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The wages of fun

Sydney Morning Herald
October 30, 2004

As the last containers of toys leave China for the Christmas gift season, Hamish McDonald reports that good cheer is missing in Toyland.

The Tyrannosaurus Rex shuffles forward, twists and raises its scaly head, then roars, displaying rows of sharp, greenish teeth. Li Xinkai, who has been working the joysticks and buttons on a little hand-held infrared control unit, smiles with satisfaction, and offers a visitor another tiny cup of bitter, green tea. The knee-high T-Rex stands silent on the floor.

It is almost the end of the pre-Christmas rush in Santa's Cave, otherwise known as the port city of Shantou in the south of China, where much of the world's toy-making industry is concentrated - about 2000 factories ranging from giant gated complexes to backyard workshops.

In Shantou and other factory zones in Guangdong province, a million workers have been putting in 12-hour days, seven days a week, since midyear, filling orders for the global toy giants such as Hasbro, Mattel and Disney. In local showrooms, salesmen like the Disga Toy Factory's Li are still hanging out for last-minute orders for T-Rex and other dinosaur species, selling for about 75 yuan ($12) each.

Large-scale toy manufacturing follows the shifts in cheap labour supply and international logistics. It moved to Hong Kong when Japan and Taiwan became too expensive, then moved on when China opened the Shenzhen special economic zone. The factory jobs gradually spread out to other Guangdong towns, especially those in the Pearl River delta or along the coast, such as Shantou.
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Young men and women have flooded into Guangdong from the villages of China's interior to take up 19 million factory jobs: making toys, sports gear, homeware, bathroom fittings, furniture and electronics. With hundreds of millions of rural villagers still underemployed, the supply of labour seemed endless, suggesting China would continue to grab world manufacturing by virtue of low wages.

But in recent weeks, this picture has clouded, at least for the factory owners and toy companies. China's Ministry of Labour and Social Welfare has just reported a shortfall of 2 million migrant workers for the region, at the busiest time of the year. Many of Santa's elves have not turned up for work this year.

The reasons are not hard to find. The labour ministry found that the average salary for a migrant worker, between 600 and 700 yuan ($96 to $112), had risen by only 68 yuan in the past 12 years. "That means wages have been going down, even though the official minimum wage has been going up every year," says Anita Chan, a researcher specialising in China's labour market at the Australian National University.

Analysts say Guangdong's workers have been pushed punishingly hard over the 15 years of the Chinese factory boom. Working weeks of more than 80 hours are common during peak periods. Overtime is often paid at a lower rate than the basic salary. Pay is often in arrears to stop workers changing jobs. Dormitories are crowded and food poor, but deductions to pay for them keep rising to offset rises in the official minimum base rate (450 yuan).

Police harass migrants without local residency papers, extorting small pay-offs, and health benefits are generally not transferable from home towns.

Workshops are often hot and unventilated, despite Guangdong's steamy heat, and occupational diseases are rife, often caused by dust particles, fibres and chemical vapours. The region appears to have been the incubator of last year's SARS epidemic and several avian flu outbreaks.

"Very few factories around here pay the government minimum rate," says Huang Xinghe, 20, a worker who gets about 600 yuan a month including overtime at a Dongguan factory making golf clubs and tennis rackets for export. "Most of us are not even aware of what it is."

Three young women from the nearby BabyToys factory earn about 700 yuan a month, working eight hours a day or 10 hours or more when big orders came in. They laugh at the government minimum. "In our factory the boss is the ruler," one says.

Three years ago, the Hong Kong Christian Industrial Committee surveyed 20 factories supplying four of the world's largest toy groups - Hasbro, McDonald's, Mattel and Disney - and found that in none of the products did more than 6 per cent of retail price flow back to the Chinese workers who made them. In the most extreme case, only 26 cents came back to the workers from an interactive electronics doll that sold for $US64.99 ($87).

Officially, the interests of the workforce are protected by China's trade union federation, aligned with the ruling Communist Party. In reality, the union is part of the oligarchy of local power, in which government, legal authorities and entrepreneurs collude for mutual benefit. The region is overrun with private security guards, ordinary police and paramilitary units who pick out ringleaders of labour protests for draconian jail terms. Despite this, wildcat strikes and factory sit-ins have been on the increase in recent months.

"For workers to go on strike or stage protest actions means there's something quite wrong," says the ANU's Chan. "Chinese workers tend to stick it out until they can't bear it any more."

Provinces in eastern China and up the Yangtse Valley have drawn factories into their own industrial zones. The Government has slashed taxes levied on farmers, so village incomes have risen sharply in the past year. The money may not be as much as in Guangdong, but the work can be less brutally long and closer to home and family.

While the labour supply is still big in China, the population profile is narrowing in the late teens and early 20s age group as a result of the national one-child policy, which began in 1978. More younger people have some secondary education and look to service industry jobs where work is less isolated and physically onerous, and residency transfers may be easier. With mobile phones now selling in second-hand markets for a few dollars, young workers are more in touch with job opportunities around the country.

Guangdong factory owners, many of them from Hong Kong or Taiwan, say they are being pushed just as ruthlessly by the toy industry, increasingly merged into a few giant combines linked in royalty arrangements to entertainment groups Disney and Warner Bros, and fast-food chains such as McDonald's. More and more of the final retail value flows to enterprises engaged in research and development, design and marketing.

The remote-controlled T-Rex that Disga is offering in Shantou for 75 yuan is being sold on the Amazon.com and Toys R US websites for $US39.99 - more than four times as much. However, the high-technology toy firm Wow Wee, which says it developed the T-Rex in its design studios, has never heard of Disga. Wow Wee had its T-Rex made in a Shenzhen factory. "It's possible this company is knocking it off," a Wow Wee executive says.

Hence perhaps the coyness of Disga, which refused to let the Herald onto its factory floor in Shantou. "You want to find out our secrets," a manager said.

Whether or not Disga is copying an ageing product line, the case illustrates the difficulty in monitoring the global toy industry. A similar T-Rex is sold in Australia by Kmart under another brand name, Jasmine, at $25.

The concentration of buying power in retail groups, notably the American chain Wal-Mart, simply blasts even the biggest Chinese factory out of the bargaining ring.

"What we are seeing is the famous race to the bottom, the pursuit of cheaper prices in retail stores in the West for Chinese-made goods," says Robin Munro, of the China Labour Bulletin in Hong Kong.

"Those constant price cuts have to come from somewhere. Basically it's the foreign buyers squeezing the factory owners to do reverse bidding for orders, bidding the lowest possible price to get the order. Often the factory owners in south China take on these orders at a loss, simply to keep their share of the market. That inevitably translates into cutting workers' salaries, or keeping them constant at best."

Only with the new labour shortage are wages starting to rise. At a Taiwan-owned company in Dongguan making electrical transformers, director Joyce Lin said the bill for its 4300 workforce was now 25 per cent above the same time last year, with about 60 per cent of that going in higher wages and the rest coming from improved medical benefits and costs associated with a jump in staff turnover.

"But there will be no price increase - we are the ones taking the blow," Lin says. Lin, who spoke on condition her firm was not named, said the Taiwanese owners were starting to think about leaving China. "The shortage of labour is influencing our plans," she says.

"In the future we will try to avoid investing more in the Chinese market and invest in other countries or regions. There is India, for example, though the supply chain is not yet mature in the Indian market, so we are still considering that."

Researcher Parry Leung, of the Hong Kong Christian Industrial Committee, thinks it may be another six months or a year before the impact of higher wages in Guangdong flows through the toy industry to foreign buyers. Meanwhile parents can enjoy another cheap Christmas, thanks to the low wages that have prevailed up to now in southern China's toy industry.

http://www.smh.com.au/articles/2004/10/29/1099028212835.html?from=storylhs
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