Why India must not mimic the China Model

Horrific stories are emerging from the factories complex in Zhengzhou in central China—owned and operated by Foxconn, the world’s largest assembler of Apple iPhones—which is in the midst of a new Covid outbreak.

Several news reports, including from leading global media houses and from papers in Taiwan, the headquarters of Foxconn, have given accounts of workers fleeing the assembly plants. Strict restrictions and quarantines are in place, but workers have complained of limited food supplies and poor medical attention for those kept in isolation.

For the 200,000 workers who live here in crowded rooms inside the complex of factories where they work, this has brought new hardships in a company that has already been called out for its harsh, even exploitative, work culture. Now, fleeing workers are being lured but have largely ignored new bonus offers for those who agree to continue to work and help meet the demand for the iPhone 14 as the holiday season nears.

One video, said to be shot at the factory, speaks of a “desperate cry” as all workers put in isolation in one specific room have reportedly died. Foxconn said there are no deaths at the facility. A Reuters report from Taipei last month-end said the Zhengzhou plant “has been rocked by discontent over stringent measures to curb the spread of Covid-19, with several workers fleeing the site over the weekend.” One worker quoted by the Financial Times, UK, reported “total disaster in the dormitories”.

The stories emerging from the Foxconn facilities are significant for India as it is here that Foxconn and some others are coming to build new facilities as part of an incentive-laden drive by the government to boost manufacturing under the banner of Atmanirbhar Bharat, with various production-linked schemes for electronics manufacturing.

A Vedanta-Foxconn joint venture, with 60 per cent equity by Vedanta and 40 per cent by Foxconn, will “set up a semiconductor fab unit, a display fab unit, and a semiconductor assembling and testing unit” in Ahmedabad. Vedanta has said the project envisages a total investment of Rs 1.54 lakh crore, and will provide employment to around one lakh people. The venture has not committed but noted that it would “look at setting up a semiconductor manufacturing plant in the next two years”.

It is true that India needs to act fast to invest and open up job opportunities for the youth, and the BJP is desperate to meet criticism that its policies have not helped generate employment. Big investments and hopes of a large number of jobs at one go may help deflect this criticism at a crucial time as elections near.

But it also opens questions on whether the Chinese way of mega factories filled with lowend, low-paying jobs should be the chosen route for India at this time. A lot of the work at the factories is about assembly, sometimes as lowtech as fitting a screw on an iPhone speaker as one undercover grad student who took up work here reported in one investigation, or trimming edges after the Apple logos are cut from aluminium covers.

The Chinese system is noted for its poor record of protecting worker rights, unions are as good as non-existent and local authorities are known to stretch to accommodate business demands in a bid to attract more investments. This is what makes China a particularly attractive destination for low end manufacturing jobs.

The country has a huge army of job seekers, which inevitably has meant low wages, weak protection for workers and a culture under which the worker almost needs to be and is willing to be captured for the duration of the work to deliver to the maximum. This is why workers must necessarily stay in the accommodation provided, six to eight to a room, with limited toilets and a general standard of living that has driven many to commit suicide.

This is a model of employment generation that India must carefully study and debate before plunging headlong into incentives for large companies and business alliances. The models being encouraged and supported will likely bring in an entirely alien system and method of work in a nation that is noted for a huge contribution to the economy from small and medium enterprises.

It is true that SMEs are not always the best of employers or quality producers but the distributed model of growth stands in contrast to growth driven by big industries, super-sized factories and a top- down approach that is tantalising in its promise of delivering quick jobs but has often delivered longer term misery. A similar Foxconn venture in Wisconsin touted by then US President Trump as “the eighth wonder of the world” has failed to take off. A Milwaukee government report on Foxconn’s record of worker safety is damning.

In this context, some of the criticism by the former RBI Governor Raghuram Rajan on the incentives for big industry are very relevant. Rajan has correctly noted that there hasn’t been a real analysis of the PLI (Production-linked incentives) schemes that the government has been pushing on the understanding that this is a route to create jobs.

Yet, “manufacturing” of the kind that China has gone for has not made that country a world class innovator but marked it out for its limited, low-cost production. The bulk of the profits are taken away by the chip designers and the brands they create while the low-end part of the value chain is left with China. Manufacturing costs in China, too, are rising now and it would be an unfortunate turn for India to become that hub which is a lower-end version of China.

A study on the iPhone 7 (factory-cost estimate of $237.45 in 2016) noted that “all that’s earned in China is about $8.46, or 3.6 per cent of the total,” including a battery supplied locally and labour. The study, by Prof. J. Dedrick of Syracuse University and two others, noted: ‘The other $228.99 goes elsewhere. The U.S. and Japan each take a roughly $68 cut, Taiwan gets about $48, and a little under $17 goes to South Korea. And we estimate that about $283 of gross profit from the retail price—about $649 for a 32GB model when the phone debuted—goes straight to Apple’s coffers.”

In sum, said the study, ‘China gets a lot of (low-paid) jobs, while the profits flow to other countries.’ That is no kind of manufacturing model for India to emulate.