Chinese President Hu Jintao addresses a central work conference on human resources held from May 25 to May 26 in Beijing,. Hu Jintao called for the creation of a more competitive and innovative workforce in the country, with the focus on training more top-notch specialists. He said China would work to have a large high-quality workforce and to be a strong world power in terms of human resources by 2020. Photo: Xinhua

US Manufacturing: Viewed as a declining sector, even the best innovators can struggle to raise funding at home in America and questions are being raised about the model of innovate in the US and manufacture elsewhere.

Three years ago, Finfacts reported on how value is captured in a global innovation system in the design and manufacture of  Apple's iPod music player; researchers concluded that as long as the US market remains dynamic, with innovative firms and risk-taking entrepreneurs, global innovation should continue to create value for American investors and well-paid jobs for knowledge workers. But if those companies get complacent or lose focus, there are plenty of foreign competitors ready to take their places. If this happens, the benefits from the global innovation system could quickly shift away from the US.

On Wednesday, in our analysis of US manufacturing, we referred to the Taiwanese contract manufacturer, Foxconn (Hon Hai Technology Group) which has 800,000 staff in China and its plant in the southern city of Shenzhen, has 300,000 workers. It has received media attention in recent times because of worker suicides and its role in producing the products of tech companies such as Apple, Intel, Dell, and HP. A 23-year-old employee died in an apparent suicide yesterday, less than 12 hours after Chairman Terry Gou apologised for at least nine similar deaths at the company’s factories in China. Apple said it is “saddened and upset” by the suicides and has a team evaluating Hon Hai’s countermeasures.

The minimum monthly wage is as low as 900 yuan (US$131) and by working 12 hours per day, sometimes for the full week, high earnings are achievable.

The official Chinese newspaper Global Times comments that extreme cases of the Foxconn suicides have exposed the unsustainable growth pattern of China as well as the woeful life quality of 100 million migrant workers born after the 1980s.

It quotes Lu Huilin, a professor of sociology at Peking University, who said Foxconn is a miniature version of China.

The newspaper said the public has frequently attributed the suicides to Foxconn's ruthless exploitation and military-style management. This is plausible.

But a deeper problem is looming. "The low-end and labor-intensive production method, which has propped up the China miracle over the past 30 years, has to change now," it said.

Chairman of Foxconn Terry Gou bows in apology after a string of suicides by the company's employees at a plant of Taiwan-based Foxconn Technology Group in Shenzhen, south China's Guangdong Province, on Wednesday, May 26, 2010.

For US companies, seeking low-cost manufacture, there is the risk of losing its intellectual capital and Foxconn has been effective in avoiding theft of US tech product prototypes such as the iPhone.

One employee who was interrogated last year about the suspected theft of a prototype, later jumped off a building.

China is giving a lot of attention to developing batteries for electric operated cars and Bolivia is being touted as the upcoming Saudi Arabia of lithium.

Yet-Ming Chiang, an American professor at Massachusetts Institute of Technology (MIT) whose family left Taiwan for America when he was six-years old, invented a breakthrough battery that could be recharged using a conventional wall socket.

According to the Chicago Tribune, despite the promise of Chiang's batteries, many in Wall Street and Silicon Valley were incredulous when he and other leaders at his company A123 asked for capital to build factories in America: Asia, yes, but Michigan, why would you want to?

Even more daunting, virtually all of the world's battery-manufacturing industry is in Asia, where plants can be built faster and supplies and equipment are much easier to get than in the United States. These days, it's hard to find Americans who even know how to build a battery factory.

A123's first US plant will open next month in an abandoned brick building near Detroit that once made VHS tapes for Disney. A123 is getting $250 million in aid from President Barack Obama's stimulus program as well as tax incentives from Michigan.

"Too often we've done the innovation, and we've outsourced the manufacturing," said Matt Rogers, a senior adviser to Secretary of Energy Steven Chu (the Chinese-American is the first person appointed to the Cabinet after having won a Nobel Prize). "That's where A123 becomes important."

A123 has five plants in China and in 2006 began supplying batteries for Black& Decker power tools.

According to co-founder Bart Riley, in ramping up production in China, A123 paid an immeasurable price: Loss of its intellectual property, the ideas and engineering that made its products better.

The company did what it could to slow the technology transfer by breaking down the manufacturing process into steps, Riley said, but "we ended up having to teach these guys how to make our state-of-the-art, world-class batteries. … And some of them are (now) competing with us directly."

The company's sales reached $91 million last year, and it has about 1,700 employees, two-thirds in Asia.

The average hourly wage is $13.50 in Michigan; in Changzhou, China, workers earn about $2.80 an hour.

Last week, The Washington Post reported from Dezhou, China where a big red banner trumpeted the future for what used to be farmland:"The Biggest Solar Energy Production Base in the Whole World."

"This is an experiment. It is a big laboratory," Huang Ming, an oil industry engineer turned solar energy tycoon, who is driving one of China's boldest efforts to promote, and profit from, green technology, told the Post.

The newspaper says that at the centre of his outsize ambitions is Solar Valley, a massive exercise in social, economic and ecological engineering. As part of the project, tens of thousands of farmers have been moved into concrete apartment blocks and their land is being converted into what Huang and Dezhou's planners hope will be China's clean-technology answer to California's Silicon Valley.

The $740 million plan has attracted about 100 companies and spawned factories, a research centre and wide boulevards illuminated by solar-powered lights. It highlights the promise -- as well as the limits -- of China's efforts to reconcile breakneck economic development with environmental concerns.

As the Chinese curse says: May you live in interesting times!

SEE: Finfacts article, April 2010: Globalization and Asia’s return to economic supremacy