An audit of Foxconn Technology Group, the biggest maker of Apple Inc. devices, revealed at least 50 violations of Chinese regulations as well as the code of conduct Apple signed when it joined the Fair Labor Association (FLA) in January after a string of suicides at Foxconn’s plants.  Foxconn’s average working week exceeded both China’s 49-hour maximum and the FLA’s 60-hour cap.  During a March 27 meeting in Beijing, Chinese Vice Premier Li Keqiang told Apple CEO Tim Cook that multinational companies should pay more attention to caring for workers and share development opportunities.  In response to the criticism, Foxconn pledged to limit working hours to 49 per week, hire new workers, raise wages, allow workers to elect representatives to union positions, improve safety protocols, and upgrade workers’ housing.

When China imposed its current laws limiting overtime in 2008, it planned to rebalance the economy away from exports and toward domestic consumption.  By requiring overtime pay and limiting overtime to three hours a day and six days of work a week, China hopes workers will have more money and more time to spend it.  China even bans workers and factories from arranging longer hours by mutual consent, fearing that employers will tacitly coerce employees to work longer hours.  Also, the government is enforcing laws that require companies to provide medical care and pensions to employees.  In some ways, Chinese labor law is more restrictive than U.S. labor law.  For instance, U.S. law imposes no limits on total hours, as long as the workers receive a one and a half pay for anything over 40 hours a week.

Despite the worker protection safeguards in place in China, illegal overtime has been possible at Foxconn, at least in part, because some workers desire to work the extra hours.  A nonprofit group seeking labor protections for workers in mainland China said there was considerable variation among workers in China in the number of hours they wanted to work.  Some workers want to work a minimum number of hours, while others prefer working a lot because they are eager to make as much money as soon as possible so that they can return to their home villages quickly.  However, Chinese law does not currently authorize such freedom of contract nor have all firms been willing to cater to employees’ wishes.

Foxconn’ and Apple’s pledge to improve labor conditions may pressure other top technology firms to address global labor issues and change the way they do business in China.  Foxconn also has manufacturing contracts with Dell, Hewlett-Packard, Amazon, Motorola, Nokia and Sony. But unlike Apple, which is well positioned to handle higher labor costs due to its massive cash flow and impressive profit margins, other manufacturers will find it difficult to adjust to higher labor costs in China. For instance, Meg Whitman, the chief executive of Hewlett-Packard, announced recently that rising labors costs in China might force HP to raise its prices in the U.S.

One of the biggest takeaways from the Foxconn story may be to think twice about investing in labor-intensive industries in China. The improvement in labor conditions may lessen China’s comparative advantage in manufacturing, making it more difficult for labor-intensive industries in the country to turn a profit.