America the Gutted: The island of migrant steel

SHANGHAI, China — More than six thousand miles from the California coast, Chinese workers still speak with pride about their role in rebuilding the iconic San Francisco-Oakland Bay Bridge.

It has been more than a year since they completed the last steel structures for the bridge’s dramatic renovation and loaded them onto ships at the company’s docks. But they say it remains the biggest, hardest, and most exacting project they have ever completed.

Just ask Zeng Ye Huan, a grinning steel polisher who, under his orange safety overalls, continues to wear a T-shirt commemorating the first shipment of steel for the bridge. Or Wang Pei, a 25-year-old welding overseer who says that the five years he spent toiling on the project “left a deep impression.”

“Maybe I will be still able to remember doing it after 10 or 20 years when I can’t remember other projects,” he says.

Yang Zhi Gang, a nine-year veteran welder of the company from Anhui province, echoes him, calling the work “exceptionally tough” to complete because “the Americans have much higher standards.”

These men are just a few of the beneficiaries of California’s decision to send all the steel work on the massive, $6.3 billion renovation to China — a decision that California officials claim saved hundreds of millions of dollars.

They are the lucky counterparts of disappointed American steel workers in Portland whose employer failed in its rival bid.

And they are the face of the Chinese middle class that is rising as America’s is falling.

Here on Changxing Island, at the mouth of the Yangtze River, Zhenhua has 28,000 workers, 280 cranes, and a fleet of 26 ships docked at its private port. The workshop where the US bridge was built is a cavernous building, 90 feet high and the length of two football fields. A riot of saws, echoing clangs, and hissing torches fills the air. Searing white flashes of blowtorches erupt from the welders' stations. 

Like most steel companies in China, Zhenhua is majority state-owned, and is seen as strategically important to the country.

The Bay Bridge project played a particularly large role in the company’s goal of growing overseas. It was the first bridge Zhenhua — largely known for making cranes — had ever built. And though the firm says it made little profit on the $350 million contract with California, it has already used that experience to expand into the European market. In August, Zhenhua shipped steel components to Norway to build a bridge with one of the world’s longest spans.

That is not to say that their work was perfect. On the Bay Bridge project, flaws in the welding of the first steel shipment caused serious delays. Several hundred American inspectors took up residence in Shanghai in order to verify the quality of the welds. 

“Sometimes if the Americans found that the products were not as good as they expected, they would ask why until they were satisfied as to how to fix it,” says Wang. 

Many analysts in California and beyond questioned the wisdom of saving public money at the expense of American workers. “America will never recover if we outsource everything, including our public infrastructure,” wrote Cate Long, an analyst of municipal bonds for Reuters. “In times of fiscal stress it’s easy to understand why public entities are trying hard to cut costs. But this ‘cost cutting’ is really just off-shoring American jobs.”

Eventually, however, the project overcame its critics and delivered on schedule. In 2010, then-governor Arnold Schwarzenegger visited the plant and thanked the employees for their work. 

Few projects better illustrate the rising fortunes of ordinary Chinese than this one.

More than a thousand Chinese welders were hired by Zhenhua to finish it on time. China's development — which has lifted millions of people from poverty — is in many ways the mirror image of America's loss of manufacturing jobs over the last three decades. As the United States sheds work, China's manufacturing sector has created millions of blue-collar jobs.

Companies like Zhenhua have helped create the world’s biggest middle class, some 350 million strong. In turn, as these workers spend their paychecks, they are powering China’s economic growth. This consumption is crucial to the country’s next phase of development. The Brookings Institution has predicted that by 2021, China’s middle class could number more than 670 million, dwarfing the US in its power to drive international markets.

Yet China's middle class differs in substantial ways from its American equivalent. First, their wages are significantly lower.The average factory worker makes just over $6,000 a year in Shanghai, and that's more than in any other Chinese city.

Second, because millions of these workers are migrants, China's "hukou" or home registration system excludes them from middle class services — such as education, health-care and social security benefits — available to those born where they live.

Wang Pei, the welding overseer, is one of this sea of migrants, having left his home in Jiangsu province 10 years ago to join Zhenhua. With a salary of more than 3,000 yuan a month ($480), he is proud to have a better quality of life than his parents, and he considers himself part of the lower-middle class.

Like many migrant workers, however, as his pay has risen, so have his expectations. He feels shut out from the opportunities available to those who have studied at university, or who have better connections.

“We don’t have many choices,” Wang says of workers like him. “We don’t have the ability to earn money in other ways.”

Indeed, some analysts say that much of China’s economic growth over the last two decades has flowed largely to its elite. The country’s stark inequality has led to feelings of pessimism even among those who have benefited from its growth.

“Rather than a middle class of laborers in the manufacturing industry, China has seen disturbing levels of income inequality, and the emergence of a new ‘elite’ class at the same time that the United States is experiencing similar shifts,” writes Nan Chen, a lawyer and analyst, in Foreign Affairs.

And while China has benefited immensely from the outsourcing of American jobs, its export-driven model is now facing headwinds. Rising wages are making the country a less-appealing place for manufacturers, and domestic consumption has stayed stubbornly low.

"It has proven very difficult for China to raise the GDP share of consumption, largely because consumption-constraining policies are at the heart of China’s growth model," writes Michael Pettis, professor of economics at Peking University, in a recent research note. "It will take many years of adjustment before consumption is large enough and can grow into its proper role."

Even China’s steel sector, the world's largest, is now showing signs of trouble. Rampant overproduction has filled China's cities with 15 million metric tons of surplus steel. Zhenhua itself has fallen on harder times since winning the Bay Bridge contract in 2006. Its stock price has fallen to new lows 11 times in the last nine months, and the company's net income and sales have fallen precipitously in the last three years. 

Ultimately, it is unclear where China’s new middle-class jobs will come from, but analysts say it’s unlikely that export-driven companies like Zhenhua will be able to play as big a role. The hope now is for China to move up the value chain to white collar, high-value, innovative work — but the path toward that goal isn't easy. 

“For innovation to take hold, you need to have a spirit of freedom, but in China this is lacking,” Cheng Li of the Brooking Institution said in an interview with Booz and Company. 

Still, Wang, the steelworker, is optimistic about the future. He says he is proud of how China has grown, and believes its leaders in the Communist Party care for the country “like a father.” He is saving up to buy a house for his wife and three-year-old son, and in the next decade, he dreams of going into business for himself. 

It’s a familiar-sounding middle-class aspiration that, to American ears, may sound sadly like something from yesteryear.

But Wang also has his share of anxieties. He seldom sees his family, though he has it better than many. He misses his wife, but feels this is the cost they must pay for a better future.

Asked if he is happier now than before he left Jiangsu, he says, “Actually, I felt much happier at home.”

But when it comes to extending sympathy to American ironworkers, Wang says that they are lucky to have a welfare system to take care of them.

“America should be proud because they saved money by doing it in China. Their life quality is much higher than here. They get better welfare and the lowest income there is much higher than here too. It may have caused some people [to lose] their jobs, but it’s not something we can take into our consideration” he says. 

"They [the Californians] made the right choice."