An ongoing strike at one of world’s largest shoe factories, a supplier to Nike (NKE) and Adidas (ADS:GR), shows both how cost-cutting pressures are squeezing labor-intensive manufacturers and how Chinese workers have become more knowledgeable about their rights.
Over the last four days, thousands of employees of the 40,000-worker Taiwanese-owned Yue Yuen factory in Dongguan have been on strike over social security benefits and higher compensation. “Workers today are more aware of what they are entitled to in legal rights,” says Geoffrey Crothall, communications director at Hong Kong-based China Labour Bulletin, who has been following the Dongguan protest.
The Yue Yuen demonstrators are demanding recompense for what they say are unpaid social welfare and housing fund contributions. “Workers who devoted their best years to the factories are not going to go quietly,” declared a longtime employee surnamed Zhu, according to a report this week on the China Labour Bulletin website.
China’s Social Insurance Law, which took effect in 2010, requires that employers contribute to five separate social welfare funds for their employees, including pension, medical insurance, work-injury insurance, unemployment insurance, and maternity insurance. Under a separate regulation, companies should also contribute to a housing fund, with the total adding more than a third to the wage bill (not including separate employee contributions).
But with suppliers under increasing pressure to keep costs low as migrant worker wages rise 14 percent annually, cutting corners by not fully funding social welfare benefits has become more routine. “Loopholes in the social insurance system have long been a hidden problem, and the practice of making less than full payments is common among manufacturers,” as English-language newspaper China Daily noted on Thursday.
“Now the key problem lies in the strikers asking the shoe manufacturer to catch up on the social benefits it didn’t pay workers during all the time they were employed by the company,” Nie Xin, an official in Dongguan’s publicity department, told China Daily. “Paying back all welfare benefits over several decades for thousands of workers could bankrupt the company.”
Adidas is closely monitoring the situation, and Yue Yuen is working to address workers’ concerns, says Katja Schreiber, a spokeswoman for the German sportswear maker. Greg Rossiter, a spokesman for Nike, today said his company is monitoring Yue Yuen’s production and ongoing discussions between workers and management. The company’s social security benefits comply with Chinese law, Yue Yuen spokesman George Liu told Bloomberg News.
Strikes have been occurring with increasing frequency across China in recent years and spiked upwards after Chinese New Year in February, according to China Labour Bulletin, with foreign employers such as IBM (IBM) and Wal-Mart Stores (WMT) being targeted.