"Made In China" By Bruce

Extremely cheap labor and fewer rules and regulations - this era has gone, and with the rising cost of manufactures, export prices have risen.

Mr. Xu started his business in Taiwan more than 20 years ago.

Like many other factory owners in Taiwan, Hongkong and Macao, he moved his business to Guangzhou, located in the Pearl River Delta region of southern China, and built his Shan Hing lamp factory in a quiet little village with rice fields and duck farms. This is Dongguan.

Since then, the region has gradually developed into the world's largest production base, with many industries including electronics, shoes, toys, furniture and lamps.

Low wages, less regulation and a good exchange rate make Dongguan unmatched.

Mr. Xu believed that Dongguan will become a workshop of the world in the future, and invested 7 million US dollars to build a bigger factory, which was just completed early this year.

Besides Mr. Xu, many Chinese manufacturers are now doing reconstruction work.

The US housing market once had a huge demand for Chinese made goods, from bedroom furniture to bathroom installations, but now the US housing market has plummeted.

The new Chinese labor law, which was introduced in January 1st, has greatly increased the cost of the already tightened labor market.

Commodity and energy prices have skyrocketed, and Beijing has cancelled export preferential policies, and manufacturers have been repeatedly blocked.

There is also appreciation of the renminbi.

All this has left thousands of manufacturers hovering on the brink of bankruptcy and threatened China's leading position as a low price commodity exporter.

As a result, Mr. Xu's new factory has a utilization rate of only 60%. He speculated that half of China's luminaire factories will be closed this year.

"Shoe factories, garment factories, toy factories, furniture factories are all closing down," he said.

Mr. Xu is not alone. "We spent 20 years building industry, starting from scratch, now becoming the largest in the world." Philip Chen is the president of the strategy movement. His company makes half of the world's motorcycles, bicycles and snowboard helmets, all of which come from 17 factories in the Pearl River Delta.

"Now we are almost finished."

President Chen said that once he could earn 8% of the profits, now?

Almost zero.

It is difficult for us to know the comprehensive data of factory shutdown. But the Hongkong Federation of industry predicts that there will be about 60 thousand to 70 thousand of Hongkong factories in the Pearl River Delta, of which 10% will be closed this year.

According to the Asian Footwear Association, 150 shoe related factories in Dongguan have been closed for the past 12 months.

More factories will be closed down as demand is sluggish, and Jonathan Anderson, an analyst at UBS, predicts that China's total export growth will not exceed 5% this year.

Chinese policymakers have so far paid little attention to this.

Most of the export factories which are closed down are of low labor value, heavy pollution and low energy efficiency.

What Beijing needs now is the local environmental protection industry that produces high quality products, from cars to planes, from biotechnology to software.

This emphasis will not only help to achieve the important goal of domestic consumption growth, but also help to reduce the international contradictions caused by the expanding trade surplus.

"We are not abandoning these exporters," said Huang Huahua, the governor of Guangdong, in March 8th. "Domestic sales are good for the country, to the collective and to the people."

However, the situation and impact of manufacturing enterprises move beyond government officials' expectations. So far, most of the factories are in Guangdong, but their impact is not limited to this area.

During the Chinese new year, more than one hundred factories in Shandong province were shut down in the eastern part of the province, which is 1200 kilometers away from the Pearl River Delta. Thousands of workers were forced to lose their jobs and wages were in arrears.

At the same time, large multinational companies are also reconsidering.

According to reports, the American Chamber of Commerce in Shanghai has found that over half of the foreign manufacturing enterprises in China believe that 1/5 of the companies surveyed consider moving out of China compared with those in Vietnam and India. "The fact is that globalization is absolutely true here. China is no longer the same as before," said Ronald Ronald, vice president of the consulting firm.

The appreciation of the renminbi may be the biggest factor in the relocation of companies, but other government policies have also contributed to this phenomenon.

Last year, Beijing decided to reduce export tax rebates for more than 2 thousand products.

Harry, President of the American Chamber of Commerce in Guangdong, said: "the termination of the export tax rebate has increased the factory cost of many manufacturing commodities by 14% to 17%."

Nowadays, a strict law requires companies to provide pensions and other benefits for employees to ensure collective bargaining and long-term employment.

The Dongguan branch of AIA is responsible for the quality inspection of China's luminaire industry.

If we calculate the sharp rise in wages of various departments, this act will raise the operating cost by 40%.

"We expected that the situation would be more difficult, but no one foresee a 40% rise in cost."

Mr. Lin, vice president of the Hongkong Textile Association, said, "when all of this breaks out in front of us, we ask ourselves what we can do."

For many companies, the answer is not in China.

In early March, Hebei Yongjin cable company opened a factory in Xining, Vietnam, near the border of Kampuchea.

"In Hebei, China, workers need to pay 1000 yuan per month," Qu Huijun, Vietnam's engineering director, said. "But in Vietnam, it costs only 500 yuan, so labor costs are half cheaper."

Rising costs also affect the supply chain of clothing and footwear brands.

Adidas has informed Guangdong suppliers that they should pay attention to foreign countries besides paying attention to low cost areas in China.

The Apache shoe factory, which already has factories in Qingyuan and Guangdong, is considering setting up some small factories on the border of Guangzhou, Hunan and Guangxi, where the cost is relatively low.

The company recently opened second factories in India. "We will reduce the proportion of production in China and develop in other countries."

Adidas global supply chain chief said.

However, the relocation of manufacturers to foreign countries is a time-consuming and costly matter.

The complex logistics network needs more than 10 years of hard work to support all the needs.

"We have more than 100 suppliers in the Dongguan area," Mr. Shan Xing said. "Migration is not easy."

Even in countries like Vietnam, labor costs are rising and shortages are serious.

Other costs may exceed those in China, such as India.

Apache estimates that the cost of their construction in India is almost three times that of China.

Because the government of India stipulates that construction materials must conform to British standards.

Frequent power and water shortages mean Apache has to provide an expensive backup system alone.

Fears that kindergartens and camps are frustrated abroad have led many manufacturers to seek productivity growth in China.

"The most important thing is that we have the ability to improve efficiency," said Li Dongsheng, President of TCL.

Some are trying to automate, and reducing employee turnover is also a way.

This is why Apache Company provides kindergartens for employees' children, and even summer camps to learn English.

The company has built 280 housing units and will sell them to married employees at below market prices.

"We try to make this place as warm as home," Yang said. "This can stabilize workers."

Can these efforts suppress China's export prices?

Unlikely.

"Over the years, Chinese manufacturers have lowered their prices according to the requirements of American retailers, but they have gone back to the bottom."

Charles, vice president of Flora Forte, Hongkong, commented.

The company uses more than 20 Chinese factories to make home decorations for Bed Bath & Beyond (BBBY), WAL-MART, and major US Department stores.

"As far as I know, many factories have rejected millions of orders because they will lose money once they get it."

The next thing is inevitable. Harry, the American Chamber of Commerce, said, "the price of shoes will go up, and the prices of all kinds of household products will be like this."

Mr. Greenberg, President of creative design international, has a 25% increase in toy prices from Guangzhou factory. He recently raised 10% to his customers, including WAL-MART and Kamath (SHLD).

Some manufacturers try to avoid this growth by finding cheaper areas in the mainland.

"The way to deal with China's high prices is to get more sinicization," said Feng Guoguan, director of the Hongkong world's largest consumer goods supply chain. "There are still low cost places like Sichuan and Hunan," he said.

But there are signs that labor costs are soaring in Chengdu, Sichuan and Changsha, Hunan.

No matter where they move to the mainland, manufacturers are faced with stringent labor laws, high commodity prices and rising pressure on the exchange rate.

This is significant for the global economy.

"Unlike the past 20 years, China's exports are not export deflation, but export inflation."

Peter, the chief executive of Giordano retailer Giordano (CEO), has extensive business in China. He added: "customers have no choice but to accept the fact that they need to be mentally prepared."

American business week March 27th article: Bruce of Chinese factory (author: Dexter Roberts)