Strike at Honda Plant Highlights Pay Gap in China

Joe Tan/Reuters

A security guard on Friday at a Honda manufacturing plant in Foshan, Guangdong Province, that was shut due to a labor dispute at a parts facility.

By KEITH BRADSHER and DAVID BARBOZA

FOSHAN, China — After years of being pushed to work 12-hour days, six days a week on monotonous low-wage assembly line tasks, China’s workers are starting to push back.

A strike at an enormous Honda transmission factory here in southeastern China has suddenly and unexpectedly turned into a symbol of this nation’s struggle with income inequality, rising inflation and soaring property prices that have put home ownership beyond the reach of all but the most affluent.

And perhaps most remarkably, Chinese authorities let the strike happen — up to a point.

In the kind of scene that more often plays out at strikes in America than at labor actions in China, print and television reporters from state-controlled media across the country have started covering the walkout here, even waiting outside the nearly deserted front gate on Thursday and Friday in hope of any news. All the Chinese reporters disappeared on Saturday morning, however, as the government, apparently nervous, suddenly imposed without explanation a blanket ban on domestic media coverage of the strike.

A worker at a factory dormitory said on Saturday afternoon that the strike continued, and police were nowhere in sight at the factory or the dormitory. The authorities have been leery of letting the media report on labor disputes, fearing that it could encourage workers elsewhere to rebel. The new permissiveness, however temporary, coincides with growing sentiment among some officials and economists that Chinese workers deserve higher wages for their role in the country’s global export machine.

And without higher incomes, hundreds of millions of Chinese will be unable to play their part in the domestic consumer spending boom on which this nation hopes to base its next round of economic growth.

“This is all because there is a major political debate going on about how to deal with the nation’s growing income gap, and the need to do something about wages,” said Andreas Lauffs, a lawyer at Baker & McKenzie who specializes in Chinese labor issues.

If wages do rise, that could bring higher prices for Western consumers for goods as diverse as toys at Wal-Mart and iPads from Apple.

The Chinese media may also have found it a little easier, politically, to cover this strike because Honda is a Japanese company, and anti-Japanese sentiment still simmers in China as a legacy of World War II. Certainly, the strike is hitting Honda hard, as the resulting shortage of transmissions and other engine parts has forced the company to halt production at all four of its assembly plants in China.

Honda has an annual capacity of 650,000 cars and minivans in China, like Jazz subcompacts for export to Europe and Accord sedans for the Chinese market. Because Honda’s prices in China are similar to what it charges in the United States, the cars tend to be far out of reach financially for most of the workers who make them.

A Honda spokeswoman declined to discuss specific issues in the strike negotiations.

The intense media coverage may evoke historical memories of the 1980 shipyard strike in Gdansk, Poland, that gave rise to the Solidarity movement and paved the way for the fall of Communism in Eastern Europe. But the reality here is much different.

Instead of tens of thousands of grizzled and angry shipyard workers, the Honda strike involves about 1,900 mostly cheerful young people. And the employees interviewed say their goal is more money, not a larger political agenda.

“If they give us 800 renminbi a month, we’ll go back to work right away,” said one young man, describing a pay increase that would add about $117 a month to an average pay that is now around $150 monthly. He said he had read on the Internet of considerably higher wages at other factories in China and expected Honda to match them with an immediate pay increase.

Many workers at other factories in southeastern China already earn $300 a month, but they do so only through considerable overtime. And even that higher income is not enough to embark on the middle-class dream in China of owning a small apartment and subcompact car. Officially, though, the government is discouraging heavy reliance on overtime, and workers here said that Honda was not assigning much.

The strikers said that Honda mainly hired recent graduates of high schools or vocational schools. And so, most are in their late teens or early 20s, representing a new generation of employees, many of whom had not been born when the Chinese authorities suppressed protests by students and workers in Tiananmen Square in 1989 — a watershed event whose 21st anniversary falls next Friday.

The profile of striking workers seems to run more along the lines of slightly bookish would-be engineers — perhaps without the grades or money to attend college — rather than political activists. Besides their low wages, the workers seem focused on issues like the factory’s air-conditioning not being cool enough, and the unfairness of having to rise from their dormitories as early as 5:30 for a 7 a.m. shift.

Workers said that in addition to their pay, they also received free lodging in rooms that slept four to six in bunk beds. They also get free lunches, subsidized breakfasts for the equivalent of 30 cents and dinners for about $1.50.

The striking employees said that some senior workers, known as team leaders, had allied themselves with management. But they insisted that the rank-and-file workers were solidly in favor of walkout — a claim impossible to verify.

Although China is run by the Communist Party and has state-controlled unions, the unions are largely charged with overseeing workers, not bargaining for higher wages or pressing for improved labor conditions. And they are not allowed to strike, although China’s laws do not have explicit prohibitions against doing so.

Workers at the Honda factory dormitory said that the official union at the factory was not representing them but was serving as an intermediary between them and management. Li Jianming, the national spokesman for the All China Federation of Trade Unions, declined to comment.

The workers here have been on strike since May 21, with no resolution in sight. But the strike did not come to broader notice until Thursday and Friday as Japanese media began reporting the shutdown of Honda assembly plants, and as Chinese media and Internet sites were allowed to report extensively on those activities.

The unusually permissive approach of the authorities toward media coverage of the strike follows a decision to tolerate extensive coverage this month of suicides by workers at the Taiwanese-owned Foxconn factory complex in nearby Shenzhen that supplies Apple and Hewlett-Packard.

The official China Daily newspaper ran a lead editorial on Friday that cited the Honda strike as evidence that government inaction on wages might be fueling tensions between workers and employers. The editorial criticized the Ministry of Human Resources and Social Security for not moving faster to draft a promised amendment to current wage regulations because of what the newspaper described as opposition from employers.

Zheng Qiao, the associate director of the department of employment relations at the China Institute of Industrial Relations in Beijing, said the strike was a significant development in China’s labor relations history and that “such a large-scale, organized strike will force China’s labor union system to change, to adapt to the market economy.”

Keith Bradsher reported from Foshan, China, and David Barboza from Shanghai. Bao Beibei contributed research.

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Murder Bares Worker Anger Over China Industrial Reform

By SKY CANAVES and JAMES T. AREDDY

TONGHUA, China -- When Chen Guojun took over last week as general manager of Tonghua Iron & Steel Group, it was supposed to be a step forward for China's government-backed effort to consolidate its massive steel industry.

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Sky Canaves/The Wall Street Journal

On Wednesday, broken glass and other debris littered the hallway outside the room where he was killed.

Instead, he became a tragic symbol of the challenges facing Beijing as it tries to remake its overbuilt industrial landscape.

Last Friday, after learning that Mr. Chen's privately owned employer planned to take control of government-controlled Tonghua Iron & Steel, thousands of workers who were worried about losing their jobs staged a protest that shut down production at their factory, located in a soot-covered district of this city in northeastern China.

As rumors swirled that Mr. Chen's employer, Jianlong Group, planned to shed workers, a group of them found the 41-year-old executive and beat him severely, battering his skull. Workers blocked streets near the factory and hurled bricks, preventing police and paramedics from reaching Mr. Chen.

Local government officials announced on television that night that the plan for Mr. Chen's company to take control of the steelmaker had been scrapped. But by the time the protests calmed and authorities were able to reach Mr. Chen, about six hours after the attack, the father of two was dead.

As police continued to search for Mr. Chen's killers on Wednesday, workers cleared debris from the dormitory where he died, sweeping shattered glass, broken furniture and ruined televisions into heaps. The door to the room where Mr. Chen died was shut, its frame damaged. There were holes in nearby walls and doors, apparently punched through by angry workers.

The fury unleashed in Tonghua has sparked an intense discussion in the Chinese media and among experts about how workers should be treated when control of companies changes hands.

Luo Changping/Caijing Magazine

Chen Guojun, the newly appointed general manager of Tonghua Iron & Steel Group, was beaten to death last Friday by marauding workers.

"This case rang a necessary alarm," says Li Xinchuang, vice chairman of China Metallurgical Industry Planning and Research Institute, a state think tank that helped draft the government's policy for the steel industry. Before the Tonghua riot, restructurings "were concerned only with benefits of local governments and companies," he says. "But the interests of employees should draw a lot more attention."

In an editorial, the official government Xinhua News Agency faulted local-government officials, asking: "Wasn't the Tonghua incident really a matter of failing to consider the interests of workers during the restructuring process?" Provincial-government officials declined to comment on the matter.

Even before the incident, China had been struggling to make headway in its push to consolidate the industry. The nation's steel industry is the world's largest by far, accounting for about 38% of global production last year. That share has grown during the global recession. China's production rose about 6% in the first half of this year, even as global output slid 21%.

Fragmented Industry

But the industry in China is fragmented among as many as 800 producers. Shanghai Baosteel Group, long China's biggest producer, accounted for less than 5% of the roughly 500 million metric tons of steel China produced last year. By contrast, South Korea's Pohang Iron & Steel Co., or Posco, accounted for just over 60% of that country's steel production last year.

Chinese steelmakers have hefty payrolls. Shanghai Baosteel has more than 108,000 employees. By contrast, Japan's Nippon Steel Corp., far larger by output, employs around 17,000. China's central government has blamed smaller producers, owned by provincial and local governments, for weak environmental standards, inefficient use of electricity and other valuable resources, and for flooding the market with poor-quality products.

Despite their enormous output, many Chinese steelmakers lose money. Government figures show as much as one-quarter of production capacity is unused, which partly reflects how fast companies are adding capacity.

The industry has relied increasingly on exports, leading to growing friction with major trading partners. In April, U.S. steelmakers filed an antidumping suit against Chinese counterparts, claiming their product was being priced below cost. This week, European Union trade officials approved penalties on imports of steel pipe from China. Beijing, meanwhile, has launched its own dumping probes into steel from the U.S. and Russia.

Beijing has said it wants to remake the domestic industry so that there are just 10 or fewer globally competitive steelmakers. A consolidated industry might be able to negotiate cheaper prices for imported iron ore, a critical ingredient in steel. The government has unveiled similar consolidation plans for other industries that are plagued by overcapacity, from car making to coal mining. But its efforts have made little headway.

Its plans for the steel industry have met resistance from the local governments that own the companies, which see steel plants as a major source of tax revenue and jobs. When mergers do occur, says Thomas Wrigglesworth, a Citigroup analyst in Hong Kong, they often don't result in reduced production.

Steelmaking has long been core to China's identity. Mao Zedong made the industry a central part of his efforts to make China a Communist powerhouse. Deng Xiaoping, the former leader who ushered in the current era of market-oriented reforms, created Shanghai Baosteel as part of his push to modernize the economy. Today, the company is the world's No. 5 steel producer, with customers including General Motors Co. and China's space program.

Local officials built steelmakers too, with varying degrees of success. In recent years, brash entrepreneurs have moved in to buy them.

While violence like that in Tonghua is unusual, labor experts say workers are becoming more assertive when they feel their interests threatened.

Tonghua sits in a region known as China's "rust belt," which went through a round of unrest a decade ago when efforts to retool the state-owned industrial sector left tens of millions of workers without jobs. Today, the city still bears signs of the pre-reform era, when state firms provided all sorts of benefits to workers. Schools, hospitals, gymnasiums and a television station are still marked with the Tonghua Iron & Steel logo, even though few of those entities are still controlled by the steelmaker. Its flagship steel mill shows every bit of its 51 years.

Tension in Tonghua has been building for years. In 2005, the provincial government sold a 36% stake in Tonghua Iron & Steel to privately owned Jianlong as part of a restructuring.

Jianlong was founded by Zhang Zhixiang a decade ago, when private ownership was relatively rare in China's steel industry. The 41-year-old Mr. Zhang, a native of eastern China's Zhejiang province, began trading steel in his late 20s, quickly expanding his business to a dozen Chinese cities. In 1999, he took control of his first steel mill, in northern China. Today, his net worth is estimated at $1.97 billion, according to Shanghai's Hurun Report, making him one of seven steel magnates who are U.S.-dollar billionaires.

When Mr. Zhang bought the minority stake in Tonghua Iron & Steel, he pledged to transform it into a modern, profitable enterprise modeled on the world's best-run steel mills. To head one of the company's subsidiaries, he tapped Mr. Chen, a factory manager who had risen through Jianlong's ranks to run a company joint venture in Jilin province.

Mr. Zhang grew frustrated that government-appointed managers at Tonghua Iron & Steel blocked his efforts to improve efficiency at the company and expand its capacity, according to Chinese media reports and a Jianlong official.

Mr. Zhang couldn't be reached for comment. The Jianlong official said the restructuring of Tonghua Iron & Steel "is led by the government. It is the government who has organized it. It is impossible for us to control the process."

Worker Disappointment

For workers, Jianlong's involvement was also proving disappointing. "They promised lots of new equipment, but it never arrived," says an employee of the company's coking plant, who provided only his surname, Zhang. "They didn't invest in production. They didn't even maintain the equipment that was here before." Wages improved immediately after the Jianlong investment. Mr. Zhang, who has been a laborer at Tonghua Iron & Steel for more than 20 years, says his monthly pay doubled to about 2,000 yuan, or about $293, in 2006. But the raise proved to be short-lived, he says, and his pay gradually declined.

The situation worsened last year, as the entire Chinese steel industry entered a serious financial slump amid the global recession. Incomes for some workers at Tonghua fell back to their 2005 levels -- a decline for which workers say they blamed Jianlong. By early 2009, Jianlong was fed up with continued losses and indicated it planned to dump its stake, according to Chinese media reports and the company official.

Then, a few months ago, China's economy began to take off again, thanks to a $585 billion stimulus package announced by the government late last year that poured money into infrastructure and construction projects that require steel. Tonghua Iron & Steel reported a profit in June. Jianlong reversed course and structured a deal with the local government designed to increase Jianlong's stake in Tonghua Iron & Steel to a majority one.

The about-face angered workers. "It's like someone comes to your home to get something, and when they're about to leave, they find out that you're really rich, and then they try to stay," says Mr. Zhang, the coking-plant employee. "We can't accept this."

Mr. Zhang and his colleagues at the plant had received bonuses of 200 yuan a month as the company returned to profitability. Mr. Zhang says he feared that Jianlong would suspend the bonus scheme if it took over the company. Even worse, he says, there were rumors that Jianlong planned to lay off all workers who had been with Tonghua for more than 25 years, replacing them with outsiders. There are few other job prospects in this remote, hilly corner of the nation, 35 miles from the North Korean border.

Last Friday, Mr. Chen took over as general manager of Tonghua Iron & Steel and held a meeting with company executives. On the plaza outside, workers began gathering around 8 a.m., upset about the sudden takeover announcement and fearing that their jobs might be at risk, says Qiao Yukui, a 59-year-old company retiree who witnessed the protest.

Rumors Circulate

Rumors began flying that Jianlong planned to build a new steel plant in another city and replace existing Tonghua workers with recruits from there; that Mr. Chen planned to slash thousands of jobs and shrink pensions; that he was earning three million yuan, about $438,000, or more a year.

Around 5 p.m., Mr. Chen was cornered by angry workers in a dormitory office and beaten. At about 9 p.m., with Mr. Chen still missing and feared injured, the government announced that the deal was off. By the time rescuers got to Mr. Chen at 11 p.m., it was too late.

On Wednesday, the streets around the plant were relatively quiet. Several workers living in the dormitory where the killing took place denied having been at the scene on Friday.

A committee of Communist Party, government and company officials investigating the incident has been moving from hotel to hotel in Tonghua in order to hold meetings in secret, says Zhou Wei, a party propaganda official in Tonghua. No suspects have been detained, officials say.

Government officials say there were no plans for layoffs at Tonghua Iron & Steel after the Jianlong takeover. Yin Chunping, an official in the provincial agency that still holds a controlling stake in Tonghua Iron & Steel, says the only personnel changes in the acquisition plan involved executives.

—Gao Sen in Tonghua, China, and Ellen Zhu and Bai Lin in Shanghai contributed to this article.

Write to Sky Canaves at sky.canaves@wsj.com and James T. Areddy at james.areddy@wsj.com

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