Amid Slowdown, Increasing Labor Strife in China’s Manufacturing Belt

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Temporary enquiry desks for hiring workers are set up outside a Yue Yuen Industrial Holdings factory in China's southern city of Dongguan November 23, 2011. (Tyrone Siu / Reuters)

China’s economic planners face several headaches: bursting credit bubbles, slumping housing sales and poor outlooks in exports markets such as the U.S. and Europe. To that list add another concern, the return of labor unrest in manufacturing regions in south China. Factory workers have launched a series of strikes in recent weeks. While the labor actions have yet to cause widespread unrest, they are the most significant since workers at several foreign-owned plants went on strike in the summer of 2010.

Last week workers from the Yucheng Footwear factory in Dongguan, Guangdong, went on strike and are still carry out a work slow-down despite police mobilization, CNN reported. Reuters journalists were blocked by security guards while covering a strike at shoemaker Yue Yuen Industrial Holdings in the Guangdong town of Huangjiang, where thousands of workers took to the streets on Thursday.

These actions have occurred as Chinese manufacturers are facing some of the toughest economic conditions in recent years. HSBC’s China purchasing manager index, a monthly statistic that reflects the volume of orders placed, hit its lowest level in 32 months, according to preliminary numbers released Wednesday. When orders decline, factory bosses often look to cut workers’ overtime, causing a painful hit to their incomes.

“As soon as margins decrease and profitability decreases, the first response of bosses is to squeeze the workforce. It’s the easiest thing they can do,” says Geoffrey Crothall of the China Labour Bulletin, a Hong Kong-based NGO that advocates for independent trade unions. While the rate of inflation has slowed in recent months, workers have still seen significant increases in food and housing costs this year, making any wage cuts that much tougher to bear. “If bosses strip overtime, all they are left with is the basic wage, which is not much more than the minimum wage and that’s not good enough for anybody,” says Crothall. “Minimum wage not living wage by any stretch. It’s a real hit to workers’ pocketbooks.”

Independent unions aren’t permitted in China, but labor actions are common in factory towns, in part because there are no formal mechanisms for collective bargaining. The ubiquity of cell phones plus advances in social-networking platforms such as the Twitter-like Sina Weibo service make it easier for workers to organize informally, despite official restrictions. And as the labor unrest in 2010 showed, strikes can multiply, particularly if workers at one factory are able to win a significant wage increase.

The cyclical pressures faced by the traditional low-cost manufacturing regions along China’s coast, like Guangdong’s Pearl River Delta, come in addition to longer term burdens. Their price competitiveness has been undercut in recent years by cheaper manufacturing in places with even lower wages, like some parts of Southeast Asia and inland Chinese provinces. That shift is good for China’s economy in the long term, and the central government has identified raising wages and developing an economy that is more reliant on domestic consumption as key goals.

But the process of getting there will inevitably be painful, and some of the winners in the current economy will lose out. Likewise, workers who see their jobs eliminated or moved to the interior will be upset and worried. “The increased cost of doing business in the Pearl River Delta and the increased cost of living which is leading firms to think about relocating inland, that is causing a degree of uncertainty in workforce,” says Crothall. “Workers don’t know what happen if their firm relocates. Do I sign a new contract? Is it the same as what I’m getting at the moment? If I get laid off will I get compensation? That’s all playing into workers’ mindests.”

For now the likelihood of broader unrest is low. But as the pressures of the slowing global economy grow heavier on China’s manufacturers, the government will have to weigh how willing it is to tolerate the inevitable strife of further economic transition.

Austin Ramzy is Beijing correspondent for TIME. Find him on Twitter at @austinramzy. You can also continue the discussion on TIME’s Facebook page and on Twitter at @TIME.