Sweat Shops and Swipe Shops

When most pundits talk about China as an economic juggernaut, they're either predicting that it's the world's next controlling market or that it's the world's job markets' destroying angel.

The first group could well be right. From my brief visits here, I've seen a working class aspiring to middle-classdom and a middle class hankering to join the wealthy—and what distinguishes each of those steps on the economic ladder is nicer and nicer stuff.

And they're willing to pay for it. American cars cost a lot more in China than in America, but the streets are full of them. (Yes, they're made in China, but they still cost more. Welcome to Chinese economics—it's a lot harder than Chinese algebra.) So yes, China will buy a lot of stuff.

And what they really want is stuff that doesn't have a "Made In China" label on it.

Will China destroy every other country's manufacturing base with its billions of workers willing to move to the cities to make in an hour what they had been making in a day? (Yes, it's only 25¢ an hour in many cases, but wouldn't you make a move like that for an economic lift like that?) That's the question I'm not so sure of.

It may be true, as some China-watchers, like Ted C. Fishman, author of China, Inc., have said, that rock-bottom salaries and unregulated manufacturing facilities are going to cause other nations to rethink their entire business models, but I am not convinced that the big companies tell the whole story.

This morning I drove to the ZhouHai airport through its industrial district. ZhouHai is pretty much a garden city that has zoned all heavy manufacturing to a region 25km from the residential core. In the industrial district, we passed factories larger than some townships in my home state of Virginia, and across the road from them were dormitory complexes that were even larger.

"You know the biggest problem they have here?" asked Original Audio's Linda Lin as we passed the Canon campus and entered Panasonic's. "Keeping workers. Once they get them trained and they become really good at modern production techniques, other companies try to recruit them. Keeping staff has become a big goal, so you have to treat workers well and keep their salaries competitive."

I guess we don't need to worry about that 25¢/hour wage for too long.

That doesn't mean there aren't unregulated workhouses here. Dussun's Zou Yuan Yuan was uncharacteristically blunt when he told me he kept his staff lean because he paid benefits and lived up to all the rules. "Does that mean many places don't?" I asked.

"I'd rather just say that I do, and it's a cost of doing business my way," he said. His assembly facility was very pleasant. It had copious natural light, was kept scrupulously clean, and was so quiet that, in noisy Shanghai, it seemed peaceful. He's retained most of his 12 workers since he founded the company in 1998.

York Du's Original factory was similarly calm, uncluttered, and clean—and he, too, works hard to retain trained staff. As I reported in my China Hi-Fi Tour 2006 blog, Original keeps a box on the wall into which workers "contribute" small amounts of money for minor infractions—when the box is full, everybody goes out and has a party on the wages of sin.

Doesn't sound like a sweatshop, does it?

The metal-working manufacturer ETKG's David Zeng actually used the word "sweatshop" when he welcomed me to his company—although, clearly, he used it sardonically. I cringed a bit, however, because many Westerners would find his facilities falling right into line with what they imagine a sweatshop would look like.

Zeng started ETKG on a shoestring, cobbling together loans to buy a single CNC machine, which he housed in a former agricultural community then near, now in, GuangZhou. The factory is a vacated agricultural building, perhaps a barn, perhaps a machine shed—what it isn't, is fancy: packed earth floor, corrugated tin roof, and the only natural light comes from the opened sliding doors at each end of the factory.

As he's grown his business, he's bought more CNC machines (120 now—many, he proudly points out, manufactured by Siemens China) and he's leased every shed, garage, and large or small facility in his neighborhood.

I walked around his shop floors: The machines were meticulously maintained and the people manning them were focused, healthy, and, most of them, smiling. Most of them were wearing new clothes, a lot of them quite stylish. In other words, they, too, had stuff.

Zeng also taught me a new phrase, "swipe shop," while showing me the mind-boggling number of products he manufactures for other companies, including many famous American and European marques. "I have an idea for a new turntable," he told me, showing me his height-adjustable tonearm mount. (It moved like butter, I tell you.) "I have to be very careful designing it, because I make turntables for other companies, and mine must be original or I will get the reputation for being a swipe shop."

At the end of the day, ETKG reminded me of nothing so much as Stereophile in the late 1990s, another aggressively entrepreneurial enterprise that plowed its profits into growing itself rather than on fancy offices. (John Atkinson's office was a closet and mine was in the measuring room, so I had to work at home when JA was testing loudspeakers.) The work is what matters—and the work at ETKG is world class.

The company that most runs counter to the "China, Inc." theory—indeed to any economic theory—was XLH, the brainchild of Hou Ying Zhong. That's because Hou is crazy—well, he's a passionate perfectionist, which in business, where "good enough" usually is, probably is a form of benign insanity.

Hou has a day job designing church, theatrical, and cinema sound systems, but high-end audio is his passion. When I visited him, he had just received the first two pairs of production model cabinets for a new loudspeaker design. He'd sit and talk for a few minutes, then jump up and look at the cabinet from a different angle, checking it for true. He'd sit down again, then leap up and go in the back, find the terminal connection plate and check it in situ on the speaker, again canting his head critically.

At one point, he ran over to a drumset in his reception area and thumped a drum. "Have you ever heard a speaker do that?"

Can his $50,000/pair AEF-1812 do that?

"Yes, but I can't play them for you because I sold my last pair last year. I built one, but then I got the idea for this new loudspeaker and have devoted all of my time to that." He got up, grabbed a cast horn flare and fitted it into his new cabinet, then pondered it.

It may have made economic sense to abandon a 7' tall, 200lb, $50,000 loudspeaker to develop a smaller, more affordable model, but somehow I didn't get the impression that Mr. Hou had thought about it rationally. The new idea excited him—and to him, audio is about excitement.

Who's to say he's wrong?

None of these manufacturers fit America's conception of what Chinese manufacturing is all about. What unites them is that they like building neat stuff. High-end audio isn't a huge market in China any more than it is in the US. It's a market for people with passion—and Hou Ying Zhong, David Zeng, York Du, and Zou Yuan Yuan are as passionate as any American manufacturers I've ever met. And they're living proof that China ain't as Inc. as it's been made out to be.

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