New Balance ‘pays
workers 32 cents an hour’

Report exposes harsh conditions at
‘sweatshop’ making American shoes

Thursday, September 7, 2006

By Jerome R. Corsi

New Balance is still making athletic shoes for the U.S. market in a Chinese "sweatshop" where the human rights of workers regularly are abused and make just 32 cents an hour, according to a report by two international labor advocacy groups.

The report, published jointly by the National Labor Committee and China Labor Watch, documents the conditions and harshly low wages at Li Kai Factory Number 5, presenting worker testimony and extensive photographs.

New Balance executives applaud Chinese workers (National Labor Committee)

Despite the allegations, the La Salle Bank Chicago Marathon, scheduled Oct. 22, has accepted New Balance for the ninth year as its official apparel and footwear sponsor.

Contacted by WND, marathon organizers declined to comment.

The report says wages at Li Kai Factory Number 5 are well below subsistence levels. The base wage is just 40 cents an hour and $3.22 a day. After mandatory deductions are taken out for dorm and food expenses, the workers' wages actually drop to 32 cents an hour, or $2.55 a day and only $12.92 a week.

Labor statistics in China are incomplete and often unreliable, but a report by Beijing-based American consultant Judith Banister in 2004 estimated city factory workers in the country earned an average of $1.06 an hour. Another roughly 71 million suburban and rural manufacturing workers earned an average 45 cents an hour.

In response to questions from WND, New Balance management e-mailed the company's code of conduct with respect to Chinese workers:

The New Balance Athletic Shoe, Inc. operates with the highest ethics and stands for integrity of people and product. We have a strong compliance program and aggressively promote our standards and monitor supplier factories continuously with a full compliance team in China. Our standards are rigorously applied through a process which includes training, establishes standards of performance, sharing of ideas and methods for compliance, monitoring by New Balance and monitoring by an independent third party.

The NCL/CLW report comments that New Balance' corporate compliance policy tends to suffer when translated into Chinese: "In fact, when it comes to the core, internationally recognized right to organize independent unions, New Balance allowed subtle but significant changes to be made in the Mandarin translation of its code of conduct."

Whereas the English version reads, "There shall be no discrimination against workers based on political affiliation or union membership," the Mandarin translation removes "union membership" and inserts "membership in a social organization."

It is the same with the right to freedom of association. The English version says "employees shall respect the right of workers to join and organize associations of their own choosing, and to bargain collectively." The Mandarin version, however, inserts legal associations and social organizations.

The report points out that the subtle changes are not innocent, as independent unions are not allowed in communist China: "The Li Kai workers have no rights, least of all the right to form an independent or real union and to bargain collectively."

Charles Kernaghan, executive director of the National Labor Committee told WND he believes compliance statements, such as the one issued by New Balance, are intended primarily for public relations in the U.S.

"The companies like New Balance do not take seriously their own compliance statements," Kernaghan contended.

The report presents evidence the working conditions at the factory violate New Balance's own code of ethics. Like many other shoe, garment and toy factories in China, Li Kai prefers to hire young women. About 80 percent of Factory Number 5 workers are women, the vast majority between 18 and 23 years old. Researchers found two workers who were just 14 years old, a clear violation of China's own labor law.

The NCL/CLW report produces a sample worker's pay stub, which documents the mandatory deductions for room and board. Workers at the New Balance factory work 10 hours a day, Monday through Friday, with an additional eight-hour overtime shift required Saturdays.

The report states:

Many women – especially those who had to work standing up all day – complained about the exhaustion of regular 10-hour shifts with just a half hour off for lunch. When these workers end their shift, their legs and backs are "unbearably sore."

New Balance workers at the Chinese factory who are getting married or attending funerals, the report says, "are either forced to skip work or to request special time off – of course without pay." The workers do not receive paid annual vacations even though the Li Kai Company manual specifies workers are entitled to them.

The researchers could not find a single New Balance worker at the factory who received a pension, and it was "unclear" if New Balance workers received any health insurance or work injury insurance.

New Balance workers at the factory "are fined if they walk off the sidewalk, drop a candy wrapper, leave a shirt on their bunk bed, use electricity for personal reasons, talk back to supervisors, try to organize or fail to sweep and mop their room three times a day. The military style lists of factory rules and regulations are long, intrusive and demeaning, and the fines are harsh."

Deductions of wages for disciplinary purposes further reduce the pay of New Balance workers at Li Kai, in addition to deductions routinely made for all workers for dormitory room and board.

The report's conclusion on the how New Balance workers are treated in the Li Kai "new corporate world order" was severe:

At the center of the new corporate world order – as evidenced by the collaboration of New Balance and the Li Kai Shoe Company in China – is the complete dehumanization of the workforce. In this new corporate world order, young workers living and working in huge gated industrial zones have no rights and no voice, with every second of their lives micro-managed in a demeaning and humiliating manner through an endless list of military-like rules and regulations, backed up by serious fines and punishment. New Balance says these are "model factories," but in reality they far more resemble minimum security prisons.

The report says life in the dorms is equally oppressive.

Of course, by forcing the workers to clean the company's dormitories – or risk serious fines – Li Kai management saves money in cleaning bills. But management is also using a shell game, with the workers' own money, to pit the workers against each other to make certain they go about their cleaning with real enthusiasm. Management has developed a point system of merits and demerits to judge each room's cleanliness. So a "dirty floor," "stuff on or under the bed not put away," "using electricity for personal purposes" and "dirty doors or windows" will each be met with one or two point demerits for each roommate.

In this punitive environment, fines and demerits can easily cost the worker what amounts to one or more days' pay.

The report also recounts a Jan. 16 meeting in which a New Balance corporate team from the U.S. was met by upwards of 4,000 cheering Li Kai Factory 5 workers in a carefully rehearsed show designed for public relations impact, not reality, the report says.

In the days leading up to the arrival of the New Balance management team from the U.S., "the workers were required to practice twice daily, including getting up early, rehearsing how to assemble in huge color-coordinated blocks and rows according to their uniform colors."

At the public meeting with New Balance managers, a group of workers made up their own chant: "New Balance, New Balance is the number one hirer of prostitutes! Li Kai has the lowest wages! Di Chang, Di Chang manufactures crap!"

"Di Chang" was a pejorative reference to the factory, roughly translated as "Last Factory." A photograph of the New Balance management team shows the U.S. executives sitting in chairs at the front of the group meeting, applauding as the workers chanted.

The National Labor Committee's Kernaghan told WND the markup on New Balance athletic shoes manufactured in China is enormous.

"We find the shipping documents on the sneakers entering the U.S. and the total cost of production – direct labor, indirect labor, materials, shipping costs, and profit to the factory – including every conceivable cost the sneaker comes into the U.S. at something like $14.61 a pair," he said. "The sneakers then sell at retail for $135.00. So this is an 824 percent markup.

"That's why the sneaker companies go to China," he continued. "The workers are paid at below subsistence levels and are made to live in dormitories in inhuman conditions, charged for their food, utilities, and housing in the dorm."

A statement on the enotes.com website says New Balance worldwide had 2004 sales totaling $1.3 billion. New Balance today continues to operate as a private company, without the financial disclosure requirements typical for publicly-held companies.

In April, Fortune Magazine ran an article detailing yet another risk of manufacturing in China. New Balance's former Chinese equipment manufacturer continued manufacturing and distributing counterfeit New Balance athletic shoes after New Balance terminated their contract. The shoes were sold under the brand name "Henkee," using an "H" logo that looks remarkably like the New Balance "N" logo.

Meanwhile, the New Balance-sponsored 2006 La Salle Bank Chicago Marathon is urging runners from Afghanistan to Zimbabwe, Alabama to Wyoming and all points in between to "come to Chicago," America's heartland, "enjoy all that the city has to offer, have a memorable race and tell your friends about it."

An official commemorative jacket manufactured by New Balance is being marketed on the marathon's website for $124.99. WND could not determine if the jacket was manufactured in China.

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