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RR RUEHCN RUEHGH RUEHVC
DE RUEHGZ #0603/01 1440909
ZNR UUUUU ZZH
R 240909Z MAY 07
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 6088
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEAWJA/DOJ WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUCPDOC/USDOC WASHDC
RUEAEPA/HQ EPA WASHDC
RUEAIIA/CIA WASHDC
RUEKJCS/DIA WASHDC
RHHMUNA/HQ USPACOM HONOLULU HI

UNCLAS SECTION 01 OF 02 GUANGZHOU 000603 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
USPACOM FOR FPA 
 
E.O. 12958: N/A 
TAGS: ELAB PHUM EINV CH
SUBJECT: CSR in the Classroom and on the Factory Floor 
 
 
(U) This message is sensitive but unclassified.  Please handle 
accordingly. 
 
¶1. (SBU) SUMMARY: Domestic factories are struggling to comply with 
multiple responsibilities that can complement one another but that 
may at times also be at variance with one another: their buyers' 
corporate social responsibility (CSR) codes of conduct and with 
government regulations on wages and work hours, according to 
participants in a recent training seminar run by U.S. NGO Business 
for Social Responsibility (BSR).  A recent garment industry survey 
revealed that 70 percent of China's garment factories maintain 
fraudulent documents, 30 percent of the workers are paid below 
minimum wage, and almost all workers work more hours than legally 
permitted.  Though factories can improve efficiency and increase 
wages though CSR practices, the transition from noncompliance to 
compliance is difficult and slow.  END SUMMARY. 
 
¶2. (SBU) During a visit by State DRL Program Officer Samuel Chang on 
May 15-16, Econoff and Chang attended the closing session of a CSR 
training program run by BSR, an organization that is funded in part 
by DRL.  The nine-month series of classes for factory managers 
(mostly suppliers of multinational corporations) covered health and 
safety management, labor regulations, and reducing overtime through 
improved productivity.  Chang and Econoff also visited a Hong 
Kong-owned garment factory in Dongguan that supplies Sears and other 
U.S. brands and that participated in the BSR training. 
 
The Government Perspective 
-------------------------- 
 
¶3. (SBU) Chinese officials are increasingly concerned with labor 
compliance in factories and are less tolerant of violations, 
according to the director of the Guangdong Labor and Social Security 
Bureau's Labor Association and Information Center, Gan Wenchuan.  In 
addition, the new generation of migrant workers is less willing to 
work for low wages and is more aware of legal rights.  Surprisingly, 
Gan was critical of the All-China Federation of Trade Unions 
(ACFTU), which he said is supposed to protect the rights of workers 
but instead protects the interests of enterprises.  In response to a 
question from factory managers, Gan said that the Chinese government 
has shown no interest in raising the cap on overtime hours. 
 
Factory Managers Discuss the Difficulties of Complying 
--------------------------------------------- --------- 
 
¶4. (SBU) Factory managers said they are audited between 5 and 15 
times per year by their various buyers - a process that leads to 
"audit fatigue."  The buyers often have different and sometimes 
conflicting codes of conduct regarding minimum wage and working 
hours.  The factory managers also noted the challenge of educating 
senior management on CSR concepts and convincing them to make the 
necessary investments - particularly in the garment industry, where 
profit margins are tight.  They also face greater scrutiny by the 
Chinese media regarding labor practices.  Nevertheless, the managers 
highlighted their positive efforts, which include forming CSR 
committees with worker representatives, increasing training hours, 
and improving transparency.  They noted that rotating workers 
regularly and publishing worker handbooks has also improved 
productivity. 
 
Garment Industry Survey: Not a Pretty Picture 
--------------------------------------------- 
 
¶5. (SBU) A survey of labor compliance in the garment industry 
conducted by third-party firms hired by Sears revealed that the 
state of compliance among China's garment factories is "dismal." 
According to Sears Compliance Manager Johnny Wong, the survey found 
that 70 percent of garment factories in China keep fraudulent sets 
of documents in order to demonstrate compliance to buyers and 
government officials.  In addition, 30 percent of workers at garment 
factories are paid below the minimum wage.  The survey found that 
garment workers average between 70 and 90 hours of work per week, 
far above the legal limit of 49 hours (40 regular hours per week and 
36 overtime hours per month).  Overtime pay is typically not 
calculated differently than regular pay (which is usually on a 
piece-rate basis), and few factories pay all of the required social 
insurance fees to the government.  Factories also frequently do not 
provide sufficient paid leave or use the required legal contracts, 
according to the survey. 
 
¶6. (SBU) According to Sears' Wong, China's garment factories would 
not use false documents if buyers were willing to work with them to 
 
GUANGZHOU 00000603  002 OF 002 
 
 
improve labor compliance gradually.  He said Sears' Wage Research 
Improvement Program does this, but noted that progress has proven to 
be difficult and slow.  In a separate conversation, Sears Director 
of Global Compliance Ian Spaulding said "many" of China's factories 
do not comply with PRC wage laws, and "none" comply with working 
hour laws.  In part, this is because these laws do not reflect 
market realities - for example, migrant workers themselves want to 
work more than 49 hours per week to earn as much money as possible 
in a short period of time. 
 
Garment Factory: Getting Better, but Still Not There 
--------------------------------------------- ------- 
 
¶7. (SBU) Greenway, a factory in Dongguan that produces women's 
undergarments for Sears, Macy's, Nordstrums, and other U.S. brands, 
is still not fully compliant with labor laws but has made 
significant progress.  According to the Hong Kong owners, until a 
few years ago, they kept false records and routinely underpaid 
workers.  After working closely with Sears, and with training from 
BSR, they have been able to reduce the wage gap and improve 
productivity.  Key to this is a new bonus system that provides 
additional incentives for workers.  Average wages have increased by 
10 percent over the past year, turnover has reduced from 6 percent 
to 3 percent, and the factory is not having trouble finding workers 
(as is the case with many factories in the Pearl River Delta).  The 
factory also uses a UV light machine provided by the local police 
department to check for fake identification cards used by minors. 
 
 
¶8. (SBU) Despite these improvements, the factory managers estimated 
that a few hundred of their approximately 5,000 workers do not 
receive the minimum wage.  The average wage in the factory is RMB 
1,500 (USD 196); Dongguan's minimum wage, including overtime, is RMB 
1,200 per month (USD 157).  Workers also continue to work more hours 
than legally permitted.  The owners complained that their profits 
have fallen considerably during the past 10 years because of pricing 
pressure from buyers.  Sears' Spaulding said he is encouraged by the 
factory's adoption of CSR principles and its improving compliance 
record, but highlighted the challenge of introducing change 
country-wide.  Sears alone has 2,800 suppliers in China. 
 
¶9. (U) DRL Program Officer Samuel Chang did not have an opportunity 
to review this cable. 
 
GOLDBERG