A Factory to the World China's Vast Labor Pool, Low Wages Lure Manufacturers
By Clay Chandler Washington Post Foreign Service Sunday, November 25, 2001; Page A01 DALIAN, China -- Shoji Nishimura, the Japanese general manager of Mabuchi Motor Co.'s manufacturing compound here, peered over the shoulder of a blue-smocked Chinese employee as she soldered wires to a tiny electric-shaver motor gliding down the assembly line. "Two seconds," he exclaimed proudly, gesturing at his watch. It is a reference to the time each of the 6,000 young workers flanking conveyor belts has to perform a set of production tasks. In an eight-hour workday, Mabuchi's production-line workers, nearly all of whom are women in their early twenties, repeat the same series of two-second motions tens of thousands of times. It is daunting labor that requires clear eyesight, nimble fingers and the ability to concentrate for hours on end. But Mabuchi, like tens of thousands of other foreign manufacturing concerns, has discovered in China a nearly inexhaustible supply of workers capable of handling such assignments -- and willing to take them on for a fraction of the pay demanded by counterparts in more advanced economies. Back in Japan, "it would be impossible for us to do anything like this," Nishimura said. For what the company would have to pay a single entry-level Japanese employee it can hire a dozen people in Dalian, all of whom do better work, he said. And so Mabuchi, the world leader for nearly every type of motor it sells, has shifted 90 percent of its annual production of 1.7 billion micro-motors to China; the company no longer makes anything in Japan. The women on Mabuchi's assembly line in Dalian are the vanguard of what many experts predict will prove to be one of the most important economic developments of the 21st century: the rise of China as a modern industrial powerhouse. China's emergence as a manufacturing giant is improving living standards here and helping multinationals such as Mabuchi hold down costs. It also is roiling the global economy, sucking jobs and investment from other countries, straining political support for open trade and driving down the price of tradable goods in the midst of a global recession. China's admission to the World Trade Organization earlier this month will only add to this trend -- increasing its appeal by locking in lower duties for products it exports. Past predictions that China would become an economic power were stymied because the nation has never been able to harness the economic potential of its vast populace. But now companies from Taiwan, Japan, the United States and other countries are seeking to satisfy the demands of their customers for lower prices, and China, with its enormous pool of cheap labor, is fast becoming a factory to the world. Japanese management consultant Kenichi Ohmae compares China's emergence as a manufacturing colossus to Japan's spectacular postwar industrial boom, the rise of America's economy in the early 1900s or even the dawn of the Industrial Revolution in Britain. "The world has never seen an economy with these qualities before," he wrote of China recently. The new heft of China's economy is most keenly felt in Asia, where the Chinese mainland has swallowed up $321 billion, or 45 percent, of the $719 billion in direct foreign investment flowing into the region since 1990. For instance, General Motors Corp., the world's largest automaker, has invested $1.5 billion to build a manufacturing facility outside Shanghai. And Motorola Inc. eliminated 40,000 jobs over the past year, but it has poured $3.4 billion into operations in China, making it the nation's largest foreign investor. China is also beginning to undercut its neighbors in crucial export markets. China's exports soared 27.8 percent, to $249 billion, last year, far outstripping export growth in the rest of the region. In 2000, Japan posted exports of $477 billion, but its exports have fallen by 15 percent in the first 10 months of this year, while China's are up 6.4 percent. Andy Xie, economist with Morgan Stanley Dean Witter & Co. in Hong Kong, predicts China will export a third more than Japan in dollar terms within the next five years. Since 1989, China's share of total U.S. imports has more than tripled, to 8.4 percent. Japan's share fell by almost half during that period, to 11 percent, while the combined share of Asia's four "tiger" economies -- Hong Kong, South Korea, Singapore and Taiwan -- shrank by a third, to 8 percent. That of the region's other main exporters -- Indonesia, Malaysia, the Philippines and Thailand -- rose only a smidgen. Analysts at Salomon Smith Barney calculate that, if current growth rates continue, China's high-technology exports will overtaken Japan's within the decade. In a scramble to satisfy U.S. customers' demands for lower prices, nearly all of Taiwan's leading makers of computer components have shifted production to the mainland. All told, more than 40,000 Taiwanese firms have established operations here, investing an estimated $60 billion. Taiwanese investors are supplying the capital and technology for two ambitious semiconductor-manufacturing plants slated to begin production this year in Shanghai. In Japan, China's rise as a global producer is aggravating a tangle of homegrown problems that have dragged the country into its worst recession since World War II. Competition from China has ravaged the Japanese textile industry and threatens to wipe out producers of several varieties of specialty farm goods. In April, the government of Prime Minister Junichiro Koizumi, besieged by angry farmers, slapped temporary tariffs on Chinese-grown leeks, shiitake mushrooms and tatami rushes. China retaliated by imposing 100 percent punitive tariffs on Japanese cars, mobile phones and air conditioners. The dispute has not been resolved. Fast Retailing Co., a Japanese apparel chain, has doubled sales for each of the past three years by refusing to buy from costly domestic producers and importing directly from China instead. The company has recruited some of Japan's most accomplished textile experts and sent them to instruct workers at more than 80 Chinese textile plants on Japanese weaving, dying and stitching techniques perfected over many decades. Leaders of Japan's business establishment, not to mention the nation's textile lobby, have excoriated Fast Retailing's president, Tadashi Yanai, for exporting jobs to China. In Japan's depressed retailing industry, however, even Yanai's critics are trying to learn from his success. China's main threat to Japan is in electronics, an industry that is a mainstay of the Japanese economy. A parade of Japanese electronics giants, including Toshiba Corp., Sony Corp., Matsushita Electric Industrial Co. and Canon Inc., have announced plans to expand operations in China this year, even as the industry is shedding tens of thousands of workers at home. "We recognize that there are concerns in Japan about jobs moving to China, just as there were concerns in America 15 years ago about jobs moving to Japan," Toshiba President Tadashi Okamura said. "But a shift of some sort is inevitable. China is a huge market, and it offers an enormous pool of excellent workers. We have to find a way to coexist." A visit to Toshiba's factory in Dalian illustrates the point. By shifting production of digital televisions here from its plant in Saitama, Japan, this year, the company has cut labor costs per worker by 90 percent. Okamura said workers at Toshiba's Saitama plant will be redeployed to manufacture liquid crystal displays. But industry analysts, as well as many Toshiba employees, believe it is only a matter of time before those operations shift to China, too. Toshiba and Mabuchi are among about 40 Japanese companies that have built large-scale production facilities in a special export-processing zone established by Dalian in the early 1990s with generous financial support from the Japanese government and major Japanese firms. Dalian, a northern Chinese seaport, was controlled by the Japanese army for nearly four decades before Japan's World War II surrender. But local party leaders understand that Dalian is competing with other Chinese municipalities for foreign investment dollars and have downplayed colonial animosities. They instead have sought to promote Dalian as a natural Chinese hub for Japanese manufacturers. Dalian has a large and growing population of Japanese speakers and boasts nearly two dozen weekly air connections to Japan. The city government even maintains a trade-promotion office in Tokyo's pricey Aoyama district. The effort seems to be paying off. Dalian now hosts operations of more than 1,800 Japanese companies. The trade zone is growing rapidly and not a single venture has pulled out. For all the marketing, though, executives at many Japanese manufacturing operations here said the city's primary appeal is the abundance of inexpensive, high-quality labor from the rural villages that surround it. Recruiting is easy. When managers need new workers, they have only to ring up local labor officials. There are usually at least 10 candidates for every opening. That means employers can be fussy. Men, who tend to have slower hands, are a rarity on assembly lines in the Dalian export zone. In many plants, it is possible to tour the entire facility without encountering a single worker wearing glasses or over the age of 30. The surfeit of applicants has allowed Japanese firms to run their operations here in decidedly un-Japanese fashion. At Mabuchi, Nishimura decided soon after he arrived in 1994 that it did not make sense to offer workers the sort of permanent employment assurances Japanese companies were obliged to promise back home. Mabuchi did not need lifetime loyalty from its employees; it needed young workers with quick fingers who would work cheap without complaint. So the company put workers on one-year contracts. Lately, to adjust more rapidly to fluctuations in global demand for micro-motors, Mabuchi has shifted about 40 percent of its workforce to terms of just four months. Mabuchi's Dalian plant is hardly a "sweatshop." The facility has a solid safety record, the factory floor is immaculate, and take-home pay -- about $84 a month with overtime -- is high by local standards. But discipline is strict: At regular intervals, the performance of each worker is evaluated with a letter grade of A, B or C. Contracts of those rated C are not renewed. "The competition for jobs is really brutal here, so people are far more serious about their work," said Teizo Togawa, general manager of Japanese towel maker Ichihiro Co.'s Dalian plant. In Japan, "we have to promise workers jobs for life and pay them based on seniority. But no one even thinks about that here. Workers in China believe in merit." Yiping Huang, an economist at Salomon Smith Barney in Hong Kong, cautions that China's labor pool is not bottomless. Over the next decade, the government's one-child quota is bound to tilt the ratio of young workers in China well below that of other highly populated nations such as India and Indonesia, he said. Already, he said, competition for young laborers has driven up wages in urban centers on China's eastern coastline. But executives at foreign manufacturing plants like those in Dalian said they figure the day they'll have trouble recruiting inexpensive help in China remains at least two decades off. "This is a big country, with a lot of people who want to work," Nishimura said. "I don't see that changing anytime soon." Special correspondent Akiko Kashiwagi in Tokyo contributed to this report.
