 280 million members, it is a union in name only.
Independent groups like Shenzhen Chunfeng have arisen to fill the vacuum. On April 13, Lin and three colleagues hopped in their van and drove from Shenzhen to Dongguan, about an hour away, where they planned to brief the Yue Yuen workers the next day.
As they ate a dinner of bean curd skins, string beans and lotus roots, about 20 plainclothes policeman swarmed the hotel dining room. Lin and a colleague were taken into custody and interrogated before being driven to the road leading out of town.
For China’s labor activists, such harassment is nothing new. Shenzhen Chunfeng’s office is visited several times a week by police keeping tabs on them. In October, six policemen beat Lin after he filmed them rifling through his files, he said. The first policeman to throw a punch told his superior that Lin had attacked him. The activist was released after his boss sent out a message on Weibo (WB), a Twitter-like social messaging service, about his predicament.
“I do think the central government is tolerant of us and it’s the local governments that are less so,” Lin said in an interview before he was taken into custody on April 22, where he remains today.
The activists advised the Yue Yuen strikers to avoid giving the authorities any excuse to crack down by breaking the law, engaging in violence or blocking public roads.
Under pressure from independent labor groups, China’s normally toothless state-sanctioned union has shown signs of stirring. Huang Xingguo, the union head at a Wal-Mart in Changde, is leading a strike over a planned closing of the store where workers want the company to double its severance offer. And the official union also backed a strike at PepsiCo (PEP) plants.
At Yue Yuen, the official union representatives in each of the Yue Yuen factories held meetings to hear workers’ demands and later met with company officials to discuss a potential settlement.
Chinese leaders in Beijing who want to boost consumer spending often tolerate labor protests that are confined to wage and benefit demands and remain within the factory gates. That’s especially true if the employer is a foreign-owned corporation rather than a state-owned enterprise with direct links to local officials.
“As a foreign employer, the government is more willing to put pressure on them to compensate workers for ownership changes or layoffs,” said Gallagher.
In March, more than 1,000 workers protested the terms of IBM’s $2.3 billion sale of its Shenzhen-based subsidiary to Lenovo Group Ltd. (992)
Companies affected by this year’s labor strife played down its import or declined to comment. Wal-Mart Beijing-based spokesman Raymond Bracy said the retailer doesn’t anticipate a more difficult labor environment in China. Nike’s Greg Rossiter said the company is in discussions with Yue Yuen and would have no additional comment. Adidas also declined to comment.
Though the government stopped releasing the specific number of labor disputes since 2010, from mid-2011 to the end of 2013, the China Labor Bulletin in Hong Kong counted 1,171 strikes and worker protests -- more than one each day.
There are limits to the government’s tolerance. China’s Communist rulers are determined to maintain their monopoly on political power. That means avoiding the rise of an independent labor movement akin to Poland’s Solidarity, the “Polish nightmare” that the Sinologist Richard Baum said lay behind Deng Xiaoping’s decision to use force against democracy protesters in 1989.
The central government’s tolerance for collective action clashes with local officials’ desire for economic growth and stability. As the Yue Yuen strike progressed, local police in Dongguan detained for questioning six employees who had been active in the work stoppage, including Xiang.
Her last text message to a Bloomberg reporter came on the protest’s eighth day: “It’s inconvenient for me to talk right now as I am being watched.”
Two days later, on April 28, the company announced the resumption of normal operations.
Ad hoc limits
China’s ad hoc approach to labor relations can’t last, Friedman said. The repressive formula used to manage unskilled workers who could easily be replaced is proving too costly as the economy and its workforce matures.
In March, Cooper Tire & Rubber Co. (CTB) said that a seven-month strike that ended in September 2013 cost it $29 million. At Yue Yuen, workers won an extra $31 million in compensation this year, plus an undetermined amount of overdue benefit payments.
“They need to allow other kinds of mechanisms for workers to express their grievances,” said Friedman, “rather than every time there’s a problem, workers have a wildcat strike and you have to call in the riot cops.”