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RR RUEHCN RUEHVC
DE RUEHGH #0193/01 0950952
ZNR UUUUU ZZH
R 050952Z APR 07
FM AMCONSUL SHANGHAI
TO RUEHC/SECSTATE WASHDC 5668
INFO RUEHGH/AMCONSUL SHANGHAI 6044
RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/USDOC WASHDC 0123
RUEHC/DEPT OF LABOR WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHINGTON DC
RHHMUNA/HQ USPACOM HONOLULU HI

UNCLAS SECTION 01 OF 03 SHANGHAI 000193 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ELAB ECON EINV PHUM CH
SUBJECT: LABOR COMPLAINT: A VISIT TO KAISI HARDWARE IN SOUTH CHINA 
 
 
SHANGHAI 00000193  001.2 OF 003 
 
 
IMPORTANT NOTE - THIS IS A GUANGZHOU TELEGRAM 
- - - - - - -    ONLY TRANSMITTED BY SHANGHAI 
 
(U) This document is sensitive but unclassified.  Please protect 
accordingly. 
 
¶1. (SBU) SUMMARY: Kaisi Hardware Company Ltd., one of China's 
largest furniture parts manufacturers and exporters appears to 
be addressing problems - including underpaying workers and 
providing poor working conditions - documented in a February 
report by the New York-based National Labor Committee (NLC). 
The NLC report, while largely accurate, also blamed the company 
for some conditions not under its control, such as lack of an 
independent labor union and low minimum wage standards.  The 
company denied the charges of low pay and lack of compensation 
for injured workers, and encouraged the drafter of the NLC 
report to visit the company to review working conditions.  The 
report's primary recommendation, that U.S. clients continue to 
work with Kaisi to improve conditions, is being heeded, and 
conditions appear to be much improved already.  END SUMMARY. 
 
Congenoffs Visit Kaisi Company 
------------------------------ 
 
¶2. (SBU) In February, NLC published a report accusing Kaisi 
Hardware, in collusion with its American and other foreign 
clients, of underpaying workers, imposing long working hours, 
escaping work injury compensation, and providing poor working 
and living conditions.  Consulate Officers visited the company 
in Guangzhou's Nansha District and met with Mr. Li Shaohan, 
President and owner of the company, and Dr. Yang Zhiyong, Deputy 
General Manager.  Li is also a member of the Guangzhou People's 
Congress.  Congenoffs also met with two ex-pats, a Canadian 
working for Knape & Vogt (or KV, a U.S. based company and 
Kaisi's biggest client), and an American who is a retired 
employee of KV and now consults for Kaisi. 
 
¶3. (U) Kaisi's biggest product lines are metal drawer slides and 
other hardware for furniture.  Approximately 75% of the 
company's production is exported and 75% of that goes to the 
United States.  The majority of the remaining exports go to 
Europe and 25% of the company's product is sold on the domestic 
market.  The company is approximately 11 years old and now has 
2,000 workers in three locations, of which Congenoffs visited 
two. 
 
Two Factories: One New, One Old 
-------------------------------- 
 
¶4. (SBU) Conditions at Kaisi appeared to fall within the normal 
range of Chinese factories.  However, there were noticeable 
differences between the two visited sites.  The newer site is a 
two-year old factory set up for KV product and Kaisi OEM 
production.  KV occupies a separate section of the factory which 
operates with used equipment brought from the United States. 
Though separated, both the KV and the Kaisi OEM production 
facilities looked similar.  The factory was spacious and the 
factory floor clean.  Lighting on the factory floor seemed 
adequate with natural light coming from the entry way and a few 
small windows.  The worksite, a largely sheet-metal building, 
was very noisy with many presses operating simultaneously.  All 
workers had ear protection and gloves and most of the presses 
had safety equipment. 
 
¶5. (SBU) The second site was Kaisi's original factory that has 
been in use for 11 years and was the site of the accidents cited 
in the NLC report.  The factory was much larger than the first 
site, with two large concrete and metal buildings.  Both were 
dark, cavernous tin workshops with high ceilings and small 
windows.  Inside, employees worked at a rapid pace, probably due 
to fact that workers are paid by the piece.  The area was very 
noisy and dirty with raw materials lying around.  Just as in the 
newer factory, all workers had ear protection and wore gloves. 
Large safety signs warned against wearing slippers, long hair, 
or items that could get caught in machines, while another listed 
labor rights information.  Li showed Congenoffs the machines on 
which the accidents occurred and explained how workers went 
around safety cutoff devices in order to adjust the machines. 
These machines are no longer used.  While these working 
conditions might not be acceptable in a Western setting, they 
are not unusual in the Pearl River Delta. 
 
¶6. (SBU) Congenoffs also toured the factory's cafeteria and 
dorm.  In the cafeteria, Li told Congenoffs that workers receive 
a RMB 1.7 (USD 0.22) subsidy for meals and can choose a RMB 3 
(USD 0.39) meal or a RMB 5 (USD 0.65) meal.  Workers said the 
 
SHANGHAI 00000193  002.2 OF 003 
 
 
food tasted good.  Dishes included meat without a lot of fat. 
In one of the dorms, four sets of bunk beds without mattresses 
lined each wall for a maximum capacity of 16 to a room.  It 
appeared that the top bunks were used as storage areas only, so 
rooms were not fully occupied.  There was no other furniture or 
storage in the rooms other than some small stools.  Three fans 
on the ceiling provided air movement.  Paint on the walls was 
faded and lighting was poor. 
 
The Kaisi Company's Defense 
--------------------------- 
 
¶7. (SBU) Li admitted that overtime hours in the past exceeded 
the legal limit but not by as much as the NLC report claimed. 
He defended himself by saying that all factories in the area had 
similar practices.  He also denied the report's claim that the 
company had not paid the workers properly and had not paid 
compensation to injured workers.  He told Congenoff that average 
worker remuneration falls in the RMB 1,200-1,500 (USD 155-194) 
range per month and the variation is due to piece work instead 
of payment of an hourly wage.  (The Guangzhou government-imposed 
minimum wage standard is RMB 780 (USD 101) per month.)  Several 
workers with whom Congenoffs spoke separately confirmed these 
comments.  One woman, who said she was satisfied with working at 
the factory, stated that her pay, while averaging RMB 1,200 (USD 
155) per month, varied due to the flow of orders.  Since the 
company sells millions of dollars worth of product per year, 
work is available at all times but some months there are higher 
volumes. 
 
Impact of NLC Report on the Company 
----------------------------------- 
 
¶8. (SBU) According to Li, once the NLC report came out, numerous 
government authorities at various levels - Nansha District, 
Guangzhou Municipality, and Guangdong Province - descended on 
the company to investigate.  In total 46 government agencies 
have visited.  Prior to the report's publication, government 
agencies rarely visited and Li commented that the government 
provides little support for small and medium enterprises like 
Kaisi.  Li added that over 300 representatives of Kaisi 
customers, most from overseas, had visited the company since the 
NLC report.  As a result of this attention from government 
agencies and clients, improvements in conditions have been, and 
are still being, made. 
 
¶9. (SBU) The KV representative admitted that prior to the report 
from NLC, KV and other client firms had not paid much attention 
to labor issues in the factory.  Instead, the focus was on 
product quality and production issues, but he added that 
ensuring safe operations was a concern.  After the report was 
released, KV received negative publicity, and was contacted by 
many of their own customers.  It now pays much more attention to 
basic corporate social responsibility (CSR) issues.  The 
representative indicated that KV will hire a third party Chinese 
company to regularly audit Kaisi's and other KV producers' CSR 
and labor conditions. 
 
Limitations of the NLC Report 
------------------------------ 
 
¶10. (SBU) The report, while identifying many valid problems, has 
its own problems.  In some areas, the author undercuts his 
arguments by blaming the company for problems that are based in 
central government rules and regulations - such as the lack of 
independent labor unions and low minimum wage standards.  In 
others, the writer blames the company for issues that may be the 
responsibility of the worker - cleanliness of the dorms and the 
dorm bathrooms. 
 
¶11. (SBU) Company management and the KV representative commented 
that they were surprised by the report and disappointed that the 
report drafter had never contacted anyone from either company. 
Li asked that Congenoff encourage the drafter of the NLC report 
to pay a visit to the company to review working conditions in 
person. 
 
Comment 
-------- 
 
¶12. (SBU)    Despite the shortcomings of the NLC report it is 
clear that much could be done to improve conditions at the 
factory and in the dormitories.  Some of these improvements are 
mandated and have already been completed or appear to be planned 
for the near future.  In other cases, optional improvements may 
only occur as Kaisi management of CSR improves, a potentially 
 
SHANGHAI 00000193  003.2 OF 003 
 
 
long-term process but one that will be encouraged by additional 
involvement by U.S. client companies whose motivation may also 
be somewhat limited but improving.  The company is also open to 
suggestions.  Congenoffs made additional recommendations to 
improve dormitory conditions and to ensure workers are aware of 
their rights. 
 
¶13. (SBU) To put the situation in a local context, within 
minimizing the extent of worker injuries or the need to address 
factory shortcoming, many of the workers likely experience much 
worse living conditions with little hope for any employment in 
their home villages in inland China.  They are likely more 
accepting of these conditions than western workers or even local 
employees from Guangdong Province.  Nevertheless, workers tend 
to vote with their feet when a company's conditions are 
particularly poor.  Despite the general labor shortage, very 
good companies in the Pearl River Delta tend to have fewer staff 
turnover problems.  A company such as Kaisi, with a 20% turnover 
rate, would appear to fall in the middle range of labor 
intensive companies in the PRD. 
JARRETT