How old-school factories stay alive in China's south

By Alexandra Harney

SHILING, China (Reuters) - Squeezed by high costs and unpredictable demand, some factories in southern China's manufacturing heartland are turning to a new strategy to survive: hiring workers by the day.

It is a far cry from Beijing's vision of a slick, hi-tech manufacturing future of computers and chip makers: on a warm morning in the southern town of Shiling, dozens of workers gather on a city street to haggle for a day of work making bags for $20 to $30.

Factory owners in this leatherworking town, and in those nearby, say just-in-time labour allows them to stay competitive, even if day wages can be higher, individually, than full-time salaries.

Workers, operating in a legal grey area, say they tolerate the conditions because many fear factories offering permanent jobs could fail to pay if clients dry up and the manager runs off.

"We never used to hire temporary workers, because labour costs were not very high. Our workers were on staff," said Huang Biliang, who runs a button factory in the southern city of Dongguan. "But recently we've started to hire more temporary labour."

In a stainless steel factory in the nearby town of Jiangmen, David Liang, manager of Chiefy, agrees: "Every additional (permanent) worker I hire is an additional risk."

The result is a section of China's manufacturing base that has adapted to volatile conditions and higher wages - keeping the country's hold on some labour-intensive work that it might have lost to cheaper regions elsewhere in Asia.

Struggling companies do occasionally turn to temporary workers - but this is a change for China, where authorities have sought to crack down on precarious employment, introducing tougher rules in 2012 to protect so-called 'dispatch' workers.

China wants to shift away from piece-work toward a high-tech consumer economy. Shiling's experience suggests, however, that casual labour could help the country's plethora of small manufacturers remain sellers of cheap shoes, toys and stainless steel pans for a few years yet.

DISPATCHED

Casual work has been thriving in pockets of the industrial landscape, especially where clusters have created a base of experienced workers: in toys, garments and, Reuters found, in the bag and stainless steel industries in southern Guangdong province.

"It's an indication that China will probably succeed and maintain its manufacturing base," said Ben Simpendorfer, managing director of consultancy Silk Road Associates.

While the use of undocumented day labourers by factories is hard to capture in statistics, academics, consultants and factory managers say it has risen since the financial crisis and accelerated in the last two years.

There are no official statistics on informal work, but surveys show Chinese factory workers are leaving their jobs more quickly. In surveys by Laborlink, a San Francisco-based polling group, the percentage of Chinese workers who said they had been in their jobs less than one year rose from 33 percent in 2014 to 40 percent in 2016.

And, China's labour attitudes may be changing.

Though China has tightened rules, officials have also expressed concerns about them. In March, Finance Minister Lou Jiwei publicly criticised the labour contract law, which requires companies to provide employees a written contract.

The same month, Guangdong province - which has raised its minimum wage at regular intervals in recent years - said it would scrap scheduled rises to the local minimum wage in 2016, and keep it at 2015 levels through 2018.

"The total employment of the manufacturing sector is shrinking," said He Fan, chief economist of Caixin Insight Group, but not the informal portion of that. He sees the shift to more casual labor as also partly led by younger workers.

"If my assumption is correct, then the casual workers may outgrow the permanent workers."

Needing to maintain employment, local authorities appear to tolerate the arrangement.

"A TERRIBLE INDUSTRY"

In Shiling, in China's bag capital, men and women gather in the early morning looking for a day's work.

Factory managers in vans and on scooters each hold a sample of the bag they produce; workers crowd around them, examining the sample and discussing the per-piece wage.

Among the workers is 39 year-old Wang Binge, who until three years ago ran her own small handbag workshop nearby. The workshop was once profitable enough to allow her to buy a Toyota and build a house in her hometown in southern Hunan province.

But orders dried up, and now Wang looks for jobs that pay at least 180 yuan ($27) for about a 12 hour day.

So many factory owners have fled without paying their staff, Wang and other workers said, that they feel safer being paid cash by the day, while hoping for more stable work.

One said she had found work only for half of the previous month. Wang hadn't worked in four days.

"Bags are a terrible industry," said fellow day labourer Wang Guinan. "We know we should do something else, but we don't know where to start."

(Additional reporting by Adam Jourdan and the Shanghai newsroom; Editing by Clara Ferreira Marques and Neil Fullick)