End of the Pearl River industrial “miracle”
Asianews.it – 02/11/2008
This part of Guangdong was the true engine of the Chinese economic miracle. But now there is a shortage of labour, which is being lured away by better salaries in other regions, and production costs are rising. The region is seeking to encourage development of cutting edge services and industries.
Beijing (AsiaNews/Agencies) – The factories of the Pearl River Delta (Guangdong) are closing. For decades, they were the true engine of Chinese industrial production, and the main source of the entire country’s economic boom. The rise in the cost of labour and raw materials, greater pollution controls, the appreciation of the yuan, the rise in taxes, and the slowdown in the United States (the largest market for Chinese goods) are narrowing profit margins, and factories are increasingly locating their production toward the centre of the country, where manual labour is still cheap.
There has been a shortage of manual labour for some time, because workers have been migrating to other regions for better pay, or in order to be closer to home. It is feared that many of them will not return after the new year holiday, in part because of the great hardships that they suffered at the train station of Guangzhou, because of the snow, before they were able to depart. Labour costs have risen with the law in effect as of January 1, which provides for “basic” rights neglected until now, like medical insurance and holidays.
Eddie Lam Kwong-tak, director of Onlen Fairyland, which has 22 shoe factories and employs 40,000 workers, tells the South China Morning Post that the new law means that each pair of shoes will cost 10 yuan more to make. He says the effect of the law “will be like a tsunami”. It is a serious challenge to Chinese industry, which is accustomed to invading markets thanks to the low price of its products, and the artificially low exchange rate of the yuan .
Now Guangdong hopes to transform itself from an industrial region, based on tens of millions of poorly paid migrants, to an economy based on cutting edge, non-polluting services and industries. The new policy, in fact, punishes in the first place the industries that produce the most pollution and require a great deal of manual labor, like textiles, shoes, leather goods, and clothing. Many manufacturers are “migrating” to Hunan, Guizhou, and Jiangxi. This situation has been worsened by the recent snow emergency, which, blocking transportation and supplies and reducing the availability of electricity, forced the closure of factories that require a lot of raw materials and electricity, like cement and metal producers. The snow emergency will now delay these “transfers”, as some cities, like Chenzhou in Hunan, have remained for weeks with the roads blocked and with no electricity, and with the restoration of the electricity grids still weeks away.
Simon Shi Kai-biu, president of the Hong Kong Small and Medium Business Association, says that “About 30 [companies] have sold properties recently to Hong Kong developers and hundreds are in talks to sell. They need cash to move their operations elsewhere, or they wish to cash in on the bricks-and-mortar value before going out of business entirely”. “I won’t be surprised”, he adds, “to see 10,000 factories in Guangdong fold around the lunar new year”.
Many others will have to use petrol-powered generators as long as the electricity shortage continues, which will also raise costs.