China Inc. moves factory floor to Africa

By Peter Wonacott

CAPE TOWN, South Africa--Each sparkly green television motherboard that rolls off the Hisense Co. factory line here moves China a tiny step toward a new global manufacturing base.

The line's eight South African technicians monitor the assembly process by computer and have incentives to work quickly. In less than a year of operation, they are producing at the same clip of 70 seconds per board as their Chinese counterparts.

But there's a hitch: Hisense factories in China use half as many workers to make the same product. In South Africa, one technician monitors one machine. In China, the company's technicians monitor two machines apiece.

"Step-by-step," says Jerry Liu, general manager for the Middle East and Africa unit of the home-appliance maker. "We'll get there."

Faced with rising labor costs at home and negative perceptions about their employment practices in Africa, Chinese companies are setting up new factories on the continent and hiring more Africans. The companies efforts will test whether the masters of low-cost manufacturing can be as productive in Africa as they are in China.

Many bet they can be.

"China is a resilient investor," says Martyn Davies, chief executive of Frontier Advisory, a consulting firm that does business in China and Africa. "You see it in Ethiopia at the bottom end and in South Africa in the higher-end stuff."

Auto maker China FAW Group Corp. is building a new factory in the South African industrial hub of Port Elizabeth to produce trucks and light commercial vehicles. Huajian Group, a Chinese shoemaker, plans to invest as much as $2 billion in Ethiopia over the next decade to make the country a base for exports to Europe and North America. Chinese factories also produce steel pipe and textiles in Uganda.

Mounting labor costs in China are part of what makes Africa so attractive. The average monthly wage for a low-skilled Ethiopian factory worker, for example, is about 25% of the pay for a comparable Chinese worker, according to the World Bank. As the wage gap widens between unskilled Chinese workers and their counterparts elsewhere in Asia and in Africa, as many as 85 million factory jobs could leave China in the coming years, according to former World Bank chief economist Justin Yifu Lin.

In addition to its pool of low-cost labor, Africa represents an enticing market for Chinese products manufactured on the continent. Africa is now home to six of the world's 10 fastest-growing economies, according to the International Monetary Fund, and many African countries are reducing their dependence on extracting resources, such as oil, metals and gems.

Africa's poor infrastructure and uneven distribution of skills erode its cost advantages, however. The World Bank study estimated that a Chinese worker making shirts, for example, could produce about twice as many per shift as an Ethiopian worker.

The common Chinese response to such productivity gaps has been to send more Chinese workers. China says it dispatched 214,534 workers to Africa last year, about one-fourth of all workers the country sent abroad. That was 18% more than in 2011, according to China's Commerce Ministry, which didn't provide 2012 figures or a breakdown by industry. Analysts suspect the official figures vastly understate the numbers because they don't include entrepreneurs and traders doing business in Africa.

China's expanding African footprint has caused friction, however. A survey from the Ethics Institute of South Africa, a research and training organization based in Pretoria, reported in February that 46% of respondents in Africa had a negative impression of Chinese employment practices, while 19% were positive. Another 55% agreed with the statement that Chinese companies in Africa use only Chinese employees.

Such perceptions are rooted in reality. In Angola and Zimbabwe, Chinese companies bring workers from China for the most basic tasks, such as laying bricks and driving trucks. In Ethiopia, road crews have complained that Chinese supervisors cut their shovels in half so they will use them only for digging, and not for leaning to rest or gossip. In Zambia, Chinese mine bosses have tossed cold water on dozing employees, according to interviews with miners.

Chinese officials, eager to erase China's image as what critics call the continent's "new colonialist," have urged its biggest companies to put their best foot forward in Africa. Chinese Premier Li Keqianq visited several African countries this month and promised to ramp up assistance to various projects. Tian Xuejun, China's ambassador to South Africa, says he holds regular meetings with Chinese executives to encourage local hiring, partly to help spur the continent's industrial development.

"We have some experience in this area, and we're willing to share it," Ambassador Tian says. "We're teaching people how to fish rather than giving them fish."

source:http://www.marketwatch.com/story/china-inc-moves-factory-floor-to-africa-2014-05-14-20485725