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China economy

The Chinese pudding factory caught up in Xi Jinping’s big plans for a new dream city

A decade after branching out up north, a Shenzhen food company is again weighing its options as Beijing rolls out a plan to ease population pressures on the capital

PUBLISHED : Sunday, 05 November, 2017, 8:32am
UPDATED : Sunday, 05 November, 2017, 11:27pm

When Shenzhen-based pudding and milk tea maker Guangdong Strong Group decided to set up a factory in the small Hebei town of Dingxing a decade ago, it was a canny move: the water quality was good, land was cheap, wages were low, and the site was close to megacities like Beijing and Tianjin.

Dingxing authorities welcomed the factory with open arms, describing it as a model example of “businesses in the south relocating to the north”.

It was hailed as a realisation of late leader Deng Xiaoping’s hopes that prosperity from China’s wealthy coastal regions would gradually flow back inland to help raise incomes in the less-developed hinterland.

Fast forward to 2017 and Guangdong Strong employs more than 2,000 people in its labour-intensive business, but is struggling to cope as wages have risen.

Above all, the company faces an uncertain future caught up in President Xi Jinping’s grand economic plan to transform the nearby counties of Xiong, Rongcheng and Anxin into a centrepiece of development for the country’s congested political and industrial heartland.

Dingxing is just 90km from Beijing but in an entirely different economic landscape. While the capital’s wealth and opportunities attract young people from around the country, Dingxing’s residents must get by on about half the average income of their Beijing cousins.

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The story is much the same in Xiong, Rongcheng and Anxin. Those counties were barely dots on the map before Xi announced in April that they would be the site of a new dream city built from scratch that would serve as a model for “a thousand years”.

Over the next two decades, the counties will be transformed into the Xiongan New Area, a planned economic powerhouse that will absorb many of the functions and people from nearby overcrowded Tianjin and Beijing. Brokerage house China Merchants Securities forecasts Xiongan will grow into a city of 6 million in 20 years, as the central government urges factories, hospitals and state-owned firms to move to the area.

The Xiongan New Area, about 70km from the Guangdong Strong pudding factory, is the jewel in the crown of a vast plan to integrate Beijing, Tianjin and Hebei province. It’s called the Jing-Jin-Ji (JJJ) strategy and is designed to ease population and pollution pressures on those megacities while also narrowing the wealth gap in surrounding rural areas.

Dingxing is one of the 35 Hebei centres covered by the plan, which includes the construction of five high-speed railway lines and an investment target of 247 billion yuan (US$37 billion) from 2015 to 2020.

Changes are already visible in small towns throughout the region, with roads being widened and high-rise residential blocks under construction in the hopes of attracting inflows of businesses and new residents.

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Feng Weili made the move out of the capital two years ago. Feng sold bananas for 14 years at the Xinfadi wholesale market – Beijing’s biggest fruit and vegetable market – before shifting to Gaobeidian, near Dingxing, in April 2015. She moved out when the market had to relocate as part of the JJJ strategy.

“At first we were hesitant about moving here,” Feng said.

But discounts on warehouse rents meant she could cut business costs and boost income at the new site.

Things also improved for her family. In Beijing, without the household registration, or hukou, Feng and her family could not buy a flat and had to pay extra to get her daughter into a public school.

But the move to Gaobeidian came with the local hukou, allowing the family to buy an affordable flat and send her 12-year-old daughter to a local school.

However the change in official tack has not been a bonus for businesses like Guangdong Strong, which are losing their shine as local authorities look towards ventures that are more in tune with the future, such as big data centres or digital operations.

Mao Xiaohe, general manager of the Guangdong Strong plant, said he hoped people would start to flow back into Dingxing, giving the company more potential workers to choose from.

“Along with development of the Xiongan New Area, we hope the labour shortage will ease and our management team will get stronger,” Mao said. “But looking further ahead, as a labour-intensive factory, we will face rising labour costs and it will be harder to recruit production-line workers.”

He said the factory had started to use “robots” and was looking into automation but manual labour was still key.

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Property prices are also rising in the area and although Mao would not say if Guangdong Strong would relocate, he did say much would depend on how the local government responded to the changes.

“Though there are pressures, we are very competitive here and we are better at addressing the problems. For example we can redistribute the supply chain to other plants,” he said.

Renmin University economics professor Zhao Xijun said China’s food processing factories such as the one owned by Guangdong Strong would come under more pressure to upgrade production and equipment as the Chinese economy matured.

“Companies will inevitably have to move up the value chain to adapt to stricter environmental controls and rising labour costs,” Zhao said. “It will be a brutal process, leaving no room for those at the bottom of the value chain to survive.”

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He said a vast number of businesses would have to move out of Beijing and migrate to Hebei, allowing places like Dingxing to be choosier about the businesses they let in.

Liu Yong, a researcher at the State Council’s Research Development Centre, said the JJJ strategy was meant to encourage production upgrades well as a greener and cleaner way of economic development.

As a result, small-scale and “low-quality” plants would find no place in the future, Liu said.

But Eli Friedman, a professor of international and comparative labour at Cornell University, said the government needed to make it attractive for businesses to move from prosperous Beijing to less-developed areas in Hebei.

“There are nice maps of the Jing-Jin-Ji development plans. Roads and railways that are under [construction] are huge and very impressive, but what makes something work or fail is the details, which are a little bit less exciting,” he said.

Freidman said the plan’s success would rest more on support for labour inflows rather than just road and factory construction.

“The question is how much the central government, and the Beijing and Tianjin municipalities are going to put money into ‘soft infrastructure’,” he said.