Category Manufacturing & Industry

China manufacturing recovers modestly in March

The manufacturing sector in China grew faster pace in March 2013, indicating that Asia’s largest economy and the second largest in the world, is recovering modestly. The Purchasing Managers’ Index (PMI) was 50.9 last month, according to data from the National Bureau of Statistics and China Federation of Logistics and Purchasing released on April 1. The March PMI is the highest in 11 months an improvement from its 50.1 level in February.

A separate PMI released independently by HSBC Holdings Plc and Markit Economics rose to 51.6 in March from 50.4.

After adjusting for seasonal factors, the HSBC Purchasing Managers’ IndexTM (PMITM) – a composite indicator designed to provide a single figure snapshot of operating conditions in the manufacturing economy posted 51.6 in March, up from 50.4 in February, signalling a modest improvement. Operating conditions in the Chinese manufacturing sector have now improved for five consecutive months.

Production levels increased for the fifth month in a row in March. The rate of expansion accelerated from February to a solid pace, the second-fastest in two years. Behind the rise in output, total new orders rose solidly, and for the sixth month in a row. A number of respondents attributed growth to strengthened client demand. Meanwhile, new export orders also increased, albeit marginally, according to an HSBC press release.

Volumes of outstanding business declined for the second successive month in March. The rate of backlog depletion was broadly unchanged from February, and remained slight overall. Staffing levels, however, were relatively unchanged from the previous month.

Suppliers’ delivery times lengthened in March, following a slight improvement in February. That said, the rate at which vendor performance deteriorated was slight, with just over 6% of panellists recording longer lead times. A number of respondents linked the deterioration to increased orders placed at vendors.

Average input costs faced by manufacturers decreased, following a five-month period of inflation. However, the rate of reduction was marginal, with a number of respondents citing lower raw material costs. Output charges set by manufacturers also declined in March, and for the first time in since last November. The rate of discounting was modest, with approximately 10% of panellists lowering tariffs. A number of respondents attributed the fall to a combination of passing on lower input costs to clients and competitive market pressures.

Purchasing activity in the manufacturing sector rose for the sixth successive month. Growth quickened from February to a solid pace that was the third-strongest in two years. Meanwhile, stocks of purchases fell modestly for the second month in a row. Increased input buying and the depletion of stocks were both associated with increased production at plants.

Finally, inventories of finished goods increased for the first time in six months, albeit marginally. A number of respondents attributed the rise to increased production on the back of stronger client demand.

Fear of the axe

In China, working at a multinational company (MNC) used to be seen as an ideal choice, offering job stability as well as a high salary and decent benefits.

But in recent months many MNC workers have become victims of layoff plans by their well-known foreign employers.

US-based Motorola Mobility, a hardware unit acquired by Google Inc in May 2012, announced a cut of 1,200 jobs worldwide earlier this month, and the cuts will be mainly in China, the US and India, media reports said.

Motorola Mobility China said on March 8 that “the new job cuts are a continuation of the reductions announced last summer,” but did not reveal how many employees will be laid off in China.

A previous round of business restructuring at the company in August 2012 resulted in 4,000 layoffs globally, and an engineer at the Beijing office said that the company had closed all its other operations in China apart from the Beijing office, which currently has 700 employees. The firm has around 12,000 employees worldwide.

Media reports said that after the new round of job cuts, only 200 jobs will be saved in China, mainly in the areas of marketing and sales.

However, Motorola Mobility is not the only overseas firm downsizing its China workforce.

Who is firing?

Finnish mobile phone producer Nokia Corp cut about 100 staff at its Dongguan factory in South China’s Guangdong Province in October, following job cuts at its Beijing-based research center and consolidation of its Chinese distribution centers in July.

US chip producer AMD laid off 15 percent of the staff at its Shanghai branch in November.

Also in November, Japanese electronics firm Panasonic Corp merged its Shanghai plasma display panel television plant with its liquid crystal display television factory in East China’s Shandong Province, and shut down the Shanghai factory.

Some foreign supermarket chains such as Wal-Mart and CP Lotus have also reportedly cut jobs recently.

Past layoffs by large foreign firms have tended to focus on other countries, but the recent job cuts have been taking place in China too, and affecting higher-level positions such as in research and development (R&D) rather than sales and administrative jobs, Xing Zhiming, a business director of Beijing-based recruitment firm Career International Consulting Ltd, told the Global Times Friday.

“The mobile phone and chip firms decided to cut jobs because their industries have seen faster transformation cycles and more intense competition, resulting in losses at firms that are slower in adjusting to the market,” Xing said.

Supermarket chains cut jobs due to excessively rapid expansion in China, but job cuts are a normal phenomenon and a way to adjust strategy for the market, he noted.

Most of the laid-off employees at these MNCs have been reemployed either at their competitors or at domestic private firms, which are aiming to learn standardized management from the MNCs, Xing said. “For example, some employees laid off from a foreign chip producer’s server department now work at Chinese server providers or downstream producers.”

Motorola Mobility closed its Nanjing R&D center in August, and some of the laid-off employees from the center have relocated to Shanghai or to Motorola’s headquarters in the US, but most now still work in Nanjing at other software enterprises such as Lenovo and Samsung, a former employee at the center told the Global Times Saturday.

Who is hiring?

According to a survey of more than 1,000 firms in 12 key industries in China released by Career International on January 15, 2013, 58.8 percent of respondents said they would be hiring new staff in 2013, with only 26.1 percent planning for job cuts.

Owing to high costs and falling profits, just 46.5 percent of companies in the energy and chemical sectors said they would hire more staff in 2013, while 47.1 percent of machinery manufacturing firms planned for job increases in 2013 due to the sluggish global economy, the lowest two among the 12 industries, the survey found.

In contrast, 75.7 percent of the country’s auto firms have plans to hire more staff, thanks to expanded production capacity and the need for more production and R&D staff, the survey said.

Foreign auto producers have strong confidence in the Chinese market and are also expanding and recruiting. German auto firm Volkswagen announced in November it would invest 14 billion euros ($18.3 billion) in China by 2016.

Domestic auto brands are also expanding into overseas markets, which will offer opportunities for marketing and sales personnel in these areas in 2013, the report said.

The second most confident industry in the survey was real estate, with 70.4 percent of respondents planning to recruit more employees this year, thanks to a rebound in the property sector in the second half of 2012 and good expectations for the sector in 2013, especially for commercial property projects, the report said.

Although the survey found that companies in first-tier cities are more willing to recruit new staff than those in smaller cities, some manufacturing enterprises have relocated to or expanded their recruitment in smaller cities such as Wuhan in Central China’s Hubei Province, Chengdu in Southwest China’s Sichuan Province and Xi’an in Northwest China’s Shaanxi Province, Xing said, as a result of rising labor costs in coastal cities and production workers’ increasing desire to work near home.

As China’s State-owned enterprises and private firms have gained a more solid foundation in the market, their hiring is also increasing, Xing noted.

MNCs in China plan to recruit fewer employees than their Chinese peers, according to the Career International report, which found that 54.1 percent of MNCs have plans to increase jobs, compared with 61.7 percent of private Chinese firms and 62.4 percent of State-owned enterprises.

The hiring market in China is still strong, Jonathan Edwards, a partner at the Shanghai office of recruitment firm Antal International, told the Global Times Friday. Around 65 percent of Antal’s clients are planning to hire staff in 2013, Edwards said.

“Occasionally companies might have a hiring freeze, but this tends to be short-term and due to organizational restructuring rather than other reasons. Most MNCs have a long-term plan for their business in China and the hiring of key staff remains an important component of this plan,” Edwards said.

“We see strong pockets of demand in many industries, as diverse as healthcare and retail,” he noted, predicting that consumer-led industries such as autos would continue to grow.

Taiwan’s Foxconn to recruit 5,000 technicians at home

TAIPEI — Taiwan’s tech giant Foxconn will hire 5,000 technicians locally this year, many of them to work on factory robots to build its gadgets, officials said Monday, in a sign the firm is refocusing operations to its home island.

The announcement — one of the group’s largest talent recruitment drives in Taiwan in recent years — comes as the conglomerate is slowing new hiring at its sprawling factories in China.

Foxconn said the move was due to increasing automation of manufacturing and assembly lines in China, where rising labour costs have squeezed profit margins.

Some of the new employees are to work at a software complex in Kaohsiung, in Southern Taiwan, spokeswoman Laura Liu said, while others will staff a robot research unit in the centre of the island, and a development unit at the company’s headquarters outside Taipei.

Chairman Terry Gou told media that Foxconn — the world’s largest maker of computer components, which assembles products for Apple, Sony and Nokia — plans to use one million robots to do “simple” manufacturing work by 2014.

Foxconn already has 10,000 robots for painting, welding and other assembly tasks.

The company employs the vast majority of its workers in China, where it employs more than one million people, roughly half of them based in its main facility in Shenzhen, which borders Hong Kong.

Foxconn has come under the spotlight in recent years over worker suicides, labour unrest and the use of underage interns at its Chinese plants.

It has taken steps such as raising salaries, improving working conditions and enforcing age restrictions to address concerns raised by an independent audit of conditions mandated by Apple.

Seeking New Employees, Foxconn Goes Deeper Into China

The Chinese Apple manufacturer is finding it hard to find enough staff.

New reports suggest that Foxconn, the Chinese tech manufacturer that’s perhaps the most famous member of Apple’s Eastern supply chain, is having a tough time finding enough workers for its many plants. Now Foxconn is opening plants deeper in China in an effort to find more staff. Despite the widely publicized plan to implement a million robots on its production line, it now seems that Foxconn’s expansion plans are placing it in a tricky recruitment position. The company has doubled its workforce over the last two years to over 1.2 million souls, and has been said to be planning expansion into the U.S., and recently revealed it has big plans to expand into Taiwan.

Recently a report that Foxconn had temporarily frozen hiring, allegedly due to weak iPhone sales, hit Apple’s share price. Since then it’s been argued that Foxconn, a firm that has a very dynamic recruitment cycle, was merely reacting to a glut of employees returning to work after the Chinese New Year.

Chinese company opening plant in Conover

Firm expects to hire around 80 people

CONOVER, NC — Folks in these parts are used to jobs connected to the textile industry moving overseas but a Chinese company is locating here and creating nearly 80 jobs.

Catawba County Economic Development Corporation announced on Thursday that Wuxi Taiji Paper Industry Company Ltd. is putting its first US manufacturing location in Conover and will hire 78 workers over the next four years. The company is buying the former Prestige Pillow 50,000-square-foot building, located at 405 Wortha Herman Road SW in Conover. It plans to invest $3 million, say EDC officials.

The company makes spiral-wound cardboard tubes and cores used in multiple industries, including the textile industry, according to information from the county EDC.

Julie Pruett, director of business recruitment for Catawba County Economic Development Corporation, said the jobs will include administration, sales and production. The first phase of hiring will start soon, according to information from the county EDC.

While salaries will vary according to the job, the overall average annual salary is more than $31,000, not including the additional benefits package, according to information from Catawba EDC.

The company is not receiving any incentives from the county or state, Pruett said. But it will get tax credits for the jobs it creates, she said.

Pruett said the company wants to have its equipment moved into its new building by February and be up and running by March.

“We are determined to be a respected tube and core supplier in North America,” says Mr. Meizong Yin, the company president.

The company is following what appears to be a trend to localize manufacturing. In other words, if a company sells in the US, it makes its products in the US, say officials.

“We are honored that Mr. Meizong Yin selected Conover as their first manufacturing footprint in America,” said Conover Mayor Lee Moritz Jr. “Our citizens are appreciative for this opportunity to become a member of the TAIJA Group team. It is exciting to see visionary international companies like TAIJI Group recognize the value of American manufacturing.”

Conover was competing against areas throughout the state, as well as locations in Virginia, Pruett said. County EDC and the state Department of Commerce officials have been working with the company since September, she said.

“It makes good business sense to locate their US operation in Catawba County which is the most specialized area for manufacturing in North and South Carolina,” Pruett said. “We were fortunate to have an available building with adequate ceiling heights and square footage that would meet the client’s needs.”

The company also chose Conover because it is centrally located near its customers, Pruett said.

The Taiji Group was established in China in 1994. In addition to the Chinese market, the company also has customers who are leading multinational companies in South East Asia, Europe and North and South America, according to information from Catawba County EDC.

“We welcome TAIJI Group(USA) Inc. to Catawba County and applaud their commitment to grow their business in the United States by investing in the people of Catawba County,” said Kitty Barnes, chair of the Catawba County Board of Commissioners.

To apply for a job with Wuxi Taiji Paper Industry Company, contact the Catawba County office of the NC Department of Commerce Division of Employment Security at 466-5535. The employment office is located at 3301 US 70 SE, Newton.

Nike’s China operation introduces SaaS solution to talent war

The war for talent in China has led Nike Sports to introduce the Lumese TalentLink technology platform on which to base its recruitment strategy for the country. In the first phase of the initiative 11 recruiters in Greater China and over 15 agencies will work with a complete Software as a Service system which will enhance the screening and selection process as well as creating a standardised workflow for the task ahead. The company hope this will bring transparency and a high level of reporting to the process which will benefit recruitment across the Asia region.

“Demand for the best candidates, which far exceeds supply, is becoming a serious problem in recruitment management in China,” said Rishi Dadlani, Nike’s Talent Acquisition Sourcing Manager in Greater China. “Our recruiting processes have been working well in recent years, but now with aggressive market growth plans in place, our recruiters absolutely need to deal with and manage a higher and more effective workload.

While supporting the company’s overall objectives in the region Nike hopes to bring some of it brand strength to talent acquisition work. They also intend to connect Lumesse TalentLink to Nike external and internal career sites for a much better and richer candidate experience in the direct application process.

“This is a perfect example of our philosophy of being the only global company making talent management work locally,” said Lumesse CEO, Matthew Parker. “China is an absolutely unique market today, with a high growth economy, a shortage of skilled talent, and very specific requirements for languages and local support.”

“While job-boards is certainly a channel that has been around for a long time, we don’t particularly focus on it. We have an excellent toolkit, coupled with the strength of our consumer brand, and our dream is to convert all our consumers into potential candidates,” said Rishi Dadlani. “There are a number of social media platforms/networks we will certainly leverage to market our employment brand. Through these channels we will build and engage talent communities and eventually stimulate direct applications.”

New Hyundai Chinese R&D center may be located in Yantai, Shandong

In order to keep up with its rivals in China, Hyundai also has plans to establish a new research and development center in the country. According to a report appearing in the International Finance News, the center may be located in the Economic and Technological Development Zone of Shandong’s eastern city of Yantai.

Earlier in May, Hyundai Motor Group Vice Chairman Xue Rongxing had announced that the manufacturer will construct a Chinese R&D center. Then, earlier this month, posts looking for talent to work at the ‘Hyundai Motor (China) R&D center’ begun appearing on several famous employment websites. According to the post, the center’s address is in Yantai, Shandong. When contacted by telephone, sources from the company confirmed that the posts were made on behalf by Hyundai.
Meanwhile, representatives from the Yantai Investment and Employment Agency announced that preliminary work on the Hyundai R&D center has begun in the city’s Economic and Technological Development Zone. The source added that Hyundai has yet to announce when the center will be officially established.

Hyundai’s Chinese offices have yet to comment on any of the above reports.

Hyundai currently possesses five global R&D centers, located in its native South Korea, Germany, the US, India and Japan, respectively. Due to the lack of such a center in China, the Beijing Hyundai joint venture has obtained new vehicles, such as the new ix35 and eight generation Sonata, from Europe and the US. Mr. Xue has stated his desire to see Beijing Hyundai begin exporting vehicles following establishment of the Chinese R&D center.

Yingli bucks the trend by recruiting 2000 staff

Yingli Group in Baoding of Hebei Province announced in the end of November that it would recruit 2000 workshop operators. A photovoltaic enterprise with 26,000 staff recruits 2000, which is not a message worthy of reporting. However, on the background that there are a lot of negative messages in the whole photovoltaic industry like loss, shutdown and downsizing, recruitment at this moment indicates that the photovoltaic industry in the “severe winter” is changing positively.

After learning such a message, the reporter decides to go to Hebei. When entering the workshop of Yingli Group, the reporter felt it was in 2010 when the workshop was in full capacity. “2000 is only a conservative number and the number of recruits may increase as required.” Zhao Zhiheng, vice chairman of Yingli Group discloses that the photovoltaic market demand has begun to change from the fourth quarter and Yingli is making preparation for the “coming of spring”.

According to the financial statement for the third quarter, all photovoltaic enterprises still makes a poor achievement and the photovoltaic industry is still in a cold winter, so where does the spring come? Yingli views that the demand is changing.

Quick increase of trading volume in the rising markets represented by China is the brightest spot in the market in the second half of this year. It is estimated that the delivery volume of Yingli will reach 2.2 gigawatts this year, which will top other photovoltaic enterprises in the world this year. Among the sales volume, the Chinese market will account for 22.63 percent and other rising markets will also rise to 4.03 percent.

Wang Yiyu, chief strategy officer of Yingli predicts that China is expected to surpass Germany and become the largest photovoltaic market in the world next year, which is mainly due to the series of encouragement policies issued by the state in the second half of this year. 21- gigawatt installed capacity, roadmap of distributed power generation and quickly-issued measures for the implementation not only offer a clear development prospect for the domestic market, but also stimulate the enterprises?? passion for the market and strengthen their confidence in development.

There are also new opportunities in the traditional European and US market. With deep industrial adjustment, the photovoltaic power generation cost reduces quickly and the generation efficiency increases constantly. European Photovoltaic Industry Association made estimation in the end of 2011 that the total installation cost of photovoltaic system would be $2 per watt in 2015. However, to the end of November this year, the cost had been less than $2. Due to such a change, the cost of photovoltaic power paid by some users in the market such as Spain begins to be equivalent to the one of traditional power generation with no need for government subsidy, which is commonly called grid parity in the user end. Wang Yiyu reveals that presently some investors have begun to plan for the projects next year with the aim of selling electricity to users or electric power company through direct supply. It will be the coming of times with huge demand for the photovoltaic industry behind such kind of change.

Yingli predicts that the global market demand will be about 40 gigawatts next year. Among them, the European market will increase a little, which is mainly due to the rising markets in the Europe and those projects with no need for government subsidy; the total amount in the US will continue increasing; the Chinese market will be about 7 to 10 gigawatts.

“The spring is coming slowly but not all photovoltaic enterprises will enjoy it.” Zhang Tianze, general manager of Dalian Liancheng CNC Mechanic Co., Ltd., a photovoltaic equipment supplier, views that for enterprises in the whole industrial chain of photovoltaic production, only those enterprises whose brand, quality, technology, cost, etc. can satisfy the market requirement will not lag behind after such a round of adjustment and integration. The incoming spring for the photovoltaic industry is one with threshold.

China uses student interns to bridge its labour gap

In September, the largest factory in the northeastern Chinese coastal city of Yantai called on the local government with a problem – a shortage of 19,000 workers as the deadline on a big order approached.

Yantai officials came to the rescue, ordering vocational high schools to send students to the plant run by Foxconn Technology Group, a Taiwanese maker of smartphones, computers and gaming equipment.

As firms like Foxconn shift factories away from higher-cost centres in the Pearl River Delta in southern Guangdong province, they are discovering that workers in new locations across China are not as abundant as they had expected.

That has prompted multinationals and their suppliers to use millions of teenage students from vocational and technical schools on assembly lines. The schools teach a variety of trades and include mandatory work experience, which in practice means students must accept work assignments to graduate.

In any given year, at least 8 million vocational students man China’s assembly lines and workshops, according to Ministry of Education estimates – or one in eight Chinese aged 16 to 18. In 2010, the ministry ordered vocational schools to fill any shortages in the work force. The minimum legal working age is 16.

Foxconn, the trading name of Hon Hai Precision Industry, employs 1.2 million workers across China. Nearly 3 per cent are student interns.

The company “has a huge appetite for workers,” Wang Weihui, vice-director of the Yantai Fushan Polytechnic School, told Reuters during a recent visit to the city.

“It tightens the labour market,” said Mr. Wang, whose school sends its students to work at Foxconn and other firms.

Local governments eager to please new investors lean on schools to meet any worker shortfall. That’s what Yantai, in Shandong province, did in September when Foxconn had trouble filling Christmas orders for Nintendo Co. Ltd. Wii game consoles.

“It has been easier to recruit workers in the Pearl River Delta than some inland locations,” Foxconn told Reuters in written comments in late December.

Some companies cite rising wages in southern China for the shift elsewhere. Wages are a growing component of manufacturing costs in China, making up to 30 per cent of the total depending on the industry, according to the Boston Consulting Group.

Wages began to rise around 2006 as the migration of rural workers to Guangdong ebbed. China’s one-child policy, plus a jump in higher education enrolment, further depleted the number of new entrants to the work force, forcing up wages.

That prompted American car makers, Korean electronics manufacturers and private Chinese firms to look for new sites. Cheaper electricity, land and tax incentives as well as a growing consumer class in regions beyond the booming southern coastal provinces were other reasons to relocate.

Minimum wages in Yantai can be as low as 1,100 yuan ($180 U.S.) a month compared to 1,500 yuan in Shenzhen, a city near Hong Kong.

What makes vocational students attractive is they can be paid less than full-time workers, although some firms – including Foxconn – pay the same base wages.

Even if they pay the same base salary, employers can save 10 to 40 per cent per person because legally they do not have to pay health insurance or social security benefits for student interns.

Yantai was not the only local government to help Foxconn.

Two months earlier, Foxconn’s 100,000-worker factory near the city of Zhengzhou in Henan Province was racing to meet a deadline for Apple Inc.’s iPhone 5.

Henan authorities told its cities to find 30,000 more workers for Foxconn, according to a Zhengzhou city government notice reprinted by the Hong Kong-based labour rights group, Students & Scholars Against Corporate Misbehaviour, or SACOM.

Yantai shows how much China’s labour market has changed.

Zhang Weifang, head of human resources at the Yantai factory of LG Innotek estimates the city’s employable 16- to 18-year-olds has halved since her firm began production in 2004. LG Innotek is the components unit of South Korea’s LG Electronics Inc.

“It’s really hard to find people nowadays,” she said.

About 2,400 young workers staff Mr. Zhang’s factory, of which one-third are vocational students or workers contracted through agencies.

Students are sought after by plants which need extra workers during peak production periods, especially since China’s 2008 Labour Law makes firing employees cumbersome.

And students are plentiful. Vocational school graduation has surged 26 per cent in the past five years, to 6.6 million students in 2011. Parents whose children cannot compete in China’s exam-driven high schools look to vocational schools.

Such students made up such a large percentage of a Honda Motor Co. Ltd. plant in southern China that, when they went on strike for better pay in 2010, crippled Honda’s production chain. A Honda spokeswoman said the ratio of students to regular employees had significantly declined, but would not give a figure.

About 2.7 per cent of Foxconn’s workforce in China comprises vocational students, the company said in October. That works out to 32,400 teenagers.

“This program gives Foxconn an opportunity to identify participants who have the potential to be excellent full-time employees should they wish to join our company upon graduation,” Foxconn said in a statement at the time.

That month, Chinese state media said 56 minors under the legal working age were among students sent to work at Foxconn in Yantai. Foxconn removed the underage students from the plant after the reports.

Chinese law limits students to eight hours of work a day, with no night shifts. Vocational students in Yantai told Reuters they had worked up to 12 hours a day, and routinely did night shifts at Chinese and foreign-invested factories.

Foxconn has a program with Apple, one of its main customers, to pay interns the same wages as other workers, limit their work to eight hours a day, five days a week and allow them to quit if they want.

More than a dozen students interviewed by Reuters in Yantai had a mixed view of their internships, ranging from relatively positive to outraged. Many said it taught them to look for something other than assembly line work after graduation.

Most three-year vocational programs require a two-month internship in the second year, while the third is spent entirely at work. Even though students know they need factory experience to graduate, the assembly line comes as a shock to some.

“At the beginning I was really excited. I thought I could get experience and help out my family with some money,” said Yu, 17, an intern in Yantai. She asked that her full name not be used.

“To suddenly encounter 12-hour work shifts, standing, with only 40 minutes to rest and eat, our legs can’t stand it.”

Some students said they hoped the work would improve their prospects.

“Electronics is our major and so this will help in finding jobs,” said vocational student Sun Chuangjiao, a former Foxconn intern.

Companies defend the internships as educational as well as a useful recruitment strategy.

“The vast majority of our interns and the schools that sponsor them find their experience with us relevant and meaningful, and an important first step in their career development,” Emerson Electronic told Reuters.

It employs 40 interns for eight-month stints, out of a work force of 1,063 at its air conditioner compressor plant in the Yangtze Delta city of Suzhou. All are over 18, it said.

The shortage of labour means companies often search far and wide for vocational schools to supply workers.

Mr. Zhang of LG Innotek said she had contacted schools across China to find interns while Mok Jangkyun, an auditor with Samsung Electronics Co. Ltd., told Reuters he drove a full day after flying to Guizhou province in southwest China to vet a vocational school sending interns to its supplier factories.

Samsung did an audit of factories after activists found underage workers with fake IDs at one of the electronics giant’s 250 supplier factories in China. The South Korean company said it did not find underage workers at any of its suppliers.

Supplying vocational students can be lucrative.

Some students in Yantai said their school took 500 yuan from their monthly wage. Their school declined an interview request.

Some companies pay teachers directly to keep students in line in dormitories and on the factory floor, SACOM has found. In other cases, companies pay management fees or set up extra facilities at schools.

Foxconn says while it pays teachers who supervise students, it usually does not compensate schools.

“However, in some cases, we do provide compensation to meet their overall administrative costs,” it said.

Use of student interns highlights China labor shortage

(Reuters) – In September, the largest factory in the northeastern Chinese coastal city of Yantai called on the local government with a problem – a shortage of 19,000 workers as the deadline on a big order approached.

Yantai officials came to the rescue, ordering vocational high schools to send students to the plant run by Foxconn Technology Group, a Taiwanese maker of smartphones, computers and gaming equipment.

As firms like Foxconn shift factories away from higher-cost centers in the Pearl River Delta in southern Guangdong province, they are discovering that workers in new locations across China are not as abundant as they had expected.

That has prompted multinationals and their suppliers to use millions of teenage students from vocational and technical schools on assembly lines. The schools teach a variety of trades and include mandatory work experience, which in practice means students must accept work assignments to graduate.

In any given year, at least 8 million vocational students man China’s assembly lines and workshops, according to Ministry of Education estimates – or one in eight Chinese aged 16 to 18. In 2010, the ministry ordered vocational schools to fill any shortages in the workforce. The minimum legal working age is 16.

Foxconn, the trading name of Hon Hai Precision Industry, employs 1.2 million workers across China. Nearly 3 percent are student interns.

The company “has a huge appetite for workers”, Wang Weihui, vice director of the Yantai Fushan Polytechnic School, told Reuters during a recent visit to the city.

“It tightens the labor market,” said Wang, whose school sends its students to work at Foxconn and other firms.

Local governments eager to please new investors lean on schools to meet any worker shortfall. That’s what Yantai, in Shandong province, did in September when Foxconn had trouble filling Christmas orders for Nintendo Co Ltd Wii game consoles.

“It has been easier to recruit workers in the Pearl River Delta than some inland locations,” Foxconn told Reuters in written comments in late December.

Some companies cite rising wages in southern China for the shift elsewhere. Wages are a growing component of manufacturing costs in China, making up to 30 percent of the total depending on the industry, according to the Boston Consulting Group.

Wages began to rise around 2006 as the migration of rural workers to Guangdong ebbed. China’s one-child policy, plus a jump in higher education enrollment, further depleted the number of new entrants to the workforce, forcing up wages.

That prompted American carmakers, Korean electronics manufacturers and private Chinese firms to look for new sites. Cheaper electricity, land and tax incentives as well as a growing consumer class in regions beyond the booming southern coastal provinces were other reasons to relocate.

Minimum wages in Yantai can be as low as 1,100 yuan ($180) a month compared to 1,500 yuan in Shenzhen, a city near Hong Kong.

What makes vocational students attractive is they can be paid less than full-time workers, although some firms – including Foxconn – pay the same base wages.

Even if they pay the same base salary, employers can save 10-40 percent per person because legally they do not have to pay health insurance or social security benefits for student interns.

Yantai was not the only local government to help Foxconn.

Two months earlier, Foxconn’s 100,000-worker factory near the city of Zhengzhou in Henan Province was racing to meet a deadline for Apple Inc’s iPhone 5.

Henan authorities told its cities to find 30,000 more workers for Foxconn, according to a Zhengzhou city government notice reprinted by the Hong Kong-based labor rights group, Students & Scholars Against Corporate Misbehaviour, or SACOM.

THE YANTAI MICROCOSM

Yantai shows how much China’s labor market has changed.

Zhang Weifang, head of human resources at the Yantai factory of LG Innotek estimates the city’s employable 16- to 18-year-olds has halved since her firm began production in 2004. LG Innotek is the components unit of South Korea’s LG Electronics Inc.

“It’s really hard to find people nowadays,” she said.

About 2,400 young workers staff Zhang’s factory, of which one-third are vocational students or workers contracted through agencies.

Students are sought after by plants which need extra workers during peak production periods, especially since China’s 2008 Labor Law makes firing employees cumbersome.

And students are plentiful. Vocational school graduation has surged 26 percent in the last five years, to 6.6 million students in 2011. Parents whose children cannot compete in China’s exam-driven high schools look to vocational schools.

Such students made up such a large percentage of a Honda Motor plant in southern China that when they went on strike for better pay in 2010, they crippled Honda’s production chain. A Honda spokeswoman said the ratio of students to regular employees had significantly declined, but would not give a figure.

About 2.7 percent of Foxconn’s workforce in China comprises vocational students, the company said in October. That works out to 32,400 teenagers.

“This program gives Foxconn an opportunity to identify participants who have the potential to be excellent full-time employees should they wish to join our company upon graduation,” Foxconn said in a statement at the time.

That month, Chinese state media said 56 minors under the legal working age were among students sent to work at Foxconn in Yantai. Foxconn removed the underage students from the plant after the reports.

Chinese law limits students to eight hours of work a day, with no night shifts. Vocational students in Yantai told Reuters they had worked up to 12 hours a day, and routinely did night shifts at Chinese and foreign-invested factories.

Foxconn has a program with Apple, one of its main customers, to pay interns the same wages as other workers, limit their work to eight hours a day, five days a week and allow them to quit if they want.

More than a dozen students interviewed by Reuters in Yantai had a mixed view of their internships, ranging from relatively positive to outraged. Many said it taught them to look for something other than assembly line work after graduation.

Most three-year vocational programs require a two-month internship in the second year, while the third is spent entirely at work. Even though students know they need factory experience to graduate, the assembly line comes as a shock to some.

“At the beginning I was really excited. I thought I could get experience and help out my family with some money,” said Yu, 17, an intern in Yantai. She asked that her full name not be used.

“To suddenly encounter 12-hour work shifts, standing, with only 40 minutes to rest and eat, our legs can’t stand it.”

Some students said they hoped the work would improve their prospects.

“Electronics is our major and so this will help in finding jobs,” said vocational student Sun Chuangjiao, a former Foxconn intern.

Companies defend the internships as educational as well as a useful recruitment strategy.

“The vast majority of our interns and the schools that sponsor them find their experience with us relevant and meaningful, and an important first step in their career development,” Emerson Electronic told Reuters.

It employs 40 interns for eight-month stints, out of a workforce of 1,063 at its air conditioner compressor plant in the Yangtze Delta city of Suzhou. All are over 18, it said.

LOOKING FARTHER AFIELD

The shortage of labor means companies often search far and wide for vocational schools to supply workers.

Zhang of LG Innotek said she had contacted schools across China to find interns while Mok Jangkyun, an auditor with Samsung Electronics, told Reuters he drove a full day after flying to Guizhou province in southwest China to vet a vocational school sending interns to its supplier factories.

Samsung did an audit of factories after activists found underage workers with fake IDs at one of the electronics giant’s 250 supplier factories in China. The South Korean company said it did not find underage workers at any of its suppliers.

Supplying vocational students can be lucrative.

Some students in Yantai said their school took 500 yuan from their monthly wage. Their school declined an interview request.

Some companies pay teachers directly to keep students in line in dormitories and on the factory floor, SACOM has found. In other cases, companies pay management fees or set up extra facilities at schools.

Foxconn says while it pays teachers who supervise students, it usually does not compensate schools.

“However, in some cases, we do provide compensation to meet their overall administrative costs,” it said. ($1 = 6.2335 Chinese yuan)