Yesterday I had a discussion with a friend based in Dongguan city (a major export manufacturing base between Shenzhen and Guangzhou). He estimates that 25% to 35% of factory buildings are empty and unoccupied. In his area, the rental fee for factory buildings has gone down from rmb14 per sq.m. before the crisis, to rmb6 per sq.m. today.
Why such a drop in manufacturing activity there? I see a few reasons:
First, the volumes of goods exported from China are still lower than two years ago. There was a sharp decline in activity (both import and export) for all Chinese ports. See the graphs in this article prepared by the Global Supply Chain Council: China Ports and Global Integration.
Second, the city of Dongguan started to push some industries out of its limits. Higher taxes and regulations were designed to get rid of polluting and labor-intensive activities. They are still looking for new investors, but mostly for high-tech manufacturing and R&D centers.
Third, and more generally, there is a transfer of the manufacturing center of gravity from the Pearl River Delta (close to Hong Kong) to other provinces (mostly to Fujian, Zhejiang and Jiangsu for consumer products and light industry).
Anybody comes up with other/better reasons for the current situation in Dongguan?
I would add a points that reinforces both point 2 and 3 in your post. Many companies in the Donguang area have focused a lot on low skill/low wage labor intensive activities, mainly fueled by masses of migrant workers coming from more Western areas and a more permissive local government (work hours, cost of social security, …)
Not only does the local government want to see that move away from that toward higher value added industries, but each individual factory is having a harder time to get workers. Before the crisis, I remember that the Guangdong province increased several times the minimum salary because less and less migrant would be interested in spending one year far from home for the level of salary they were getting, when they could find more and more jobs in their region or closer to home, thanks to the increasing investments in central and Western China.
I would say that in 2009, the strong stimulus package with strong focus on infrastructure project has reinforced that trend.
Hi Etienne, thanks for checking in.
All this is true–low value-added manufacturers have been hit by a perfect storm over the last couple of years. Filling all these factory buildings again will take some time…
Besides pricing, and labor problems in Guangzhou, the 3rd reason is quite important. Indeed many products for which before I had to go to Guangzhou (Or e.g. Ningbo area) now can be produced in Fujian. Before Fujian was really focusing on high volume mass productions (Not too difficult styles, mostly sport), now factories are more flexible and can make smaller quantities and more complex fashionable styles both knit and woven. My opinion also a reason why e.g. Donguang just becomes less attractive.