Use of Student Interns Highlights China Labor Shortage

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In September, the largest factory in the northeastern Chinese coastal city of Yantai called on the local government with a problem - a shortage of 19,000 workers as the deadline on a big order approached.

Yantai officials came to the rescue, ordering vocational high schools to send students to the plant run by Foxconn Technology, a Taiwanese maker of smartphones, computers and gaming equipment.

As firms like Foxconn shift factories away from higher-cost centers in the Pearl River Delta in southern Guangdong province, they are discovering that workers in new locations across China are not as abundant as they had expected.

That has prompted multinationals and their suppliers to use millions of teenage students from vocational and technical schools on assembly lines. The schools teach a variety of trades and include mandatory work experience, which in practice means students must accept work assignments to graduate.

In any given year, at least 8 million vocational students man China's assembly lines and workshops, according to Ministry of Education estimates - or one in eight Chinese aged 16 to 18. In 2010, the ministry ordered vocational schools to fill any shortages in the workforce. The minimum legal working age is 16.

(Read More: Foxconn Admits Employing 14-Year-Old Intern)

Foxconn, the trading name of Hon Hai Precision Industry, employs 1.2 million workers across China. Nearly 3 percent are student interns.

The company "has a huge appetite for workers", Wang Weihui, vice director of the Yantai Fushan Polytechnic School, told Reuters during a recent visit to the city. "It tightens the labour market," said Wang, whose school sends its students to work at Foxconn and other firms.

Local governments eager to please new investors lean on schools to meet any worker shortfall. That's what Yantai, in Shandong province, did in September when Foxconn had trouble filling Christmas orders for Nintendo Wii game consoles. "It has been easier to recruit workers in the Pearl River Delta than some inland locations," Foxconn told Reuters in written comments in late December.

Some companies cite rising wages in southern China for the shift elsewhere. Wages are a growing component of manufacturing costs in China, making up to 30 percent of the total depending on the industry, according to the Boston Consulting Group.

Wages began to rise around 2006 as the migration of rural workers to Guangdong ebbed. China's one-child policy, plus a jump in higher education enrollment, further depleted the number of new entrants to the workforce, forcing up wages.

(Read More: Don't Expect Wage Growth Soon: Labor Organization)

That prompted American carmakers, Korean electronics manufacturers and private Chinese firms to look for new sites. Cheaper electricity, land and tax incentives as well as a growing consumer class in regions beyond the booming southern coastal provinces were other reasons to relocate.

Minimum wages in Yantai can be as low as 1,100 yuan ($180) a month compared to 1,500 yuan in Shenzhen, a city near Hong Kong. What makes vocational students attractive is they can be paid less than full-time workers, although some firms - including Foxconn - pay the same base wages.

Even if they pay the same base salary, employers can save 10-40 percent per person because legally they do not have to pay health insurance or social security benefits for student interns.

Yantai was not the only local government to help Foxconn. Two months earlier, Foxconn's 100,000-worker factory near the city of Zhengzhou in Henan Province was racing to meet a deadline for Apple's iPhone 5.

Henan authorities told its cities to find 30,000 more workers for Foxconn, according to a Zhengzhou city government notice reprinted by the Hong Kong-based labour rights group, Students & Scholars Against Corporate Misbehaviour, or SACOM.

The Yantai Microcosm

Yantai shows how much China's labor market has changed. Zhang Weifang, head of human resources at the Yantai factory of LG Innotek estimates the city's employable 16- to 18-year-olds has halved since her firm began production in 2004. LG Innotek is the components unit of South Korea's LG Electronics.

"It's really hard to find people nowadays," she said. About 2,400 young workers staff Zhang's factory, of which one-third are vocational students or workers contracted through agencies.

Students are sought after by plants which need extra workers during peak production periods, especially since China's 2008 Labour Law makes firing employees cumbersome.

(Read More: Signs of Change Taking Hold in Electronics Factories in China)

And students are plentiful. Vocational school graduation has surged 26 percent in the last five years, to 6.6 million students in 2011. Parents whose children cannot compete in China's exam-driven high schools look to vocational schools.

Such students made up such a large percentage of a Honda Motor plant in southern China that when they went on strike for better pay in 2010, they crippled Honda's production chain. A Honda spokeswoman said the ratio of students to regular employees had significantly declined, but would not give a figure.

About 2.7 percent of Foxconn's workforce in China comprises vocational students, the company said in October. That works out to 32,400 teenagers. "This program gives Foxconn an opportunity to identify participants who have the potential to be excellent full-time employees should they wish to join our company upon graduation," Foxconn said in a statement at the time.

That month, Chinese state media said 56 minors under the legal working age were among students sent to work at Foxconn in Yantai. Foxconn removed the underage students from the plant after the reports.

, with no night shifts. Vocational students in Yantai told Reuters they had worked up to 12 hours a day, and routinely did night shifts at Chinese and foreign-invested factories.

Foxconn has a program with Apple, one of its main customers, to pay interns the same wages as other workers, limit their work to eight hours a day, five days a week and allow them to quit if they want.

More than a dozen students interviewed by Reuters in Yantai had a mixed view of their internships, ranging from relatively positive to outraged. Many said it taught them to look for something other than assembly line work after graduation.

Most three-year vocational programs require a two-month internship in the second year, while the third is spent entirely at work. Even though students know they need factory experience to graduate, the assembly line comes as a shock to some.

(Watch Now: Foxconn Closes Plant After Worker Brawl)

"At the beginning I was really excited. I thought I could get experience and help out my family with some money," said Yu, 17, an intern in Yantai. She asked that her full name not be used. "To suddenly encounter 12-hour work shifts, standing, with only 40 minutes to rest and eat, our legs can't stand it."

Some students said they hoped the work would improve their prospects. "Electronics is our major and so this will help in finding jobs," said vocational student Sun Chuangjiao, a former Foxconn intern.

Companies defend the internships as educational as well as a useful recruitment strategy. "The vast majority of our interns and the schools that sponsor them find their experience with us relevant and meaningful, and an important first step in their career development," Emerson Electronic told Reuters.

It employs 40 interns for eight-month stints, out of a workforce of 1,063 at its air conditioner compressor plant in the Yangtze Delta city of Suzhou. All are over 18, it said.

Looking Farther Afield

The shortage of labour means companies often search far and wide for vocational schools to supply workers.

Zhang of LG Innotek said she had contacted schools across China to find interns while Mok Jangkyun, an auditor with Samsung Electronics, told Reuters he drove a full day after flying to Guizhou province in southwest China to vet a vocational school sending interns to its supplier factories.

Samsung did an audit of factories after activists found underage workers with fake IDs at one of the electronics giant's 250 supplier factories in China. The South Korean company said it did not find underage workers at any of its suppliers.

Supplying vocational students can be lucrative. Some students in Yantai said their school took 500 yuan from their monthly wage. Their school declined an interview request.

Some companies pay teachers directly to keep students in line in dormitories and on the factory floor, SACOM has found. In other cases, companies pay management fees or set up extra facilities at schools.

Foxconn says while it pays teachers who supervise students, it usually does not compensate schools. "However, in some cases, we do provide compensation to meet their overall administrative costs," it said.