Dongguan still delivers for plant chiefs

Dongguan has been plunged into debt as scores of factories leave for greener pastures, but some manufacturers still find it a good place to do business, thanks to its entrepreneurial culture and good logistics infrastructure.

An internal survey commissioned by the Dongguan government at the end of last year found that 60 per cent of the 32 township governments are in deficit as their rental incomes fall in light of the number of factories fleeing the region. Expenses are swelling, including promised bonuses to villagers, public utilities and service providers.

Pat Wayne, the co-founder of stereo amplifier design and trading company Kaiyun Electronic Trading, moved his company from Beijing to Zhangmutou about a year ago after being evicted by his landlord. It turned out to be a good thing. "Beijing gave my company a higher status but I would be grateful if I could accomplish two tasks in a day because of the terrible traffic jams and the state-owned company like mentality there," Wayne said. "It was a huge contrast when I moved here as I can get several things done in a day."

Zhangmutou is in the centre of Dongguan but rents are about 20 per cent lower than elsewhere in the city due to its severe debt problem. Lured by lower rental costs and the proximity to his vendors and customers, Wayne decided to move to Zhangmutou.

The company's headcount in Zhangmutou is half of what it had in Beijing but the number of new products developed in the southern city over the past year was equivalent to several years' output in Beijing, Wayne said. The company's sales nearly tripled to 10 million yuan (HK$12.5 million) last year.

Kaiyun has also diversified its product line to include entry-level amplifiers from purely high-end products in the past. Demand for entry-level products accounted for 70 per cent of total demand in Europe and the United States. It has recently rolled out a digital to analogue converter and amplifier for a computer or laptop, and is developing a portable converter for headphone users on the go.

A veteran lawyer and electronics engineer for French telecommunication company Alcatel in Australia, Wayne said he enjoyed spending time in Dongguan, except for one thing: "The beer in Beijing just costs two yuan a bottle, which is a lot cheaper than in Dongguan."

Miles Leach, who founded a printing and packaging factory in Dongguan city six years ago, had thought of moving its production line to Indonesia, which is rich in forest resources and has a plentiful supply of pulp.

He scrapped his plan when he realised that pulp and paper costs in Indonesia are not cheaper than in China because the mainland government subsidises the industry to ensure that there is enough packaging material for shipments produced by the "world's factory".

He had done some research about Chongqing as a growing number of factories are moving there, but decided Dongguan had logistical advantages. "It takes 14 days for a shipment to go from Chongqing to Shanghai Port but it takes only an hour's truck ride from my factory to Yantian Port," Leach added.

"Dongguan is in the supply chain as many manufacturing plants and vendors are here."

Leach is considering expanding his production line in Dongguan by adding one or two printing machines with the latest printing technology to meet his US client's demands. Veteran Hong Kong factory owners, who have had to shrink their manufacturing plants over the past three years due to waning orders, hope the local government can recover as soon as possible.

"I wish the local government could facilitate low-interest loans for us to alleviate the liquidity problem in Dongguan," said Woo Wing-keung, who owns a plastic mould factory in Zhangmutou. Factories' financial status in Dongguan is masked by account receivables, which refer to deemed payment received by the manufacturer, the entrepreneur said. However, the payment periods for factories in the city are generally over a year.