The Multinational Monitor

JUNE 1997 · VOLUME 18 · NUMBER 6

T H E    M O N O P O L Y    M A K E R S

The Hong Kong Takeover
... of South China

by the Asia Monitor Resource Center

HONG KONG -- The Chinese political takeover of Hong Kong on July 1, 1997 was preceded in the past two decades by a transformation at least as momentous: the Hong Kong economic takeover of Guangdong province in southern China.

Following its initial economic reforms in the late 1970s, China established its first Export Processing Zone in Shenzhen, a city just across the border from Hong Kong. Soon the Chinese authorities expanded the economic experiment to include all of Guangdong province and 14 major cities -- and approximately a decade later, to include the entire country.

Hong Kong investment quickly poured into Shenzhen and the seven other municipalities in Guangdong's Pearl River Delta. Labor supplies in Hong Kong were tight, wages rising and land prices and rents escalating astronomically. South China, like other Southeast Asian countries including Thailand, Cambodia, Sri Lanka and Vietnam, offered Hong Kong investors dramatically lower-wage workers and an investment climate in which worker-protection regulations were poorly enforced.

Although foreign investors are increasingly setting up heavy industry factories in China, with goods made for Chinese domestic consumption or export to Asian markets, the first wave of foreign investment concentrated in low-wage, labor-intensive industries, among them garments, shoes, electronics and toys.

Hong Kong remains the leading "foreign" investor in China, the source of about 80 percent of total foreign investment in Guangdong. A high proportion of this investment is by small and medium-sized companies, and some larger ones, in labor-intensive industries. The Hong Kong companies produce mainly for U.S. brand names or companies such as Nike, Mattel, the Gap, Reebok and Kmart.

Some significant portion of overall Hong Kong investment in China is really re-invested money, investments undertaken by Hong Kong subsidiaries of U.S., Japanese or other foreign corporations, including those from China itself.

Workers in the Hong Kong and other foreign investor factories in Guangdong face miserable conditions. Wages are low, hours are interminably long, working conditions are unsafe, living arrangements are cramped and dangerous, supervisors are arbitrary and brutal and labor rights doubly constrained, both by law and managerial repression.


These problems are most severe for the millions of peasant migrants who travel from the interior provinces, where jobs are scarce and pay far lower than in the high-growth coastal areas, and especially for women migrants. There are now considerably more peasant migrants working in the Pearl River Delta than local workers. In 1993, 4.8 million local workers had residency permits in urban areas, less than one million of whom worked for foreign and privately owned enterprises. At the same time, there were an estimated 6.5 million peasant laborers in the region.

A disproportionate number of peasant laborers are women. While women make up more than 40 percent of all local workers, they constitute more than 60 percent of all peasant workers.

Peasant laborers enjoy less job security than local workers because they mostly work in foreign-owned, rural and private enterprises. Following economic reforms of the mid-1980s, many of these private enterprises now legally employ workers on a temporary basis.

Private sector employers often dismiss workers after employing them for two to five years, typically for no reason other than a desire to hire younger workers. Women workers often have difficulty finding factory work after age 25, while male workers experience the same problem at age 30 (except for a small number of skilled technicians). One incentive for employers to fire women as they enter their mid-20s is to avoid paying maternity leave. In 1994, 80 percent of Shenzhen unemployed workers older than 24 years were women.

Peasant laborers who lose their jobs have little recourse. Arbitrary dismissals are common and legal. And while approximately half of local Guangdong workers receive unemployment insurance, few migrant workers do. From the government's point of view, there is no such thing as unemployed peasant laborers; peasant laborers are expected to return home immediately if they cannot find a job.


China is now the world's largest garment producer and exporter. In 1996, 4 million laborers toiled in approximately 44,000 garment factories to produce 8.5 billion pieces. Sui Dong and Sui Sai (not their real names), immigrants from Hunan province, have worked at the Heo Shing Garment Co. in Dongguan for a year. They work seven days a week, and say their working hours often stretch through the night.

Their hours are not unusual. Although China's labor law establishes an 8-hour workday and a 44-hour work week, employees in eight representative garment factories producing for the German market average 69-hour work weeks. Workers in these factories typically receive only two regular rest days per month.

At the Li An Garment Co. factory in Dongguan, 150 employees work an average of 48 to 50 hours overtime every month, from 6:30 p.m. to 9:30 or 10:00 p.m. Generally, they work overtime for four consecutive nights, with no overtime for the fifth night. Workers receive two regular days off a month. At the Kam Tai Garment Factory in Shenzhen, workers regularly work six hours of overtime a day, until 12:30 a.m., and sometime even until 2:30 a.m. They work on statutory public holidays and during festivals, except for the mid-autumn festival and the Lunar New Year.

Workers at the garment factories earn between $25 and $87 a month, including overtime pay. Wages vary by factory, and especially by worker, since many are paid by piece rate. Overtime wages are sometimes as low as 5 cents an hour, though they are required by law to be a minimum of 37 cents an hour.

Workers often do not receive even the paltry wages they earn, as employers impose a series of strict and arbitrary penalties, fines and improper deductions.

At the Heo-Shing Garment Co., the company helps workers buy bus tickets home for leave during the Chinese New Year -- but charges $4.50 extra per ticket. Those who stay in the dormitory during the New Year holiday are charged $12. When child workers once complained that they were too tired to work overtime, supervisors demanded $2.50 to permit them to skip overtime.

Wiebledon Services Co. in Dongguan will fine a worker 50 cents for being one minute late. The company once fined a worker $75 -- more than her entire month's wage -- for being two hours late; after the worker complained to the Labor Bureau, the fine was lowered to $4.50. The company withholds 10 percent of the workers' monthly salaries. If a worker leaves the factory before the year is up, the company confiscates the 10 percent holding.

The workers typically live in company-provided dormitories. These are small, cramped, dirty and tightly controlled by company security guards. Workers at Wiebledon sleep 12 to a room, with a single fan. The workers complain that the company does not take responsibility for cleaning the factory. Electricity in the dormitory is cut off when the employees go to work; ill workers are unable to stay and rest in the dormitory because it becomes so hot.

Working conditions are usually uncomfortable and unsafe. At the Shenzhen Fulied Industry Co., workers report the factory is without any air conditioning or ventilation system, and extremely hot. There are only three standing fans in the main workshop, and no fans in the ironing and trimming room. Without proper ventilation, workers are likely to be exposed to floating fibers. Wiring in the factory is exposed, posing an ever-present risk of fire.

Many of the workers also are exposed to dangerous chemicals used in cloth processing (for example, the cleaning solvent perchloroethylene) and textile finishing (such as formaldehyde), as well as to hazardous dyes. They are rarely outfitted with proper masks or safety devices.


Hong Kong investors are not quite as dominant in other labor-intensive sectors as they are in garments. In the shoe sector, Taiwan is a co-leading investor. In 1995, Hong Kong and Taiwanese investors each operated approximately 1,000 shoe factories in China. These factories make up the overwhelming number of foreign shoe factories in China.

Along with Chinese factories, the Hong Kong and Taiwan factories combined to export nearly $6 billion in shoes in 1994. As of 1994, China was manufacturing approximately 40 percent of the world's shoes.

Hong Kong factories are focused on the production of women's shoes and the manufacturing of casual leather shoes. Because they emphasize fashion and quality, the manufacturing of these shoes requires somewhat more skilled workers. Most of the Hong Kong factories are medium-to-small scale, typically employing 200 to 500 workers each.

Electronics production is more directly under the control of major multinational corporations, which often rely less on subcontractors than their counterparts in garments, shoes and toys. Among the major electronics firms with factories in China are the Japanese Sony, Sharp, JVC and Matsushita, the U.S. IBM, Bell and Motorola, Canada's Northern Telecom, the British BOC and the South Korean Samsung. But Hong Kong investment is of overriding importance in this sector also: in 1994, China exported nearly $850 million in electronics goods to Hong Kong, much of it certainly for re-export, nearly 10 times the amount sent to the United States, the second leading Chinese export market.

The Chinese government has designated electronics as a "pillar industry," and is seeking to upgrade production from parts and assembly and low-tech goods to higher end products, as well as to facilitate the development of information services.

The varied natures of the garment, shoe and electronics industry notwithstanding, conditions for workers in these sectors are depressingly similar. Hours and wages are roughly similar in all three industries; working conditions, if anything, are more hazardous in shoes and electronics than in garments.

Shoe workers are exposed to huge amounts of glue and thinners. Few of the factories provide them with adequate masks and gloves, and many do not have proper ventilating systems. Shoe workers routinely complain of dusty conditions, the nauseating smell of chemicals and ailments including dizziness, headaches and skin rashes. They frequently contract nasal cancer and experience chemical poisoning.

Many of the workers are ignorant of the hazards of the chemicals and substances with which they work. A group of women workers from the Hong Kong-owned Chung Ming shoe factory in Shenzhen say they are aware that the rubber materials and chemicals with which they work cause their skin to itch and are poisonous. However, as one worker puts it, "Our skins itch, but this depends on the individual. ... Some don't have such good complexions, so they itch. ... Others have good complexions and they get used to it. ... We only work one or two years, so we aren't afraid." None of the workers seem aware of the chronic disease and ailments which they may acquire from the poisonous substances.

Dangerous chemical exposures are rife in the electronics industry, where workers work with approximately 300 different chemical substances. Most workers in the industry say they are not provided with safety helmets, masks or gloves.

The electronics factories are accidents waiting to happen. One particularly severe case occurred in November 1993 at the Hong Kong-owned Rirong Plastics electronics factory in Zhongshan. Workers inhaled escaping fumes from extremely toxic glues; three died and 30 more fell ill. Management had not advised workers to use any protective equipment, and none of the workers were aware that the factory was using toxic materials.


Confronted with these myriad problems, the workers at Hong Kong and other foreign-owned factories in Guangdong and elsewhere in China do not have the benefit of independent trade unions to help them fight for improved working conditions.

Only about 22 percent of foreign-owned factories in Guangdong were unionized in 1995, and those workers who are unionized are represented by the All-China Federation of Trade Unions, which is under control of the ruling Communist Party. The unions perceive a dual mandate: to protect workers, but also to advance the profitability of the enterprises at which they represent workers. In this situation, workers plainly cannot rely on the union to defend and advance their interests. Nonetheless, there is a surprising degree of organized worker resistance to employer repression.

One substantial strike occurred in May 1994 at the Hong Kong-owned Weiwang electronics factory in Zhuhai City. More than 2,400 workers struck to demand higher wages, shorter hours and better living quarters. On the second day of the strike, the Zhuhai City Labor Bureau and the ACFTU got involved. The ACFTU told the workers that their 30 percent wage increase demand (the inflation rate was 21 percent) was unreasonable, and that ACFTU workers had only gained 10 percent wage hikes. The "mediation" forced workers to accept a 13 percent wage increase -- approximately what management had initially offered -- and an agreement to shift to an 8-hour day, a promise management quickly broke. After the strike ended, management fired between 10 and 100 workers from each shop, mostly long-time employees.

This incident, and others like it, including many smaller worker protests, are disturbing, for while they show a deep strain of resistance to the inhuman conditions in which workers are forced to toil, they also show that the combined power of the government and employers is, for now, overwhelming.

As severe as is the challenge of assuring Chinese respect for Hong Kong political rights, the task of obtaining Hong Kong investor respect for Chinese worker's labor rights appears even more daunting.

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