Zhengzhou Journal: The Demanding Off-Hour Escapes of China’s High-Tech Workers

Fun Factory: Blowing Off Steam in China: After spending a shift on the factory floor, young workers in China’s manufacturing cities let loose.

 
ZHENGZHOU, China — The hottest nightclub in this factory town is a neon-encrusted dive down the road from the industrial park where iPhones are made 24 hours a day. Tucked behind an open construction site, “Through the Summer,” as the nightspot is known, had it all on a recent Saturday night — plastic whistles, fruit plates, a toddler with a mohawk, counterfeit light sabers and a bawdy comedian who imbibed beer through his nose. 

 Thousands of young Chinese come to the city of Zhengzhou to work in electronics factories. To escape the monotony of the assembly line, many take up roller skating as a hobby, like at the outdoor roller rink. More Photos »
Liang Yulong, 19, who tests iPhone motherboards at the Foxconn Zhengzhou Technology Park, arrived at the club with a single goal in mind: to obliterate his dreary daytime reality on the spring-loaded dance floor. “Dancing lets me vent my anger and stress,” he said, cigarette in hand. “When I’m here, I forget everything else.”

 
Here on the gritty outskirts of Zhengzhou, the capital of central Henan Province, the nocturnal menagerie reveals a little-explored aspect of the global supply chain, the off-hour escapes that give the masses of workers the motivation to return to the assembly line.

 
The hands that make the world’s electronics belong almost entirely to young people with dreams of their own, and a lifetime of contented industrial drudgery is not among them. Their precious time off is a rare chance to enjoy the present as they strive for a better future.

 
“Everyone gets psyched for the weekend,” said Bai Sihai, 24, as he navigated open potholes on the way back to his dorm after work one afternoon. His plan? A video-game binge session at an Internet cafe followed by a long-distance phone call to his girlfriend.

 
The captains of industry are beginning to see the merits of off-hours leisure. In recent years, a wave of riots and suicides at China’s huge factories have drawn attention to working conditions. In April and May, two workers and a prospective employee jumped to their deaths from dormitories that cater to workers at the Zhengzhou plant, which is owned by Foxconn, the Taiwan-based manufacturing giant that produces electronics for Apple, Microsoft and other companies. Foxconn maintains that the suicides were unconnected to work at the factory. Also in May, a worker committed suicide at a Samsung plant in the southern province of Guangdong, where labor rights organizations had documented a string of violations like forced overtime and under-age workers.
The industry has responded with carrots and sticks to save both the lives of their workers and their own corporate reputations. Under pressure, Foxconn has raised wages and cut overtime hours. At the Shanghai plant run by Quanta, which makes hardware for companies including Apple, Toshiba and Asus, workers can pay for yoga and taekwondo classes.
After the latest suicides at the Zhengzhou plant, the company instituted “silent mode,” which banned all talk about nonwork tasks on the factory floor. Although Foxconn later announced it had rescinded the policy after a public outcry, workers say it remains in effect.
In the high-tech Olympus of Silicon Valley, employees in ergonomically luxuriant offices can get subsidized massages and haircuts, scale rock-climbing walls, play foosball, meditate and do Pilates — all in the name of promoting creative innovation.

 
The work environment is considerably more bare-bones here. Unlike Apple’s modernistic new campus in Cupertino, Calif., which will be surrounded by apricot trees, the Zhengzhou factory has all the charm of a penal colony. Employees, who must wear matching uniforms, say supervisors routinely curse and yell. In the residential compounds, rows of brick dormitories house up to eight workers in rooms filled with metal bunk beds, a combination shower-toilet, and not much else.

 
Perhaps that is why the world beyond the factory gates resembles a gigantic street fair. As dusk fell one night recently in Zhengzhou, Mandarin pop music blared from hair salons and couples strolled past stalls selling pirated DVDs, sliced watermelon and roses covered in silver glitter. A flatbed truck piled high with oversize stuffed animals drew a mob of young women like sharks to blood. “I want the green teddy bear,” cooed a teenage girl to her boyfriend, who dutifully handed over 10 renminbi, or $1.60.
This article has been revised to reflect the following correction:
Correction: July 17, 2013

A picture caption with an earlier version of this article incorrectly described the electronics manufacturing district of Zhengzhou, China. The district is not nicknamed Apple City.
This article has been revised to reflect the following correction:

Correction: July 18, 2013
An earlier version of this journal article referred incorrectly to three suicides at the Foxconn plant. Two were of Foxconn workers and one was of a prospective employee; not all three were employees. All jumped to their deaths from dormitories catering to Foxconn workers, not from the Foxconn plant. And two suicides occurred in April; they were not all in May. The earlier version also omitted Foxconn’s contention that the deaths had no connection to work at the plant.

China's banking mess: It's the politics, stupid

By Minxin Pei



FORTUNE -- The worst credit squeeze in China in recent memory seems to be over. After the People's Bank of China (PBOC), the country's central bank, issued a reassuring statement on June 25 that dispelled investors' worries about the lack of liquidity in China's interbank loan market, Chinese stock markets halted their plunge, and the rates of China's interbank loans fell from over 20% to around 6% (still two to three times greater than the average rate before the recent panic). China's Lehman moment, for now at least, appears to have been averted.

However, many questions remain, both about the causes of the recent turmoil in China's banking system and the implications for the Chinese economy.

As for what prompted the recent seizing-up of China's interbank loan market, there is no shortage of theories. The PBOC, widely perceived as having engineered an artificial credit squeeze to crack down on China's shadow banking sector, has come out with innocent but not very credible explanations. It blames the panic on a set of coincidental factors, such as the June deadline for banks to report their numbers (a requirement that forces many banks to reduce outstanding loans and embellish their risk profiles), tax due dates at the end of May and middle of June (tax payments suck cash out of the circulation), and increased demand for cash before a traditional Chinese holiday.

An alternative explanation, popular mainly among economists and investors, is that the PBOC was engaged in a high-stakes game with players in China's shadow banking system, all with the blessing of China's new political leadership. Because interbank loans constitute the bulk of funding for borrowers in the shadow banking system, making such loans less available sends a powerful message that the central government will no longer tolerate risky behavior and keep inflating China's credit bubble. Some analysts went so far as to suggest that this is the first shot fired by the Chinese government to signal the start of a deleveraging process.

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There is a third explanation, which is simpler and perhaps more reasonable. This incident is most likely a botched response by the Chinese monetary authorities to a problem that has been long in the making but exploded without warning and caught them completely by surprise.

The growth of China's shadow banking system (with estimated outstanding credits equaling roughly 10-15% of the balance sheet of the formal banking sector) has long been flagged as a source of risk in China's financial sector. Chinese policy-makers are fully aware of the risky activities within this sector but have opted to do nothing because the system serves several useful functions and has powerful interest groups. Local governments, real estate developers, and private entrepreneurs unable to obtain loans from the state-owned formal banking sector can tap this system for funding by paying a higher interest rate. State-owned banks and investment companies pocket lucrative transaction fees by peddling wealth management products (WMPs) issued by borrowers to depositors chasing high yields. When this game is going well, a lot of rich and powerful people make money while risk builds up in the financial sector.

As with similar instances of financial recklessness, confidence can evaporate quickly, setting off a panicked exit from the market. Even sophisticated and capable regulators are often ill-prepared for such unforeseen and highly disruptive events. If we analyze the recent gyrations in China's interbank loan market from this perspective, we may gain a better understanding of the causes behind the short-lived panic and avoid overreacting to or over-interpreting this event.

Granted, the opacity of the decision-making process, the lack of a free press, and the insensitivity of policy-makers to the need to communicate their intentions to market participants all contribute to the difficulty in making the right call on China. To avoid making mistakes in the future, analysts should do themselves a favor by focusing more on political factors than on economics. In the case of the recent upheaval in China's financial system, the idea that the squeeze was deliberately engineered by the PBOC to crack down on the shadow banking system makes little political sense. Only the Politburo Standing Committee, the ruling Communist Party's most powerful body, could have made such a decision. But the Politburo would not likely authorize such a move at this delicate moment.

The Communist Party is scheduled to hold its third central committee plenum in the fall, when its most important economic initiatives will be unveiled. It is inconceivable that the party's leadership would risk economic turmoil and disrupt its plans with a bold move on the shadow banking system before they head to the beach for the summer.

To implement any kind of meaningful reform to the shadow banking system, Chinese leadership will first have to reach a consensus at the top, overcome resistance from interest groups, and devise complex plans to address the consequences of reform. All this takes time and fierce bargaining. Based on the quick retreat sounded by the PBOC, it is quite obvious that the top leadership has no such plans in place for now.

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However, this does not mean that Beijing can delay dealing with the massive risks in the banking system for very long. If anything, the recent bloodbath in the Chinese financial sector should prompt China's top leaders that they must have a more comprehensive plan for financial deleveraging when they meet in the fall. Otherwise, they are almost certain to face a bursting of China's credit bubble that will make last week's turmoil look insignificant.

Minxin Pei is the Tom and Margot Pritzker '72 Professor of Government at Claremont McKenna College and a non-resident senior fellow at the German Marshall Fund of the United States

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