Cablegate: Labor Complaint: A Visit to Kaisi Hardware in South China

DE RUEHGH #0193/01 0950952
R 050952Z APR 07




E.O. 12958: N/A

SHANGHAI 00000193 001.2 OF 003


(U) This document is sensitive but unclassified. Please protect

1. (SBU) SUMMARY: Kaisi Hardware Company Ltd., one of China's
largest furniture parts manufacturers and exporters appears to
be addressing problems - including underpaying workers and
providing poor working conditions - documented in a February
report by the New York-based National Labor Committee (NLC).
The NLC report, while largely accurate, also blamed the company
for some conditions not under its control, such as lack of an
independent labor union and low minimum wage standards. The
company denied the charges of low pay and lack of compensation
for injured workers, and encouraged the drafter of the NLC
report to visit the company to review working conditions. The
report's primary recommendation, that U.S. clients continue to
work with Kaisi to improve conditions, is being heeded, and
conditions appear to be much improved already. END SUMMARY.

Congenoffs Visit Kaisi Company

2. (SBU) In February, NLC published a report accusing Kaisi
Hardware, in collusion with its American and other foreign
clients, of underpaying workers, imposing long working hours,
escaping work injury compensation, and providing poor working
and living conditions. Consulate Officers visited the company
in Guangzhou's Nansha District and met with Mr. Li Shaohan,
President and owner of the company, and Dr. Yang Zhiyong, Deputy
General Manager. Li is also a member of the Guangzhou People's
Congress. Congenoffs also met with two ex-pats, a Canadian
working for Knape & Vogt (or KV, a U.S. based company and
Kaisi's biggest client), and an American who is a retired
employee of KV and now consults for Kaisi.

3. (U) Kaisi's biggest product lines are metal drawer slides and
other hardware for furniture. Approximately 75% of the
company's production is exported and 75% of that goes to the
United States. The majority of the remaining exports go to
Europe and 25% of the company's product is sold on the domestic
market. The company is approximately 11 years old and now has
2,000 workers in three locations, of which Congenoffs visited

Two Factories: One New, One Old

4. (SBU) Conditions at Kaisi appeared to fall within the normal
range of Chinese factories. However, there were noticeable
differences between the two visited sites. The newer site is a
two-year old factory set up for KV product and Kaisi OEM
production. KV occupies a separate section of the factory which
operates with used equipment brought from the United States.
Though separated, both the KV and the Kaisi OEM production
facilities looked similar. The factory was spacious and the
factory floor clean. Lighting on the factory floor seemed
adequate with natural light coming from the entry way and a few
small windows. The worksite, a largely sheet-metal building,
was very noisy with many presses operating simultaneously. All
workers had ear protection and gloves and most of the presses
had safety equipment.

5. (SBU) The second site was Kaisi's original factory that has
been in use for 11 years and was the site of the accidents cited
in the NLC report. The factory was much larger than the first
site, with two large concrete and metal buildings. Both were
dark, cavernous tin workshops with high ceilings and small
windows. Inside, employees worked at a rapid pace, probably due
to fact that workers are paid by the piece. The area was very
noisy and dirty with raw materials lying around. Just as in the
newer factory, all workers had ear protection and wore gloves.
Large safety signs warned against wearing slippers, long hair,
or items that could get caught in machines, while another listed
labor rights information. Li showed Congenoffs the machines on
which the accidents occurred and explained how workers went
around safety cutoff devices in order to adjust the machines.
These machines are no longer used. While these working
conditions might not be acceptable in a Western setting, they
are not unusual in the Pearl River Delta.

6. (SBU) Congenoffs also toured the factory's cafeteria and
dorm. In the cafeteria, Li told Congenoffs that workers receive
a RMB 1.7 (USD 0.22) subsidy for meals and can choose a RMB 3
(USD 0.39) meal or a RMB 5 (USD 0.65) meal. Workers said the

SHANGHAI 00000193 002.2 OF 003

food tasted good. Dishes included meat without a lot of fat.
In one of the dorms, four sets of bunk beds without mattresses
lined each wall for a maximum capacity of 16 to a room. It
appeared that the top bunks were used as storage areas only, so
rooms were not fully occupied. There was no other furniture or
storage in the rooms other than some small stools. Three fans
on the ceiling provided air movement. Paint on the walls was
faded and lighting was poor.

The Kaisi Company's Defense

7. (SBU) Li admitted that overtime hours in the past exceeded
the legal limit but not by as much as the NLC report claimed.
He defended himself by saying that all factories in the area had
similar practices. He also denied the report's claim that the
company had not paid the workers properly and had not paid
compensation to injured workers. He told Congenoff that average
worker remuneration falls in the RMB 1,200-1,500 (USD 155-194)
range per month and the variation is due to piece work instead
of payment of an hourly wage. (The Guangzhou government-imposed
minimum wage standard is RMB 780 (USD 101) per month.) Several
workers with whom Congenoffs spoke separately confirmed these
comments. One woman, who said she was satisfied with working at
the factory, stated that her pay, while averaging RMB 1,200 (USD
155) per month, varied due to the flow of orders. Since the
company sells millions of dollars worth of product per year,
work is available at all times but some months there are higher

Impact of NLC Report on the Company

8. (SBU) According to Li, once the NLC report came out, numerous
government authorities at various levels - Nansha District,
Guangzhou Municipality, and Guangdong Province - descended on
the company to investigate. In total 46 government agencies
have visited. Prior to the report's publication, government
agencies rarely visited and Li commented that the government
provides little support for small and medium enterprises like
Kaisi. Li added that over 300 representatives of Kaisi
customers, most from overseas, had visited the company since the
NLC report. As a result of this attention from government
agencies and clients, improvements in conditions have been, and
are still being, made.

9. (SBU) The KV representative admitted that prior to the report
from NLC, KV and other client firms had not paid much attention
to labor issues in the factory. Instead, the focus was on
product quality and production issues, but he added that
ensuring safe operations was a concern. After the report was
released, KV received negative publicity, and was contacted by
many of their own customers. It now pays much more attention to
basic corporate social responsibility (CSR) issues. The
representative indicated that KV will hire a third party Chinese
company to regularly audit Kaisi's and other KV producers' CSR
and labor conditions.

Limitations of the NLC Report

10. (SBU) The report, while identifying many valid problems, has
its own problems. In some areas, the author undercuts his
arguments by blaming the company for problems that are based in
central government rules and regulations - such as the lack of
independent labor unions and low minimum wage standards. In
others, the writer blames the company for issues that may be the
responsibility of the worker - cleanliness of the dorms and the
dorm bathrooms.

11. (SBU) Company management and the KV representative commented
that they were surprised by the report and disappointed that the
report drafter had never contacted anyone from either company.
Li asked that Congenoff encourage the drafter of the NLC report
to pay a visit to the company to review working conditions in


12. (SBU) Despite the shortcomings of the NLC report it is
clear that much could be done to improve conditions at the
factory and in the dormitories. Some of these improvements are
mandated and have already been completed or appear to be planned
for the near future. In other cases, optional improvements may
only occur as Kaisi management of CSR improves, a potentially

SHANGHAI 00000193 003.2 OF 003

long-term process but one that will be encouraged by additional
involvement by U.S. client companies whose motivation may also
be somewhat limited but improving. The company is also open to
suggestions. Congenoffs made additional recommendations to
improve dormitory conditions and to ensure workers are aware of
their rights.

13. (SBU) To put the situation in a local context, within
minimizing the extent of worker injuries or the need to address
factory shortcoming, many of the workers likely experience much
worse living conditions with little hope for any employment in
their home villages in inland China. They are likely more
accepting of these conditions than western workers or even local
employees from Guangdong Province. Nevertheless, workers tend
to vote with their feet when a company's conditions are
particularly poor. Despite the general labor shortage, very
good companies in the Pearl River Delta tend to have fewer staff
turnover problems. A company such as Kaisi, with a 20% turnover
rate, would appear to fall in the middle range of labor
intensive companies in the PRD.

© Scoop Media

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