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As old industry bites the dust, new sectors begin to bloom

By Zhang Haizhou (China Daily)
Updated: 2008-11-04 10:33

Carrying a super-large suitcase filled with clothes and a duvet, Yan Libin began his second endeavor as a migrant worker in Dongguan.

Jumping out of the train on Saturday, the 25-year-old headed directly to a tri-weekly recruitment fair featuring about 100 companies in the square just outside the railway station.

That was the same place where he easily found a job in a clothing factory six year ago, when he first got to Dongguan.

But this time, the Hunan native - who left his job in 2005 to help set up an Internet caf in his hometown - was not so lucky.

"I was surprised to find there were so many recruiters from hi-tech and service industries," Yan said, noting most were from manufacturing enterprises six years ago.

He is spot on, as Dongguan is undergoing a transformation from a low-cost manufacturing hub to a technology- and capital-intensive production and research center.

Two decades ago, Dongguan attracted thousands of companies from around the world because of its proximity to Shenzhen and Hong Kong, whose infrastructure it capitalized on. Now it has more than 15,000 overseas-invested firms, most from Hong Kong and Taiwan.

In comparison with Shenzhen, Dongguan was then a low-cost alternative. However, during the past few years, the city has been struggling with rising labor costs, skyrocketing raw material prices and land shortages.

"Now, Dongguan is focusing on developing IT, biotechnology and pharmaceuticals, environmental-friendly industries, and new material and resources," the city government says on its website.

The shift in strategy is also putting a question mark over the survival of labor-intensive enterprises. Thousands have already disappeared within a year.

Southern Metropolis - one of the leading newspapers in South China - reported that about 300 of the nearly 1,000 shoe factories have already gone bankrupt in the city.

Also, nearly 1,000 overseas-invested factories have closed by June, according to the city's bureau of foreign trade & economic cooperation.

Perhaps the closure which grabbed most national and international attention was the bankruptcy of Smart Union, a Hong Kong-invested toy maker in Dongguan's Zhangmutou township, which left about 6,500 jobless.

But the local government "may have already anticipated" the closures of labor-intensive enterprises, according to the Oriental Outlook weekly.

"There's no need to panic even if 10 factories go bankrupt every day," Luo Zhiqiang of Dongguan's labor bureau was quoted as saying.

According to Luo, this is a strategy of "emptying the cage for new birds".

While labor-intensive enterprises put Dongguan on the country's manufacturing map, they also brought about a series of problems, such as pollution.

Fu'an Print and Dye firm, for example, discharged more than 10 million tons of polluted water each year before it closed down in February.

Also, nearly 10 million migrant workers with few skills moved into the city, straining resources and causing social instability.

"The (more labor-intensive factories go bankrupt), there will be more land for hi-tech and environmental-friendly enterprises," Luo said.

Jin Fei, an operational manager of a local shoe factory, said labor-intensive factories had been suffering from "internal injuries" for a long time.

According to him, many of the Pearl Delta Region's shoe factories still rely on a simple production mode of "low cost and low profit".

He said the profit margin was only between 5 and 8 percent.

"But raw material costs, staff wages and factory rent have risen dramatically," Jin said.

"Most shoe factories were nearly dead before the implementation of the new labor contract law since this year," he added.

According to the Asia Footwear Association, most of the closed factories have moved to other places where production costs are much lower, including inland provinces like Jiangxi and Hunan, and also some Southeast Asian countries like Vietnam and Indonesia.

The toy making industry faces the same problem. Xinhua News Agency reported last month that 3,631 toy exporters - 52.7 percent of the total - went out of business this year.

Chen Xiangyou, deputy director of Dongguan Toy Association, said improving research and creating own brands is the only way forward.

Most enterprises do outsourcing for other brands, according to Chen, and "they have no chance to raise the price of their products".

He added the association would take the lead to encourage local toy makers develop their own technologies and brands.