Posted on 18 10-2003
Made in China
By Hamish McDonald. October 18, 2003 www.smh.com.au
When Australian mums and dads buy their kids a Paddle Pop or
Calippo Frost at the beach this summer, few will bother to read
the fine print on the wrapper. If they do, they will see, close
to the seam or under a fold, the words "Made in China".
For the past three years, all iceblocks sold under the venerable
Australian brand Streets have been made in a Shanghai factory.
The owner of Streets, the Anglo-Dutch food and detergent giant
Unilever, says no jobs were lost in the move. It's just that
it was difficult and expensive to produce such "seasonal
innovations" in Australia.
After three years, Unilever is evidently content with Chinese
production - and why not? Industry sources in China say it has
cut costs on these icebocks by 40 per cent, even allowing for
shipping to Australia.
The same sources say it would be technically possible to do
the same with Streets' milk-based ice-creams like the Cornetto
without changing the taste or reducing food safety standards.
The Shanghai factory would not even need to import the milk
powder: the Chinese Government is vigorously promoting a dairy
company named Yili in Mongolia as the domestic answer to Nestle,
in an economy-wide drive to build "famous Chinese brands".
The only things stopping Unilever are consumer acceptance
of a Chinese-made milk product and Australian food-import rules
that do not permit milk-based ice-creams from China.
But for the 200 workers making Streets ice-cream at the Unilever
plant in Minto, on Sydney's outer south-west, and another 60
workers at the Norco factory in Lismore making Streets brands
under contract, China is the threat constantly being waved by
management to get them to sign individual contracts and sign
away conditions won by the Australian Manufacturing Workers'
Union. "They're told that if they don't become more competitive
in respect of labour costs, the company will have to look at
sourcing their ice-cream elsewhere," says an AMWU organiser,
Jennifer Dowell, who is also hearing about possible relaxation
of the import regulations.
WHO can compete with China on labour costs? The fear being expressed
in Minto is echoed around the world, and not just in affluent
Western countries like Australia. Even Mexico, the cheap-labour
neighbour of the United States, says it has lost 218,000 jobs
to China since 2001, and more are going.
More than a year out from the US presidential election, China
is fast becoming the whipping boy for the "jobless recovery"
in the American economy, with President George Bush's Republicans
and Democrat rivals competing to flay Beijing for keeping the
yuan pegged to the falling US dollar and maintaining its cost
advantage.
Across the Atlantic, meanwhile, the president of the European
Union, Romano Prodi, worries aloud about the "de-industrialisation
of Europe". On a recent trip to Beijing, the Prime Minister,
John Howard, was careful not to buy into this argument, playing
bilateral trade as a "win-win" deal, with Australians
getting cheap manufactures from China while selling ever-larger
volumes of liquefied natural gas and metal ores. He is certain
to play on this theme again when the Chinese president, Hu Jintao,
visits Australia next week.
But with China enjoying a strong surplus in its dealings with
Australia - it exports $14 billion to Australia, while Australia's
exports to China are about $9 billion - the trade relationship
is different to that of previous "lucky country" resources
booms to Japan, Taiwan and South Korea.
The AMWU has a log of steady job losses in the past three years,
many to China: 50 from Rheem, 900 from Sunbeam, nearly 800 from
Email factories, hundreds from lift makers Otis and Schindler,
more than 400 from railway rolling stock makers Clyde Engineering
and Goninans, and 60 from Barbeques Galore.
Unions say metal-working industries are in such decline that
Australian technical colleges are no longer teaching the skills
for them. Chinese competition is now hitting the car-component
industry, with potentially devastating job losses for South
Australia and Victoria.
To understand why factory jobs are moving to China, look to
Futian, a small port city on the steamy coast of China's Fujian
province. In the Guoshi Footwear factory that makes 4 million
pairs of Nike- and Adidas-look-alike running shoes a year, Zhang
Ning, a 22-year-old woman from an impoverished village far away
in mountainous Sichuan, is happy to be earning 800 yuan ($141)
a month plus three meals a day and a bed in a cramped company
dormitory.
Guo Qidi, the factory manager and one of the family that owns
it, said his 2000 mostly migrant workers like Zhang are happy
to work nine days straight with just a single day off to earn
40 yuan a day overtime. His Sandic brand shoes ship out for
about 50 yuan or $8.80 each, about half the cost of the Nike
runners pouring out of the US giant's tightly guarded factory
down the road.
Further south in Shekou, a village turned city on the Pearl
River delta just around from Hong Kong, three mates from Geelong
have turned their tiny catering equipment business into a China-based
manufacturing outfit called Volume Tableware that sells into
Europe as well as Australia, employing 270.
Aaron Keating and brothers Adam and Dean Montgomery were dissatisfied
with the quality of porcelain they were importing from China
so five years ago they set up a joint venture with a Chinese
partner to make their own, using a factory in the Chinese crockery
centre of Chauzhou, inland in southern Guangdong province. A
year later they bought the partner out, and have since set up
their own plant making electric dish warmers and other restaurant
equipment, run by 27-year-old Keating.
The operation is sucking in orders from around the world. On
the floor of Volume's showroom are laid out designs for a range
of souvenir pottery for an Irish distributor, which recently
closed its own plant in Galway where 150 people had been employed.
Volume has also just bought up production lines from two British
table glassware manufacturers which went out of business. It
shipped them in 65 containers into China where they will be
installed in a new 400-worker factory across the river in the
town of Pingsha. For $13 million, says Dean Montgomery, 30,
they will set up a glass factory that would have cost $65 million
to build with new gear.
Low labour costs underpin the operation. The average pay for
production-line workers is 800 yuan a month, plus a dormitory
bed and three meals a day. Managers get between 1500 and 3000
yuan a month. Casual workers can be hired for 30 yuan a day
flat. These aren't unskilled workers, Montgomery says, but have
up to eight years' experience in the industry: "When you
see them put a line on a plate you know there is nothing unskilled
about those people."
In addition, the three Australians cite the support of local
governments. The new glass factory site at Pingsha, levelled
and ready, cost them $643,000 to buy, about a third of the market
rate. "The big consultancies will tell you to go to Shanghai,"
Montgomery says. "That is totally off. You should look
for a small town that doesn't have a lot of money and wants
to progress."
The result of this eagerness for investment is that since China
made its abrupt switch from a state-directed economy in 1978,
it has attracted a staggering 420,000 foreign enterprises to
the country. A 2000-kilometre sweep of coastline has been transformed,
turning once torpid towns like Futian into cities with office
towers, trade exposition halls, garish entertainment precincts,
shopping malls, their own airports and freeway links, with factories
sprawling across reclaimed marshland, paddy fields and fishponds.
Container trucks stream into new container ports like Yantian
on the Pearl River, where bulldozers are levelling hills to
clear more stacking space for cargo.
The factory boom is creeping inland, meanwhile, as once backward
provinces get into the game of offering tax holidays, cheap
sites in new industrial zones and infrastructure. And always,
out of deeply impoverished provinces like Sichuan, come tens
of millions of young job seekers ready to work for even less
than the official minimum monthly wage of 700 yuan.
"One of the flatware [knives and forks] makers we know
recently advertised 30 positions at 350 yuan plus board, and
got 300 applications," Montgomery says.
The foreign investment flow doesn't show much sign of slackening.
With foreign direct investment expected to reach some $79 billion
this year, more and more big corporate names are announcing
plans to open new production lines in China. The South Korean
electronics giant Samsung recently announced it was shifting
all its personal computer production to China, following a trend
set by Japanese and Korean makers of colour TVs and DVD players.
Like these consumer electronics firms, foreign car makers are
rushing to meet demand from China's estimated 200 million middle-class
consumers who have recently gained access to credit cards and
car finance from Chinese banks. Following the successful launch
of locally made Audi saloons by Volkswagen, German car makers
are offering further up-market choices. DaimlerChrysler last
month announced it would set up a $1.7 billion plant with Beijing
Automotive Industry to make 25,000 Mercedes-Benz cars a year.
A few days later BMW said its joint venture with China's Brilliant
would lift output from 8000 cars to 30,000 next year.
At the ultra-modern VW plant in the north-eastern city of Changchun,
the powertrain engineering manager, Xu Shili, says the Audi
fours and sixes turned out by his 3000-yuan-a-month elite workers
are "better than those we make in Germany". With car
makers increasingly outsourcing whole component assemblies,
and investment regimes in China and India becoming less restrictive,
final manufacture in expensive, unionised home bases will become
less attractive.
Shanghai has moved to tighten the supply linkage by creating
an industrial park, "International Automobile Town",
around a VW plant in its outlying Jiading area. The park has
drawn in 180 domestic and foreign companies since 2001, with
a total investment of more than $4 billion under way and a further
$1.2 billion signed up recently from component makers like Germany's
Kostal automotive electrics group.
With a glut of car production already seen in China, and world
capacity already 25 per cent above actual production of 60 million
cars, some of this Chinese output is already starting to hit
foreign markets. VW shipped its first exports of Shanghai-made
Passat luxury cars to South-East Asia in May this year. Honda
is building a plant in southern Guangzhou city that will export
all its 50,000-car annual output to Europe and Asia, while Toyota
will build a $400 million plant nearby to make 300,000 car engines
a year for export. General Motors is shipping Chinese-made Buick
vans to the Philippines, and will soon export a sports utility
vehicle engine to the US.
Under pressure from the Chinese Government and their own cost-cutters,
foreign auto makers are setting higher and higher quotas for
Chinese-made components. Ford Australia this year cancelled
a contract with an Australian glass manufacturer as part of
Ford's global effort to buy $1.4 billion of Chinese auto components,
an AMWU researcher, Nixon Apple, reported recently.
China is now the world's second-largest producer of motorcycles,
and is exporting into Vietnam and other South-East Asian countries
at a profit margin of just 50 yuan or $8.80 a bike.
Certainly, China's manufacturing explosion is not all negative
for other low-cost rivals. Its appetite for high-level components
like semiconductors is benefiting producers in countries like
the Philippines and Malaysia.
This year's SARS epidemic has also reminded everyone of the
risks involved in doing business in China, not just from disease
and disaster but political convulsion. "It's been a wake-up
call for industry," says Dean Montgomery. "The big
investment banks are advising their clients to have an alternative
manufacturing base in case China gets shut down."
Even so, much of the new investment that would have provided
jobs in places like Indonesia and the Philippines is now going
to China, and remaining factory work in rich countries like
Australia is under more threat. Even high-tech producers, like
the US bearings maker Timken which moved into China in the 1990s
at the same time it shut its Ballarat factory, keep a wary eye
on their 3000 Chinese counterparts, and not just for fakes of
their own products - a constant worry for foreign investors.
"We see them coming up the quality curve as well,"
says Timken's Beijing representative, Jim Gresh.
None of the simplistic remedies being touted by Western politicians
- a float of China's currency, the removal of subsidies and
tax breaks for exporters, or the domestic market openings promised
under China's World Trade Organisation membership - can do away
with the fact that Zhang Ning and scores of millions like her
will work in factories for 800 yuan a month.
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