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What is the “China Price”?

A new book examines the cost of cheap goods from China.

SHANGHAI — Global, and particularly American, consumers have become accustomed to inexpensive goods from China. Low-wage manufacturing for export has largely driven the Mainland’s economic juggernaut since its ascension to the World Trade Organization in 2001, as well as fueling consumption around the world.

But behind every $2 T-shirt lies the overworked, underpaid human face of a Chinese migrant worker.

In her new book, “The China Price: The True Cost of Chinese Competitive Advantage,” Alexandra Harney gives a voice to some of these workers. She tells of the pressures and aspirations that prompted them to join the hundreds of millions of workers migrating from rural China to the coastal manufacturing centers, the many tribulations and occasional triumphs they encounter there, and above all the abysmal labor conditions due to the “race to zero” in sourcing expenses.

“The China Price” was conceived in 2003 when Harney, then working for The Financial Times, interviewed a sweatshop worker in Zhuhai and realized such stories deserved telling. “I wanted to show American lives and Chinese hopes and dreams are not that different,” Harney said. “I profile ordinary Chinese people, dispelling the stereotypes and the political debate. The world and individuals are more complex than that. I look at the global supply chain on the human level.

“Americans don’t think of China’s Generation Y as being the same as their own, but in fact they are,” she argued. “China has a lot in common with the U.S….Shenzhen faces the same challenges as Ohio, of how to deal with globalization while minimizing social disruption. Like the U.S., like Italy, they are all struggling.”

The book is aimed at both American companies that source from China and consumers, starting with an exploration of U.S. perceptions of China as a rising economic menace, and arguing throughout that both demographics should be willing to pay a premium for socially responsible manufacturing. Global morality aside, Harney points out, the manufacturers that cut corners on labor and environmental ethics are also the most likely to compromise on product safety and quality.

Moreover, the issues explored in “The China Price” are not unique to China, Harney explained. “[All of these problems are] not China-specific, it’s a supply chain problem. When China becomes expensive, it will continue on to Vietnam and Indonesia, so hopefully it can be addressed more before then.”

She added, “Unpaid health care, education costs, environmental costs are all added into the China cost. The bill is global. Still, nowhere is as efficient as China.”

“The China Price” delineates these systemic problems, with a focus on labor abuses. After outlining the myriad American economic fears of China in particular and outsourcing in general, the book’s second chapter explores the evolution of American outsourcing and global trade over the past several decades. Then, Harney delves into the local meat of the China situation. The issues include:

l How many suppliers maintain parallel factories: For each clean, modern one with legal hours and pay to satisfy buyers, the same company can operate several run-down facilities with poor safety but that provide workers with coveted but illegal overtime and allow suppliers a profit margin in the face of low prices.

l How many manufacturers cook their books to pass buyer and government inspections, and how the government usually turns a blind eye.

l How the lack of safety precautions endangers the lives and health of over 200 million Chinese workers.

l How difficult it is for Chinese workers to seek redress when they or a relative are maimed or killed on the job.

l How small, illegal operations can provide a sole and tenuous lifeline to impoverished Chinese.

“Every factory manager has a thousand others to compete with, so they will do whatever it takes to survive. They make money while they can, never knowing when the opportunity will change. It’s part of the China price, they’re all trying to survive. Competition plus pressures domestically and internationally are intense,” Harney explained. “Surviving means [manufacturers] can’t make money by following the law. It is so widespread, it is normal. Even the coal mine owners doing illegal operations just want a better life for their kids. I can’t endorse what they do, but I understand why they do it. It’s a gold rush mentality, with coal in the ground.”

Rather, she argued, responsibility lies with buyers eager to shave a few pennies off prices regardless of the human cost, and there “The China Price” is not all doom and gloom. The book proffers several stories of workers turned activists who have taken on the system, of factories out to show that ethics are not antithetical to productivity, and offers prescriptions for international companies and consumers wanting to source responsibly from China.

“They can start by bringing their buying practices and social responsibility compliance together. They can’t have First World conditions at Third World prices,” she explained. “The mind-set requires a lightbulb moment where companies realize it’s in their own interest. That workers are assets, not liabilities. A lot already have people, inspectors on the ground, but with a check-the-box mentality” that easily overlooks China’s creative accounting practices and shadow factories.

“A lot do well, though,” she added, citing the Gap, Nike and Adidas as apparel manufacturers who “are all fairly honest in their reports and provide the data. The difference is transparence.”

However, “Brands are the first to say how hard it is to know for sure. Whether they have thought about it, even enough to lie about it, is telling.”

In the interview, Harney offered several suggestions specific to the fashion industry, criticizing its propensity to high supplier turnover. “Apparel generally moves very quickly from factory to factory, with style delivery time short and fast fashion, which results in immense pressure on factories. They cannot improve conditions in a factory if they are only there three months. Only if they shrink their number of factories, and reduce churn-over, only then can they have significant impact on and leverage with their suppliers,” she stressed. “It also benefits quality, as it ensures less chicanery. For example, factories lie to buyers about hours, wages and quality — if factories are trying to cheat on one thing, they are probably also doing it on others.

“It’s not just a few; a majority, like 90 percent, falsify records, although it varies by region,” she explained. “The price pressures mean it will continue.”

Harney advised that buyers establish more direct, proactive and permanent relationships with their China suppliers. “They could all do well to spend time with their workers and managers, get them to tell the truth, to talk honestly — both would learn a lot,” she observed.

She suggested that change start with “more direct reporting to senior management,” eliminating the self-interested middleman.

Second, buyers should consolidate their number of suppliers; “One thousand is better than 3,000, 300 better than 1,000; fewer is better,” and more easily managed. Finally, they should “award more business to socially compliant factories. When they don’t there is no incentive or benefit to factories to be more so rather than to view it as irrelevant. This will improve quality also. There are great factories in China — work with and reward them.”

Whether or not consumers pressure brands to change, the impetus is already growing as China is changing. Its economy and society continue to lurch in new directions, wages and the yuan are rising, and the government has espoused increased commitment to corporate social responsibility. “With environmental and labor behavior, [the government] is damned if they do, damned if they don’t. There are reasons China needs to do it, but at the same time it leads to inflation,” Harney said. However, she added, she has not witnessed any spike in labor standard enforcement to accompany the stronger labor law that China implemented at the beginning of this year.

The biggest shift, however, is demographic, as China’s current and future crop of workers hail from the so-called “Little Emperor” generation that resulted from the country’s one-child policy. “A lot of Chinese companies are not equipped to motivate and keep these kids. For example, I talked to one manager overseeing 40,000 workers, who said it was his biggest human resource challenge, that Generation Y is ‘spoiled rotten.’ It is hard to say what will happen with them,” said Harney.