SHANGHAI — The annual rush in Apple stores all over the world started Sept. 20 when the Cupertino, Calif.-based company released its new iPhones 5S and 5C. Outside Fifth Avenue in New York, the queue was the longest in store history. Similarly, in China, people went en masse to buy the latest smartphone, but for the first time they didn’t have to wait three months longer than American customers for the new devices.
At the Pegatron factory, in the southeastern suburbs of Shanghai, there was another kind of rush happening after the Taiwanese company won a contract to assemble the iPhone 5C, a year after it had won a similar contract for the iPad Mini. “Recommend a friend and get 1,000 RMB!” ($160), reads the banner hanging between dormitories here. It clearly shows that the Apple subcontractor, which already employs 180,000 people — most of them in China — has been having trouble recruiting.
Wang Jiankun, a 20-year-old management student, gave it a try. Along with some 50 friends from Henan University, he did a summer “internship” at Pegatron.
The group of students applied through one of the numerous recruitment agencies around the facility and its seven assembly lines. Wang soon discovered that this middleman was taking a substantial amount of money from his wage: “We knew beforehand that they would pay themselves directly from our salaries, but we didn’t know how much,” he says, visibly annoyed. “A couple of years ago, we had heard that they took 600 RMB $98, then we heard 10% or 12% of the wage. But actually, they’ve taken 20%.”
“We had to sign a lot of paperwork, some with Pegatron, others with the agency, so in the end we didn’t really know who was employing us,” explains Yuan Shaokai, who arrived at the factory with the same group as Wang. This is how it works: The agency helps them open a bank account in Shanghai, a requirement for them to be paid. Incidentally, the agency takes 200 RMB ($33) and assures the students they will get their money back if they stay more than two months — which is impossible for some, since they only have two months of vacation. Finally, because the accounts were opened by the agency, these middlemen can easily help themselves to their commission.
Wang and his friends were lucky, though. China Labor Watch, a New York-based association that defends workers’ rights, investigated their situation and pressured Apple. In the end, the Henan University students got back the 20% that had been taken.
“Slash labor cost”
In its January “progress report” on supplier responsibility, Apple dedicated a section to “How dishonest third-party labor agents conspire to corrupt the system.” Wang has his own explanation for the very existence of these shady middlemen: “They’re having a hard time finding workers.”
Apple chooses its suppliers based mostly on price, despite its vain wishes, says Li Qiang, founder of China Labor Watch. “Subcontractors have no choice but to slash labor cost if they want to win these contracts, and that only makes the workers’ situations worse,” he explains.
That’s why Pegatron was awarded the contract. In 2010, Apple’s longstanding subcontractor Foxconn had opened a facility in Zhengzhou, where 200,000 workers produced the iPhone 5. The advantage of that central China region was the low wages. There, Foxconn paid its workers $290 a month. In its first factories in Shenzhen, on China’s southeastern coast, the lowest wage was just above $325. At the Pegatron factory in Shanghai, one of the most expensive cities in China, the starting salary was just $265.
It’s possible Apple also chose Pegatron to diversify its suppliers, after Foxconn was hit by striking workers unhappy about the stepped-up production of the iPhone 5 at the end of the summer of 2012.
While both wages and social conflicts are on the rise all over the country, high turnover is no surprise. As a result, Pegatron turns to universities, where internships are compulsory, to find cheap workers. Its agents prospected as far as the professional institute of Chuxiong in the southwest of China, 2,500 kilometers from Shanghai. There, they found 21 students, among them Chaorong, 18, and Tianmei, 19.
Outside the factory, the two girls are getting a bit of fresh air, their pink jackets on their shoulders. This month, they’ve been working night shifts, installing motherboards from 8 p.m. until 8 a.m. with two 40-minute meal breaks and a shorter 10-minute break. They still haven't had time to go and visit Shanghai’s city center.
In any case, they haven’t come here to earn the 1,620 RMB ($265) a month they get for 40 hours a week. They’re counting on adding multiple extra hours in the hope to earn 3,500 RMB ($570). Extra hours “are the rule” here, Tianmei says. “At the end of the day, we feel very tired,” he adds. The students hope to hang in there until the Chinese New Year, at winter’s end. “We heard that those who resign risk not graduating. That’s why we’re staying.” So far, nobody has refuted that rumor.