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Book Launch: The China Price: The True Cost of Chinese Competitive Advantage

April 25, 2008 // 10:00am12:00pm
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Environmental Change and Security Program
Asia Program
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With the recent scandals involving tainted food and toys from China, and mounting concern over the ever-growing pollution produced by Chinese industry, it is clear that what happens in China does not stay in China: It has a tangible, and at times devastating, global effect. With The China Price: The True Cost of Chinese Competitive Advantage, veteran foreign correspondent Alexandra Harney has written an exposé of how China's factory economy competes for Western business by—in her words—selling out its workers, its environment, and its future.

Harney's book is notable for putting a human face to China's rapid economic growth by learning about the challenges facing factory workers. Among the book's major revelations is Harney's reporting on the little known, but vitally significant, parallel system of factories that operate in China today—the "five-star" facilities that get inspected and audited by foreign buyers, and the "black" unlicensed, un-inspected factories that make some of the products that end up in stores in the west. Notably, all the players in this system demand the "China price"—the workers want more hours so they can send more money to their homes; the foreign buyers want prices that are often unrealistically low, so that the only way for factories to meet it is to massively cut corners and disobeys health, safety, and environmental laws.

Harney's book notably documents the towering costs of the "China Price" to the world's largest manufacturing workforce—the Chinese themselves: Horrendous health problems (the worst in the world per capita); the lack of safety inspectors in factories; and the world's most dangerous coal mines. Harney noted that "the consequences of this system are clear: Western consumers obtain cheap goods, but at a price, to ourselves, and to China."

Author's Path to the Book

Early in her career, Harney studied Japanese because she believed them to be her "future bosses," but while in Japan she realized that all the Japanese were studying Mandarin, which prompted her to move to Hong Kong. While working for the Financial Times, Harney visited factories in Guangdong that served as an inspiration for her book. These were the factories where women made $100 a month and had just enough to buy tissues and soap. At first, Harney worked through a translator and found herself followed everywhere by a Shenzhen public relations representative who called himself her friend. So she changed her name to a Chinese one, improved her Chinese, and traveled around China on her own, conducting most of her research in Guangdong.

Guangdong Province, which produces one-third of China's goods, has a population of 110 million with over 400,000 factories, some with more than 250,000 employees. If Guangdong was a country, it would be slightly smaller than Saudi Arabia in terms of GDP. The economy is fueled primarily by rural migrants, who do not enjoy state services such as insurance, subsidized housing, and education.

Shadow Factories

In the book, Harney tells the story of a man from Hong Kong, who grew up stitching jeans when Hong Kong was the major manufacturing center of the world. As an adult he started his own factory in Guangdong that supplied Wal-Mart. When he found it too difficult to follow all of China's domestic laws regarding worker safety and environmental protect at the price demanded by Wal-Mart, he ignored the laws and instead created an entire set of fake records to meet the standards demanded by Wal-Mart auditors. Harney says that this factory façade is systemic in global manufacturing and in fact, Guangdong has high-tech falsification engineers who design software and fake documents. Although Harney found one such professional, she was unable to secure an interview.

In time, the factory owner became concerned about being caught with fake records, so instead he did what many of his peers had done and created an entire fake factory—a shadow factory nearby his old factory that produced 60 percent of the goods he sends to Wal-Mart without following any of the national or company codes. He calls his original factory, which follows all the codes and laws and receives all of his auditors his "five-star factory." This model has proven so successful that the owner is in the process of setting up more untraceable shadow factories.

Health Crisis Among Workers

Harney related a number of stories how Chinese workers suffer from health problems linked to their work including one factory worker who was an avid jogger. He jogged for 2 hours everyday until one day he came home unable to catch his breath. The doctor diagnosed him with silicosis, a fatal lung disease caused by inhaling crystalline particles. He believed he had contracted the disease from his work polishing gems and sued his employer. The prolonged lawsuit and the financial burden of legal fees forced him to borrow money from friends and relatives who later would visit him in the hospital to ask for money, afraid that he might die before repaying them. Eventually—five months before his death—he won the case, after attracting the attention of nongovernmental organizations in Hong Kong and was awarded $30,000.

There is little awareness among migrant workers of the huge health care costs they can incur working in the factories. Only one-fifth of workers have health insurance in Guangdong. Women in certain factories give birth to babies with deformities or in one case, a purple-black skin color. The lead exposure faced by children in the Western countries in toys is dangerous, but it is just a fraction of what workers in toy factories face.

Further up the production chain in China are the workers in the coal mines—which supply 70 percent of the countries' energy. Coal is relatively cheap, but it has come at a cost for some of the main coal-producing areas, such as Taiyuan in Shanxi province, which is home to 4 of the world's 20 most polluted cities. Harney opted to visit Shanxi because she heard of many workers have developed silicosis, but they still continued to work in the mines. Taiyuan used to be the most polluted city in the world. Now it witnesses the highest number of deaths from lung cancer and its children have excessively high levels of lead in their blood. The city has been a major target of international environmental projects, such as the SO2 emissions trading initiative sponsored by the Asian Development Bank and Resources for the Future, which helped promote greater attention to controlling this pollution.

But in 2006 when Harney visited Taiyuan it was still a city with pollution so thick that it was choking. The city is a microcosm of environmental issues in China: economic development versus human and environmental health. At a state-owned coal mine in the countryside, Harney found lots of people suffering from persistent upper respiratory infections. Just like the shadow factories she found in Guangdong, there are shadow mines. As the price and demand for coal has increased over the past decade, mining has become very profitable. Local officials—the ones meant to be conducting environmental and safety audits—are often found to have personal financial interests in the mines. Tragically, people in Taiyuan are more afraid of being identified as whistleblower and fired than dying from diseases, as they have families to support.

The New Generation and the End of the "China Price"?

Harney tried to connect with people working in the factories and stay in contact with them to see where they went after their time in the factories. One women whom she met working in factories in Shenzhen, left factory work at 21 to become a sales woman. Harney followed her through her professional journey, moving overnight from someone on the line, to someone selling real estate—a speedy transition only possible in China. This woman represents a second generation of migrant workers with a new set of ambitions for themselves. The first generation came to the factories hungry and desperate for work under any conditions. The new generation grew up hearing stories of terrible conditions and long-term health effects of those factories and is more cautious and demanding of their employers. One factory owner called them lazy and spoiled, but they are simply placing higher value on their lives than previous generations have. Their demands have forced factories to compete for their labor, forced wages to grow at double digit rates, court cases against factories to quadruple; they have also pushed for factory amenities such as swimming pools, libraries and basketball courts.

Disgruntled workers are standing up for their rights and challenging factory bosses, as well as forcing the government to introduce the most sweeping overhaul of China's labor laws in more than a decade. These changes along with the rising costs of raw materials and land are pushing up prices, signaling that the era of ultra-cheap Chinese consumer goods is ending.

Harney closed with a list of trends to watch for during this transition:

• The Chinese migrant workers as an important force of change: The trend towards smaller families places demographics on their side in terms of wages. While there are no independent labor unions, workers have more choices today for work.
• The shift in the policy environment: The Yuan's appreciation will have a big impact on the profits of manufacturers. There will be new labor laws, strengthening unions, rising minimum wages, and rising costs for resources.
• The need for innovation and more transparent supply chains: In order to turn a profit, factory managers need to work in marketing and innovation, brand names, and more valuable supply chains.
• Overall rise in prices. Prices for Chinese have been rising since 2004 and this trend will continue, with 20 to 30 percent price increases by December 2008.

Overall, although the transition away from the "China Price" may be painful, however, the result of these changes will be positive with safer workers and products and a cleaner environment.

Drafted by Ma Tianjie and Jennifer L. Turner.

 
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