China shoe factory strike shows welfare Achilles' heel

DONGGUAN, China, April 17 Thu Apr 17, 2014 5:00pm EDT

DONGGUAN, China, April 17 (Reuters) - Zhou Hujun, one of thousands of shoe factory workers on strike in southern China, drove his motorbike to the local government's Social Security Department seeking answers. After a few minutes, he left clutching spreadsheets that just raised more questions.

Zhou and other striking workers believe Yue Yuen Industrial Holdings Ltd, which owns the factory making footwear for Nike, Adidas and others, has for years underpaid into workers' social insurance accounts - government-mandated nest eggs for disability, unemployment and retirement.

The issue goes far beyond the shoe plant, and highlights a looming problem for China: the workforce that has transformed the country into a global manufacturing powerhouse over the past 35 years is coming up to retirement age.

And, as these millions of blue collar workers begin claiming retirement benefits from local social security funds, they may find there's less in the pot than they thought.

The underpayment of social insurance contributions is common practice by factory owners across China, labour lawyers say.

SOPHISTICATED STRIKE

The strike at Yue Yuen - which says it is the world's largest branded footwear manufacturer, making over 300 million pairs of shoes last year - is not just one of China's biggest in recent years, it's also more clearly driven by workers' fears that they have been scammed by an opaque and convoluted welfare payment system.

Today's workers in China - a total workforce of some 920 million - know more about their rights and are more proactive in using both collective action and the law to protect their interests.

The Yue Yuen strike comes amid a wave of industrial activism, with the number of work protests in China so far this year up by close to a third, according to China Labour Bulletin, a Hong Kong-based labour rights group - as firms cut costs and retrench in response to slowing growth in the world's second-largest economy.

Demanding higher wages and safer working conditions are standard fare. Workers at Yue Yuen have shown more sophistication in protesting what they claim to be inequitable, perhaps fraudulent, social insurance contributions.

FEELING SHORT-CHANGED

At the Social Security office in Gaobu, a Pearl River Delta factory town that is home to a Yue Yuen industrial complex, workers like Zhou flocked to collect detailed printouts of the history of payments made into their accounts.

Few seemed to know exactly how to decipher the spreadsheets, but many were convinced Yue Yuen hasn't been honest.

"I don't fully understand it," 45-year-old Zhou admitted.

Workers told Reuters they felt Yue Yuen has short-changed them by under-contributing company payments into their social insurance accounts. Each month, both the company and the employee pay into these accounts - often 10-20 percent of the total pay cheque.

Zhang Zhiru, a prominent labour activist who was shown copies of Yue Yuen pay slips, said the company had paid a lower social insurance contribution based on workers' base salary, rather than a substantially higher full wage including overtime.

"China's social insurance law stipulates that social insurance payments should be based on the actual salary," he said.

While China's National Council for Social Security Funds requires local authorities overseeing social insurance funds to put the money into low-risk vehicles such as bank deposits or treasury bonds, corruption involving officials and middle-men has blighted the system for years. Former Shanghai Communist Party Secretary Chen Liangyu was arrested in 2006 after siphoning off millions from the city's pension fund.

"TEMPORARY" FOR YEARS

Another point of contention at Yue Yuen is that most, if not all, workers are listed as "temporary", even though they say they signed contracts years ago. Some also said the figures on their spreadsheets didn't add up, while the savings were difficult to cash in or transfer when they left the company.

"We feel like we were tricked," said Liu Shuixiang, who works on a production line for Nike at Yue Yuen, and who visited the Social Security office a day earlier.

"I've been at the factory for more than 10 years and my account only has about 11,800 yuan ($1,900) in it. They've taken out more than 150 yuan from my salary (each month) and should have been paying more than 300 yuan a month," she said.

"After 20 years, how can they still list us as 'temporary workers'?" asked fellow worker Zeng Jiabai.

In a filing to the Hong Kong stock exchange, where its shares are listed, Yue Yuen announced on Thursday that it would improve benefits from May 1. George Liu, an executive director of Yue Yuen in Hong Kong, told Reuters the company had done nothing illegal.

"We have been fully in compliance with the policies and regulation, but the base for compliance has different interpretations by different parties," he said. "Going forward, we are adjusting up our base for calculation (to) eventually reflect the full wages."

"We increase the social benefit. The intended objective is to retain employees, not force them to go away," Liu added. The company said the adjustments to benefit payments "may have a material adverse effect" on its business.

Workers said they were unimpressed, and want Yue Yuen to back-pay the social insurance shortfall. "They say they're only going to start to pay from May 1, but what about the past?" said Liu, the production line worker.

Yue Yuen director Liu later said the company's commitment included paying social security arrears - for those workers who wanted that. "Some employees may not want the company to pay the arrears because if we do that it means they (also) have to pay the arrears, (for) which they may need to put up a lump sum," he told Reuters by telephone.

"What we're doing isn't stirring up trouble," added Zhou. "We're just protecting our rights."

($1 = 6.2214 Chinese Yuan) (Additional reporting by Donny Kwok, Alexandra Harney, Fiona Li and James Pomfret; Editing by Ian Geoghegan)