Dongguan: “Sin City” and economic restructuring

Despite its global status as a major hub for electronic manufacturing, Dongguan, a third-tier southern city, would still be unknown for many if not for the recent crackdown on the illegal sex trade in the city.

The underground industry reportedly accounts for a significant portion of the local GDP, although no authoritative figures are available. Some reports claimed the sector, together with related services, could account for 10 percent of local output. If the crackdown continues, local authorities urgently need to find a new growth path to ensure the economic stability of the city.

Actually, the city was once known more for its electronic manufacturing than the sex industry. From late 1990s to the eruption of the global financial crisis in 2008, the city was a major base for global manufacturing of IT products and electronic equipment, accommodating a large pool of manufacturers and industrial workers.

In the wake of the global financial crisis, the city suffered from slumping foreign demand. Rising domestic production costs have further reduced its corporate profit margin.

Like many other cities in the Pearl River Delta cities, Dongguan faced the challenge of economic restructuring, shaking off its past growth centered on low-end manufacturing and embarking on a new path built on high technology and managerial updating.

The region, including Dongguan, started restructuring as it fought fallout from the global financial crisis. In Dongguan, for example, there is increased investment that encourages corporate research and development to improve the competitiveness of the local enterprises.

The process is still going on and, given the difficulty of such a restructuring, could take many years to materialize. It is part of overall national economic restructuring, an endeavour that China has placed all its bets on.

The sex scandal has put the city in the spotlight. It will force the city — now a hub of vice in the eyes of many — to accelerate restructuring to shake off its public image as the “sex capital of China.”