If the US-China trade war is supposed to be in a ceasefire phase following last week's main news that trade talks will resume in October, Beijing may not have gotten the memo, because late on Sunday futures slipped and Treasury futures jumped after a Bloomberg report that Apple, and its Taiwanese manufacturing partner, Foxconn, had violated a Chinese labor rule by using too many temporary staff in the world’s largest iPhone factory; the Chinese report also alleged - wait for it - harsh working conditions.
For all those whose heads are shaking, stunning if what they read is true, let us help you - yes, China - that global paragon of equitable labor laws - is accusing the US and Taiwan of substandard labor practices. The claims came from China Labor Watch, which picked a great time to issued its report: just ahead of Apple's upcoming iPhone reveal slated for Tuesday. The non-profit advocacy group investigates conditions in Chinese factories, and says it has uncovered other alleged labor rights violations by Apple partners in the past.
"Our recent findings on working conditions at Zhengzhou Foxconn highlights several issues which are in violation of Apple’s own code of conduct,” CLW wrote in its report. “Apple has the responsibility and capacity to make fundamental improvements to the working conditions along its supply chain, however, Apple is now transferring costs from the trade war through their suppliers to workers and profiting from the exploitation of Chinese workers."
CLW said undercover investigators worked in Foxconn’s Zhengzhou plant in China, including one who was employed there for four years. One of the main findings: Temporary staff, known as dispatch workers, made up about 50% the workforce in August. Chinese labor law stipulates a maximum of 10%, CLW noted according to Bloomberg.
The biggest surprise, however, is that China appears to be right. When contacted by Bloomberg, Apple said that, after conducting an investigation, it found the “percentage of dispatch workers exceeded our standards” and that it is “working closely with Foxconn to resolve this issue.” It added that when it finds issues, it works with suppliers to “take immediate corrective action.” Foxconn Technology Group also confirmed the dispatch worker violation following an operational review.
To be sure, this isn't the first time Apple’s supply chain has faced criticism over poor labor standards for years. While Apple has pushed manufacturing partners such as Foxconn - the world’s largest contract electronics manufacturer, best known perhaps for the sudden propensity of its underage workers to commit suicide - to improve factory conditions or risk losing business, suppliers and assemblers have constantly trying to churn out more handsets. Foxconn, officially known as Hon Hai Precision Industry Co., hires tens of thousands of temporary workers to ramp up production and meet iPhone demand ahead of key holiday season each year.
While the report said 55% of factory staff were dispatch workers in 2018, and about 50% in August, this included student interns. Because many of these students returned to school at the end of August, that number is now closer to 30%, which is still a violation, the CLW said.
In response, Apple issued a statement saying "we believe everyone in our supply chain should be treated with dignity and respect,” adding that "to make sure our high standards are being adhered to, we have robust management systems in place beginning with training on workplace rights, on-site worker interviews, anonymous grievance channels and ongoing audits."
Likewise, Foxconn also admitted to skirting China's labor regulations: the Taiwanese fabrication giant said it found “evidence that the use of dispatch workers and the number of hours of overtime work carried out by employees, which we have confirmed was always voluntary, was not consistent with company guidelines."
It added that its “work to address the issues identified in our Zhengzhou facility continues and we will closely monitor the situation. We will not hesitate to take any additional steps that might be required to meet the high standards we set for our operations.”
As Bloomberg notes, in late 2017, Apple found Foxconn had employed high school students who worked illegal overtime to assemble the iPhone X. Apple sent specialists to the facility to work with management on systems that ensured appropriate standards were followed.
In retrospect, it looks like they failed to do that.
Just like US employers relying increasingly more on part-time workers, so Foxconn, which typically operates on wafer-thin margins, employs millions of mostly migrant and temporary workers because activity tends to wax and wane with shopping seasons and fluctuations in demand.
Dispatch workers don’t receive benefits that full-time employees get, such as paid sick leave, paid vacations and social insurance, which provides medical, unemployment and pension coverage, according to CLW. While base wages can be higher for dispatch workers, they are paid by third-party firms on a short-term basis and are not employed directly by Foxconn, CLW says. Dispatch workers can become official factory workers after an initial three-month period, according to the group’s report.
Most factory workers are paid about 4,000 yuan ($562) a month, one CLW investigator found. After taxes and mandatory fees, they get roughly 3,000 yuan a month, according to the CLW report. China’s per capita disposable income was 28,228 yuan in 2018, or 2,352 yuan a month, China Daily reported earlier this year, citing government data.
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It's not just Apple that has been implicated; the working conditions for Amazon too leave something to be desired: as Bloomberg reveals, last month Foxconn said it fired two executives at one of its Chinese plants after another CLW investigation found the company was relying heavily on temporary workers and teenage interns to assemble Amazon.com Inc. Echo speakers. Foxconn reviewed the Hengyang facility and found the proportion of contract workers and student interns had on occasion exceeded legal thresholds, and that some interns had been allowed to work overtime or nights.
The CLW report also detailed various other findings, such as the following, via Bloomberg:
- During peak production periods, resignations are not approved.
- Some dispatch workers have not received promised bonuses.
- Student workers do overtime during peak production season, even though regulations on student internships prohibit this.
- Some workers put in at least 100 overtime hours each month, during busy production periods. Chinese labor law limits monthly overtime to 36 hours.
- Workers must get approval to not do overtime. If requests are denied and staff still choose not to work overtime, they are admonished by managers and miss out on future overtime opportunities.
- Workers sometimes have to stay at the factory for unpaid meetings at night.
- The factory doesn’t provide adequate protective equipment for staff.
- Work injuries are not reported by the factory, and verbal abuse is common there.
- While overtime is allegedly often required, most workers want to work overtime to make more money, according to an anonymous diary written by a CLW investigator in the factory.
So with a critical iPhone release event in just 48 hours, will Apple's reputation be hurt by China's report exposing it as nothing but a virtue signaling sweatshop laser-focused on the bottom line?
“We looked into the claims by China Labor Watch and most of the allegations are false,” Apple said. “We have confirmed all workers are being compensated appropriately, including any overtime wages and bonuses, all overtime work was voluntary and there was no evidence of forced labor.”