China'S Manufacturing Faces Life And Death Decisions

For most closed entrepreneurs, this year's traditional thinking of production and management may need a radical change.

Those who are indifferent to the exchange rate and the international market rethink the strategy of running in China, and begin to think about how to integrate China into their global strategy and so on. CEO

There is no doubt that China has gradually become the main breeding base for product innovation and business model innovation.

The past year has been a disastrous year for most Chinese traditional manufacturing players.

Labor, land and electricity prices have risen at a two digit rate.

For most closed entrepreneurs, the traditional idea of production and management may need to be radically changed.

China is changing its cost and monetary structure, driving CEO who are indifferent to the exchange rate and the international market to rethink the strategy of domestic operation and begin to think about how to integrate China into its global strategy and so on.

There is no doubt that China has gradually become the main breeding base for product innovation and business model innovation.

The role of "world factory" China in the process of globalization may be changing gradually.

However, in the process of shifting the value chain, Chinese enterprises bear the pressure of manufacturing costs as well as the increase in wage costs and appreciation of the renminbi and other factors. They also need to bear the pressure of limiting the profits and other important factors such as operational optimization.

How much is the renminbi worth?

The RMB exchange rate is undervalued, and the unfair price advantage to Chinese exporters is being sharply reduced.

Over the past 6 months, the yuan has appreciated 6.7% against the dollar.

Economists expect that the renminbi will rise by 10% to 15% against the US dollar in 2008.

With the rising cost of labor and raw materials in China, more and more export companies are avoiding the use of the US dollar or trying to offset the devaluation of the US dollar.

How much is the renminbi worth?

In the past year, for most enterprises, the issue of exchange rate which was rarely mentioned before has been taken seriously.

Liang Bai, director of the Hongkong economic and Trade Office in Guangdong, predicted that in the next two years, the 80 thousand processing trade oriented enterprises in the Pearl River Delta will face a life and death decision.

He appealed to Hong Kong enterprises to pform, upgrade or pfer as soon as possible, and the sooner they act, the better.

A large number of processing trade enterprises can not be lower than the profits caused by exchange rate erosion.

The highest peak period of ceramic capital in Foshan has reached more than 10000 ceramic production lines, leaving less than 1000 after being moved and closed. This year, more than 100 production lines will be forced to shut down again.

Through a banana forest, some crowded Matchbox houses were gathered on the corner of the field. A white line crossed the square boxes, which were connected with the towns.

To some extent, these roads are like a long chain track, and Zhang Xiao Jin, a 35 year old, is not such a noticeable link on this chain track.

Zhang relies on making complex plastic moulds for nearby shoe factories. He clearly feels the slump in Dongguan's manufacturing industry.

He was a tall, strong young man with an inch in his black folder Kerrey.

His 10 workers climbed out of bed at 6 o'clock and loaded all kinds of molds in wooden box boxes onto the truck.

"10:30 tomorrow morning," Zhang said yesterday.

But a telephone call from Changan town at 8 o'clock sent Zhang into a deep silence - the other side demanded to maintain the previous price, and hoped to postpone the payment for a month.

Zhang raised the price by 30%, cash, where he was in a daze, yawning constantly, all the faces were tired of lack of sleep.

"Certainly not, business can not be done", his tone is helpless but tough.

When he found that the argument was useless, he retired inside the house and stood alone on the roof and looked at the town of Changan smoking. The roof of the house was washed with broken pieces of steel. Beside the steel crumbs stood a piece of aluminum plate, which used red paint to write mold processing and Zhang's cell phone number.

Due to the impact of the US subprime mortgage crisis, the purchasing power of the United States has declined, and the demand for footwear products with higher grades has dropped markedly. The footwear industry in Dongguan is the first to bear the brunt.

The landmark event in the collapse of the business is nothing more than the collapse of the Taiwanese shoe companies.

In December 20, 2007, the Taiwanese capital Chang Deng Footwear Company, which has nearly 4000 employees, announced that it had stopped operating, and subsequently paid about 40000000 yuan of economic compensation for its employees. This caused a great stir in the local industry, and even triggered the subsequent effect of other business failures.

Since October last year, a large number of traditional enterprises such as shoemaking and furniture have been withdrawn. What's more, in the first three quarters of 2007, hundreds of shoe factories in Dongguan went bankrupt, and there were many Taiwanese businessmen in Dongguan.

The customers of the bankrupt enterprises began to pfer their orders to Wenzhou shoe enterprises. Because of the unoptimistic environment, some Wenzhou footwear enterprises also had to accept orders from the US customers which were not willing to accept some low price and few profit margins because of the needs of the enterprises.

"The raw material has gone up too much."

Zhang said that a similar situation reminded him of the year in 2003 when metal prices surged forward because he could not digest the pace of huge raw materials, and he had to switch to production for a year.

And this year the trend is more ferocious - the pressure of capital turnover of enterprises has greatly increased.

At the current metal price, the bill which used to cost 300 thousand yuan to turn around is now about 500000 yuan.

Because of lack of funds, Zhang can only reduce inventories and adopt "small batch and multiple" purchase methods, but lower inventory often fails to guarantee stable production of enterprises, and pportation costs are also "overspending", and he still needs to feed workers.

He has just increased the price of his products by 10%, and sales have dropped by half.

Many local mold processing enterprises can not afford to cut production or even stop production.

Zhang didn't move. He persuaded the wife of three children to take care of all the cash.

An unavoidable problem is that when thousands of competitors produce the same product, how can you build up their competitiveness, the answer is always direct but helpless - low enough price.

"Strangulation on price is like cutting meat, but I can't do anything about it."

Zhang Xiaojin said.

Institutional weaknesses of the "world factory"

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