Chinese Workers Squeeze American Boss

Wednesday, 26 Jun 2013 07:46 AM

By Patrick Watson

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Layoffs are never fun. In the United States, we usually get through it and move on. China is different, as one American business owner is learning the hard way.

Chip Starnes, co-owner of a Florida-based medical supply firm, is moving some of his Chinese operations to India. He arrived in suburban Beijing last week to inform 30 Chinese workers they would lose their jobs. He tried to soften the blow with severance bonuses.

When the plant's other 100 workers — whose jobs were not in jeopardy — heard about this, they demanded bonuses and surrounded the office. After four days barricaded inside his own factory, by his own employees, Starnes agreed to their terms. But he is still being trapped within the factory grounds

"I feel like a trapped animal," Starnes told an Associated Press reporter through his first-floor office window. "I think it's inhumane what is going on right now. I have been in this area for 10 years and created a lot of jobs and I would never have thought in my wildest imagination something like this would happen."

This story is curious for several reasons. The AP story says local authorities termed it a "labor dispute." Their only concern was for the American visitor's safety. Imprisoning the boss like this is "not rare" in China, according to the AP.

Maybe so, but it never happened to Starnes before. Something else is going on. Look at the bigger picture.

First, China-U.S. relations are under strain for other reasons, not the least of which being the decision by National Security Agency leaker Edward Snowden to seek refuge in Hong Kong. The Starnes incident coincided with U.S. extradition requests for Snowden. Washington went furious when Snowden escaped for Moscow.

Another coincidence: Chinese banking nearly came to a halt the same week due to a mysterious liquidity crunch. Overnight, interest rates shot up only to come right back down after a central bank intervention.

Also in the mix is the "fake invoicing" crackdown I described a few weeks ago. While I'm not accusing Starnes of anything, export businesses like his are now a target for Chinese regulators.

Finally, the whole problem developed because India is now more cost-effective than China is for even small U.S. manufacturers. This is a bad sign for China's ability to compete against other emerging market nations, and is partly why Chinese stocks have lost momentum.

As you can tell, I have more questions than answers. I know almost nothing about Starnes, his business or Chinese labor practices. Maybe it all makes perfect sense to someone closer to the situation. Nevertheless, my built-in B.S. detector is flashing red. Nothing about this event makes sense. Whatever is going on may have no further significance — but big storms always start as small ones.

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