GUANGZHOU/SHANGHAI -- When Japanese wristwatch maker Citizen abruptly shuttered its watch-parts factory in the southeastern Chinese city of Guangzhou in early February, nearly 1,000 workers there lost their jobs.
The blunt nature of the closure, unusual for a Japanese company, sparked a backlash not only from Chinese people, but also from other Japanese businesses operating in China who fear the move may direct anger in their direction, too.
On Feb. 10, a dozen women upset about their sudden dismissal from Citizen gathered outside the factory. Although most of them had already agreed to cancel their employment contracts with Citizen Precision Guangzhou, a group company of Citizen Holdings, they were still mad about their treatment.
The trouble started when the company issued a notice at 2 p.m. on Feb. 5 that read in part: "The factory will close tomorrow and all 1,000 employees will be dismissed the same day." The notice said if they did not sign a letter canceling their employment contracts, they would not be entitled to unemployment benefits.
The factory had been operating for 20 years, and its closure came as a surprise to many of those working there. One 35-year-old woman described it as a "total shock." Before the announcement, the atmosphere at the plant had been almost festive, with a large number of employees looking forward to returning to their hometowns for the coming Lunar New Year holidays. But their high spirits evaporated in an instant.
As the deadline neared, many workers still refused to sign the letter. On Feb. 8, however, two young men announced that they were signing it, making the others feel that perhaps they should, too. But then a worker shouted, "They don't work here!" The two men beat a hasty retreat. Some employees tried to catch them, but security officers helped the two fake employees flee and punched the chasing workers instead.
The incident made the workers even less willing to sign the letter. That evening, many of them received a threatening phone call pressuring them to sign. Even so, 70 people refused. Li Xiaohong, a 40-year-old migrant worker from Sichuan Province, said, "This kind of dismissal can never be forgiven."
Li's anger is understandable. In China, companies are required to give a month's notice if they plan to fire more than 20 employees due to restructuring or other streamlining measures. This gives the workers time to find new jobs. But companies are not held to this rule if they are closing a factory. Even so, while Citizen's sudden dismissal notice was not illegal, it was considered highly inconsiderate.
Citizen said the short notice was intended for the employees' safety, as it did not want angry workers lingering at the plant and being exposed to hazardous chemicals there.
The news riled up the Chinese public. Citizen was the subject of scathing online attacks from people calling the firings "intolerable" and "irresponsible," and saying the company should leave China. A TV station aired a program nationwide criticizing Citizen.
Soaring labor costs
The company almost certainly knew that the closure would tarnish its image in the country, so why did it take the risk? It comes down to money. Citizen called the move "part of global business restructuring efforts," though a more precise explanation would be soaring Chinese labor costs. Minimum wages in the country have roughly doubled over the past five years. Pay levels are especially high in Guangzhou, where monthly minimum wages are set to rise 22% to 1,895 yuan ($302) in May. For labor-intensive work, such as the manufacture of watch parts, China is fast losing its competitive edge.
In recent years, labor-management disputes over factory closures have become common in China. Afraid that labor riots could develop into criticism of the government, the authorities have increasingly offered assistance to foreign companies trying to "bow out quietly." This appears to have been the case with Citizen's factory closure.
Under Chinese law, severance packages are calculated based on the employee's average monthly salary multiplied by the number of years they worked. If a person is employed for five years, for instance, the company has to pay an amount equal to at least five months' salary. The question is how much a company will add to this base amount. Generally, large companies add another two to three months of pay.
However, Citizen initially offered only an extra month's pay. Also, because the factory operated for fewer days than most, the extra amount was smaller than a typical one-month payout. Ultimately, the company increased the size of the additional payout and reached an agreement with all employees by Feb. 12.
Other Japanese companies have criticized Citizen's tactics. "I don't think it is good to close a factory in such a way," said an executive of a Japanese manufacturer in Guangdong Province. "We will continue doing business here."
An executive at a major Japanese trading house wondered if Citizen really understands how hard it is to do business in China in the wake of the anti-Japan demonstrations that swept across the country two and a half years ago.
Since then, many Japanese companies there have tried hard to improve communication with their Chinese employees and foster a sense of unity with them. Many of them are concerned that Citizen's abrupt closure may tarnish the image of Japan Inc. and spoil all their hard work.
The Japanese business community in China is also worried about what Prime Minister Shinzo Abe will say this summer in his speech on the 70th anniversary of the end of World War II. If Abe makes remarks that run counter to the 1995 Murayama Statement, in which Prime Minister Tomiichi Murayama apologized for the damage and suffering caused by Japan to its Asian neighbors, those companies may be in for a rough time.