Thursday, June 10, 2010

Some thoughts on Foxconn and the Honda strike

(Sourced from

by Lang Yan 9 June 2010 One Comment Last modified: 9 Jun 2:05 pm

While I was walking around the Shanghai World Expo on a weekday a couple of weeks ago I met a group of workers from a nearby clothing sweat shop. Their company had sent them to the Expo for the day (for which they had to trade their only day off, Sunday). They were too tired to enjoy the Expo as they worked 14 hours a day, six days a week. While this may seem like a nice gesture on the part of the company, the workers also explained that the company was moving much of their production to another building that week, because a worker burned much of the factory down after not being paid on time. I heard this story just as the news of the Foxconn suicides began to break into the media and shortly after that the Honda strike began.

Within public discussion, the Honda wildcat strike has transformed the meaning of the Foxconn suicides. Early interpretations of the Foxconn suicides tended to argue that the suicides should either be understood as individual psychological issues and as copycat suicides, on the one hand, or a result of the particularly brutal and alienating conditions at Foxconn, on the other. Some marshaled statistics to show that there were no more suicides at Foxconn than the social average when one considers the size of Foxconn (for example, see Tom Holland “Why there’s less to the suicides at Foxconn than meets the eye” and Michael R. Phillips “Foxconn and China’s Suicide Puzzle Workers: may not be taking their own lives for the reasons everyone thinks”). Statistics average out, in other words, the social difference of the militarized factory space; Foxconn was treated as a normal social space, a city. (For a discussion of suicide rates and Foxconn, see EastSouthWestNorth #19. Notable also is that the Chinese rate of suicide for people 15 to 34 is quite high. See Suicide main cause of death in 15 to 34-year-olds.)

Analysis of the social and work conditions at Foxconn also appeared. The particularly militarized and alienating work environment at Foxconn is a result of capital’s relentless drive to lower assembly costs and the Asian subcontracting regime; reform-era China and the CCP have been a willing partner in that effort. Activists and scholars have argued that Foxconn is one of the worst factories in terms of it labor regime, with a very long (usually about 70 hours) work week (since the pay structure means that workers must work a lot of overtime) and a very rapid assembly line. Foxconn was able to become the world’s largest assembly company exactly because of its harsh Taylorist production process, which cuts up the process into highly regimented movements, its ability to intensify labor exploitation and its repressive management style (See this article by Andy Xie for some analysis and background on the Taiwanese management style). There are reports that Foxconn initially responded to the suicides by pushing workers to sign contracts that they would not commit suicide, and stating that their families would not receive compensation if they did. It went so far as to state that suicide harmed Foxconn’s reputation.
But the successful Honda wildcat has changed the discussion. The suicides and the strike are being put into the context of changing labor relations in China, with many now arguing that Chinese labor is at a turning point.

For example, NPR’s Marketplace (Honda, Foxconn workers demand more power) argues that a “labor shortage in China is empowering workers to demand better wages and treatment at their workplaces….” In a discussion of the Honda strike, Reuters notes that “[s]ome other foreign companies have begun to address workers’ discontent over pay and working conditions. Taiwan’s Hon Hai Precision Industry Co Ltd for instance plans to raise salaries by about a fifth at its Foxconn International unit, maker of Apple Inc’s iPhone, as it struggles to stop a spate of suicides and quell public anger.” Foxconn has said that it will raise base salaries by 30% now with more raises to come in the near future. Clearly this wasn’t only caused by the suicides, however. Foxconn was planning a salary increase earlier in the year in response to the difficulty hiring workers due to labor shortages.

The Honda strike (workers’ demands included wage increases from about 1,500 yuan (less than $220 US) to about 2,300 yuan ($337 US) for higher paid workers) is likewise getting more press than any other worker action in recent years.

China’s economic stimulus has given large subsidies for car sales, and car manufactures are attempting to rapidly increase production in China. Honda plans to add a third to its Chinese production by 2012. But its integrated production process is vulnerable to strike activity. This is particularly true of transmission plants, which are highly automated and expense to construct. Thus they are usually put in the most stable regions, notes the New York Times. But the stability of the Chinese working class is now in doubt. According to the Wall Street Journal:
“The strike has exposed unexpected vulnerabilities in Honda’s China supply chain. Because of the relative absence of labor unrest in China, Honda makes do with only one source of transmissions there, the Foshan factory that supplies roughly 80% of demand, according to Mr. Fujii. The rest are brought in from Japan. Typically, Honda insists on at least two suppliers of parts, partly to protect against any industrial action that might cripple production.”

While quick to tamp down any political interpretation of the workers’ activity, the New York Times argues that in the beginning the state allowed media coverage of the strike because it wants to push up internal demand. On the other hand, the China Daily (in an article now taken off their website) used the strike to editorialize that the Chinese state needs to do more to raise the wages of workers. Since the end of the strike, Chinese media coverage has continued while broadening its analysis. At the same time, the government seems to be increasing its efforts at raising the wages and internal consumption. This follows several years of increased investment for rural China, which means there is less pressure for peasants to migrate out for work.

Broader Implications: First question looking forward:

What does this mean in terms of the changing Chinese political economy? A few points: Increasing wages in China could help rebalance the global economy. As their wages increase Chinese workers will be able to spend more (the wage share of GDP fell from 56.5 percent in 1983 to 36.7 percent in 2005). A rise in internal demand will mean a drop in the savings rate in turn forcing a rise in the savings rate in the US. This will likely also mean inflation, which is already a problem with the huge Chinese stimulus, yet inflation is also another way–other than a direct change in the exchange rate–for the Chinese state to rebalance its trade relationship with the US. The power of the export manufacturers in China seems to have been able to keep the state from changing the exchange rate to any great extent, but inflation might help take care of this for the state. Of course inflation will eat into wage increases and possibly lead to more social unrest. Meanwhile, the Beijing government announced on June 3rd that it was raising the minimum wage by 20% in response to inflation–the past few years it was raised about 10% per year. Other regions are following suit.

The June 7th issue of The Economic Observer (Jingji guancha bao) has articles on the labor situation noting that both the Honda strike and the situation at Foxconn are symptoms of a broader change going on in the Chinese labor market. One article argues that China has reached the “Lewisian turning point”. Arthur Lewis argued in 1954 that, for a period of time, developing countries could rely on rural surplus labor to keep wages from rising. This would allow them to industrialize without wage inflation. But once rural surplus labor is absorbed by the industrial economy and the labor market unifies wages will begin to increase more rapidly. The influential economist Cai Fang has been predicting this shift for some time, and in 2007 edited a volume on the turning point called “The Coming Lewisian Turning Point and its Policy Implications.”

Arthur Kroeber argued in the March issue of China Economic Quarterly that China’s cheap labor regime was coming to an end and that wage inflation will drive up the consumption share of GDP. In the planning for the 12th Five Year Plan, the CCP itself emphasizes this rebalancing and the important role that raising the wage share of GDP should plays in the process. At the same time, some commentators seem to be taking this argument a bit too far. Andrew Peaple states that “the dynamics of China’s economic development are moving inexorably in favor of the country’s workers.” While this will change the shape of the Chinese economy, its effect on capital will be mixed. Higher wages will mean more consumption, helping many companies as much as it hurts. But the assembly and clothing industry in the Southeast will be hit hard, as those plants are both more easily moved to other, cheaper-wage countries and have thinner profit margins. It is too early to say what this transition (of the Chinese economy and of the Chinese labor process) might mean more globally.

A second question looking forward:

Does the Honda strike indicate increasing self-activity of the working class in China? Certainly the example of the success of workers in the Honda strike in winning some wage increases (initially about 24% but in the end much more) might spread to other workers in China. Also, the strike itself was very highly organized, leading to the participation of about 1,900 workers (including a large number of low-paid interns). The workers seemed split, however, when they gave in to a lower wage increase than initially demanded. The People’s Daily reports that the hold out group was involved in a confrontation with representatives of the state union, the ACFTU. (The local ACFTU seems to be playing a more conservative role–by protecting Honda–than even the state-run media.) The World Socialist Website details the attempts by the company to split the workers by putting pressure on the interns to sign no-strike pledges in return for smaller wage increases. According to The China Daily, the strikers also demanded changes in work conditions, more transparency in company finances (this seems like a reflection of the history of worker democratic involvement in enterprise management in China), and a change in union representatives. The New York Times points out that workers complained that Japanese employees at the Honda plant make about 50 times that of Chinese workers. It is likely that nationalism has also played a role in how this strike has been reported in China. Most of the workers held out, however, and the agreement reached will lead to high wage increases. Kroeber talking Reuters stated that “Foreign investors have been lulled into a false sense of security that China has a docile work force. There’s nothing intrinsically docile about the Chinese labor force. There was a period when everything was kind of fine; now we are entering a period of more constraint.” Following the Honda strike, workers at a Hyundai factory near Beijing went on strike, but returned to work after they were immediately promised wage increases. Over 5,000 textile workers in Pingdingshan, Henan have been out on strike since May 14th at a factory privatized in 2006.

As the WSWS notes of the Honda strike:

The strike is a sign of sharpening class tensions in China amid the worsening global economic crisis. While China’s economic growth rate continues to be high, propped up by huge stimulus spending, the gulf between rich and poor is widening. Last year there were 98,568 labour disputes filed in Chinese courts, up 59 percent on the previous year. Most disputes, however, were not reported.
It remains to be seen, however, how successful the CCP’s attempt at economic transition will be. We need to know how much of China’s growth and job creation is due to the stimulus and how sustainable it is. The unsustainable property market is creating an investment bubble. Just as likely as transition to a consumer-based economy, inflation could lead to stagflation once the property bubble bursts and the initial affects of the stimulus wear off. The real question is what then for the activity of the Chinese workers. They are clearly learning important lessons now. The fundamental question is whether their new found strength will lead to a break from the domination of capitalist accumulation or not.


Anonymous said...

A comment in regard to the cost of Inflation to the people in China.
Countries in the world today use printed paper not gold backed currencies. Although, with the Dollar Hegemony in world trade and finance ,the pricing oil in dollars by subservient countries, monopoly oil functions as a sort of commodity value prop, backing for the $.
Internally in China the Peoples State Bank appears to be repaced by a western style Central bank.Yuan /Renminbi is the official legal tender monopoly that the government prints.
Profits (the converted form of surplus value) from the export of labour created wealth industries, are paid in dollars or currencies convertible into dollars.
These dollars are exchanged with the government for Yuan printed by the government “sterilising” the dollars. That is , the dollar value is removed from the economy and replaced with Yuan. This appears to me to be a form of an inflationary tax imposed on the whole people and appears to me to provide an ‘invisible”, not noticed , dollar income for the state itself.
Some is invested By companies Like CITIC a Party /State council connected company in other countries. Such as in Marathon in Australia. Often in partnership with private Chinese capitalists including in international multinational companies like Rio.
Whether this is foreign investment of suplus value by the State is beneficial to the ordinary people of China , or that the profits from that exchange disappears in corruption ,or to into the pockets of the Chinese rich and the top Party Persons in Authority acting as paid directors and shareholders in companies , I do not know.
I have my suspicions. It depends on what class controls the state.
This is export of capital , one of ,but not the only, hallmark of imperialism.
But in any case ,it seems to me ,the Chinese people may be being doubly exploited, first its wageworkers for surplus value in manufacturing, creating the export profits and then again by the Chinese State removing the dollar profit value from the economy by injecting paper Yuan, thereby creating inflation?

Anonymous said...

Not sent for publication just a chat/rave .
I have told you before , its your blog , just delete or edit whatever comments I may send you as you see fit or useful in “serving the people”.
I am not easily offended and claim no right to ‘free speech”
Mike , I am no obviously no economist and do not even understand much mathematics
I just battle away at understanding the way economies work under free trade globalism
using my rough economic understanding of Marxism as a guide.
I sent you a comment claiming double exploitation of the Chinese people .
You may be interested ,or not , in how I think this works.
(based partly on some old general reading of work by the Keynesian H.K.liu on the Dollar Hegenomy. “We {the US} export paper in return for real things “ )
and why the Chinese government has TRILLIONS to invest overseas and can even afford drive up the price of the raw materials it imports.
Now a trillion $is still a lot of value even tho we hear about trillions being thrown about in bailouts nearly every few months .
(Pre crisis and with a stronger Au $ the total Australian GDP was roughly about 1 trillion US. yet that is not all an investable profit but total GDP.) .
The raw material costs and the wages value and surplus value(profit) embedded in the commodity is realized at sale of the commodity.
The profits are not made on the raw materials but on the labour created new value added to the raw materials in the industrial production process .
The cost of the raw materials are returned and re- circulated back down the chain including at least an average profit for the raw material provider selling the replacement raw materials.
On top pf the value of wages earned by the wageworkers the Chinese capitalist portion of the profit depends on their share of capital invested in production and the governments on state “partnerships” in the enterprises as well as taxes on the enterprises profits earned in China..
(those that do not escape in transfer pricing trickeries)

What I am saying is that it appears to me , that by removing the dollars returned to China and replacing them with printed Yuan , what is removed from circulating in the economy is not only the Chinese enterprise profits but most of the cost of the raw materials used in the earlier production cycle that return in dollar form too!
The Chinese enterprises, if they have no dollars for international trade , if they need dollars for new foreign raw material supply may have to purchase dollars back in Yuan from the state banks.
This Yuan can only come from exploiting Chinese labour ,their share of the surplus value (profits). Thus by replacing the dollars in Yuan ,( printed Chinese paper) the Chinese state may be imposing an inflationary tax on the whole people perhaps -equal in value to the whole of the value returned in profits and the raw materials - in the total of commodities earlier exported from china by the multinationals, thereby gaining an additional state income apart from normal tax revenues that may be equal to most of the total export value? ( .40% of the GDP?)
This, if true is a new form of state capitalism with an independent ‘hidden” state income funded by an inflationary tax on the whole people but then invested abroad by the state as export of capital.