ETech Preview: Inside Factory China, An Interview with Andrew Huang

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China has become the production workhorse of the consumer electronics industry. Almost anything you pick up at a Best Buy first breathed life across the Pacific Ocean. But what is it like to shepherd a product through the design and production process? Andrew “bunnie” Huang has done just that with the Chumby, a new internet appliance. He’ll be speaking about the experience at the O’Reilly Emerging Technology Conference. In an exclusive interview with Radar, he talks about the logistical and moral issues involved with manufacturing in China, as well as his take on the consumer’s right to hack the hardware they purchase.

JAMES TURNER: Andrew “bunnie” Huang is the Vice President of Hardware Engineering and Founder of Chumby Industries. He’s pretty much the consummate hardware geek who has used his doctorate from MIT in electrical engineering to do everything from designing opto-electronics to hacking the Xbox. The Chumby, an internet appliance that delivers a cornucopia of information, is his latest endeavor. And he’ll be talking about the process of getting it manufactured in China at O’Reilly’s Emerging Technology Conference in March. Thank you for taking the time to talk to us.

ANDREW HUANG: No problem.

JT: So I have to start by asking, were you one of those kids who took everything apart in your house?

AH: Oh, yeah. Yeah. My parents had a problem with that. There was lots of stuff taken apart. Not everything got back together again. Most things did. But there’s definitely a few things that got hidden underneath the couch for a few days hoping my parents wouldn’t notice, while I tried to find the last few screws and whatnot. They eventually figured out that the best way to try and contain me was to just give me other things to play with. So I got a computer and they got one of those 201 kits from Radio Shack for me to play with, so I would stop taking apart all of their alarm clocks and stuff.

JT: You know, you can’t get those kits at Radio Shack anymore. It’s very disappointing.

AH: I know. That is really sad. I mean those were really good kits. I mean I really learned a lot from the one that I had, and a couple other ones that were donated to me through friends or my friends’ parents also were really engaging.

JT: So you used to spend a lot of your time deconstructing the security infrastructure that manufacturers put in place. What in particular drives you in that direction?

AH: The deconstruction of security infrastructure?

JT: Yeah.

AH: I mean a lot of it is just — it’s more like if you just put a Rubik’s Cube in front of me, I’ll play with it. It’s kind of the same thing. A lot of it comes from the fact that I’ve actually been taking apart consumer electronic devices for decades now. And I always look at the construction and how it’s built to learn something from it, because that’s basically what I read to figure out the latest techniques for constructioning and costing and part selection.

And when I start seeing someone mentioning security features that have some relevance to the hardware level, I start poking at it some more just because it’s really interesting and you can learn something from it.

JT: And have you ever run afoul of the DMCA or anything similar when you were poking around?

AH: Yeah, the DMCA did create an unfortunate barrier to what was previously legal before it was passed. I had no problems doing this. And then all of the sudden, something that I’d always done and thought was legal and thought was a healthy activity became illegal. And like for example, when I took apart the Xbox in, I think it was 2000, 2001 time domain, DMCA was just been out for like a couple or three years at that point in time. No one had really heard of it. And, of course, the Xbox is a fairly high profile platform. So eventually, I had some help from the EFF and from some very friendly professors at MIT, which was the school I was at the time. And we managed to sort of get me in compliance with DMCA, I guess you could say.

JT: There seems to be a running battle between the users of equipment and the manufacturers, be it jail-broken iPhones or hacked Xboxes. How much control do you think a manufacturer legitimately should be allowed to have over the use of their hardware?

AH: Well, I think that a manufacturer, basically once the hardware leaves the factory, and someone’s paid whatever the market price is for it, then the user owns it, right? So I mean you could take that piece of hardware, melt it down and use it for the component metals if you want, use it for a doorstop. You could use it for something completely other than the computer, that you had not imagined it to be used for. So the hardware itself is pretty much — I kind of believe you buy it, you own it.

And you have all the rights to it that you could possibly want with it, to be applied all the way to the Chumby as well. So we do have a security system in the Chumby, but you have the ability to completely wipe all security keys off of it if you want to. You don’t have to use a Chumby with a Chumby network if you don’t want to. You can go ahead and wipe all of our software off of it. That’s fine. I don’t care.

JT: Isn’t there kind of a fuzzy area though, especially when you get into wireless devices, where some of the restrictions put in place on the devices are there for monetary reasons, but some of them are there for legitimate network control reasons?

AH: Well, I mean a service is a service; a device is a device. Right? There’s two different things we’re talking about here. When you buy a device and you own it, you can do whatever you want with it. The fact that I’ve bought a device doesn’t mean I’m entitled to its service for free. So if you bought a cell phone and you’re subscribing to a service, I mean there’s some network access keys and whatnot. And I mean I can hack my device to get it off of your service. Right? So I’m not tied to AT&T or something like that. But AT&T put up some towers and gives you a service. And you have to pay whatever they believe is the market value for that. Right? I don’t have rights to that tower that’s sitting two miles away from my house to use that without paying someone some fee for using that.

JT: Those of us who have been around the internet enough can remember numerous failed attempts to commercialize internet appliances such as 3Com’s Audrey. What do you think is going to make the Chumby different?

AH: That’s a good question. I’m not an expert at the lore of the failed internet appliance devices. There’s a couple things I think that’s in our favor though is that — we’re more open than a lot of the previous internet appliances, where I’ve seen some of them where they try to create these walled gardens of content that you have to subscribe. You have to do this. You have to do that. We’re sort of more user-centric and we have sort of an open development philosophy for sharing content.

So in other words, we don’t tell you what to do with the internet appliance. It’s exactly what you want it to be. You can hack it and do what you want with it which makes it more useful intrinsically to users. Right? Our business model is more focused on licensing our design out and getting it out there and letting other people who are good at hardware build hardware. And we’ll focus on the service and making sure that your hardware’s actually useful and can do something. So these are different things that other people didn’t do before. And I think it is sort of a cognition that users know what’s best for themselves, right? And also sort of understanding that there’s the hardware piece and there’s the service piece. And they have very different demands on the business. And we’re trying to separate those two so that we have sort of a rational business model around that.

JT: It’s kind of interesting that the space that that device would sit in is being crowded a little bit because when I think about something I might plop down in the kitchen or on a desk, I can say I could get this, or I could spend a little bit more and get one of these new fairly inexpensive Netbooks and get the keyboard, still have the streaming audio, still have all of that. Where do you see the differentiation there?

AH: I think there’s a couple of areas. One anomaly I guess right now is that especially the Chumby device is actually made in fairly low volumes, so the pricing’s not that good on it. The pricing puts it in more of a novelty area. Chumby is in the process of getting its design license to some fairly large hardware manufactures who can get the volume scale necessary and the capital required to get the price down to even lower price points, price points where these Netbooks can’t hit because our architecture’s a lot simpler and our base cost is a lot lower.

And the other thing is also sort of an ease of use issue. I mean people who are, I guess, more on the geek side of things will always be able to take an old PC or a low cost laptop and convert it to do exactly what they want it to do because they know how to install the right bits and pieces, right? One of the things that Chumby really offers to end users is that it’s easy to use. It’s a sort of widget-based service. You have this drag and drop building of channels and the internet radio’s right there. And the services get updated to your computer automatically. You don’t have to deal with these complex updating protocols. There’s no keyboard. It’s a touch screen-based interface. So one of the — I think, the big differences between this and a keyboard-driven appliance is that we do have an easier to use experience. And the other important thing is that the Chumby device, and this is going to get more important over time, all the content’s in the cloud, right?

So it’s sort of like you have this virtual — you yourself are virtualized from the hardware. So if you buy a Chumby picture frame and you stick it in your kitchen and you have a Chumby alarm clock and you have a Chumby account in your computer, they actually all work together with the same Chumby account. You don’t have to configure three separate devices with three separate widget fees and three separate sets of content, each of them unique to that device. Right? We actually run across multiple platforms very seamlessly. And you don’t even notice that you’re on different devices. And that’s another kind of ease of use thing that we have going for us.

JT: The Chumby’s made in China. And you’re going to be discussing the logistics of that at the Emerging Technologies Conference. What are the biggest challenges to producing a product in China?

AH: I think some of the biggest challenges is just there’s a communication issue and there’s sort of an alignment issue about what the product is supposed to do in the end, the vision and so forth. But Chumby itself was a — it’s a little bit different in terms of its industrial design. It has a soft leather case and has electronics on the inside. So trying to explain something that the Chinese guys hadn’t seen before when you don’t have a really good mastery of the language, even though we had a really good firm helping us out, their PCH doing the translation and so forth. It’s difficult to get the ideas across. You have to basically just go out there and sit down with the guys in the factory and just you know, almost playing kind of a charades game, right?

Sort of putting things together until you’re convinced that they actually understand the vision of the product. And then once they actually understand clearly what they’re supposed to be doing, a lot of magic happens over there. And they actually do really good work. But one of the big fallacies of kind of going over there is you’re sort of like, “Well, I just sent them some Gerber Files and a sketch and I’ll get something back. And it’ll be great.” And that’s kind of true for really cookie-cutter products like if I just want a beige box with a circuit board in it and an RJ-45 jack and a power cord. Okay. You can do that. Right? Because they do this all the time. But if you want to do something really different, you really have to kind of be out there on the ground and working directly with the people.

JT: I’m curious how the — I know that the exchange rates have been changing quite a bit over the last few years. How is that affecting the practicality of doing business in China?

AH: It’s a good question. Well, our price quotes are done in U.S. dollars typically. So a lot of times exchange rates actually come out of the manufacturer’s bottom-line depending upon if it’s going in their favor or against their favor. At some point in time, you have to renegotiate things. But there’s exchange rate, but there’s also sort of the factor that the labor is tremendously cheaper in China. The differential is 20 to 40 X between the United States and China for comparable quality of labor. And the exchange rate would have to change a lot to sort of gobble up that difference.

JT: That leads into my next question which is that many people feel uncomfortable buying products produced in China because they worry that they really don’t know what type of conditions the workers experience in the factories. What’s been your experience with this? And how do you feel about it?

AH: So there’s factories and there’s factories in China. There’s definitely bad factories that you don’t want to work with. And there’s ones that are good. And one of the reasons why I like to go out on the floor to China is I like to make sure that all the people that we work with are treated well and humanely, right? So I actually stay in the factory dorms and eat the factory food. So they can’t — I mean there’s things that guys can do still in China to sort of fool me. Like they have a special day when they know I’m coming to the floor and they’ll give them extra special food or something. That’s happened before. But generally speaking, I like to make sure that the conditions are good. And I sleep well at night knowing that we build Chumby in factories where people are actually fairly well taken care of, right?

The standard of living is overall lower in China, so it’s not like — it’s a far cry from, you know, I was reading the other day Boeing union labor gets paid $110,000 a year for machining parts. And they live in Seattle living conditions. And wow, that’s really great. I mean that’s really phenomenal living conditions for manufacturing. But at the same time, if I was paying machinists$110,000 to build Chumby, the price of the device would be four or five X higher just from the labor cost alone, right? It’d be impossible to build in the United States for the price that we get it at. So there’s some tradeoffs to be made there in terms of the quality of living. But that being said, I’d say the quality of living’s pretty comparable to actually like a college dorm in the United States. That’s about what I have to say for that out there.

JT: So lots of Ramen?

AH: Yeah. Yeah. I mean the food is actually pretty good in China. You get cheap food in China. It’s the crowded living conditions and the fact it’s a dorm living condition. The company gives you housing and medical care. And you don’t get really much of a choice. So you pretty much live in a dorm. And you share it with four or five other people. And it’s pretty crowded conditions. But these people are paid relatively well compared to what they have in the fields that they were working in before when they came from the countryside.

JT: At what point is China going to stop being the production center for offshore companies and become the primary designer of goods in the same way that Japan went from being a manufacturing center to being a design center? And isn’t it in China’s best interest to remain basically focused on production?

AH: That’s a really interesting question. And there’s kind of a couple of facets to it. And Japan’s definitely taken some design leadership in terms of building eye-catching really interesting products. The thing is, China has a very productive design population as well, but they’re a little different. If you look at — and this is eye-opening to me as well, right? As we at Chumby have tried to license our product out to more of the large brands that you’ve heard of. I can’t mention any of them specifically. But basically, it’s kind of shocking. The way it works is a lot of these large brands have almost no engineers on the inside. You go buy a product on the shelf. And the U.S. office consists of some product managers and maybe a couple of product engineers. And what they do is they just write kind of a Word document that’s 10 pages long.

They ship it off to China to a factory. And the factory actually does all of the work of taking that sort of sketch and that Word document and turning it into a real product, right? And they’re really good at doing that. And they’re very fast. And they’re very efficient at it. So the thing that sort of the Chinese lack is sort of like market vision. If you ever see a product made by a local Chinese entrepreneur, they’re often times these very nichey sort of almost quirky strange products. You get this kind of Chinglish thing going on where I could see where this could be useful, but it’s just not the right product. So what really is lacking and the reason why China’s sort of viewed as not innovative is they sort of lack the understanding of the American market. And I think they are a little heads down in terms of taking risks in terms of dramatic product design. Like they wouldn’t do quite what some of the more dramatic I.D. companies will do and the really breath-taking good looking things. But they actually do — like a surprisingly large amount of design for very little money.

JT: I have to ask one question just because I’ve been to a fair number of CES’s and there’s always this China pavilion there. And I have to ask, do some of these companies know just how strange the names [of their companies] seem?

AH: [Laughter] You know, I suppose the other way probably goes around as well when the Americans come over and they have really strange names as well. But yeah, they do have some really — Foo King Wah Semiconductor, whatever it is. They do have some really odd names.

JT: I like the ones sort of like the Happy Semiconductor and something –

AH: Oh, yeah, yeah, yeah. Happy and Lucky Semiconductor or Long Life Semiconductor or something like that.

JT: I wouldn’t mind a long life semiconductor, but I’m not sure I need them to be happy and lucky.

AH: Yeah. Yeah. Yeah. In Chinese, those names sound really good. They’re direct translations of the Chinese name to English. It does highlight some of the cultural difference between the U.S. and China. I guess a lot of those guys could use a director of marketing or something like that to figure this out. They certainly don’t have shelf presence, let’s just say, the names.

JT: So why don’t you give us a little bit of a sneak peek of what you’re going to be talking about at the Emerging Technology Conference.

AH: Well, I’m going to try to keep the talk very focused on sort of the multimedia aspect. I’m not going to try and drag you through a lot of the technical details. So it’s going to be sort of a lot of pictures of the line. Some videos. I like to tell stories about the people who are the line as well. Try to humanize these workers. You know, you get these pictures of just like these massive rooms of what looks like just could be robots, but they’re actually people, right? And I like to meet a couple workers and talk to them and get to know them as people. And it really humanizes the whole thing. So I’ll try and tell some stories about that. And try to be candid about the process. And we had some pretty ugly intermediate products.

We had a lot of problems getting the product going. But we also solved all of those problems as well. So try to impart some of that perspective, I guess, on people. It’s really something else to be able to walk in — you know, now when I walk into a Target and I look around, I know like 90 percent of that stuff on that shelf came from China. And I know the kind of machine it came off of, the working conditions it came out of. And it’s a really different prospective actually.

I can’t actually walk through the toy section anymore because toy factories are awful. They’re really — that’s where you get the worst labor conditions these days. And when I walk through a toy section, I can hear the machines cranking away in my head, driving out Tickle Me Elmos or whatever there is on the shelf. And it is kind of a little bit nerve-wracking to see all of that stuff on the shelf and see people just picking them up for $5.00 a piece and not knowing all the effort that went into building it. But that’s sort of the consumer mentality in Americans as well. JT: I’ve been very good, but I have to ask this question. bunnie? AH: Oh, yeah. The name. It comes from Monty Python and the Holy Grail where there’s that rabbit with sharp, pointy teeth that everyone runs away from. It was given to me back in middle school because I used to play a lot of roll-playing fantasy-type games. My friends thought it was a hilarious name to give me. It was hilariously inappropriate. That was back in the day when this thing called Bulletin Boards was just coming up and I had to pick a name. So I picked the name then. It was actually Vorpal Bunnie and I had to shorten it to bunnie when I went to college because they didn’t have enough characters for it. And back then, you just never thought that people would call you by your online handle. But it really stuck. And I’ve grown into it, so I like the name. JT: All right. Well, I’ve been speaking with Andrew “bunnie” Huang, Vice President of Hardware Engineering and Founder of Chumby Industries. He’ll be giving a talk entitled, “Out of China: Manufacturing the Chumby” at O’Reilly’s Emerging Technology Conference in March. Thank you so much for taking the time to talk to us. AH: Yeah. No problem. • KTG Informative discussion. I speak decent Mandarin and have stayed in Beijing, Shanghai, Hangzhou, and Nanjing for extended times for vacation. Andrew’s perception of the Chinese labor force’s design and innovation properties are accurate in my opinion, the creativity and efficiency is there-it’s a matter of direction and vision. His comment on the Boeing machinist getting paid 6 figures is also a wake-up call; our economy is simply no longer constructed to support those sorts of pay scales in a competitive global market. I believe that’s why just about every firm that doesn’t have extraordinary superb business growth and these union pay structures are getting slaughtered in this economic environment (think autos). I think there is going to be a massive market for digital security in the mainland as well. This site talks about all the new security tech going on right now. • KT The article is not accurate. I read the article. And I’ve worked in those factories myself. He may have been inside, but he only touched the surface. It takes time and patience to see what lies below. I recall eating the same food as well. I like Asian food, and can stomach most anything. The way things work is that the ‘food service’ is controlled by organized crime…they tell the factory managers what they will get for their workers and how much to pay. The food is delivered pre-cooked and served cafeteria style. One day a co-worker suggested it might be better for us to go outside and eat at a restaurant. The issue was that some days, the food is just plain unhealthy – can be anything from rancid contents to non-organics added so that the smaller quantities fill more stomachs. There is a laundry list of issues with food that can be detailed by searching the internet. Other issues involve outsiders coming into the factory, posing as employees and leaving any number of contraband – the crime boss phones up the factory manager and threatens blackmail or he’ll phone the cops – if no payoff is made, he calls the cops, they arrive and ask again. Any resistance is met with more threats and vandalism until you get the message. And there is always the simple petty robberies your workers face just outside the gates that can lead to stabbings and death. We almost caught one robber, but he jumped into a creek full of sludge and sewage and got away. We had neighbors tap into our electrical panel in broad daylight. All of these have effects on getting products out the door. All of these are usually hidden when buyers come by for inspections….again, the only way to really know is to live there for months if not years. Then you’ll see…. • James Fonga As a junior design engineer, I thought that all the product engineers did was “they just write kind of a Word document that’s 10 pages long”. As I have matured in my career and become to respect many of the people in industry I realize that that is kind of saying all that the doctor does is scribble the words on a prescription pad. We are discounting the knowledge that has come from decades of standing on the shoulders of giants and forgetting how it has been aquired. By people pouring there souls and lifetimes in to improve the tiniest little detail of their passion and recording it on a blueprint. The loss of our manufacturing knowledge and the export of it’s trade secrets for a short term cost reduction will be an interesting anecdote in our future. • George T Come on. Boeing machinists are making airplanes, which are expensive and complicated and have quite different reliability guarantees than some$100 electronic gadget you get at Best Buy or Target.

Comparing their salaries to someone working in a Chinese factory making Chumbies is silly on its face. How much do you think a comparable manufacturing employee makes in both a Right-To-Work state (union-free) and a union state in the US? No-where near $110k. Telling yourself, and everyone else for that matter, that US labor costs are at$110k levels for disposable electronic manufacture is obscene, dishonest, and frankly malicious. If you had any intellectual honesty whatsoever, you’d research real numbers and make a real comparison.

Top Google search for “electronics manufacturing u.s. wages” (http://www.payscale.com/research/US/Industry=Electronics_Manufacturing/Hourly_Rate) gives $11.59/hour, or$23,180 for 8 hour days, with two weeks vacation.

20x reduction in labor price would be $2,318/year. Maybe that’s accurate for a Chinese equivalent. If that’s the case, wow. No wonder they’re living in dormitories. • George T Oops. My mistake. A 20x reduction for electronics assembler would be$1,159, not $2,318. My mistake. Got a little ahead of myself. Sorry. • James Turner According to a 2005 Time Article, “Yet base assembly-line wages in the Pearl River Delta, the province’s manufacturing belt, have been virtually frozen at about$80 per month for the past decade, according to a recent survey by the Ministry of Labor and Social Security.”

Multiply $80 x 12 and you get$960, so 20x isn’t far off the mark…

• George T

Here’s a good URL, 3rd Google result, page 26. (http://www.bls.gov/fls/chinareport.pdf&ei=DsqVScb2GJy6Mo-qnZMM&usg=AFQjCNGthNz-6Yy2R_O6TibxzjejWFk-Jg&sig2=c2DxaS-LoS4cVl0UI43nzQ)

” Employees in China’s city manufacturing enterprises received a total
compensation of $0.95 per hour, while their noncity counterparts, about whom such data had not previously been generally available, averaged less than half that:$0.41 per hour.
Altogether, with a large majority of manufacturing employees working outside the cities,
the average hourly manufacturing compensation estimated for China in 2002 was $0.57, about 3 percent of the average hourly compensation of manufacturing production workers in the United States and of many developed countries of the world. Equally as striking, regional competitors in the newly industrialized economies of Asia had, on average, manufacturing labor costs more than 10 times those for China’s manufacturing workers; and Mexico and Brazil had manufacturing labor costs about 4 times those for China’s manufacturing employees.” Can you imagine the scale and depth of human suffering needed to drive 100M people into accepting these kind of wages? If one takes a look at the “Big Mac” index the Economist reports (http://www.economist.com/markets/indicators/displaystory.cfm?story_id=13055650) we see that a Big Mac in China is a little over half the cost of one in the US. But here we see that comparable wages are two orders of magnitude less. Wow. Imagine if you will that someone getting$0.57/hour is doing better than someone in the countryside.

It’s rather hard to get by at $23k/year in the States…I can’t even imagine what it must be like in China. • George T I might also point out that “college-dorm” style living doesn’t cut it either. An electronics assembler isn’t moving up in the world the way a college student is. If, as the aforementioned Time article states, that wages have stayed the same for a decade, then you have essentially a situation where these people won’t be forming families because they can’t afford them, and they won’t be moving into a situation where they can afford them. Unlike someone in a college dorm. Putting aside any demographic issues for the moment, think of the experience being one of these folks in a dead-end electronics assembly job where you can’t even afford an apartment, let alone a family or any other aspiration like that. That’s just existing. • George T Re-read the article and saw this bit of snark too: “And it is kind of a little bit nerve-wracking to see all of that stuff on the shelf and see people just picking them up for$5.00 a piece and not knowing all the effort that went into building it. But that’s sort of the consumer mentality in Americans as well.”

Bull. How precisely is one to know? I don’t mean an executive like “bunnie”, but a “regular” person who isn’t traveling to Chinese factories regularly for business. The “consumer mentality in Americans” is not precisely accidental. Would you be shipping a brochure in your Chumby cases that show how they’re made, show the actual wages of the folks making them, what their living conditions are like, and what the environment looks like around the factory?

If you did, I’m sure you wouldn’t be allowed back to do any more deals to get at that cheap labor, eh?

Would you be shipping a brochure in your Chumby cases that show how they’re made, show the actual wages of the folks making them, what their living conditions are like, and what the environment looks like around the factory?

Actually, bunnie did post a detailed travelogue on his blog about the Chinese facility where Chumbys are made. It’s a fascinating read.

• Julien

It’s a good article but I have to agree that he doesn’t have a very realistic idea about conditions in China. I’ve spent years living in China and to say that “the quality of living’s pretty comparable to actually like a college dorm in the United States” is very inaccurate.

First of all, the dorms are not at all comparable to American college dorms. The rooms are much smaller. You can have 4 to 8 people living in a space that nobody in America would ever consider having more than 2 people. The beds don’t have mattresses, it could just be something similar to a thin tatami mat. The bathrooms are small, have no toilets, sometimes don’t have proper plumbing fixtures (no shower head, no pipe under the sink). They may or may not have reliable hot water. In addition, there can be serious issues with air and water pollution (which leads to increased rates of cancer and other diseases later in life), as well as not having any heating system during winter time in some parts of the country.

And then of course, the work itself is tedious, repetitive soul-destroying work that nobody would ever want to do if they had other better options. Ok, yeah, it might be better than doing farm work in the fields or being a homeless bum on the street (and China has a huge homeless problem in some cities), but it is a far cry from the kind of cushy, luxurious lifestyle that people have in the Western countries. There is only a small percentage of Chinese, like less than 10%, that have been able to enjoy the fruits of the economic progress of the last couple of decades. That still leaves a billion people that are living in very difficult, bleak conditions with little or no opportunity to better themselves.
So yes, you need to spend a serious amount of time living there and getting to know the people, visiting their homes, before you can really see how the life is for the people there. You can’t just fly in for a week long business trip and think you know what it’s like.

• Martin

Most of these comments owe more to an American need to demonise the Chinese manufacturing base rather to any reality. Chinese workers are free to change jobs and wages reflect the current state of demand for labour. 1500 yuan plus accommodation and meals goes a lot further in China than in the US because prices are lower. Enough to afford clothing and buy a mobile phone, but not a motor bike.

• John

0.57 cents/hour can go quite far in China. Consider this, you can get a high scale apartment downtown for just $90/month. Most chinese live with their families. Work for 20 days and your entire family can live in a high class apartment for a month.$1 can also buy a full meal.

That being said, the corruption is what really keeps Chinese poor. Not westerners creating jobs in China.

• http://bunniestudios.com/blog bunnie

To be honest, the interview was done over Skype and I was soldering a circuit board while giving the interview, so it was very conversational and casual. There’s one mistake in the transcription, “widget fees” is actually “widget feeds”.

I’ll freely acknowledge that it is possible I’ve had the wool pulled over my eyes in terms of my factory inspections, but I do have my own bag of tricks; social engineering is a tool of the hacker trade. Still, I am naive to some classes of deceit; I can only do my best. Also, my experiences aren’t based on one-week sight-seeing tours; I have spent months at a time working on the floor in our factories in China, staying up till 3AM with the other workers to solve problems so we can get a product out on time. However, I also agree that one cannot characterize all factories in China based on a single set of experiences like mine, which is part of the reason I rely on partners in China, like PCH, with an extensive staff living in China full-time to vet out sketchy factories.

Ultimately, the situation is not so dissimilar to the US. The US has low-margin factories — meat packing and peanut processing factories, for example — with poor conditions and outright shifty management (the salmonella peanut story has the same theme of profit-driven regulatory deceit as the melamine scandal in China). The US also has its high-margin, outstanding high-tech factories with spotless working conditions and excellent benefits; China also has its share of top-notch factories, typically clustered around high-margin businesses. It’s the same profit-motive versus morality story told around the world; simply put, it’s a lot easier to be “nicer” when you have high margins. Yes, China as a whole has a ways to go still in terms of raising their population to a level of affluence enjoyed by the US, but consider that 10% of the Chinese population is 130 million people — comparable to America’s 15-64 year old demographic of 200 million people. Once “the rest of China” is lifted out of poverty, how do you think China will compare to the US as an economic superpower?

It’s true that a lot of low-margin work goes to China, and the US buyers beat on the Chinese factory owners to drive margins out. If this system wasn’t in place, the only other option would be to increase the price of basic goods on our shelves to put more margin into things so that the wealth can be distributed more evenly. However, American consumers would not tolerate such a price increase; our goal is not to raise the Chinese working class living standard (or for that matter, even our working class’ working standards), it’s to get great deals at Costco and Walmart. I heard a really good point the other day is that health care is not expensive because it inflated faster than everything else; rather, everything else is artificially deflated in comparison due to outsourcing or the use of unskilled immigrant labor. Health care reflects the real cost of skilled US labor because it can’t be outsourced, and you can’t just import low-cost immigrant labor to fill these positions either (although I’ve heard there’s a trend to recruit nurses from overseas to the US to help cut costs).

One other thing to point out is that some of the things we may view as evidence of horrible working conditions in China are actually just cultural differences (note: I am not saying that working conditions are great in China, but I am trying to point out some important inconsistencies in previous comments). For example, I have an American girlfriend of Chinese ancestry; raised in California, went to Caltech, etc.; she actually insists on sleeping on a thin, hard tatami mat (literally–her bed has a hard tatami mat on top of the mattress on her side). When she stays in a hotel she sleeps on the floor, because soft beds are very uncomfortable to her! Again, I’m not saying that the factory conditions are comparable to the standard of living in the US — they are undoubtedly worse — but I would caution against making the blanket assertion that things like a soft bed and an attached bathroom are even desirable in other cultures.

The minimum wage comparison I make is always a hotly contested one, but take a look at this blog post I wrote for a more thought-through analysis of the situation (at least, more formal than the phone interview):

http://www.bunniestudios.com/blog/?p=134

The 20x comparison was versus “typical” electronic factory labor rates in the US (which is a bit above minimum wage, but not six-figures like the machinists’ rates). The reason I keep this number on hand is because I have pondered at great length about what it would take to create a price-competitive electronics factory in the US, and my conclusion is that the factory would have to make one US line worker about 20x more productive than a Chinese worker, through automation or some kind of magic like that, in order to make it a competitive business building low-margin products.

Here is the section on minimum wage, lifted from my blog post, for your convenient reading:

Minimum wage: In Shenzhen, the minimum wage is about $0.60/hour. However, there is a very competitive labor market in China; there is a shortage of workers and mobility between factories is unimpaired by employment agreements. Therefore, employers must provide a very competitive benefits package for their employees, which typically includes dormitory housing, food, medical care, schooling, and day care; there are no retirement or unemployment benefits. While technically required to pay tax, many minimum wage workers don’t pay any tax because first, they are migrant workers and the government has no way to find them, and second, their contribution to the tax base is minimal anyways, so why go after them? Also, most local officials can be easily bribed out of collecting full tax monies if you are caught. Furthermore, workers have an 8-hour day, 5 days a week, and employers are required to pay 1.5x overtime and 2x on weekends. As far as I can tell, employers honor this. So in the end, these laborers earn a discretionary income of at least$100 per month, or $1200 per year. This is surprisingly comparable to the$2,075/yr discretionary income of US households that earn under $50,000 (link), which is probably the correct reference point for comparing minimum wage workers in both countries. I haven’t even adjusted for the cost of living difference between China and the US; but let’s just say 100 RMB goes a loooong way if you are just buying food, and not to mention the whole copy-culture of China where you can get “Diesel” jeans for just US$10. Also, the finest hotel suites at the Sheraton Four points in FuTian ran us just over US$100, and includes free internet and water. I could barely get a shack of a room at a Holiday Inn in the Bay Area for US$120, and I had to pay US$12 for internet that night too, with US$5 bottles of water on the table next to me.

Also, minimum wage has increased by 30% per year for the past two years. It’s unclear how sustainable this is, but factory owners seem to see more increases down the pipe and 30% per year is a ridiculous CAGR. Compare this to the history of minimum wage in California.

The fully-burdened rate of a worker in China is around $1.80 it seems this is the rate that the employer pays once all the benefits (free food, housing, medical care, day care, etc.) are factored in. At these wages, laborers are cheaper than pick-and-place machines. In the US, you typically pay between$0.05-$0.25 per component placed on a PCB with a pick and place machine in low volume (100’s to 1000’s). I saw several electronics lines where about ten workers are lined up on a bench, bending and stuffing resistors and transistors into a moderately complex circuit board, and hand-dipping them in a solder bath. They crank out about 100 boards per hour; each employee is stuffing about four components, so 400 components per hour at$1.80/hour is \$0.0045 per component. Setup and training for the line I saw took about 2-3 hours. So even if you were to run a few hundred boards, this is a very cheap assembly method indeed, as long as you can keep good quality control over the process.

The amazing part is that the Shenzhen factories were complaining that labor rates were way too high. Apparently, minimum wage for factories in other regions is much less, so they are seeing contracts migrate away from their factories and inland where labor is cheaper. Think about it: Americans complain about work going to Hong Kong, Hong Kongers complain about work going to Shenzhen, Shenzheners complain about work going inland China, and to Vietnam (apparently Vietnam is the new hotness for cheap skilled labor).

I was in China for a month, mostly just as a tourist. I tried to get some Chinese friends/guides to take me to factories. They couldn’t understand my interest, or didn’t want to take me, or it was illegal. I never got to see the inside of anything. I appreciate the article and the comments and hope someday to have more success in investigating in person.

• George T

Bunnie,

Sorry if I got too hot under the collar about the Boeing comparison. I was being unfair to you, and should have spoken more reasonably (and read your older posts too…). I hope you accept my apologies.

That was a quite illuminating discussion about workers vs. pick-and-place machines. One of the things I ran into a while ago was this:

http://en.wikipedia.org/wiki/High_level_equilibrium_trap

I worry at times that cheap labor displacing machinery is a detriment in the long-haul in the technological innovation sense.

This stuff gets under my skin on multiple levels as I think that the wage & outsourcing pressure is driving younger people out of engineering here. I think that great engineers are not just born; they are made by experience. Without a “ladder” from lower towards higher skill work, a society short-changes itself in the longer haul.

It’s not just electronic assembly that’s been shifted elsewhere.

Anyhow, take care.

–George

• George T

P.S. One of my close buddies from college worked at a place that made pick-and-place machines, so that comparison really hit home.

• http://wargle.blogspot.com/ fergal

Without trying to justify the working conditions or wages, I would point out that the Big Mac index is irrelevant. McD’s is exotic luxury food in China and when I lived there, I could eat a four course meal of fantasitc Chinese food for the price of a Big Mac.

• Roy Batty

People have to remember that China is a controlled economy. The Chinese govt is using cheap labor to suck all the factory jobs and equipment to China. Just like they sacrificed millions during the cultural revolution, they are sacrificing this generation of workers in the homes that once they control the worlds factories they can control (thru their defacto ownership of the factory equipment) the companies they do business with and hence the governments of those companies. Look how the US and EU cow tow to the Chinese on every important factor from the environment to labor rights, to Taiwan. They are sucking up technology at breakneck speeds. Industrial espionage is another factor in their reasons for creating cheap factories. They study every gizmo that comes into their factory and many of the things we send over there have military uses. The Aluminum shells for Mabooks can be easily converted to missile fuselages. The electronics can be converted to missile guidance systems.

The Chinese have not and will never embrace DEMOCRACY. They have not concept of democracy in their history. Their society has always been ruled by a central government that fears the outside world. They are cultural racists. They regard themselves as superior to all other cultures. Having China become a SUPERPOWER will not be good for mankind.

It’s time to move our production to free and democratic countries like India, Brazil, etc. if you want cheap labor. Or bring it back to the states by means of tax-breaks for factory automation and import tarriffs on countries with poor labor standards. Screw the free-marketers — they got us into this mess in the first place.

• http://www.hornygreek.com/channels/33/twinks/page1.html twinky winky

“People have to remember that China is a controlled economy. The Chinese govt is using cheap labor to suck all the factory jobs and equipment to China. Just like they sacrificed millions during the cultural revolution, they are sacrificing this generation of workers in the homes that once they control the worlds factories they can control (thru their defacto ownership of the factory equipment) the companies they do business with and hence the governments of those companies. Look how the US and EU cow tow to the Chinese on every important factor from the environment to labor rights, to Taiwan. They are sucking up technology at breakneck speeds. Industrial espionage is another factor in their reasons for creating cheap factories. They study every gizmo that comes into their factory and many of the things we send over there have military uses. The Aluminum shells for Mabooks can be easily converted to missile fuselages. The electronics can be converted to missile guidance systems.

The Chinese have not and will never embrace DEMOCRACY. They have not concept of democracy in their history. Their society has always been ruled by a central government that fears the outside world. They are cultural racists. They regard themselves as superior to all other cultures. Having China become a SUPERPOWER will not be good for mankind.

It’s time to move our production to free and democratic countries like India, Brazil, etc. if you want cheap labor. Or bring it back to the states by means of tax-breaks for factory automation and import tarriffs on countries with poor labor standards. Screw the free-marketers — they got us into this mess in the first place. ”

I hate to admit it but I agree with you in every account.

Geez, that sucks.