New China Tale: The Runaway Bosses

The country has seen an upswing of cases in which factories uproot and move their shops overnight, leaving behind thousands of unpaid employees and large debts.

Workers at a clothing factory in China.

BEIJING — For the millions of migrant workers who staff China’s production lines, labor rights have always been a tricky business.

This story first appeared in the March 26, 2013 issue of WWD.  Subscribe Today.

Long hours, low pay and lax regulation have long been problematic for workers, and now a new disturbing trend appears to be emerging in China’s manufacturing heartland: factories that uproot and move their shops overnight, leaving behind thousands of unpaid employees and large debts. Labor rights groups, such as the Hong Kong-based China Labor Bulletin, that monitor the Pearl River Delta manufacturing center say there has been an upswing in these cases over the past year in and around Guangdong province.

Anecdotally, there is no shortage of workers and shuttered factories that bolster the tale.

Lu Dahai worked for several years at a show factory in Foshan, a manufacturing town not far from Guangzhou. Lu said he was injured at work, his wrist broken in a production mishap. While he was laid up in the hospital, Lu’s employer packed up and moved the entire factory operation. While many of the workers were given compensation for lost wages, Lu got nothing — a violation under China’s labor contract law. In a recent phone interview, Lu said he is suing the factory owner in a case that will go to court in May.

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Lu’s case is far from isolated, though the particular details vary by town, factory and worker. Several workers interviewed described how their factory jobs vanished overnight when the bosses pulled up stakes and moved operations.

The trend appears to have gained more traction during the Chinese New Year holiday in February, the one time each year when factories slow or halt production and workers return home to visit their families. Though there has been no in-depth study to quantify the problem of what’s been called “runaway bosses,” there are numerous reports from factory workers around the region who went home for the holiday and returned a few weeks later to find their workshops had shut down and moved away with no notice or wages left in their wake.

Fang Xiangyang went home to visit family hundreds of miles away during the New Year holiday, taking standard time off from her job at a ceramics factory in Shenzhen. When she went back to work, the factory where she had been employed for three years was shut down and the boss was gone. The company took about 20 percent of its workforce to a smaller coastal city when it moved and left nearly 200 other workers behind, jobless and unaware.

The problem for workers is compounded because the majority of those in the Pearl River Delta are themselves from elsewhere. Factories are now often moving back to the poorer provinces in China that for decades have been the source of Guangdong’s massive migrant labor pool. Workers and advocates said the “runaway bosses” trend shows no signs of slowing and will likely ramp up as more manufacturing plants look for ways to save costs.

“This is a common phenomenon in Shenzhen because it’s more and more difficult to do business in Shenzhen,” said Fang, who is also trying to get compensation from the factory. “Rental prices for housing and labor costs are rising. Tax benefits no longer exist.”

Those tax benefits often do exist in underdeveloped cities, however, prompting more factories to relocate.

Typically, labor groups say, the factory owners move to inland provinces where labor and resources are cheaper than in the commercially saturated Pearl River Delta. Workers are increasingly left behind in factory relocations because their salaries have become too costly and factory owners want a fresh supply of low-cost labor in places like rural Henan province, where wages are low and jobs are not as plentiful.

China’s central government has encouraged companies to open manufacturing plants in the rural hinterlands, but it has not addressed this potentially unintended consequence of workers being left behind in the wake.

Production overall slowed in China last year, according to official data, but manufacturing has picked up again in recent months. Factories have a better outlook moving forward, but most are constantly on the lookout for ways to cut costs and increase profits in a tight market.

The Purchasing Manager’s Index for China, a measure of manufacturing output, was below 50 for several months last year, a signal of constriction. In November, the PMI rose above 50 again, signaling a rebound. It has remained on the upswing for several months since and is estimated to have been at 51.7 for March.

Tao Guwen, a labor attorney in Shenzhen, said the labor problem became much more apparent last summer, when multiple reports began filing in of workers losing jobs and incomes to factory relocation without notice. Under Chinese law, employees are owed compensation depending on how long they have been employed.

Tao said the issue is especially apparent in the textile and apparel manufacturing industry, where profit margins are notoriously slim to start.

“I think there are two main reasons,” he said. “First, the cost of labor is rising. Second, the clothing industry is suffering from a recession. Some famous sportswear brands have already opened outlets in Guangdong to clear out their old stock, which illustrates their bad performance.”