A Mystery at Ivanka's Shoe Factory

(Bloomberg View) -- This week, an activist group reported that one of its investigators had been arrested and two others had disappeared while conducting an undercover probe of a Chinese shoe factory. The factory, owned by the Huajian Group, makes as many as 20 million pairs of shoes a year for some of the world's top labels. But in recent months, it's become famous for one of its smaller clients: Ivanka Trump's brand.

Much about this incident remains unclear. But I'd bet on one thing: It's highly unlikely that it has much of anything to do with the Trumps. Instead, the officials involved were most likely engaged in a ham-handed effort to prevent labor unrest and protect a major employer at a time when China's traditional factories are badly ailing.

First, consider the broader context. Starting in the 1990s, shoes, more than just about any other product, came to symbolize the cost savings that China's factories promised to global manufacturers. By the mid-2000s, more than half the world's shoe production had relocated to China, with Dongguan -- home of the Huajian Group -- becoming the hub.

Around 2008, however, Dongguan's shoe industry began a slow decline. Several factors contributed, including the financial crisis, a decline in the working-age population, rising labor costs and -- most seriously -- cheaper manufacturing centers in other countries. Between 2012 and 2016, China's share of global footwear exports declined from 74 percent to 65 percent.

A visit to Dongguan reveals the hardship this has wrought. Factories that once employed thousands are now empty, or filling up with robots and other kinds of automation. Manufacturers in the region have been beset by protests and strikes. The government, always on watch for labor strife, has become even less tolerant of dissent.

Some inland areas have been an exception to this trend, primarily because workers there have been willing to tolerate lower wages. That includes Jiangxi Province, where Huajian Group's Ganzhou Huajian International Shoe City set up business. Among other products, it makes Trump-branded shoes. Based on the company's production figures, the factory likely employs thousands of workers. According to China Labor Watch, the group that was investigating the plant, it does so using excessive overtime, salaries below minimum wage and interns.

If those allegations are true, it wouldn't be at all unusual. It's a poorly kept secret among China's manufacturers that inland provinces aren't regulated as tightly as coastal ones. Many local officials are willing to accept labor abuses as the price of retaining jobs amid fierce competition. If those jobs start moving overseas, the unrest that has roiled China's traditional manufacturing zones would move inland too.

Preventing such turmoil -- not protecting the Trump brand -- was almost certainly the motivation behind this incident. China has plenty of more effective (and more discreet) ways to ingratiate itself with President Donald Trump if it wanted to. And arresting labor activists hardly seems like the kind of thing that would give his daughter's shoe business a marketing boost.

If anything, the Trump brand has worked to the activists' advantage in getting the world to pay attention to abusive labor conditions, helped along by a misguided official response. Presumably, that was the point. If so, Ivanka Trump has unwittingly played a small role in a fight that is likely only to intensify as China's traditional manufacturing declines in the decades ahead.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Adam Minter is a Bloomberg View columnist. He is the author of “Junkyard Planet: Travels in the Billion-Dollar Trash Trade.”

To contact the author of this story: Adam Minter at aminter@bloomberg.net.

To contact the editor responsible for this story: Timothy Lavin at tlavin1@bloomberg.net.

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