Sinovel staff stage protests as company makes ‘disguised job cuts’

Chinese turbine manufacturer Sinovel is coming under increasing pressure at home after its decision to put staff on what it described as “paid vacation.

Between 15 November and early December last year, the company indefinitely released 407 workers (14% of staff) on lower rates of pay, causing protests outside its head office.

Sinovel described the plan as a “paid vacation”, with staff given full salary for the first month. But in the second month this falls to 80% of Beijing’s minimum salary, about CNY 1,080 ($172) a month. In addition, Sinovel will pay basic social security and housing funds, but no other allowances.

The affected staff come from the Beijing headquarters covering research and development (R&D), purchasing and marketing. Customer service staff members usually earn about CNY 5,000 a month, while those in R&D earn CNY 8,000-9,000.

Production bases in Yancheng, Baotou, Baicheng and Jiuquan are also affected. Sinovel insiders believe more staff will be affected before the year-end.

Sinovel defended the move, stating the company’s business operations had been affected by the sluggish economy and stringent government policies reducing wind power expansion. But staff have reacted angrily. On the morning of 27 November, over 40 R&D staff members protested in front of the headquarters with a banner proclaiming the company was making “job cuts in a disguised form”.

Staff said that they were unable to survive on CNY 1,000 a month in Beijing. By reducing their wages so low, they said Sinovel was compelling them to resign and thus save compensation payments.

Wei Wenyuan, Sinovel’s president, responded: “Sinovel had CNY 8.5 billion ($1.35 billion) worth of goods in stock on 30 September. The gross product margin is very low, and the operating receipts are not enough to pay wages.” A company spokesman said that the workers’ situation is still being resolved.

Slow growth

Shen Hongwen of CI Consulting, an industry researcher in China, said the Chinese wind power industry is in a stage of structural adjustment. Sinovel has had to slow growth and slash turbine production to reduce its management expenses.

But industry insiders doubt whether the “paid vacation” will solve the company’s problems. It is estimated that the move will save Sinovel CNY 10 million ($1.6 million), but this is a drop in the ocean in comparison to the manufacturer’s outgoings.

Sources close to Sinovel said that executives, in expectation that China’s wind boom would continue indefinitely, purchased enough raw material to produce 4GW of turbines annually. But in 2012, Sinovel is only expected to have consumed enough material to produce less than 1GW.

Market influence

Like many Chinese manufacturers, Sinovel has been struggling with the new market conditions. In Q3 2012 it had losses of CNY 280 million ($45 million). In the first three quarters of 2012, it raised only CNY 570 million ($91.5 million) funds, but paid out CNY 3.1 billion ($497 million) cash for debts.

Despite the slower economy, Sinovel’s previous over-expansion is at the root of its problems, said Shen. As disclosed in the company’s 2011 annual report, Sinovel invested in the construction of new wholly-funded subsidiaries in Yunnan, Jiangxi, Guizhou and Jiangsu provinces, in an effort to cover the main wind power markets in the country.

Industry insiders believe Sinovel’s problem is the tip of the iceberg for the Chinese wind industry. In the past, the priority for wind companies was to improve and expand turbine manufacturing. Now, the bottleneck rests with the grid and the electricity market, leading in turn to curtailment of new wind farm expansion, surplus turbine production capacity and overstaffing.

This problem is likely to be faced by companies other than Sinovel.