Chinese factory strike portends global workplace changes

Over the past two weeks, tens of thousands of workers have staged a massive strike at a shoe factory in Dongguan, a city situated between Guangzhou and Shenzhen, in the heart of the Pearl River Delta, and the center of China’s export manufacturing boom.

Yue Yuen Industrial Holdings, the Taiwanese-owned, Hong Kong–headquartered firm that owns the facility, is by its own claim the largest producer of branded footwear in the world, churning out a vast array of products for dozens of international brands from its factory compounds in Dongguan and elsewhere across China and beyond.

The strike is notable both for its scale and for its substance. Involving 30,000 or more workers, this is the largest labor action to affect a foreign-invested export producer in recent memory, far outpacing any of the strikes widely reported in late 2009 and early 2010. Also remarkable is the fact that workers mobilized not around wages or workplace safety but around missing and deficient social insurance contributions, highlighting their clear understanding of their legal and contractual rights as well as of how best to press their claims politically.

Many Americans and Europeans share a connection to Dongguan, though most are probably are not aware of it. Indeed, while you read this, you are likely wearing an article of clothing, sitting on furniture or using an electronic device that was at least partially produced there. A relatively sleepy small town in the early 1980s, Dongguan mushroomed into a major city of more than 8 million people after China embraced foreign direct investment and an export-led economic model two decades ago. Myriad contract manufacturing firms in Dongguan, many owned by firms or investors based in Hong Kong or Taiwan, produce components or assemble prefabricated elements into products bearing major international brand names, from Apple to Adidas.

China has attracted large-scale foreign investment for manufacturing because of its workers’ low wage costs and high productivity, supplemented by state-of-the-art physical infrastructure, from highways to container ports. A large share of the workers employed in export manufacturing enterprises are rural-to-urban migrants, several hundred million of whom have streamed from villages into cities like Dongguan over the past 20 years. As these workers moved off the land and to the city, though, what health care and welfare systems existed in the countryside came under serious strain (even as, by the turn of the century, the old socialist social contract that had protected urban workers was dismantled). Meanwhile, family planning and population control policies have reined in the traditional practice of relying on one’s progeny for support in old age.

With so many people left in limbo, the Chinese government created a new social insurance system in the late 1990s, funded principally through a mix of employee and employer contributions (somewhat akin to Social Security in the United States).

The problem is that legally mandated employer contributions erode China’s labor cost advantage and threaten already very tight profit margins, especially for private firms and contract manufacturers under significant pressure from global markets and multinational corporations. Many — perhaps most — employers therefore do not pay into the system in full. Other benefits, such as housing subsidies, are also areas in which firms frequently cut corners to reduce total labor costs. What led the Yue Yuen workers to strike was their discovery in early April of significant and long-running social insurance and housing subsidy underpayments by the company. Unlike many other strikes over issues such as wages, job security and workplace safety, this action showcases workers’ remarkably astute attention to legal requirements and contractual obligations that reach beyond immediate, tangible conditions to encompass pensions and fringe benefits.

Several aspects of the strike are noteworthy. First, the very existence of the strike and the extent to which it has developed show how ill-prepared managers and company leaders were to deal with workers’ grievances and tactics. Workers brought their concerns to management’s attention and staged a more limited protest on April 5, before beginning the current strike on April 14, after the company failed to respond. That managers could not reach an agreement or head off a crippling strike makes them appear dangerously tone-deaf.

Second, the workers have resisted settlement offers and management initiatives for a negotiated partial solution. This resolve suggests they are not motivated simply by material grievances and that they possess impressive legal knowledge and political savvy. Keenly aware of their broader and longer-term legal rights and protections, workers have so far successfully navigated a complex political and institutional landscape to press their claims.

Third, the government, at the local level and above, has not acted decisively to repress the strike or force protesters back to work, in marked contrast to work stoppages in state-owned factories or private firms in the relatively recent past.

Fourth, activism has spread to other Yue Yuen facilities as far afield as Jiangxi province, suggesting that broader, more coordinated mobilization is at least a possibility.

What does this all mean? That will depend on how the dispute is resolved. If workers succeed in winning concessions that amount to payment in full of all social insurance obligations by the company (both arrears and future payments), this could set a precedent that would force thousands of firms to accept potentially dramatically higher labor costs for production in China — perhaps driving many firms to South or Southeast Asia (or beyond).

Yue Yuen, like many others, has in recent years greatly expanded production operations in inland areas of China and into other countries, including Indonesia and Vietnam. Previous fears about deficient infrastructure, weak property rights protections and lower worker productivity have apparently been set aside as Yue Yuen and other firms — worried about rising wages, mandated benefits and potential strikes in China’s export production core — recalculate total labor costs. Indeed, the threat to Dongguan’s workers from this new round of relocation recalls the lamentations of labor unions in North America and Europe about maintaining labor standards and wage levels as manufacturing was increasingly outsourced to China.

At the same time, such concessions could ensure a much more equitable livelihood for hundreds of millions of workers in what will likely remain for some time the world’s workshop.

Even if workers fail to realize such heady gains, if the state remains mostly on the sidelines and does not crush such incipient attempts at civil society enforcement of legal regulations and norms, it would signal a significant shift in policy by the Chinese Communist Party. No longer content simply to keep wages and costs in check to attract investment and drive GDP growth at all costs, the party appears increasingly earnest about facilitating a new economic order based on higher-end production, more generous incomes and domestic consumption.

In the longer term, the Yue Yuen strike could prove to be a critical juncture in the evolution of Chinese reform, beyond simply labor relations. It might well be a harbinger of China’s meaningful transition to a new economic model, one that may undermine its position as a contract manufacturer to the world but also may help it achieve a more equitable society and sustainable path to economic growth, with significant implications for the rest of the world’s workers, firms and consumers.