Alleged Labor Violations at Mainland Headwear

UNCLAS SECTION 01 OF 03 GUANGZHOU 000699 SIPDIS SENSITIVE SIPDIS 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 E.O. 12958: N/A TAGS: ELAB PHUM PGOV SOCI CH SUBJECT: Alleged Labor Violations at Mainland Headwear Holdings Factory in Shenzhen (U) This message is Sensitive But Unclassified. Please handle accordingly. ¶1. (SBU) SUMMARY: Following the release of the PlayFair 2008 report, "No Medal For the Olympics on Labour Rights," and media reports of alleged labor violations at four Pearl River Delta (PRD) factories, Congenoff visited one Shenzhen factory cited in the report - Mainland Headwear Holdings Limited - to observe labor conditions and discuss the allegations with company representatives. While problems exist at Mainland Headwear, particularly with regard to wages, overtime, and possible "coaching" of employees, Congen did not observe egregious violations, and some of PlayFair's allegations did not appear to be accurate. END SUMMARY. Unrestricted Access -------------- ¶2. (U) Mainland Headwear corporate representatives and factory managers permitted Congenoff unrestricted access to their Shenzhen factory working areas, offices, and worker dormitories, allowing him to take photographs and to speak privately with any employee. Taking It Personally -------------- ¶3. (SBU) Mainland Headwear Director and CEO Peter Ho - a Hong Kong resident and Canadian citizen - repeatedly told us that the company categorically denies all accusations in the PlayFair report. He wants to "set the record straight" by allowing anyone to come visit the factory and observe working conditions there. Moreover, the company's founder and current Chairman Ngan Hei-keung has taken these accusations personally, prompting corporate and factory management to swiftly respond to the report. (Note: Mainland Headwear was the first company cited in the report to respond to the Consulate's request for a site visit and for comment on the alleged labor violations. We are in the process of contacting others and trying to call on them. End Note.) Alleged Violations - "Wages below legal minimum; Excessive working hours" -------------- --- ¶4. (U) The PlayFair report cites seven alleged labor violations. With regard to the first, "Wages below legal minimum, excessive working hours," several factory employees told Congenoff that they were paid wages of approximately RMB 1,000 to 1,500 per month for a 40-hour work week plus moderate overtime. While company representatives and employees alike said that their wages met or exceeded minimum legal levels, most factory workers did not appear to understand how much the company paid them per hour for overtime and said their pay stubs did not specify overtime hours worked. In an email to post, Peter Ho stated that piece-rate workers' average monthly pay is RMB 1,100, and that supervisors earn over RMB 3,000 per month. In addition, Ho said that workers not only get paid in excess of the minimum wage, they are provided adequate insurance, and free accommodation and food. ¶6. (SBU) The factory operates continuously, rotating different groups of workers in two shifts. The company employs approximately 3,000 workers and staff. According to Brenda Ko, Chief Financial Officer and Company Secretary, 800 workers in the computerized embroidery unit SIPDIS work either from 7:30am-7:30pm or 7:30pm-7:30am. One worker told Congenoff that each shift has a 45-minute meal break, and that he has two days off per week, but not necessarily Saturday and Sunday. ¶7. (SBU) CEO Peter Ho suggested that the PlayFair investigators observed the factory from the outside and assumed that the same group of workers was forced to work GUANGZHOU 00000699 002 OF 003 longer hours. Workers during the day shift did not appear excessively tired; break areas are provided for employees, and of over 500 workers observed, only one was seen resting her head at her sewing table. All workers interviewed told us that overtime was voluntary. Most of the workers were from rural Guangdong, Fujian, Hunan, or Guangxi and remit a portion of their wages to family members in their home towns. ¶8. (SBU) Ho told Congenoff that under the comprehensive average overtime plan approved by the Shenzhen Labor Bureau, workers can work up to 60 hours of overtime per month during peak seasons. Ho estimated that the average employee works between 55 to 58 hours of overtime per month - within the approved limit. Ho said that this practice is endorsed and verified by the company's customers during regular factory audits (Note: This reflects a gray area in Chinese labor labor implementation. The Labor Law limits overtime to a total of 36 hours per month, a level that employers, buyers, and often workers say is unrealistically low. Buyers' social compliance auditors generally accept higher levels of overtime as consistent with their codes of conduct if the local labor bureau endorses the factory's overtime policy, as in this case. Meanwhile, some labor NGOs and business responsibility advocates question the accuracy of labor audits altogether. End Note). Ho claims overtime is paid at one-and-a-half times the normal rate on weekdays and at three times the normal rate on holidays. "Difficulty in resigning" -------------- ¶9. (U) Ho told Congenoff that the turnover rate is low; those who do quit are not penalized, and pay is not withheld. Workers did not complain of any restrictions or penalties for resigning. "Hiring practice" -------------- ¶10. (U) Assistant General Manager Yeh Jui-Ming said that underage applicants occasionally attempt to get jobs at the factory, some using fake ID cards or relatives' ID cards. The company refuses to hire them or fires them as soon as the fake ID is discovered. Factory managers told Congenoff that most employees are in their 20's. Workers during the day shift did look to be in their 20's or 30's. The youngest worker interviewed was 18 years old. "Misleading inspectors and customers" -------------- ¶11. (SBU) Company representatives denied that this occurs. Congenoff noticed that several employees were visibly uncomfortable answering certain questions, particularly those concerning wages, but were much more relaxed when answering biographical questions. "Health and safety hazards" -------------- ¶12. (U) Work intensity at the factory did not appear excessive during our visit. Contrary to the PlayFair report, no weaving is done at the Shenzhen factory, and there was little or no ambient dust. Embroidering rooms and offices are air conditioned; other sewing and finishing areas have fans and were cooler than the outside temperature. The factory runs an on-site clinic, but the health care worker there told us that there had only been one work-related injury since January. Nearly all sewing and finishing workers sat on stools without backs, but one sewer interviewed stated she had no back problems as a result. "No legal maternity leave" -------------- GUANGZHOU 00000699 003 OF 003 ¶13. (U) Ho told Congenoff that the company does provide 90 days of maternity leave, adding that not many of their workers have become pregnant during their time with the company. One worker who had recently given birth told us that she had her baby prior to starting work for the company, otherwise she would have taken advantage of the maternity leave policy. Article 4.1.3 of the factory worker manual states that female staff are entitled to 90 days maternity leave if the pregnancy is in accordance with family planning regulations. "No support system, no union representation" -------------- ¶14. (U) Ho showed us registration documents for the workers' committee organized at the factory, as well as a list of members (approximately 1,000). (Note: China's labor law provides for the establishment of workers' congresses or congresses of workers' representatives in enterprises, whether a union exists or not. End note.) Company representatives also made committee meeting minutes available for review. The workers' organization also runs a small convenience store at the factory and has a limited welfare and recreation program. The committee has several comment/suggestion boxes in place at the factory to facilitate communication between labor and management. Replies by the Chairman to questions or comments submitted this way are sometimes published in the factory's internally circulated magazine. ¶15. (SBU) The Chinese Communist Party also has an organization at the factory, but Ho admitted that he does not ask employees about it, nor does he know much about the organization's activities. Comment -------------- ¶16. (SBU) Without knowing sources PlayFair 2008 used in its research into conditions at Mainland Headwear, Congen cannot comment on whether the PlayFair report fairly reflects the conditions their researchers observed. Congen's own observations did not track fully with PlayFair's assessment. While labor violations at this company did not appear egregious, the allegations PlayFair made are typical of reports from other factories, especially small or unregistered factories. It appears that the common view of employees at Mainland Headwear is that anything paid over minimum wage is acceptable, without regard to overtime. With respect to worker associations, we note that even when present, ACFTU unions usually support company management and plant operations. GOLDBERG