Labor Conditions in the Pearl River Delta (Part 1 of 3):

UNCLAS SECTION 01 OF 04 GUANGZHOU 032421

SIPDIS

PACOM FOR FPA
STATE FOR EAP/CM, DRL/IL
STATE PASS USTR FOR STRATFORD, WINTER
LABOR FOR ILAB NEWTON, LI ZHAO, SCHOEFFLE
TREASURY FOR OASIA/ISA-DOHNER AND KOEPKE
USDOC FOR 4420/ITA/MAC/MCQUEEN
GENEVA FOR CHAMBERLIN

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ELAB PHUM EFIN PGOV SOCI CH
SUBJECT: Labor Conditions in the Pearl River Delta (Part 1 of 3):
Continuing Poor Trends

(U) THIS DOCUMENT IS SENSITIVE BUT UNCLASSIFIED. PLEASE PROTECT
ACCORDINGLY.

Ref: Guangzhou 21192


1. (SBU) SUMMARY: Many migrant workers in the Pearl River Delta
(PRD) - mostly little-educated young people, including some who are
underage, from interior and western provinces - continue to face
harsh and unsafe working conditions, long hours, overtime wage
arrears, child labor, unsuitable living conditions and little
training. The PRD has China's highest levels of labor complaints
and worker injuries; workers who complain may face government
harassment. Some local employment laws discriminate against migrant
workers by imposing hiring caps. Even subsidiaries of companies
like Foxconn and Disney have been accused of labor violations, some
of which have led to violent riots. Many analysts tell us that
China's labor laws are sound, but the courts and labor inspectors do
not implement them. A government with the best of intentions would
certainly find itself hard pressed to sort out these multiple
factors - economic growth, corruption, faulty labor laws and
environmental standards, which will allow them to make a concerted
and effective reform of labor conditions. This is the first of
three cables examining the continuing poor labor conditions in the
PRD. END SUMMARY.


Background
--------------


2. (SBU) The Pearl River Delta (PRD) has been called "the shop
floor of the world," because of the large number of factories in the
region. Though the precise number is unknown, the Guangdong
Provincial Statistics book estimates that the greater PRD (including
Huizhou and Jiangmen) has approximately 124,000 factories. The
largest numbers are in Jiangmen (24,874),Dongguan (21,868),Huizhou
(21,149),Guangzhou (20,764) and Shenzhen (16,569). Meanwhile, the
South China Morning Post has estimated the number of Hong Kong-owned
factories, the largest foreign-based investor, at approximately
70,000 enterprises. This cable, the first of three, will describe
labor violations occurring in the PRD, confirmed by government
investigations and media reports. Additionally, Congenoff has
toured several factories and spoken with workers about labor
violations they endure. The second cable will examine the
provincial and municipal-level policies created to improve the
situation. The third will analyze gaps in government programs and
the pressure that non-government, organized labor groups face.

Migrant Worker Demographics
--------------


3. (SBU) The Institute of Contemporary Observation (ICO),a
Shenzhen-based NGO led by Liu Kaiming, estimates that Guangdong
Province has up to 40 million migrant workers, or 27 percent of an
estimated 150 million migrants in China. The Guangzhou Labor Bureau
estimated migrant labor populations for Guangzhou at 1.48 million,
Dongguan at 3.6 million, and Shenzhen at 3.5 million. On average,
migrant workers ages range from 20-28 years old, 77 percent have
never gone to high school, 72 percent have no vocational training
and more than half are women. Most PRD migrant workers come from
the provinces of Hunan, Sichuan, Jiangxi, Shandong and Hebei. The
All China Federation of Trade Unions, China's only legal trade
union, reported that migrant workers make up 35 percent of
Guangdong's work force and are responsible for 25 percent of its
GDP.

Long Hours and Overtime Arrears
--------------


4. (U) Perhaps the most common problem for migrant workers is
having to work long hours without sufficient overtime compensation.
The National Bureau of Statistics reported that in 2004 migrant
workers worked an average of 6.4 days a week and 9.4 hours a day.
According to the Xinkuai Bao (XKB),a Guangzhou-based newspaper,
about 76 percent of migrant workers never receive overtime payment.


GUANGZHOU 00032421 002 OF 004




5. (U) Such gross violations have been confirmed by government
investigators as well. On November 4, a Guangzhou Labor Bureau
inspection team found that 80 percent of the Guangzhou enterprises
investigated had problems of "excessive" overtime and insufficient
payment for social security, particularly among labor-intensive
enterprises. The team found one factory required employees to work
16.5 hours a day. Another factory had no contracts with its
workers, failed to provide social insurance, and paid workers only
RMB 684 (USD 85.5) a month instead of the mandated minimum salary of
RMB 780 (USD 97.5). In October, the Guangzhou Labor Bureau reported
that in 2006 it had collected RMB 103 million (USD 12.9 million) in
overtime wages for 43,000 workers. According to ICO Director Liu
such low wages have led some PRD factories to have a 40 percent
annual turnover.

Injuries: Rising Numbers and Legal Battles
--------------


6. (U) The New England Journal of Health published a study in 2005,
reporting that occupational health hazards are the fourth biggest
killer among men in China (Note: The top three killers in rank order
were cancer, heart attack and stroke. End note.). The PRD in
particular has a high number of injuries. According to a two-year
survey conducted by Li Qiang, Executive Director of China Labor
Watch (a New York-based NGO),at least 40,000 migrant workers are
injured every year in Guangdong Province. As a result, Guangdong
authorities have announced plans to build the mainland's biggest
industrial injury rehabilitation center. Li Qiang wrote that those
working 12 hours a day accounted for more than one-third of all
worker injuries. Moreover, 90 percent of employers provided almost
no protective gear (excluding most large factories). According to
Li, most work injuries occur at metalworks and manufacturers of
furniture and plastics products where laborers, using moulding
machines and saws, become exhausted after working for many hours.


7. (U) In early 2006 the Public Welfare Times (a Beijing-based
newspaper) published a report investigating PRD injuries (Note: On
February 8, the Public Welfare Times editor, Chen Jieren, was
sacked. End note). According to PRC law, the legal process for
injury compensation cases lasts a minimum of 200 days - but these
can taken even longer if any of the multiple agencies involved
requires more time. Many workers cannot afford the various fees
incurred in the process (which is sometimes complicated by the
collaboration between factory bosses and local officials) and prefer
to settle the dispute in private for less compensation. The report
described one example of this: after losing three fingers in a
furniture factory accident, a migrant worker's boss said he could
either settle for RMB 3,000 for each finger, or sue the company with
no guarantee of injury compensation. Eventually the worker received
RMB 5,000 for each lost finger and was coerced by the factory to
never mention the incident.

Child Labor: Less Prevalent
--------------


8. (U) There appear to be fewer occurrences of child labor, though
examples do exist. Recently the Guangzhou Labor Bureau said that in
2006 alone it had dismissed 45 child laborers from factories in the
city. Additionally, some companies are known to exploit young
"interns" for cheap labor. On April 20 the South China Morning Post
reported that a subsidiary of the South Korean company Samsung
employed about 1,000 underage workers in Dongguan as "interns" to
staff about one-quarter of its production lines. Reportedly
students were hired from vocational schools in interior provinces
such as Hunan, Sichuan and Guangxi. The factory's human resources
chief acknowledged the company's policy, but said the practice was
legal because the interns were not involved in such dangerous fields
as mining or chemicals.

Legal Discrimination: "Migrants Need Not Apply"
-------------- ---


9. (U) The steady flow of migrant workers into the PRD has made
local residents resentful, leading to the creation of local laws

GUANGZHOU 00032421 003 OF 004


that are discriminatory. The South China Morning Post has reported
that some PRD establishments have placed want-ad signs stipulating
that people from Hubei or Hunan "need not apply." In the book
"Employment Discrimination: International Standards and National
Practice," Shenzhen University professor Li Weiwei describes
discriminatory Guangdong provincial laws. Examples include
requiring migrant workers to carry temporary residence cards (in
Shantou and Shenzhen); requiring migrant workers to be hired through
local labor administration bureaus instead of directly (Zhuhai,
Shantou, Guangzhou); and quotas on the number of migrant workers
(Guangzhou, Shenzhen, Shantou). Li argues that these restrictions
give local residents legal advantages over outside migrant workers.
Furthermore, such laws violate the State Council's 2004 "Notice of
Improving the Working Condition of Rural Residents in Urban Areas,"
which was designed to eliminate the differences between rural and
urban labor markets.

High-Profile Cases: Foxconn and Disney/McDonald's
-------------- --------------


10. (U) Most labor experts agree that the worst labor law violators
are Taiwan-, Hong Kong- and mainland-invested companies,
particularly of lesser-known brands. Two recent examples from this
summer, however, demonstrate that subsidiaries of famous brands may
also commit labor violations. First, in June, two mainland
journalists published an expose decrying the labor conditions of a
Foxconn subsidiary in Shenzhen, alleging that employees at the
factory worked 12 hours a day without being allowed to rest or talk.
(Foxconn is a Taiwan-owned manufacturer of various electronic
equipment, including Apple's "Ipod".) Foxconn immediately sued the
journalists for RMB 30 million (USD 3.8 million) and the Shenzhen
courts froze the journalists' assets, though the suit was eventually
dropped. Chang Kai, a Renmin University labor expert, called the
reaction by Foxconn and the Shenzhen courts "excessive and
unnatural," while the Southern Metropolis Paper (Nanfang Dushibao)
wrote that the case shows "the power of the rich and the difficult
situation of mainland journalists, which is only the beginning of
things to come."


11. (U) In July, a riot occurred at an 11,000-person Dongguan
factory owned by a Hong Kong-based toy producer for Disney and
McDonald's. Approximately 1,000 workers clashed with security
guards and police officers, resulting in many injuries. China Labor
Watch reported that the workers had numerous complaints of poor
working conditions including: 11 hour work days, six days a week;
excessive overtime; salary deductions for refusing to work overtime;
unpaid holidays; limited vacation and sick leave; overtime paid at
the standard rate (not paid at a premium as required by law); and
approximately one-fourth of workers' income spent on food and
dormitory fees.

Complaints and Protests
--------------


12. (U) A report by the All China Federation of Trade Unions
released in May said that Guangdong had 61,200 labor lawsuits
submitted in 2005, the highest number for any province in China.
The lawsuits mostly concerned wages and social welfare insurance.
The number could be potentially higher; however, according to labor
rights activists, workers who try to complain to the local labor
bureau often face harassment from their factory and police. For
example, a July 28 Internet open letter specifically mentions
problems with the Pingdi labor station in Shenzhen. According to
the author of the letter, the workers were first cursed at and later
put under house arrest for trying to report child labor violations
and forced labor of pregnant women.

Anecdotal Evidence of Labor Violations
--------------


13. (SBU) Various groups of workers have told Congenoff of poor
labor standards in their factories. Workers at factories in
Dongguan and Shenzhen complained of long hours and of often not
receiving the minimum wage. The workers were even more upset by
their living conditions. The workers live in a building with 20

GUANGZHOU 00032421 004 OF 004


dormitory rooms per floor, with one toilet for 100 or more people.
Others mentioned bad food, which the management refused to improve
despite complaints.


14. (SBU) Additionally, Congenoff met with underaged workers who
were tricked into working as interns for a Taiwanese electronics
factory in Dongguan. The workers, from Hunan province, all
approximately age 16, were attending a vocational school when the
factory approached their school promising internships to work five
days a week at a "decent" wage and to sleep with four to eight
people in a dormitory. The boys' parents agreed and paid the school
RMB 1,500 to allow the boys to leave school. In reality the boys
were required to work 11 hours a day, six days a week at below
minimum wages (RMB 490 a month, USD 61.25) and sleep with 400 people
in a warehouse. The boys said they were given two hours of training
before starting and the factory has 300 guards who were "very
violent" at times.


15. (SBU) In October, Congenoff visited the 9,000-person Kingsun
factories in Dongguan, a mainland-invested manufacturer of Christmas
decorations and cooking grills. One Kingsun manager proudly showed
Congenoff the factory's welding process. The shop floor was filled
with strong smells of metal and oil; hot sparks and dust spewed out
of the welding machines. Despite the air pollutants, there were no
working fans in any of the buildings. Additionally, workers did not
wear masks, eyeglasses or earplugs, though most did have gloves.
Workers lived in dorm rooms of eight people per room. Shop-floor
workers were paid RMB 700 a month (USD 87.5),RMB 10 more than
Dongguan's minimum, which did not include fees for room and board.
Workers are provided social insurance, but no health insurance.

Comment: The Source of Violations?
--------------


16. (SBU) Rapid economic growth, lack of government attention and
corruption are the main reasons for poor labor standards. The
problem of labor violations seems similar to intellectual property
rights violations or anti-corruption campaigns in that the
government's effort to enforce the law lags considerably behind the
growth of the problem. Part of this lag is due to the
juggernaut-like rapid growth of the Guangdong economy (almost 12
percent growth for the past 20 years),which leaves government-led
enforcement efforts, even were there the best of intentions (which
often there is not),in the dust. Labor officials in any country
would find it similarly difficult to monitor companies if thousands
of new enterprises sprung up in their district each year.


17. (SBU) Moreover, for the past 20 years economic growth itself
was the sole focus of Guangdong leaders. Only recently has the
central government promoted its "Harmonious Society" ideology, which
considers factors such as environmental safety, health and welfare
and social stability. In the past few years, as land prices in the
PRD have increased and labor and environmental standards have become
more stringent (reftel) some investors have begun to shift their
factories outside of the PRD to cities like Qingyuan and Heyuan.
Rampant corruption, fueled by foreign and domestic investors, occurs
at many levels of the Guangdong government, leading officials to
overlook labor violations. One British diplomat told Congenoff that
Hong Kong factory owners are known to even ask Hong Kong government
officials to lobby Guangdong to not enforce labor and environmental
standards in the PRD.

GOLDBERG