Pearl River Delta: Watch And Escape In The Eye Of The Wind

Chinese manufacturing chose to accelerate industrial upgrading between 2007 and 2008, but the abrupt economic situation has begun to storm a sudden storm, and what is the state of the Pearl River Delta in the eyes of the storm?

For most closed entrepreneurs, the traditional idea of production and operation may require a thorough change.

The changing cost and monetary structure of China are 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 the 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.

But in the process of shifting the value chain, Chinese enterprises bear the pressure to create profits besides the increase of wage costs and appreciation of the renminbi. They also need to bear the fruits of failure to achieve operational optimization.

The RMB price advantage is being underestimated and the unfair price advantage brought to Chinese exporters is being sharply reduced.

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.

For most companies, 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.

There are quite a number of processing trade enterprises unable to resist the erosion of profits caused by exchange rate.

"Ceramic capital" has reached more than 10000 ceramic production lines in the peak period of Foshan, leaving less than 1000 after relocation and closing, and this year it will further shut down hundreds of production lines.

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 is 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 asked for a 30% increase in cash.

He was in a daze, yawning, and 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 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.

In the closing down tide, the landmark event is the collapse of the shoe factories of Taiwan funded enterprises.

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 to its employees. This caused a great stir in the local industry, and even triggered the subsequent effect of other business failures.

Hundreds of shoe factories have been closed down from the traditional enterprises such as shoes and furniture 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.

"Raw materials have gone up too much."

Zhang said that the similar situation reminded him of 2003, when metal prices surged forward in that year 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 did not 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.

The institutional weakness of the "world factory" has lived in Dongguan for 10 years and witnessed how it became a world factory.

Although institutional weaknesses are becoming increasingly evident in Dongguan's business models, most people do not see them. They have been living under the pressure of similar economic models for more than 20 years.

Whether or not we need innovative products and brands, whether we need better ideas and more reasonable organization and management level are almost ignored.

Even if he stops working, Zhang often drives to Changan town to hide behind the local billboards. The first floor is still a noisy and dizzying foreign trade company.

You only need to go to several shops, and then recruit a few skilled skilled workers. In an hour, you can pick all the spare parts in the components that you have assembled, and then assemble them in your own yard.

Zhang Chang stays in the factory for a long time every day and works as hard as his workers.

He lives upstairs, downstairs is a second-hand lathe bought by a bankrupt, and the workers live in a room separated from the wall of the lathe.

He has been in the industry for many years, and his customers are everywhere in Changan.

There are more than 3000 similar competitors in the town. They squeeze costs to the extreme, produce the same things by relationship, quality and credit, and produce them with near pparent prices and technologies.

The prices of major raw materials such as copper and petroleum based plastic products increased exponentially.

After the implementation of the new labor law, labor costs plus raw materials are rising. Only these two enterprises need to increase the production cost by 80%, while the brand has no premium. Some factories can only close down.

The center of the world factory is about 30 thousand of the total number of enterprises in Dongguan. Taiwan capital and Hong Kong capital account for about half of Dongguan's enterprises, and Taiwan's capital is about 8000.

A Taiwanese businessman who has set up factories in the field told reporters that about 20% of Taiwan funded enterprises in Dongguan had vanished from Dongguan recently.

After a series of significant exchange rate appreciation, China's rising costs may mean that the world's factory will soon become a major export destination for inflation.

After continuous export price declines, China's price as an unparalleled benchmark purchase price began to rise at the end of 2005.

Although the year-on-year growth has been relatively moderate, the recent call for higher prices is more urgent than ever.

A survey of Hong Kong businessmen in the Pearl River Delta region by the Hongkong Federation of industry shows that 37.3% of the enterprises in the Pearl River Delta now have about 8 000 enterprises planning to move all or part of their production capacity away from the PRD, and more than 63% of them plan to move out of Guangdong.

There are many forms of vanishing, some are suddenly leaving, some are going to Vietnam to set up factories, some are turning to the mainland, and staying in Dongguan, local enterprises are trying to pform: making brands and turning to domestic sales.

But this needs strong strength and time to support, and some small and medium-sized Taiwan funded enterprises, which are small in scale and worked hard by cheap labor costs, will not survive the severe winter.

There is an endless stream of escaping events.

"The era of deflation from China to the world is coming to an end."

Li Jing, chairman of China Securities Department of JP Morgan chase in Hongkong, said last year: "manufacturers are raising their average selling price. They believe they can pass on any future cost increases.

Over the past 5 years, the profit margins of many manufacturers have been severely squeezed, but pricing power has returned to many industries due to industry integration, environmental protection and safety record of small manufacturers, and natural wastage.

China is no longer the cheapest producer. A joint study conducted by the Alan consulting firm and the Shanghai American Chamber of Commerce found that China's importance as a purely low-cost and export oriented production base will gradually decrease.

The study points out that China's entry into its own global supply chain has more competitive advantages than that of China, which only regards China as a low-cost and export oriented production base.

More than half of the enterprises surveyed by foreign-invested enterprises and foreign joint ventures in China believe that China is losing its competitive advantage as a manufacturing base compared with other countries with lower cost.

Nearly 20% of the companies surveyed are considering relocating their production base in China to countries such as Vietnam and India.

Some new investors no longer regard China as the best target based on the following considerations: the growth of fees and the natural tendency of companies to pursue diversification of investment.

In a survey conducted by the American Chamber of Commerce, 54% of the surveyed companies believe that China is losing its competitiveness compared with other low-cost countries.

70% the main reason for the decline in competitiveness was the appreciation of the renminbi, while 52% of the companies pointed to rising wage costs.

The wages of white-collar managers and blue collar workers rose by 9.1% and 7.6% respectively.

33% according to the companies surveyed, another reason for China's loss of competitiveness is employee turnover.

So far, the eastern coastal region of China has produced the most efficient factory organization in the world, which has won the world's most cost-effective product advantage and absolute low price, especially in the Yangtze River Delta and the Pearl River Delta region.

But investment in these areas has increased rapidly.

The amount of rental and office space is soaring, the shortage of industrial land and the cost of various facilities are increasing. The most important thing is the rising wages and the rising prices of industrial products after the implementation of the labor law.

Although the number of workers working from the mainland to the coastal areas is large, the number of workers has increased over the past two years, and the management has been growing faster.

But China is increasingly being harmed by its past successes. This kind of industrial mode based on low technology and low added value makes it difficult to cultivate and recruit skilled personnel, from financial executives to managers who understand international production technologies such as "Six Sigma management theory" and "lean production".

The lack of suitable talents has led to headhunting and soaring wages.

China is no longer the cheapest production place no doubt.

For example, the annual production of 1.8 pairs of shoes, Lok Yuen, a source of shoes, is hard to bear. Although the increase in production capacity can partially offset the high wage effect, the cost per unit of labor still grows at a rate of 8% per year.

Although wages are rising in Vietnam and Indonesia, they are 35% lower than those in China's coastal areas.

As a typical labor-intensive industry, the output of each pair of shoes requires 200 people to participate in the production process.

A potential solution is to continue to invest in China's inland areas, which are much cheaper than the highly developed coastal areas.

In fact, since 2000, the Chinese government has been implementing such a policy. In the central and western parts of China, where the investment in industrial land is 140 thousand yuan per mu, the land pfer fee can be reduced to 14 thousand yuan per mu.

After the land was taken down by 14 thousand yuan per mu, the enterprise was mortgaged to the bank in accordance with the price of nearly 14 thousand yuan per mu, and the investment of the enterprise was basically zero.

China's local enterprises have begun to march into these remote areas, and a small number of foreign enterprises have followed, and the number is increasing.

The way forward is made in China. Migration is the way of evolution that many enterprises choose.

These enterprises are everywhere in Wenzhou, the most developed private economy in China.

This trend obviously changed the local appearance of Yingtan, Jiangxi. There were few plains in Yingtan on the barren hills.