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April 2012, Volume 19, Number 2

China: Hukou, Economy, Apple

Most Chinese lived in cities for the first time in 2011, when there were 691 million urban residents and 657 million rural residents. In 1949, when Communist forces took control of the Chinese mainland, 10 percent of Chinese lived in cities.

Hukou. The Chinese government continues to use the hukou or household registration system to link citizens to their place of birth. This means that the 250 million rural-urban migrants are often denied public housing, health care and schooling when they are away from their rural villages. The goal of the hukou system is to prevent the formation of slums in urban areas, but the outcome has been to make rural-urban migrants second-class citizens in the cities where they live and work.

A combination of economic growth, labor shortages in urban areas, and calls for equal treatment is loosening the hukou system. Rural-urban migrants have been able to buy urban hukous for the past several years, but at cost that often exceeds a year's earnings for a low-skilled worker.

The central government is trying to make it easier for rural-urban migrants in smaller cities to obtain urban hukous at lower costs, but local governments in large cities continue to restrict access to hukous. For example, Beijing, where seven million of the 19 million residents are migrants without Beijing hukous, continues to charge high prices for a Beijing hukou.

During the 15-day Spring Festival that began January 23, 2012, over 100 million rural-urban migrant workers returned to their villages in one of the largest annual human migrations. Many did not return to factories in coastal provinces such as Shenzhen and Guangzhou, prompting employers to raise wages and offer bonuses to employees who brought new workers into plants.

The smaller number of young rural residents willing to work long hours in urban factories may push Chinese labor costs up quickly. Over 70 percent of rural-urban migrants are under 30, meaning that they came of age at a time of rising Chinese prosperity and expectations, including higher wages and more benefits. Many rural youth are switching to factory jobs closer to homes as investors move from coastal to inland areas to take advantage of lower land and labor costs and an improved transportation infrastructure. Over 90 percent of rural residents under 30 are employed in nonfarm jobs.

The Ministry of Human Resources and Social Security reported in February 2012 that the average monthly earnings of rural-urban migrants was 2,049 yuan or $325 in 2011. The MHRSS reported that there were 253 million rural-urban migrants.

Economy. China's economy expanded by nine percent in 2011, down slightly from 10 percent in 2010 and sharply below the peak 14 percent in 2007. Economic expansion may slow to 7.5 percent in 2012 because of rising wages that reduce exports.

The World Bank's China 2030 report released in February 2012 urged the Chinese government to reduce its role in the economy by privatizing state-owned firms and to allow markets to allocate scarce resources. The report identified weak domestic consumption, over-investment in public works and increases in inequality as major problems confronting the economy as China advances to the ranks of high-income countries.

Apple. Apple employs 43,000 workers in the US and 20,000 abroad. However, most of the 700,000 workers who make Apple products are not employed by Apple.

Apple and other electronics firms use contractors in China and elsewhere to assemble their products. The contractors hire internal migrants, and house some of them in company-owned dorms adjacent to factories. The speed with which huge foreign assembly plants in China, some with over 100,000 employees, can churn out thousands of devices such as iPhones makes it unlikely that there will again be large-scale manufacturing plants in the US that employ tens of thousands of workers.

About 90 percent of the parts for Apple iPhones are made abroad. Most iPhones are assembled in Foxconn City, a complex with 230,000 workers, including over 60,000 who live on site in company-owned dorms. Foxconn, which has over 1.2 million employees in China, assembles 40 percent of the world's consumer electronics in China and other Asian countries, Eastern Europe, Mexico and Brazil.

Apple in February 2012 said that the Fair Labor Association (FLA) would monitor its Asian factories, including Foxconn. The FLA, supported by 34 companies, 200 universities, and more than 1,000 college logo licensees, inspected about 200 of the 4,700 factories used by association members in 2011; Apple became its first tech member.

The FLA, created in 1999 in response to complaints about the ways that Nike sports apparel was made overseas, issued a report critical of Foxconn factories in China in March 2012, reporting numerous cases of workers employed more than 60 hours a week and 11 consecutive days. Almost two-thirds of the 35,000 Foxconn workers interviewed by the FLA said that their compensation "does not meet their basic needs," and a similar share criticized the food served at Foxconn cafeterias. About 40 percent of the Foxconn workers interviewed lived in Foxconn dorms operated by subcontractors.

Foxconn first promised to raise the wages of its Chinese workers by up to 25 percent or about $400 a month, but begin charging for once-free dorms and food provided to workers. It also pledged to reduce maximum hours to 49 a week without reducing worker pay by July 2013.

Foxconn's wage increases and hours reductions may put upward pressure on labor costs and the prices of electronics, which could have ripple effects throughout the Chinese and world economies. Some economists argue against pressuring suppliers in low-wage countries to raise wages, arguing that higher wages can reduce the number of jobs that offer a first rung up the job ladder. Joan Robinson in the 1940s said: "the misery of being exploited by capitalists is nothing compared to the misery of not being exploited at all."

Hong Kong. Hong Kong's High Court in September 2011 ruled that foreign domestic workers may apply for permanent residence status after seven continuous years of residence, giving domestic workers the same rights as other foreigners. The suit was filed by Filipina Evangeline Banao Vallejos, whose application for permanent residence was rejected even though she had lived in Hong Kong since 1986.

The Hong Kong government appealed the decision, which was overturned in March 2012, saying "It is a fundamental principle that a sovereign state has the power to admit, exclude and expel aliens." Vallejos said she would appeal to the Court of Final Appeal.

There were 292,000 foreign domestic workers in Hong Kong in 2011, most from the Philippines or Indonesia; most earn a minimum wage of $450 a month. Some 117,000 of foreign domestic workers have been in Hong Kong for more than seven years, and over 900 had applied for permanent residence.

Taiwan. The number of foreign workers in Taiwan reached an all-time high of 425,660 at the end of 2011, including just over half in three sectors, manufacturing, agriculture and construction. The other 200,000 were caregivers and domestic workers in private homes who are now allowed to stay in Taiwan 12 years, up from nine years.

Taiwan's minimum wage is NT$18,780 ($635) a month. Some legislators want to introduce a dual minimum wage system that would offer higher minimum wages to Taiwanese workers and set a lower minimum wage for migrant workers.

Foreign workers often pay brokerage fees to Taiwanese recruiters of a month's Taiwanese wages, and another NT$1,500 to NT$1,800 a month in service fees. Most Taiwanese employers charge migrant workers for accommodation and food, often NT$5,000 a month.