Getting rich on low pay
It is 9pm in Phnom Penh and well past dinner time for most in the Cambodian capital. But 30 members of a trade delegation from Yunnan are still going strong at the Emperors of China, one of the city's best dim sum restaurants.
Downing bottles of red wine and gobbling succulent marble goby fish, the delegates are excited by business opportunities in this increasingly popular destination for Chinese investors.
At another table, managers of a Hong Kong-owned factory are deep in conversation, in Cantonese and Putonghua, with their business partners.
Hong Kong manufacturers are joining a growing crowd of mainland investors tapping a relatively abundant supply of cheap labour and business-friendly policies. As costs rise relentlessly on the mainland, factories are migrating, either to remoter areas of China or to Southeast Asia.
Dick Wong King-man, managing director of Emperors of China, said the number of business visitors from the mainland and Hong Kong had jumped markedly at his restaurant this year.
'Some are on fact-finding trips and others are investors,' said Wong, a Hongkonger who landed in the capital three years ago. 'The country is more open and is not as mysterious as it appeared to be.'
Phnom Penh is still clearly a developing city. Scooters fight their way through streets clogged with cars in unmarked lanes, while electricity wires dangle above the streets like aerial spaghetti. Construction cranes haphazardly dot the wide skyline and mass transportation is low-tech, consisting mostly of scooter-powered wooden trailers that at night have to navigate poorly lit streets.
However, some sections of the economy are booming. Garment factories, for example, are marching into the city. 'We have seen a bigger number of factories move in from Guangdong,' said Ken Loo, secretary general of the Garment Manufacturers' Association in Cambodia. 'The garment industry is the first to come in and the first to be kicked out as a developing economy advances.'
Garment manufacturing is the bread and butter of Cambodia's economy, accounting for 85 per cent of its exports. The number of factories rose 10 per cent to 552 in the first 10 months of this year, most owned by mainland and Hong Kong investors.
Most of the garment production has moved from the so-called 'factory of the world' - the Pearl River Delta, where the Guangdong government is switching to hi-tech and service-based industries.
That increasingly prices the delta out of the cheap end of the manufacturing market. China's 12th five-year plan stipulates the mainland's minimum wage be doubled between 2010 and 2015. This eats into manufacturers' profitability.
Japan's First Retailing, which operates nearly 1,000 Uniqlo chain stores around the world, plans to diversify its production operations from China into Cambodia, Bangladesh, India and Indonesia.
Hong Kong-based Top Form International, one of the world's largest producers of bras for such brands as Vanity Fair, Etam and Wacoal and with annual sales of HK$1.3 billion, is also on the move.
Top Form chairman Willie Fung Wai-yiu said the heyday of low-cost production on the mainland had passed as growing affluence made blue-collar jobs less desirable. The mainland's industrial policy aims to sweep away labour-intensive, resource-hungry and environmentally unfriendly industries.
'Costs on the mainland have risen so much that many orders are flowing into Cambodia, Vietnam, Indonesia and Bangladesh,' Fung said. 'If history repeats itself, I will not be surprised to see Bangladesh emerge as the next frontier to China's position as the world's factory in five or 10 years, while Cambodia emerges as an interim option.'
Fung, who has been in the garment industry for 40 years, has seen industrial activity move from Japan to Hong Kong, then to Taiwan, South Korea and the mainland.
Strolling around Top Form's semi-finished factory buildings in Phnom Penh, Fung said the new facility would form the third leg of the group's production operations in addition to Thailand and its base in Guangdong. He expects the three production bases will eventually share production' currently 70 per cent of output is concentrated in the mainland.
Inside the blue-roofed, white-walled buildings, 150 women are learning to operate sewing machines and stitch bras. The workforce will be raised to 1,200 next year.
It is not hard to see the attraction of Cambodia to factory owners. Fung said the monthly minimum wage in Cambodia of US$61 was way below that of Jiangxi province, which averaged 610 yuan, or nearly US100. Top Form runs factories both in Jiangxi and Guangdong.
With their pay based on the minimum wage and the pieces they produce, Top Form's workers in Phnom Penh are expected to take home about US$120 a month. Those deemed skilled labourers earn far more than those in the service sector, such as a waitresses or waiter, who typically earn US$60.
Fung said the Cambodian government had balanced the interests of factory owners and workers by keeping the minimum wage flat while introducing a US$7 hard-working bonus and a US$5 monthly medical allowance.
The small increases in Cambodia's minimum wage helped the garment industry grow an average of 20 per cent a year between 1999 and the onset of the global financial crisis in 2008. Garment exports have risen tenfold to US$3.2 billion since 1999, while minimum pay rose just 35.5 per cent.
In Guangdong, the average minimum wage has risen by around 40 per cent since mid-2009.
Workers' conditions in Cambodia are monitored by the International Labour Organisation.
ILO officer Maeve Galvin said Cambodia's minimum wage was one of the lowest in the region but pressure was building.
'The garment industry in Cambodia has grown rapidly in the past 10 years, but workers are still earning less than US$3 a day,' she said.
Manufacturers are also attracted by tax incentives. The European Union waives up to 12 per cent of import tariffs on Cambodian-made apparel and Japan 16.8 per cent. Fabrics are imported duty-free.
The garment association's Loo said while wages and tariffs were attractive to manufacturers, 'there are constraints such as insufficient and expensive electricity supply and a heavy reliance on imported materials'.
Further, the influx of factories meant more competition, particularly for skilled labourers.
The manager of one Hong Kong-owned garment factory said orders, largely from existing clients whose production plants were based in Dongguan , had jumped 20 per cent in the past three months.
'More orders obviously have shifted from Dongguan to here, which is too much to handle,' said the manager of the factory, which employs 500 workers. 'No matter how fast they sew, there are still not enough skilled workers and some of them have jumped ship for other factories with higher pay.'
David Tan Kok Ngan, a Cambodian-Chinese who partly owns a jeans factory, expects intensified competition will push up the pay of local managers.
'Wages are expected to inflate, which means senior managers, mostly from Hong Kong, will have to be replaced with local people,' he said. Since Tan's factory was set up seven years ago, the number of overseas Chinese managers has dwindled to three from 14.
'Workers are like frontline soldiers. If we want them to win a battle, they should be well fed and well trained. That's why we pay them in cash punctually and treat team leaders with sponsored leisure trips.'
The percentage of Cambodia's workforce in the garment industry, according to the CIA World Factbook, or 300,000 people