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Dark side of China electronic surge: 3 lessons to learn

Posted by Author on June 1, 2010

Leo Lewis, The Australian, May 31, 2010 –

LIKE laws and sausages, consumer electronics have joined the list of things best not to see being made. Behind our shiny iPhone or cutely-packaged Nintendo games console is a process that reeks of exploitation, drudgery and, as we can now see, despair.

The spate of suicides at Foxconn’s plant in Shenzhen has provided an alarming education and raises a perfectly timed red flag over the US-China currency debate. China has been forced to acknowledge that the real story behind its growth figures is, in many cases, a degrading one.

There are three important practical lessons to be drawn from the deaths. The first is places like Foxconn must, sadly, exist if we want cheap electronics.

The punishing hours, the 350,000 employees squeezed into one vast complex, the pseudo-military discipline, the mind-numbing silence of the shop floor, these are all things that we can deplore, but which belong on the conscience of anyone who has ever made a call from a mobile phone, sent an e-mail or snapped a friend on a digital camera. Which is to say, all of us.

The glitzy myth of electronics has also been punctured: Foxconn exists because electronics manufacturing is no longer the work of artisan specialists. This company has done to technology what McDonald’s did to lunch.

The second lesson is that Foxconn represents the China that Beijing would prefer the country not to be. From the outside, the country looks export-led – one of the main reasons that China’s failure to allow its currency to rise against the dollar has drawn so much condemnation in Washington. The reality is rather different, and Foxconn usefully demonstrates why.

Take the 30-gigabyte iPod, one of the many Apple devices that depend on Foxconn. When it first went on sale in the US, it sold in the stores for $US299. It left the factory in China with a value of $150, but only $7.50 of that value was actually created in China. The remainder belonged to the other Asian countries (Japan, Taiwan) where the components were made.

According to analysis by CLSA Securities, globally, workers received $1.06 billion in earnings from iPod-related jobs, or about $25 per iPod sold. Chinese workers received only about 2 per cent of the global pay cheque, or 55c per unit sold. As it looks to its future, China desperately wants to be Apple, not Foxconn.

But the third and most critical lesson of Foxconn is that significant parts of the US rhetoric on China’s currency policy are misguided. The Obama administration is under relentless domestic pressure to “do something” about the undervalued Chinese currency, the yuan, and to prod China into letting it rise. Attention has turned to the timing of Washington’s decision to officially label China a “currency manipulator”, a meaningless slur given that 50 countries around the world peg their currencies to the US dollar.

Beijing, knowing that its economy is primarily driven by domestic investment, is probably keen for the yuan to appreciate but will not allow itself to appear bullied into doing so. But Foxconn kicks away one of the main struts of those angrily demanding that Beijing allow the yuan to rise: many of those manufacturing jobs that China is supposedly stealing from the US are not jobs that Americans could countenance doing themselves.

An attempt to run a plant like Foxconn in the US would be disastrous and that is why the jobs were outsourced there in the first place. Even if the yuan rose by 40 per cent against the dollar, it is hard to imagine mass-market electronics assembly jobs moving back to the US.

The currency scuffle between Washington and Beijing is in a lull, but could flare-up again at any moment: When it does, America must look at Foxconn for a sense of how the trade world really works.

Via The Australian

One Response to “Dark side of China electronic surge: 3 lessons to learn”

  1. Great Article..!

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