The China trade

Few people can sew jeans as well as Lee Chitak. His bosses at Comeglory Trading Co. say he’s due for promotion because he is so efficient, one of the best on the shop floor. He should be. Lee has been sewing clothes for 16 years — half his life. He hails from Heyuan, a forest-ringed city in southern China that scientists believe gave birth to the SARS epidemic four years ago. He left school after nine years and, like many of those born in China’s backwaters during the last few decades, moved to a bigger city to make more money. A few years ago, he landed in Dongguan.

Work is why most people come to this city of 1.6 million that sprawls over 952 square miles — bigger than all but a few North Carolina counties. It’s a broad swath of factories, worker dormitories, warehouses, commercial districts, construction sites and farms. Sometimes it’s hard to tell whether the brick buildings are being built or falling down. The taxis have thick, stainless-steel bars between the front and back seats so customers can’t attack drivers.

Dongguan’s workaday gloom contrasts sharply with the skyscrapers and glitz of nearby Hong Kong. In the 1960s and ’70s, companies based in the former British colony opened many small factories and later ended up here, in the Pearl River delta. Foreign investment followed after China began opening up to the West in the late 1970s, helping to make the region the most dynamic part of that country’s blossoming economy. Comeglory, started two years ago by three brothers from Hong Kong, tapped into the region’s pool of apparel workers.

North Carolina has people who do the kind of work that Lee does. It used to have many more. Since June 1990, the number of jobs in apparel manufacturing has plummeted 78%. Now there are fewer than 22,000. Some were eliminated because of technological advances that increased efficiency, but many apparel companies have closed or shifted their production to places such as China, where labor costs much less. In North Carolina, cut-and-sew workers average about $2,000 a month. In Dongguan, Lee’s base pay amounts to about $100 a month. He also gets paid for each piece he turns out — usually boosting his monthly pay to about $250.

Work consumes Lee’s life to a degree seldom seen among rank-and-file workers in the United States. He lives in a dorm next to the factory, which makes designer jeans for companies in Europe and North America. He eats in the company mess hall and normally knocks off late, sometimes 11 p.m. That leaves him little time to play billiards in the café around the corner or watch soccer on TV. Curfew is midnight. The next morning, he starts work at 8. He gets to see his wife and two children in Heyuan, about 60 miles away, on his two days off a month.

He says he’s satisfied with his job on the production line, but he wants better things for his sons, who are 9 and 3. “I want them to get to a high grade in school, go to university and then work in government offices. I didn’t do that much school, and working life is too tough. I want my sons to have better work.” He hopes he can arrange for them to enter one of the prominent Beijing universities — which might involve bribes. Wouldn’t he miss them if they moved hundreds of miles away? “It doesn’t matter, as long as they can get much better prospects.”

Lee’s yearning for a brighter future is shared by many of his countrymen. They live in a nation that has careered from communism to something approaching capitalism in just a few decades. When Business North Carolina began publishing in 1981, there wasn’t a privately owned business in China. In 1990, the private sector employed 5% of the work force. Now, though the nation still is run by the Communist Party, that figure is about 75%. China has 786 million workers, and the number will swell to 813 million by 2030. It edged past Britain in July to become the world’s fourth-largest economy. Only the economies of the United States, Japan and Germany are bigger. In fact, China could be the world’s biggest exporter as soon as 2010. “Sometime in this century, China is going to be the biggest economy in the world,” says Ken Davies, the senior economist in the investment division of the Organisation for Economic Co-operation and Development in Paris.

Because so many Chinese workers can produce goods so cheaply, they have started to exert a strong influence over North Carolina business during the past 25 years — and they aren’t finished. Above low-level workers such as Lee are managers who are ambitious and better-educated than the workers they oversee. They, too, work for a lot less than their Tar Heel counterparts and likely will shape the future of North Carolina’s economy as they try to improve their own lives. Chinese workers and managers could be the biggest foreign influence on business in this state in the next 25 years. They will make your products, buy your products, compete with you, steal your ideas, come up with some better ones, become your partner, build a factory near you, take over your company, maybe even make or break you.

You can see it starting to happen in Dongguan.

Guangdong province looked very different when Zhang Xiu Ying came to Dongguan in 1989. Small roads — little more than footpaths — linked villages and towns. There was more countryside and less concrete. Zhang was 20 when she left her home in Sichuan, a mountainous province in central China best known for its spicy food and pandas. She had struggled to find work as a seamstress there. During a good month, she could make the equivalent of $50, getting paid by the piece. She was sharp enough to get promoted to midlevel roles in quality inspection. But it wasn’t long before she was looking elsewhere for advancement. “My sister told me I would make much more money in Guangdong.”

About 60% of the population still lives in the countryside. That will dwindle to 25% within 25 years.

When she arrived in Dongguan, her sister housed and fed her and referred her to a company that was hiring. Zhang found a job, and her salary soared. As a supervisor in Sichuan, she was making only $88 a month. Junior sewing girls in Guangdong started at $138 a month.

As Dongguan grew, Zhang rose through the ranks. Now 37, she is production manager at Comeglory. Her ascent moved her from a factory floor cooled by fans in the summer into an air-conditioned office. She sits at a computer in her cubicle, part of a pod of workers supervising production. Her job is to take a sample garment that a customer wants the factory to make and tear it apart so she can decide which piece the factory needs to make first and which to make last. She then decides how long each task will take and how many will work on each step. She assigns the sewing jobs so the work on the garment will finish in sequence.

As work begins, it becomes obvious why these kinds of jobs have been leaving North Carolina. Individual workers sitting at sewing machines do almost all the stitching, rapidly working through boxes of fabric. Men and women turn each piece of denim this way and that under a needle as it hammers up and down to sew the stitching. There’s some chatter, but not much. Workers dress casually and lightly to stay cool on a hot day. Sewing machines whir. Fans hum. A radio blares lilting Cantopop tunes. Little of the process is automated.

Comeglory makes that a selling point: Factories in America will not bother with the kind of work done in Dongguan because their assembly lines can’t do it efficiently. The more streamlined the production process, the better. The jeans Comeglory is producing are complex, often involving more than 20 processes with 20 to 30 pieces of fabric. On average, 16 people will work on a pair of jeans or shorts.

The first stage of production is cutting. Workers measure each piece to be cut by placing tracing paper with actual-sized computerized maps over the denim — the shape of a pocket here, an outline of a belt loop there — then slice up huge piles of material. Assembling the pieces into finished items of clothing requires a lot of hands. Though it grosses just $5 million a year, Comeglory employs more than 200 people.

Some, like Lee, speak Cantonese, the local dialect. Zhang and others from farther away speak Mandarin. In Dongguan’s factories, Cantonese speakers often hang out together, while Mandarin speakers form cliques of workers who grew up in the same region. Though he sees his family only two days a month, Lee is better off than many Chinese workers who are too far from their hometowns to visit more than once a year. Many send the lion’s share of their paycheck home.

Most Chinese students end formal education after middle school, as Lee did. They usually occupy the lowest rungs on the labor ladder, according to Min Tang, principal economist in the Asian Development Bank’s Beijing office. Middle-school graduates have been heading from the countryside into the cities to work on assembly lines, construction sites and wherever else they can make more money. “This is usually their first job, and they need some training. But they are quite disciplined and can tolerate lower wages, and they work very hard.”

That migration is reaching a tipping point. About 60% of China’s 1.3 billion people live in the countryside. Within 10 years, the percentage will drop to 50 and, within 25 years, to 25, Tang says. Most of the new city dwellers will be young, and they also will climb the labor ladder. They will move beyond the unskilled jobs by receiving technical training at a vocational school.

Every year, about 8 million graduate from these schools — 80 million skilled technicians will enter the market in the next decade. “As we get more of those type of people coming into the market, the labor force will improve,” Tang says. “They know some machinery. They can do some high-tech industry as a low-end worker. They can operate some computers, not only an assembly line. Or they can run an assembly line.”

The top steps on the labor ladder are reached by going to college. Enrollment has increased fivefold since 1998, and about 5 million university students graduate each year. That makes China the biggest producer of university grads in the world. About 20% of Chinese students go to college, up from 5% six years ago, Tang says. The government plans to boost that to 40% by 2025. “The majority are engineers, though of course there are others. But this is becoming a higher-level work force. Many of them may still be working in factories in engineering and probably in high-tech enterprises. More and more of those graduates will become our important working force.”

Technicians and people with vocational training can make about as much money as college grads because there’s such a glut of graduates. But Tang says China needs them to move its economy into higher-revenue industries. “In 25 years, this low-cost China production is going to have a lot of competition — from Bangladesh, India, Vietnam,” Tang says. Chinese workers “have to increase their value, increase their training and improve their efficiency. This is the only way they can compete.”

China’s explosion of college graduates might be an even bigger threat to the U.S. economy, one observer says.

Though Lee sews alongside a handful of other men at Comeglory, many assembly lines in Dongguan rely exclusively on women. The reasons companies give vary: Women have smaller hands that are better suited to assembly, they are more detail-oriented than men, they’re more reliable. Men often end up in construction or day labor. Women in their late teens or early 20s often move from the farms and smaller cities to China’s east-coast industrial belt. About 90% work five or six years to save enough money to go home and marry, then raise a family or open a small shop.

Zhang, the production manager, is different. She has worked in at least five factories, changing jobs to grasp a better opportunity. Her longest lasted six years, where she moved from senior supervisor to technical supervisor to her current post. She may be on the second rung of Tang’s labor ladder — a skilled technician at the top of the production line but still intricately linked to it. She lives next to the factory — on the other side from where lower-level workers such as Lee live — in management quarters: several concrete one-room apartments in a two-story building.

Zhang makes the equivalent of $376 a month — about $4,500 a year. Most Chinese workers get an extra month’s pay around Chinese New Year and sometimes another one as a bonus. That could boost her pay to almost $5,300, pretty good by Chinese standards. The country’s gross national income per person was $1,100 in 2003, according to the latest figures from the Asian Development Bank. That is slightly more than the Philippines’ $1,080 but below the $1,170 of Myanmar, a country ruled by a military junta and subject to U.S. trade sanctions in recent years. In a developed economy, the figures are about 20 times that — $25,860 in Hong Kong and $21,230 in Singapore.

To earn her keep, Zhang gets up at 7:30 a.m., eats breakfast and arrives at the factory for a long day broken up by an hour and a half at lunch. At 5.30 p.m., she breaks for dinner, then goes back to work at 7 p.m. to make sure the night shift is going smoothly. She might work until 10. After her day is done, she showers and maybe watches a little TV. She often goes back to the office to surf the Internet. Married to another clothing worker, they have two daughters in middle school. The family gets back to Sichuan once a year. Like Lee, Zhang says she is satisfied with her job. It’s not something she thinks about often. Nor does she think much about U.S. workers. “I have no real idea. I only know them from the TV.”

Americans know more about their Chinese counterparts, thanks to media coverage devoted to China’s economy and its impact on U.S. jobs. Some argue that the threat has been exaggerated. John Kasarda, a professor at UNC Chapel Hill’s Kenan-Flagler Business School, says research has shown technology improvements have caused most job cuts in North Carolina. “Probably the heaviest blows to manufacturing already happened by the time China entered on the scene — from Latin America first and then Southeast Asia and then of course China in the last 10 years.”

The share of U.S. imports from Asia hasn’t grown, and most of the jobs China has taken have not come directly from the United States. The rise in college graduates in China is a greater threat, Kasarda says. “There’s the potential to have even greater effects on the service sector in North Carolina. These people are learning English. They’re becoming very facile with computers and data processing. They will have the advanced degrees, and they will be competing very effectively with the white-collar American worker that deals with information.”

Not only will they compete with North Carolina companies, they’ll cooperate with them, Kasarda says. The recent purchase of IBM’s PC operations by China’s biggest computer maker, the Lenovo Group, provides a beachhead and a sign of things to come. The deal may encourage other Chinese-owned businesses to open nearby. Last year, Chinese companies invested less than $7 billion abroad, but experts expect that number to leap. China lured much more, $72 billion, in foreign direct investment — more than any nation except the U.S. and the United Kingdom. “Is China a competitive threat to North Carolina, a potential market or a potential partner? The answer to that is yes,” says Davies of OECD.

Chinese workers also may affect North Carolina another way. As Chinese salaries increase, the country is rapidly becoming a major tourist source. Only 4.5 million Chinese traveled abroad in 1994. That rose to 31 million in 2005. By 2020, travel analysts forecast, the figure will hit 100 million, many more than the 62 million Americans who now travel abroad each year. “If North Carolina markets itself appropriately, there’s a real opportunity to capture that coming wave of Chinese tourists,” Kasarda says. “The biggest waves are in the Pacific, and the origins of those huge waves are in China.”

Unlike some of her colleagues, Kwan Hangsiu has thought about America. Now 42, she started working in clothing factories at 18 and is a senior supervisor at Comeglory, a level between Lee and Zhang. “I have friends in San Francisco and New York, and they asked me when I want to come join them, but I didn’t want to leave my family.”

Her husband also works in the garment industry but in Guangzhou, the capital of Guangdong, about 30 miles away. She has a 17-year-old son who goes to school there and lives with his father. She rents an apartment near the factory for about $35 per month, visiting her husband and son every two weeks on her days off.

Kwan has experienced capitalism in a way Lee and Zhang have not: She owned a company with 80 sewing-machine operators. But she says she was put out of business by traders, who asked her to develop products and then didn’t pay. She complains about having to work for someone else, but it pays the bills and keeps her hopes alive. “I want my son to have a better living. Whatever he thinks is comfortable. But I don’t want him to be a sewing worker. It’s tough.”

According to Andy Rothman, the Shanghai-based China macro strategist at CLSA Asia-Pacific Markets, a Hong Kong brokerage and investment bank, people like Kwan’s son have increasingly better chances of becoming entrepreneurs. “The story of low-cost goods produced by lots of cheap labor is kind of the story of the last 10 years. The story for the next 25 years is two other things: the growth of entrepreneurs and small to midsize companies and China moving up the value-added chain in terms of what it produces and develops.”

Right now, it mainly produces goods other countries design or develop. Rothman expects China to produce major innovations within the next 10 to 15 years. “I don’t see it as a threat, but it’s certainly a challenge. The Chinese are going to say, ‘We’re going to keep chasing you. So you have to keep moving up the value chain, so we don’t catch you.’”

Alex Frew McMillan is a Hong Kong-based freelance writer.