Alexandra Harney

on Friday, 01 June 2012. Posted in Leadership Interviews

Alexandra Harney

Alexandra Harney has been writing about Asia for a decade. She is the author of The China Price: The True Cost of Chinese Competitive Advantage (Penguin, 2008) and the founder of Hatsumimi Research, a boutique research consultancy. 

Alexandra spent nine years at The Financial Times, covering Japan, China and the UK and working as an editor at the newspaper in London. From 2003 until 2006, she was the FT's South China correspondent. 

Alexandra’s work has also been published in many newspapers and magazines including The Wall Street Journal, The Times, Slate, The Far Eastern Economic Review, Marie Claire and CNN.com. She is a frequent contributor to National Public Radio, the BBC, Fox Business Network and Bloomberg TV and was a regular business and economics commentator on Japanese television.

Hatsumimi, which has offices in Tokyo, Hong Kong and London, conducts bespoke research for investors on issues of global relevance. 

A 1997 cum laude graduate of Princeton University with a degree from the Woodrow Wilson School of Public and International Affairs, Alexandra speaks Japanese and Mandarin Chinese.

Website links: http://thechinaprice.blogspot.com | http://thechinaprice.org

 

Interview with Alexandra Harney

From your observations, what are the conditions for employees in the factories in which the Chinese imports are made?

Conditions in Chinese factories vary widely, depending on the management of the factory. The best factories look much like those you'd see in developed countries - clean, bright, well-ventilated, with managers who treat their employees as assets, rather than liabilities. The worst factories are more Dickensian - these have locked exit doors, around-the-clock working hours, only superficial safety and health protection, and a frequent underpayment of wages. One of the most serious problems is overtime, for which workers are not always compensated. I heard of factories where employees log 400 hours a month, as compared to the 204 hours the law mandates. Another major challenge is insurance - only about a quarter of workers in southernGuangdong province, according to non-governmental organizations I spoke to, are insured. The underlying problems that drive conditions in these factories include: poor law enforcement by the Chinese government; continual pressure for lower prices and faster delivery times by international buyers; a lack of awareness among Chinese workers about their rights.

Which multinationals are involved in ignoring the deplorable conditions the employees work in and their unfair awards?

Every multinational that sources in China has problems in its supply chain. It is the nature of the global supply chain, which moves faster every year and continues to expect things to get cheaper, that problems crop up all the time. The issue is how you deal with it. Surprisingly, some of the most progressive companies are those that came under the most pressure from the anti-sweatshop movement, including Adidas, Nike, and the Gap. These companies are more honest (not completely honest, of course) about the scale of the challenges they're facing, and they have more people on the ground in China trying to find innovative solutions to these issues. Unfortunately, most other companies aren't willing to invest in those resources, and I would argue, many don't really want to know what's happening. They close one eye, look the other way, or treat these issues as public relations problems to be covered up. The companies that concern me most are the ones that don't tell me anything about the conditions in their suppliers overseas, and what they are doing to improve them.

How are the industrial environments regulated to ensure safety of employees and good management?

China has a great set of laws on occupational safety and health. The new labor contract law strengthens the existing labor law, which came into effect in 1995. China's laws are in many ways more strict than those in other countries. The problem is enforcement. There are simply not enough people in the Chinese government assigned to inspect workplaces. Economic growth has been the first priority for the past two decades. But things are starting to change, even if the enforcement of the law hasn't improved much. More employees are taking their bosses or former bosses to court over occupational health and safety law violations, among other problems. While only a minority of these cases ever get heard by a judge, those that do are often decided in the workers' favor. Thanks to a new breed of lawyers, the court-awarded compensation for a hand lost on the job in southern China is now between US$25,000 and US$38,000.

Do you think that Chinese legislation focuses on developing market size and growth potential at the expense of labour costs inorder to attract foreign investement?

China's laws on labor are tougher in many ways than those in developed countries. For example, the labor law mandates an average 44-hour workweek, with no more than 36 hours of overtime a month. Overtime pay on weekdays is 1.5 times the regular wage; on rest days it is twice the regular wage; and on Sundays and public holidays, it is three times. Employees are not allowed to work more than three hours of overtime a day. The problem is not with the law. It's with the enforcement of the law. Enforcement is left to local governments, which historically have been more interested in promoting economic growth than protecting workers' rights. Local governments' inspection departments are also seriously understaffed, which reflects the same hierarchy of priorities. Enforcement is still too lax, but there is growing awareness of the shortcomings of this strategy - namely that workers will eventually move on. Guangdong province, in southern China, now has a labor shortage - a remarkable problem to have in a country of 1.3 billion people. Younger workers have decided that the lack of law enforcement and bad management has made these factories unpleasant places to work. They are voting with their feet, and moving to areas with better pay and conditions.

 

How does the Chinese population respond to being exploited by multinationals and ignored by their own authorities for such small incremental changes of welfare?

It's difficult to speak for 1.3 billion people, because as you can imagine, there are many different views. Even within the population of 150 million to 200 million migrant workers, the people who move from the farms to the cities to work in manufacturing, there is a range of opinion and experience. Some Chinese are indeed just glad to have a job - their family's financial situation, for example, might be so bad that a job in a bad factory is better than no money at all. Some workers have little time to think about their factory's customers - they're too busy working. Other Chinese feel frustrated at being exploited by multinationals. I remember speaking to one woman whose husband was sick with silicosis, a potentially fatal lung disease that he had contracted working in poorly ventilated jewelry factories. She wanted to know how Chinese factories became dangerous enough to kill strong, healthy men. "Isn't it because you Americans have brought all your bad factories to China?" she asked me.

It appears that pollution is high on Beijing's agenda and global warming is significantly lower. What are your observations of China's rush to build coal mining stations and the nations that are supplying its demand for coal.  Is Beijingbeginning to take global warming seriously?

I spent time in Shanxi, the heart of China's coal mining industry, while writing my book, and I was struck by the gold rush atmosphere that characterized the entire area. A man I met who had an illegal coal mine paid off the local officials so they would tell him when the government came to inspect the area and shut down illegal coal mines. Everyone is trying to get rich at once, and that makes for a very difficult regulatory environment. China needs coal to fuel its power stations; it needs power to fuel its factories; and it needs its factories to keep its economy growing. This comes at a cost, and in China's case as many countries before it, that has been to its environment and it's people's health. I think the real catalyst for change in this area will be public opinion and popular activism, and we are starting to see the beginnings of public outcry at environmentally unfriendly projects.

It has been reported that factories with poor conditions often have no shortages while cleaner, better and newer factories struggle to staff-up and that with this shift in labour allocation, fears of a declining labour pool has brought about the use of child labour, as has been found in southern China. What are your impressions of this situation and are there any laws for the protection of children in this context?

I, too, have heard anecdotally of the increased concerns about the use of child labor as the labor shortage has deepened in southern China. The minimum working age in China is 16, although some exceptions are made for apprenticeships. But child labor can fill a need in China as in other countries. One way to address the root cause of this issue is to make rural education more affordable, so more families are able to send their children to middle school and high school. Another way to address it is to improve the affordability of health care in the countryside in China, where 90% of spending on health care comes out of the pocket of ordinary people. Often, when illness strikes, families in the countryside cannot afford the medical bills, or they are forced to choose between a family member's recovery and a child's education. China is working on improving both of these areas, but the needs of rural families are very real.

What was the catalyst that motivated you to write, The China Price: The True Cost of Chinese Competitive Advantage?

After I moved to Hong Kong in 2003 to become The Financial Times' South China Correspondent, I had the opportunity to tour a sweater factory in Guangdong province. I stopped to talk to one of the women on the assembly line. She was from a poor rural province, and had come alone to work in the factory for a few years before returning to her family in the countryside. Most of what she earned at the factory, she sent home to her parents. I was struck by this woman's crucial role in the global economy, and by how little we knew about her. I wanted to tell her story, and the story of millions of other women like her.

What advice would you give to someone sourcing or operating in China and to those who want to change corporate social responsibility in China?

The largest single problem driving problems in Chinese factories is pressure for lower prices and faster delivery times from multinationals. This, coupled with demands for ever better conditions under companies' codes of conduct, is driving the truth of conditions in many Chinese factories underground, as factories turn to forgery and coaching workers to pass inspections by corporate social responsibility teams. Sourcing teams must work closely with corporate social responsibility teams, not to protect a brand's image, but to make choices that not only benefit their own company, but are positive for the factory as well: that means not changing the design at the last minute and still expecting the factory to deliver at the same time while meeting requirements on working hours; it means not churning orders through factories every month; it means developing long-term partnerships with factories that can deliver both on quality and price and social and environmental responsibility. Achieving that requires buy-in from a company's CEO. Corporate social responsibility is not risk management or public relations; it is about the way you run your business.

Paul French in his article Last word: Beijing 2008 - For now, business and sport as usual asks, "how much longer will an increasingly developed China need western cash and expertise?" and answers, "arguably not much longer and in some sectors not at all any more. It can refuse foreign investment and fund it itself and end the reliance and hence the need to placate anti-western sentiment."  Do you agree with this? What global implications do you see this having?

In the first three decades after China's opening to the world, foreign capital was incredibly important to China: it created jobs in the export sector, it helped bring in new technologies, and it helped power economic growth. Now, China is trying to wean its economy off an export dependency, and refocus it more on domestic consumption. For this, foreign investment is less of a factor, though of course it still plays a role. The policies that Beijing has implemented over the past year toward the export processing sector underscore this point - tax policies, for instance, no longer overwhelmingly benefit foreign investors, except in a handful of sectors. One potential result of this is that China starts losing its competitive advantage in some of the low value-added industries, such as some kinds of apparel, as Hong Kong and Taiwan investors take their business elsewhere. This is already underway.