2015-04-28

Dongguan Looks for A New Way

In recent years, manufacturers have abandoned Dongguan as the cheap manufacturing model gave way to a strong renminbi, rising wages and changing global demand. Dongguan is starting to claw its way back though, with biotechnology and solar companies starting to fill in. For some companies the path to profitability is hard, with no way to re-purpose existing machinery. Others are investing in automation to solve the problem of higher wages.

EO: 东莞寻路

Google Translated article follows:
Months of bad news came in early January of this year, Dongguan trillion letter communications company was closed down due to suppliers containment, chairman Gao Min after leaving an absolutely suicidal pen letter, Gao Min wrote, "All resources have been spent, but still no good can operate the plant."

People with high tragedy, like many companies in Dongguan toward the end of the life cycle. Local spread argument is that "in the past year or so, at least not less than 4000 businesses closed," but this claim has not been officially confirmed. In the five years prior to this, that from 2008 to 2012, public figures are "72 000 enterprises were shut down."

But the air was filled in Dongguan, not only pessimistic atmosphere. Dongguan Industrial and Commercial Bureau released information indicating that this year's strong manufacturing data in Dongguan, Dongguan City, the new registered from January to March manufacturing market players 6014, an increase of 25.31%. Trade and Industry Bureau of Dongguan City analysts said that a quarter of newly registered enterprises have been the emergence of new trends in the industry, such as biotechnology and environmental protection, intelligent, photovoltaic manufacturing and other strategic emerging market players as much as 152.

Death and rebirth, and the existence of the China manufacturing center, Dongguan is opening an uncertain new life cycle. After the reform and opening up and reform spirited, this time in Dongguan transition may be much more complicated and painful.

Not the same closures

Xie Wenfeng decided to advance the closed car, he had run for a day in the city. Any of the next three hours, the soliciting of private car owners may appear in a busy street crowd gather, casually chatted something.

At least two years ago, Xie Wenfeng are busy to 23:00 after he Houjie Town, Dongguan shoe factory where the most intensive areas, where in the end no one knows how many businesses and workers, who rarely factory workshops into the official public report.

Xie Wenfeng Houjie Town has lived for 15 years, the busiest time, congested and noisy gave him unbearable, 180 minutes to reduce working hours, so 谢文峰 witnessed following the 2008, China was the second large manufacturing history scale enterprises closures: large and small factories kept closed down deserted factories lively, recruitment brand everywhere.

A growing industrial park Houjie Town depressed, heyday, this park has nearly 30 million migrant workers, but now, only one-third. One around March 10 just off factory owner complained, "We have to mobilize fellow workers to the factory work back home the point, the result was to recruit workers."

Frustration among factories spread, but the recovery of foreign orders to cover up the problem, most SMEs trying to find a reason to continue to stay here.

Gold in the senior macroeconomic researcher Zhao Qingming in March this year to Dongguan research enterprise. His feeling is that "the most difficult time has passed" on the grounds that, "Although there are still hard labor and profit is not high, but the recovery of orders so that power companies have produced."

This is logical. Houjie supply market for most of the products to Europe, Russia and other countries, since 2014, in addition to the Russian market continues to slump, the slow recovery in US and European markets. Prior to that, since 2008, affected by the financial crisis, Europe is generally insufficient market demand, shrinking orders have been plagued China's suppliers.

But if you can save just order the recovery of these plants, then Nokia will be closed for their factories in Dongguan regret. After the Spring Festival this year, Microsoft has gradually shut down the Nokia factory in Dongguan, and plans to produce equipment shipped to Vietnam factory.

According to published reports, at present, Panasonic, Daikin, Sharp, TDK plan to further promote the manufacturing base to move back to the Japanese mainland, Nike, Foxconn, Clarion, Samsung and other world famous enterprises have also accelerated the pace of withdrawal of China.

But in fact, not been able to restore order to save these companies, it touches giants continued relocation or collapse, causing Dongguan electronic instrumentation manufacturing enterprises closures. Statistics show that since 2013, electronic instrumentation manufacturing, textile and garments, plastic products and metal products industries, accounting for 44.1% of the total collapse of the city shut down businesses, 11.8%, 7.6% and 7%, together accounting 70.5%.

It would appear that this round of closures and the 2008 financial crisis caused by the closures are essentially different. "In 2008, three to fill the foreign trade business failures, is more affected by shrinking external demand, are market reasons," Dongguan local academics Gongjia Yong analysis, "the collapse of this round, more industrial factors, namely Based on the traditional class factory OEM industry rely gone. "

In other words, low-end manufacturing and foundry industry enterprises are losing soil development. This is enough to give even the Chinese manufacturer in Dongguan an alarm, they face is the industry changes, human resources, land and other elements of a complete change in a challenging environment. "To be sure, those who did not improve their operational level, there is no OEM brand and technology enterprises, is exiting, that their time is over." Stone, Executive Director of Economic Research Chi Zucker was in force after 2008 years ago PRD research.

龚佳勇 called this end "free rider" era. Over the past few years, the low-end manufacturing to China's economic contribution to the primitive accumulation, but also consumes a lot of cheap labor, land, environment and other factors. In his view, the current manufacturing has come to the stage to buy the tickets. Gongjia Yong said, "This may be the ticket technology, innovation or other, but a large number of manufacturing enterprises, they must find new contributions to China's economic way, otherwise, foreign trade is likely to be short-lived rebound their last bus . "

"Buy tickets"

Dongguan manufacturing by the "free rider" to "buy tickets" Changes in Guo Gang obviously felt desire to enhance local SMEs purchase.

Guo Gang is Shi Heng Machinery Sales Director, who is Shengding Group's enterprises to produce high-performance automatic platen die-cutting machine, platen die-cutting machines and automatic waste discharge bronzing machine-based industry, mainly to provide equipment support for the Pearl River Delta manufacturing enterprises.

PRD rising labor costs make Guo Gang customer base changed. Five years ago, Hong Kong, Taiwan and the United States is the main foreign customer Shi Heng large machinery. Local small factories are reluctant to put money to buy advanced equipment, preferring to make a few more people to buy a few sets of manual or semi-automatic equipment. However, after the 2008 financial crisis, everything was upside down.

Foreign plant gradually declining purchasing power, especially in the last three years. Originally reluctant to purchase equipment high local SMEs are beginning to understand the market frequently exhibitors. In early April of printing exhibition, Guo Gang, a little lost. Those in Taiwan, Hong Kong and the United States less than the old customers come next term. "This shows their desire to buy smaller and smaller." Guo Gang muttered. Come to ask basically the Pearl River Delta and Yangtze River Delta are mainly local customers.

Decline and the rise of foreign plant small plants native to some extent there is a causal relationship. Guo Gang noted that some US-owned printing plant after receiving orders from abroad, no longer as full production from its own factories. Over 80% of orders in production, 20% outward. Today, this proportion may need to be reversed. An industry source said the foreign factory own production orders may be less than 50%, and will pick some high value-added orders. Behind this change is that foreign plant cost control concerns. "Control is not good, profitability is low, less profit. In addition, they do not want too many people to increase with the equipment." Guo Gang said. Foreign plant prefers to local small and medium sized orders to peer printing plant, from which to make some difference. There are claims that the local factory management costs much lower than foreign plant, can win a little profit.

In the native plants, factories inland off than the PRD factories have greater cost advantage. Previously, many foreign companies after all the orders will be distributed to Dongguan, Shenzhen and Guangzhou factory to do, after the completion of shipments from the side of the counter, inspection by foreign workers out. And now, because of the Pearl River Delta factories offer high foreign trade can only put a lot of orders to mainland factories Jiangxi. Originally belonged to productivity advantages PRD being replaced mainland.

In this order metastasis, Guo Gang's customer base has again been subdivided. At the show, Guo Gang obviously feel domestic customers, the proportion of mainland customers more than half of the PRD, and his existing customers have moved to the mainland within twenty or thirty.

This situation resulted in the PRD factories pressure. "The more bad environment, the more you want to invest," which is reserved for the local factory Guo Gang impression. Automated machinery investment both to reduce labor costs, but also to produce higher specification products. Everything is in a tough competition to grab more orders. Foreign plant distribution in foreign orders, those devices will pick a good local factories. "Without this advanced equipment, now to guarantee delivery time with quality? These plants will be questioned." Guo Gang, remember there is a native plant of 2010 business was good, but the last few years in management and equipment have invested very little, so that the rapid decline of the market share in recent years.

Seeing the small yard increasingly exuberant vitality, Guo Gang also saw the decline of some customers. Some customers because the investment has led to non-core business capital chain tension, implicated factory closures; some customers because factory owners are too old, can not find a suitable successor, in the Industrial increasingly difficult to make money situation, simply close plant.

But more customers are out of the market. "Shipments slow, quality is always unstable, but also get down the unit price, the customer at the time of development can not keep up the pace of the other party, and certainly will be eliminated, the customer is not possible to wait for you." Guo Gang said.

Hand pushing a market economy substitutions machine process. Dongguan government to support the policy level. Currently, Dongguan, mainly in the duplication of electronics, machinery, food, textiles, clothing, furniture, footwear industry, logistics and other distinctive characteristics, labor-intensive, there is a certain risk industries enterprises, especially labor-intensive enterprises in the overall promote the implementation of the "machine substitutions." From last September to now, a total of Dongguan push "machine Substitution" application projects reached 505, the investment amounting to 4.2 billion yuan.

However, the 505, but hundreds of thousands of factories in Dongguan tip of the iceberg. For most small and medium enterprises in Dongguan, still do not have enough financial strength and consciousness of such systems can be upgraded. In addition, the machine substitutions are not suitable for every business. Some people who work in the shoe, said some orders abroad are often valued artificial process behind China, "some of the production process is completed there is no way to use the machine."

Drain and transfer orders of customers still difficult to estimate the number of occurrence. Recently a Korean-owned factory in Qingdao Guo Gang to buy some equipment, but the delivery location is not China, but Vietnam. Guo Gang customers inside, at least 10 factories have the capacity to transfer part or all of the Southeast Asian countries. "This relies on cheap labor production model has come to an end." Executive Dean Shek Chi Zucker Forces Institute of Economic Research, said the upgrading of Chinese manufacturing is difficult to rely on these low-end factories. The Government has also been low-end processing and manufacturing good out. Eliminated a number of enterprises, both born in the market needs, but also government-led intentional.

Guo Gang Shi Heng where machinery is intended to set up a new plant, but did not choose any city in the Pearl River Delta, they chose to go north Jiangsu, Guo Gang said, "The main reason is that the cost of land and government policy efforts to attract foreign investment."

Disk access

"The government does not directly drive you away, but it will release some signals to tell you that you should go." A decade steeped in Dongguan manufacturing Feng Ning was very sorry, "Dongguan has been hollowing out of manufacturing, But the biggest problem is that there is no disk access. "

The official may not agree with this argument. Last July, the current round of factory closures increasingly serious, Dongguan Yuan Baocheng mayor has said publicly that development must not leave the manufacturing industry in Dongguan, to keep the "root", just to keep the "root", manufacturing-based The chain will be able to exist.

Dongguan, the plan is to replace the increasingly high cost of labor with machines, namely the "machine substitution plan." Dongguan plans to come up with 200 million annual financial funds to support SMEs technological innovation, which is also carried out a path selection Dongguan manufacturing upgrades.

The effect is obvious, the data show that three quarters of 2014, Dongguan industrial investment in technical improvements have been running low, a minimum of -19.3%, the implementation of the "machine Substitution" Since the action plan, industrial investment in technical decline gradually narrowed, the final annual growth of 28.6 percent, the smooth realization of "twist negative is positive."

Such upgrades are two implicit conditions. A government official said, "On the one hand, business scale enterprises have certain conditions, fiscal policy will be particularly supported by more than 50 million yuan revenue enterprise; on the other hand, the labor principles require large artificial substitute to accelerate the speed of the machine."

In fact, companies are also able to limit the strength of a "machine Substitution" critical condition transformation. Dongguan sample survey showed, the more powerful enterprises, carry out the "machine substitutions" trend more obvious, research sample survey results also showed that the biggest obstacle to the implementation of the enterprise "machine substitutions" are funding issues that were not carried out. " Substitution machine "of more than 150 companies in the sample, since nearly half of the funds needed more postponed.

From the industry perspective, the electronic information industry, electrical machinery and equipment manufacturing industry, these two pillars are the largest, accounting for about 33% of the total, respectively, 37%; characteristics of industrial projects in places up to the packaging and printing industry, accounting for about 6% of the total. "There has to stay back in Dongguan manufacturing upgrade strategy, there are nearly 300,000 small and medium enterprises in Dongguan, not every one is for machine transformation, which is unrealistic, there will be a number of companies out." There are close to the government and scholars analysis, said, "On the other hand, described the New Deal social security, the government can no longer provide employment for a large number of cheap dividend policy, the company must make a choice, to retain skilled workers, only to give up in the low end of the labor of the workers."

The scholar said, "Social Security Deal" deal with the causes that lead to a chain reaction and a labor event, this event or will have a profound impact in the labor market and the manufacturing industry in Dongguan survival mode. In 2014, the largest local shoe shoe Windsor labor dispute cases. Since last March, 40 000 employees in the form of large-scale strikes law is not an indictment Windsor enough for employees to pay the full year's pension fund. Official intervention, the Windsor, "according to government regulations," according to repay social security, provident fund. As of last July, the group completed a total of 777 pension fund to pay the business, where the burden on enterprises 7.11 million yuan.

Factory owners have commented that the incident handling a precedent, namely "social security payments recovered system." Government's approach is that once the factory labor disputes, factory workers must be paid in full retroactive social security payments and pay late fees and penalties.

For labor-intensive enterprises, the New Deal social security is undoubtedly a bad news, but for trying to transition to high-end manufacturing, Dongguan, the "people" of great importance to this process is perhaps the key can not be ignored. This is the evolutionary path of Dongguan manufacturing. After the 2008 financial crisis, the Dongguan manufacturing sector has been hit about waist collective. Pressure of RMB appreciation, awareness of workers' rights and improve the social welfare system is becoming perfect, etc., are reshaping the manufacturing of ecological soil. External business environment has been worsened. That year, they depend to survive, in order to grow and incentives, labor costs and other advantages of the moment but it is a lake trapped their quagmire. "Whether it is the Government's policy, still is the strength of the market, SMEs and low-end labor living space has been exhausted," The scholar said, "It sounds a bit harsh, but it is necessary to upgrade China's manufacturing crossed step. "

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