Foxconn wage rise spells trouble for Singapore

The news that Foxconn is giving its assembly line workers in Shenzhen a 66-percent performance-based pay increase is not only significant for the future direction of China’s economy, but will also have implications for Singapore’s foreign labour and social policies.

Foxconn’s latest announcement comes on top of a 30-percent across-the-board increase in the cash component of wages announced last week, applicable to all twenty Foxconn locations in China. Performance-based pay increases for non-Shenzhen locations will be announced in a few weeks’ time. Together, the two increases will double wage levels for its Shenzhen employees to around 2,000 yuan a month. These moves were in response to a spate of worker suicides attributed to low pay, excessive overtime and cramped conditions in its dormitories.

Reported to be the world’s largest manufacturer of motherboards and other components for leading electronics brands such as Apple, Sony, Dell, HP and Motorola, Foxconn has 800,000 employees in total, so its move will not only affect a huge number of people, it will set a new benchmark and direction in the country’s labour market. It may even embolden Chinese workers already in Singapore to demand better pay and working conditions.

Japanese carmaker Honda also had to raise wages for its Chinese workers recently after being crippled by a strike at its Foshan, Guangdong, factory, which employs 1,800 workers. To settle the dispute, Honda offered wage increases ranging from 24 to 32 percent, bringing average monthly pay for assembly-line workers to about 1,900 yuan.

Meanwhile in Beijing, the government recently unveiled an increase in the monthly minimum wage to 960 yuan from 800 yuan, to take effect from July. Other provincial governments are also raising their minimum wage levels.

What was notable about the recent labour episodes has been the silence of the Chinese government on the matter. This was read by analysts as an indication that authorities preferred to see the issues settled through rising wages rather than through suppression of worker dissent, tying in with the realisation that the already wide and still-widening rich-poor gap in China risks formenting social unrest with all its implications for politics. Nudging the Chinese economy towards a more domestic consumption-driven one, away from an export-led model, may help blunt criticisms from the United States about China’s exchange rate policy.

The widely-drawn conclusion from these labour crises therefore is that wages in China are set to rise, perhaps dramatically, in years to come.

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Earlier this year, when I was in Yunnan, we came across construction workers building a road. My friend Russell, who volunteers with Transient Workers Count Too, a non-governmental organisation concerned with migrant workers in Singapore, asked them how much they earned. I have forgotten what the precise answer was, but the impression we got was that their income was something like two-thirds of what Chinese construction workers were being paid in Singapore. If their remuneration was typical, then we are reaching a point where it will no longer make sense for Chinese workers to take jobs in Singapore. Is the premium they get by working here enough to compensate for separation from their families and the much higher cost of living?

While logically, the response might be that of sourcing low cost workers from other countries should the Chinese tap dry up, in reality, it is more complicated than that. Our foreign worker policies are also tied up with our domestic race policies. A recent feature in the Straits Times inadvertently highlighted the attitudinal factors. The first citation below is from an article about sourcing workers for their English-language competency, but go further down to the last sentence of the excerpt and you will see a ministry official declare that “the make-up of Singapore society should not be altered by the import of foreign workers”, code for saying the great majority should be Chinese and Indians.

Singapore employers usually rely on middleman agencies to recruit, vet and send workers here from source countries.

Agents would typically attest to the quality of their foreign workers, guaranteeing that they have been tested and found to have a basic grasp of English.

So when food and beverage industry veteran Cheong Hai Poh went to China to hire workers in 1997, he found out just what being conversant in English meant.

Every candidate he interviewed reeled off the same lines in English: ‘My name is xxx. I come from Hubei province. I like football.’

If he asked a question, there would be a confused pause. Then the candidate would repeat his memorised lines wholesale. These workers had no grasp of English. They had learnt – or been made to learn – a bare minimum designed to get them into Singapore.

According to Mr Cheong, who is now executive assistant manager of Conrad Centennial Hotel, the problem is not that Singapore has too many foreign workers but that it is getting the wrong kind.

One major reason, he argues, is the restrictions on the places from which industries can recruit.

The list differs from sector to sector. For the service sector, work permit holders can come only from Malaysia, Hong Kong, Macau, South Korea, Taiwan and China.

Of these, only those from Malaysia and China come in droves. As time goes by, ‘the cream is wiped off’, says Mr Cheong. English-speaking countries like the Philippines, he maintains, could yield better-quality workers.

His views were rebutted by the Ministry of Manpower. Ms Jacqueline Poh, divisional director of workplace policy and strategy, recalls that the suggestion was ‘If you have skills, why restrict which countries you come from?’. Such workers can come in on the S-Pass, she points out.

However, S-Pass holders must have certain tertiary educational qualifications. ‘A chef does not need to be a university graduate,’ Mr Cheong tells Insight.

From the Government’s point of view, there is a danger in granting work permits to all and sundry. The concern is social balance: The make-up of Singapore society should not be altered by the import of foreign workers.

— Straits Times, 5 June 2010, Poor English often a bane

You see the policy? Service workers, i.e. those with the most interaction with local consumers, must be yellow-skinned, even if no English is used in their home countries. Thus work permits for the service sector are only given to people from Malaysia, Hong Kong, Macau, South Korea, Taiwan and China. Chinese Singaporeans are believed by the government to hate having to receive change from cashiers or have food served by a waiter with a different skin colour. Dark-skinned hands = dirty. The government is happy to oblige by enshrining these racial attitudes in administrative policy.

(You also see another beautiful example of a bureaucrat giving a non-answer when she said employers could use the tertiary-qualified S-pass scheme if they are unhappy with work permit quotas for low-level jobs.)

Darker-complexioned people are however allowed to work in industries away from the public, e.g. shipyards and construction. And since they are dirty anyway, they can work in municipal and sanitation jobs. (In case readers read too literally, please note I am being sarcastic.)

There’s also the question whether working colleagues who are locals would take to working alongside foreigners of a different race. Thus:

After all, 70 per cent of Singaporeans work in services. This politically salient fact also explains why the services sector was not open to foreigners, besides Malaysians, until the 1990s.

As MOM’s divisional director of workplace policy and strategy Jacqueline Poh explains, a sustainable foreign workforce is one that, first and foremost, ‘does not strain the social compact’.

— Straits Times, 5 June 2010, Balancing social discontent and the bottom line

But what if we can no longer source migrant workers from China? How do we achieve that myopic “balance”? What if a decade or two from now, even India’s living standards and wages rise? Should we be looking at Subsaharan Africa next?

Our socio-economic model is based on the idea that the racial split in Singapore can/must be maintained even if we import foreigners to do the low wage jobs. The rise of China, specifically the rise of wage levels in China, will put this complacency to the test. We will have to choose: Either we enjoy the luxury of having foreigners (of a different race) doing the jobs we don’t want to do or we enjoy the luxury of living forever within our racial prejudices (but with no one to do our menial, dirty work). But not both. Given Singapore’s history of racism percolating all the way up  to government policy, I am not confident we will actually make the logical, colour-blind choice when the time comes.