Days of manufacturing glory for Dongguan appear to be over

PUBLISHED : Saturday, 12 May, 2012, 12:00am
UPDATED : Saturday, 12 May, 2012, 12:00am


Dongguan, the once gritty hub of Guangdong's manufacturing in the Pearl River Delta, got some bad news late last month as economic data confirmed that a slowdown has taken hold in the region.

The city's economic output grew just 1.3 per cent in the first three months of this year, ranking it last among the province's 21 cities; growth was far below the average provincial gross domestic product increase of 7.2 per cent. Nationwide, GDP grew 8.1 per cent in the same period, down from 8.9 per cent in the previous three months.

Profits at major industrial enterprises in Dongguan were the worst in Guangdong, falling 1.3 per cent from the first quarter of last year. The city's industrial output declined 12.5 per cent in the first two months of this year alone.

Worries about poor performance have spread quickly throughout Dongguan, especially among manufacturers who made the city the economic star of the delta. Once home to tens of thousands of enterprises, Dongguan helped the delta become the busiest manufacturing centre in China as it became the world's factory.

For 30 years Dongguan was one of the delta's most prosperous cities. For many years its GDP at an 18 per cent pace; between 2003 and 2006, it grew at a rate in excess of 19.5 per cent annually, the fastest pace in Guangdong.

Now things have changed. Makers of shoes, clothing, textiles, furniture and toys are losing steam.

By last month, more than 60 per cent of the small and medium-sized enterprises in Dongguan's busy industrial township of Houjie were reporting a deficit - far more than during the global financial crisis in 2008 - said township party boss Li Huiqin, according to The Southern Metropolis News.

'Moving out of Dongguan has become the current trend for private enterprises in Houjie,' Li was quoted as saying. 'They no longer invest in factories in Dongguan. I heard an enterprise had spent 1 billion yuan [HK$1.23 billion] to invest in a coal mine in another province. How to encourage these factories to stay in Houjie has become a real headache.'

Taiwan-based businesses, which account for a third of Dongguan's economic output, were struggling with the same unfavorable conditions, said Sam Yuan, a veteran consultant for Taiwanese businesses in Dongguan.

'They have seen a decline of 30 per cent or 40 per cent in their orders and their overseas market has almost disappeared,' Yuan said.

Many Taiwanese businesspeople who attended a trade show in Dongguan last month complained that they faced difficulties breaking into the domestic market. Apart from the fact that their products were largely manufactured for foreign markets, they worried that their intellectual property rights would be poorly protected and that the cost of developing a consumer base would be too great.

Local media report a steady increase in bars closing because many migrant workers have left for good to escape poor employment conditions, delayed wages and the area's relatively high cost of living.

'The internet cafes were full of young migrant workers day and night,' said Xiao Langping, a long-time Dongguan resident. 'Now the cafes and bars are closing down one after another. I have never seen Dongguan so flat before.'

'Owners are trying their best to sell property projects to investors or immigrants,' Xiao said. 'But business looks so terrible.'

Dongguan authorities said a major reason for the slide was poor demand for communications products since the global financial crisis set in. Others include soaring labour costs and higher rents, which have eroded the already thin profit margins of many Dongguan firms.

Some analysts and industry insiders are still hopeful that reforms ordered by Guangdong party chief Wang Yang under his promise to 'empty the cage and change the birds' in Dongguan's industrial sector will help the city reverse course.

Wang prescribed policies to encourage enterprises to move labour-intensive manufacturing out of the delta to make way for service- and technology-driven industries.

But some argue that additional action may be necessary to ensure Dongguan's economy survives the transition.

'Dongguan's figures tell us the industrial upgrade came to a standstill,' said Zhu Jianguo, a local independent economic commentator. The city had only ever been a centre for contract manufacturing, he noted, and its manufacturers had never developed their own brands.

'The forced upgrade has added frost to the snow in the city,' Zhu said. 'The Guangzhou and Shenzhen economies also don't look good, but they still have some high-end factories and the hi-tech, biotech or new-energy companies they need to develop further.'

Shanghai-based economics commentator Ye Tan said the reforms could use some modifications to help ensure Dongguan stays economically viable while the province's industrial 'bird cage' gets cleaned.

'New birds or phoenixes have not yet arrived,' Ye said. 'Don't kill the last sparrow and leave an empty cage.

'The authorities should introduce measures and support to help the old birds survive.'