March/April 2003
Cheap labor gives China a major competitive edge in the international scrap market—but how long will this edge last?
By Adam Minter
There are some 450 employees at Tung Tai Group’s scrap processing plant in Nanhai, China, and almost all of them have jobs that don’t exist in North America. “Any job that requires ‘too much labor’ is good for us,” says Joe Chen, Tung Tai’s president. “In America, it’s the other way around—the last thing a scrap dealer wants is ‘labor intensive.’ Here, ‘labor intensive’ is how we make money.”
That remark captures the key competitive advantage of Chinese scrap processing operations over their Western counterparts—cheap labor. It’s what enables China to buy mixed and low-grade scrap that’s too costly for Western scrap companies to process or that’s unacceptable to their consumers. It’s also what gives Chinese scrap operators a sizable financial edge over Western processors, who are equipment-intensive and reliant on higher-cost labor.
How much of a financial edge? At Shanghai Sigma Metals Inc., China’s largest secondary aluminum smelter, 800 female workers hand-sort scrap for $75 a month each, plus health benefits, a pension contribution, and free room and board. All told, Sigma’s labor costs account for less than 10 percent of its total annual expenses (excluding material purchases). “And,” states Tony Huang, Sigma’s cofounder and president, “I could put a sign outside of my plant tonight offering to hire at $50 a month, and I’d have over 500 people lined up in the morning.”
As Huang points out, however, “cheap labor isn’t just about cheap labor—it’s about upgrading material. My employees can hand-sort a ton of nonferrous shredder residue for $10 to $15 a ton, and they can do it more thoroughly than a European flotation plant that does it for $100 a ton.”
That kind of financial advantage explains why Sigma can buy 100 containers of mixed nonferrous shredder residue from a major U.S. scrap company every month. It also explains why China’s scrap industry is a competitive force to be reckoned with now and in the future. Here’s an exclusive look at the economic and personal aspects of China’s scrap industry laborers.
Rural Past, Recycling Future
“You want to understand China, you have to go to the countryside,” says Joe Chen.
“That’s the real China.”
The countryside also happens to be the source of most of China’s inexpensive labor. Like urban China in general, much of Tung Tai’s labor has migrated from desperately poor and populous agricultural provinces such as Hunan. A brief visit to one of Hunan’s many small towns provides proof enough of why individuals like Shou Yin Lee, a female gold sorter at Tung Tai’s facility in Shenzhen, are so willing to leave Hunan for wages of about $100 a month and a hard bed in a crowded dormitory (see sidebar on page 90).
In truth, Tung Tai’s labor dorms are better than most in China despite not being heated or air-conditioned—a serious discomfort in subtropical Guangdong province. Single men and women sleep in separate rooms that accommodate up to 20 people, while couples can live in the cramped “married” dorms (though, in general, few scrap laborers are married). In the dorms, privacy is nearly nonexistent, with the only barriers being sheets and cardboard. After shifts, workers are searched thoroughly—mostly for stolen electronic scrap, which can contain precious metals—before they enter their homes.
Joe Chen doesn’t take much oversight interest in his dormitories except to insist that they’re kept clean, and he has employees who do just that. Cleanliness is a relative term, of course. By American standards, the dorms are dingy at best. Compared with living conditions in the rural villages, however, they’re positively sterile. “The conditions I give them are ten times better than what they’d have back home,” Chen says. “In Hunan, they’d be sleeping twelve to a room, sometimes to a bed, and they wouldn’t be having eight-course meals.”
Chen is right on the last point—nutrition in rural Hunan is some of the worst in China. Tung Tai’s Nanhai workers receive two eight-course meals a day as well as a smaller breakfast. Chen himself often joins the workers and supervises the kitchen staff to make sure the food is up to his high gastronomic standards. The menu is diverse and undoubtedly better than the food obtainable by those living in a village at subsistence level.
American and European antiglobalization activists would surely argue that such a comparison is meaningless: If a company can afford to provide higher living standards, then it should, the activists would argue. Put another way, if a company could double the salaries of its employees and still be profitable, then it has an obligation to do so.
While there may be merits to that view, the fact is that in a rapidly industrializing economy like China’s, worker salaries aren’t the top priority. Other factors—such as capital reinvestment—are of much greater importance. When Tony Huang is asked whether he’d be building the world’s largest secondary aluminum smelting plant in Shanghai—due to open in late 2003—if he had to pay double or triple for labor, he smiles and says, “It’s not a real question. Labor costs are dropping in China.”
The Worst and the Best
Shanghai Metallink Trading Co.’s scrap processing yard is located one hour from central Shanghai in the Pudong New Area. The facility, which covers about 10 acres, contains a sprawling loading/unloading area, two aluminum smelting furnaces, numerous storage warehouses, several sorting areas (both indoor and outdoor), a wire factory, and dorms that house more than 100 workers and family members.
Jian “James” Li, Shanghai Metallink’s president, is happy to walk me through one of the dorm areas. In truth, “dorm” is a misnomer. Here, residents live in single-story, two-room huts that are connected and face each other across either a dirt or concrete lane. Combined, the two rooms are larger than an American prison cell, but individually they are not. Each room often houses more than four people.
“This is better for them,” Li says. “It’s certainly not for me, but they live better here than in their homes in the villages.”
The rooms contain crude kitchens and offer unreliable electricity. Running water and toilets (concrete squat toilets, to be specific) are communal and separate from the living quarters. During the day, while the men work, the women gather around the water spouts, using them to wash their hair, cook, and drink—despite repeated government warnings about the hazards of drinking unboiled water. Children are allowed to run freely around the living areas and—though it’s prohibited—often find their way into the sorting areas. By law, every Chinese child must attend school for nine years. When asked whether the children at the plant are schooled, Li shrugs.
The conditions at Tung Tai and Sigma are different, but not significantly so. They differ mainly in that they provide comfortable dormitory housing for management, which includes about 50 people at Tung Tai’s Nanhai facility. There, the managers’ rooms are quite comfortable, with amenities that include air-conditioning, televisions, and all-important Western flush toilets. With two queen beds and a maid service, the units resemble decent American motel rooms.
Tung Tai’s Chen takes justifiable pride in these accommodations, which are located directly across from the worker dorms. “If I show you the best, then I must show you the worst, but if I show you the worst, then you must see the best,” he asserts. Notably, most of his managers have risen from the worker dorms to the management dorms. Such a promotion means more than just a higher living standard and a better salary, it’s also a key to a more balanced life in that marriage and children are more viable away from the labor dorms.
Tung Tai likes to promote managers from within, and it actively assesses employees for management talent. A perfect example is the supervisor of its Nanhai operation—Su Fan Lee—a former “hammer man” who worked his way up the ranks (see sidebar at left). Similar opportunities are available at Sigma and, to a lesser extent, Shanghai Metallink (if only because the small size of its staff—40 employees—offers limited room at the top).
The Female Factor
In the past 20 years, North American and European scrap companies have seen an influx of female managers, particularly into their sales forces. This development is mirrored in the Chinese scrap industry, with both Sigma and Tung Tai having female sales managers. In addition, positions such as scale operator—which are often filled by women in Western scrap facilities—are increasingly being occupied by women in Chinese operations.
Aside from these similarities, Chinese scrap firms differ from Western recyclers in one key respect: Women play a significant role—in fact, often the major role—in scrap processing activities. Not only is Sigma’s work force mostly female, for instance, but its hand-sorting staff is entirely female. There are good reasons for that fact: Female employees have smaller hands that are better suited for sorting tasks, notes Chen. Also, Huang adds, “Women are more precise, and they are more patient.”
In general, processing and material-handling jobs that require equipment—whether it be a hammer, a forklift, or a truck—are invariably filled by male laborers. Female employees concentrate on the detail work such as sorting mixed nonferrous metals from shredder residue or using tweezers to pick gold and recoverable components from electronic scrap.
Like their male counterparts, most female Chinese scrap employees are migrants who have left families in rural villages. Many have left behind not only parents, siblings, and grandparents, but also children. Occasionally, the children are left with husbands, but in many cases—out of necessity, shame, or both—the husbands also leave the village for work in the city.
This is a common story in Chinese industry, and one that could have vast social implications in the coming decades. For now, the result is a simple economic trend in which the majority of the money earned by Chinese scrap workers—both male and female—is sent home to help their families in the villages. “They’re here to send money home—that’s it,” says Chen, estimating that his employees send 75 percent of their earnings to their families. “So they work hard, very hard. In fact, most of my employees only leave the dorms to wire money home. Then they spend the rest of the month at the yard. And if they didn’t have to leave for that, they’d want to work the extra half day, too.”
Government Oversight, or the Lack Thereof
The first shift at Tung Tai’s Nanhai yard begins at 7:30 a.m. and lasts eight hours. There are two more shifts staggered throughout the day, with all processing activities ending at 9 p.m. (though scrap deliveries can extend well into the evening). Processing almost never occurs after dark for safety and productivity reasons. Sigma, for example, could easily pay to have hand-sorting shifts 24 hours a day, but “the job wouldn’t be done as well without daylight,” says Tony Huang. “Aluminum and magnesium aren’t easy to distinguish in the dark when you’re wearing gloves.”
Unlike Sigma or Tung Tai, a smaller firm like Shanghai Metallink has more variable hours. There, employees can be required to work 24-hour shifts, especially when large shipments of scrap must be produced under a tight deadline. While the base monthly salary for Shanghai Metallink’s laborers is about $75, production and overtime bonuses can reach $250 a month. In contrast, base salaries for employees at a large operator like Tung Tai range from $100 to $112 a month and 25 cents an hour for overtime.
Notably, the Chinese government requires companies to provide significant health and pension contributions for employees. In reality, such contributions are made only by the largest (and thus most visible ) and/or most conscientious firms. The reason for avoidance is simple: If the law were followed to the letter, the employer would pay the Chinese government as much as 36.5 percent of each worker’s salary. Tony Huang, for one, takes pride in Sigma’s pension and health contributions, but only as a matter of correctly following the law. “We do everything right here,” he says, adding, “We don’t have a choice. Smaller operators, they aren’t under so much scrutiny.”
Like so much else related to scrap in China (and, for that matter, business in China), the actual requirements are vague and enforcement is regional or nonexistent. Certainly, smaller companies don’t get much attention from inspectors. In contrast, a large operator like Sigma is subject to a level of oversight comparable to that experienced by a U.S. scrap company. As for Tung Tai, it benefits from operating many of its yards in the lenient regulatory environment of Guangdong province. Yet it’s a tribute to Chen’s obvious affection for his workers that he provides the numerous and generous benefits that he does (which helps explain why his employees call him daiko, a term of endearment that means “big daddy”). Quite simply, if Chen didn’t want to do it, it’s unlikely that anyone would make him do it.
Safety regulations are observed in a similar manner: The larger the operator, the greater the likelihood of both scheduled and surprise inspections. Sigma’s sprawling Shanghai operation is subject to numerous and frequent visits by safety inspectors, a fact that Huang says has prompted him to develop a “good relationship” with the local government. Tung Tai’s smaller operation in Nanhai has also experienced safety visits, albeit less frequently and almost never as a surprise. Shanghai Metallink, in contrast, has yet to undergo a safety inspection.
Obtaining records on safety at Chinese industrial facilities is nearly impossible. Most scrap processors will admit to some accidents (Tony Huang, for example, refers to the unfortunate result of placing a load of Russian military scrap—including an unexploded rocket-propelled grenade—into a furnace), but numbers are not discussed.
Nevertheless, safety is a serious concern at Chinese scrap yards, though it is handled differently at different operations. At Sigma, workers who violate safety rules are subject to stiff fines. At Tung Tai, employees who work unsafely are reassigned to less dangerous—and often lesser paying—positions. Smaller operators tend not to have formal procedures.
Changing China
On a rainy afternoon in late October, more than 150 women are busily sorting nonferrous shredder residue on the floor at Sigma’s Shanghai operation. In their baggy hospital-green uniforms, protective face masks, and caps, they are interchangeable, anonymous, distinguishable only by whether or not their eyes follow the visitors who occasionally wander through their work area. The sorting room is eerily silent except for the soft click-click of metal falling into sorting pans.
To a Western scrap processor, this factory of human sorters would appear surreal, a throwback vision from preindustrial times, mind-boggling. For now, China can reap the benefits of such human machines, but how long will this situation last? Nobody knows for sure, though managers throughout the Chinese scrap industry admit that all factors—labor, import rules, environmental regulations, and more—will change eventually to make the Chinese scrap industry more like the Western industry. Some say this transformation could take only a decade. But that begs the question: Without cheap labor, how will Chinese scrap processors remain competitive and profitable?
Tung Tai’s Chen is both practical and philosophical in answering that question. Recently, he has taken a serious look at relocating operations to Vietnam, India, or the Philippines—though he’s quick to note that labor costs haven’t been the only factor behind the idea. In the end, he sighs, “America and Europe will have to find somewhere else” to ship their mixed and lower-grade material. Then, after a pause, he adds—“and maybe so will China.”
Editor’s Note: ReMA is working with the U.S. Department of Commerce to organize two trade missions to China later this year. One mission will likely be devoted to scrap metal and one will focus on scrap paper, with both designed to assist ReMA members who wish to trade with China. For more details, contact Robin Wiener, 202/662-8512, or Scott Horne, 202/662-8513. Also, ReMA is holding two China-focused workshops at its upcoming annual convention in Orlando—“Trading Ferrous and Nonferrous Scrap With China” on Friday, April 11, and “Trade Opportunities for Scrap Paper in China” on Saturday, April 12. See the convention guide in this issue or visit www.isri.org for more information.
Su Fan Lee
Like many of Tung Tai Group’s employees in Southern China, Su Fan Lee, 37, arrived from a small village in rural Hunan province to earn money that he could send home. His elementary education didn’t qualify him for much beyond a job breaking circuitboards with a hammer for $100 a month. It didn’t take long, however, for Joe Chen, Tung Tai’s president, and his other managers to recognize Su’s intelligence, ability, and careful work habits. Not long after being hired, he was promoted to supervise the other “hammer men.” This too he did with care, so the company continued to promote him until, five years after being hired, he became manager of Tung Tai’s 450 employees in Nanhai. Five years would be an astonishing and rapid rise through the ranks even in a North American scrap yard; in China, it’s unprecedented. Su now earns the equivalent of about $575 a month, and he lives comfortably in the management dorms. He still sends a significant portion of his monthly pay to his family in Hunan.
Shou Yin Lee
Shou Yin Lee, 30, sorts gold at Tung Tai Group’s Shenzhen facility while, just 20 feet away, her husband supervises a team of wire strippers. Their two daughters, 13 and 8, live with Shou’s parents in a Hunan village that survives mostly on subsistence farming. “We can’t make enough money at home,” she explains, “so we come here and send the money home.” Shou and her husband return to Hunan only during the Chinese New Year, and—with a blush—she admits to missing her children “a little.” Still, when asked if life is better working and living at Tung Tai than back home in Hunan, she laughs and replies, “Of course it’s better—better food.”
Dong Ying
A Shanghai native, 32-year-old Dong Ying is a section chief in one of the hand-sorting warehouses at Shanghai Sigma Metals’ facility in Shanghai. Dong, who has worked for Sigma since the company opened in 1994, spent two years as a hand-sorter, picking through mixed nonferrous shredder residue for about $100 a month. She then assumed her current position in which she supervises 20 female hand-sorters, earning $250 to $375 a month depending on performance. Of the work, she says only that “it’s very tiring.” Dong is married to a chef, and their combined incomes place them comfortably in the emerging Chinese middle class, allowing them and their daughter to escape the company dorms and live in a nearby apartment. •
Adam Minter is a journalist based in Shanghai, where he writes about business and culture for Chinese and U.S. publications.
Cheap labor gives China a major competitive edge in the international scrap market—but how long will this edge last?