Fri, May 28, 2010
Business > Industries > Foxconn suicide cluster

Foxconn tragedies highlight need for economic restructuring

2010-05-28 13:02:16 GMT2010-05-28 21:02:16 (Beijing Time)  Xinhua English

BEIJING, May 28 (Xinhua) -- The string of suicides at Foxconn highlight the urgent need for China to adjust its mode of economic growth.

On Thursday morning, a Foxconn employee tried to kill himself by slitting his wrist at the company dormitory. He survived after receiving medical treatment.

His suicide attempt was the 13th by an employee of the Shenzhen-based Foxconn this year. Ten succeeded by jumping out of buildings.

With 800,000 employees on the Chinese mainland, the Taiwan-owned company's exports totaled 55.6 billion U.S. dollars in 2008, accounting for 3.9 percent of the mainland's total exports.

Foxconn makes computers, game consoles and mobile phones for companies including Apple, Nokia, Hewlett-Packard, and Sony.

Foxconn epitomizes China's traditional export-driven development pattern: investment and cheap labor combining to produce low value-added products.

Processing trade accounts for 50 percent of China's total trade volume, and it contributes much to the nation's trade surplus. But it is at the low end of the world production chain.

Foxconn is the biggest manufacturer of Apple's iPad.

The U.S. market research firm iSuppli has estimates the material cost of the low-end version of the iPad is around 260 U.S. dollars, far less than its retail price of 499 U.S. dollars.

The display panel, supplied by LG Display and the most expensive part of the iPad, is priced at 65 U.S. dollars while the device's manufacturing cost is 9 U.S dollars, according to iSuppli.

Apple takes the lion's share of the profits with design, while the company of the Republic of Korea makes a big profit with its patented technology. But the mainland-based companies manufacturing it make comparatively little.

Worse still, as these products are shipped from China to the United States, China cops the blame for America's ballooning trade deficit.

The export-oriented processing model can make products, boost GDP, and employ people, but it cannot create brands, develop advanced technology, generate high profits or pay high salaries.

Moreover, sustaining operations by simple order processing leaves companies vulnerable to external economic factors like the global financial crisis.

The tragedies at Foxconn are but extreme examples of the problems caused by China's traditional development pattern.

Despite its fast economic growth over past decades, Chinese labor income relative to GDP has dropped -- from 49.49 percent in 1993 to 39.74 percent in 2007.

The transformation of the mode of economic development must be accelerated with an increased focus on innovation.

Only through innovation can Chinese companies break away from the traditional growth model and upgrade its business model.

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