Labor Costs Worry About Luggage Industry Or Withdraw From The Pearl River Delta

In Heshan, a city in southwest Guangzhou, China, Austria The company has set up a factory that produces high-end ski suits for European brands. Gerhard Flats (Gerhard Flatz) is the general manager of this factory. Flats is having a problem now. He could not find enough skilled female sewing workers, even though he made a monthly salary of $1500 for the best skilled workers - about 8 times the minimum wage in Heshan.

Flats is inspecting. Heshan factory "China is short of skilled workers," he said.

When he passed the pattern, his most talented employee was working inside it. The nagging Austrian explained that he would pay attention not to reveal their names so as not to be dug up.

Flats laughed and said, "it's like NSA." He refers to the most secret intelligence department in the United States, the National Security Agency (NSA).

It is by many cities like Heshan that Guangdong has now become the "world factory". Another such city is the headquarters of Shenzhen, HUAWEI (Huawei) and Tencent (Tencent).

When Christina Zhang arrived in Shenzhen in 1983, it was still a remote fishing village. Deng Xiaoping set up the first special economic zone in China in Shenzhen. Now, 30 years later, Shenzhen has developed into a prosperous metropolis.

Christina Zhang, a logistics company's PCH International, said: "at that time, most of them were rice paddies. I learned how to ride a bike on Shennan Road. At that time there was not a car on that road, but now it is a main road.

Since Deng Xiaoping launched the economic reform in 1979 and set up the special economic zone of Shenzhen, Shenzhen has gradually developed from a small town with 30 thousand adjacent to Hongkong to a modern metropolis, with 10 million population and per capita disposable income as the first in China.

Shenzhen, Guangzhou, Dongguan, Foshan and other regional cities constitute. Zhujiang Delta The core. The Pearl River Delta, which has a total population of 56 million, is crucial to the world economy, because bicycles, jeans, sex toys to iPad, all kinds of products are produced here.

Toys made in a single city in Dongguan account for 30% of the total volume of toys sold during the Christmas season. Yao Kang, deputy secretary of Dongguan Municipal Committee, said that 20% and 10% of the sportswear and running shoes worn by consumers around the world were also produced in Dongguan. As the local people in Dongguan say, "if there is a traffic jam in Dongguan, the whole world will be out of stock."

A recent estimate in Guangdong highlighted the remarkable achievements of the region's economic growth: in 2013, Guangdong's economy grew by 8.5% over the same period last year, and GDP reached 6 trillion and 330 billion yuan (1 trillion and 50 billion US dollars), which is between the GDP figures of South Korea and Indonesia.

The Pearl River Delta has been able to produce cheap goods for so long because millions of migrant workers have been willing to work in factories to make products that they can hardly afford. In Shenzhen, the local government has announced that the minimum wage will be raised from 13% to 1808 yuan in February 1st. Although the minimum wage in Shenzhen is the highest in China, a worker still needs two months' salary to afford a iPad Air.

But this system is under pressure now, from London shoppers to Chinese young people in Guangdong, and all kinds of people are affected: recruitment is getting harder and harder, wages are rising rapidly, raw materials and land prices are rising day by day, the renminbi keeps rising, and the Pearl River Delta's attractiveness to manufacturing is shrinking compared with other regions.

The Pearl River Delta region is obviously facing the challenge of rising labor costs - the wage level of Guangdong is increasing at a rate of two digits per year. This situation is unlikely to change, because China put forward the goal of an average annual growth of 13% in the national minimum wage standard in its "12th Five-Year" (2011-2015 year) plan, which is one of the initiatives of the Chinese government to stimulate consumption and reduce investment dependence on the economy.

　　 Hongkong joint garment industry (TAL) chief executive Li Guoquan (Roger Lee) said that workers' wages have doubled in the past 5 years. Joint garment has 11 factories in Asia and produces clothing for dozens of global brands. In 2008, the production cost of the garment factory in Dongguan was half that of the factories in Malaysia and Thailand. Now the gap has disappeared.

Crystal Group says endogenous costs, including wages and the appreciation of the renminbi, have increased by 10%-12% over the past 5 years. As a result, the company was forced to shift the production of Paul shirts and underwear to other areas. Jingyuan group is one of the largest clothing companies in Asia and has 11 thousand workers in Dongguan.

　　 crystal group Chief executive Luo Zhengliang (Dennis Wong) said: "our strategy is... Production in areas where labor costs are relatively low in Vietnam or Kampuchea. That's why we can still survive. "

While Jingyuan group and other companies have shifted production to Southeast Asia, other companies have moved to the mainland with lower labor costs. Samsonite, a luggage maker, has outsourced 65% of its production to Chinese companies. In recent years, many of its suppliers have moved to the surrounding provinces of Shanghai in the Yangtze River Delta. {page_break}

　　 Samsonite Chief executive Tim Parker (Tim Parker) said: "in the past, we had about 80% or 90% partners in Southern China, and now we are mainly... Purchase from East China. "

Despite rising labor costs, it is not easy for foreign companies and their Chinese local manufacturers to decide to leave the PRD. To create an ecosystem equivalent to the Pearl River Delta without causing additional costs, it is very difficult to build a highway and railway infrastructure from the supplier cluster to the Shenzhen and Hongkong ports.

Nick Debham, Asia president of KPMG (KMPG) consumer market, said that for manufacturers such as textile industry, it is relatively easy to transfer low technology production to Bangladesh and Kampuchea, although wages in those countries are also rising. But toy manufacturing and other industries are less likely to shift because the survival of these industries depends on the centralized supplier cluster. The toy industry is mostly located in Southern China.

"We need to install a lot of ancillary equipment in 00 scattered locations, so it is very difficult to fix, package and ship the entire equipment out of China," debham said.

Even if it is only to consider moving to inland China rather than overseas, it is not easy to decide to move. Li Guoquan, a joint garment maker, said his company did a survey 5 years ago. It found that moving to the mainland could reduce labor costs by 15%, but the level of infrastructure in the mainland may not be as good as that in Guangdong.

For manufacturers who are not easy to migrate, one solution is to improve automation level. Parke of Samsonite said that many of his Chinese suppliers did this. Automation is still a lot of space, and many Chinese factories use much more equipment than Samsonite itself in Belgium, he said.

Parke said: "in China... You will find completely different equipment, which is relatively low labor cost...... Resulting in. As labor costs rise, all of this is changing, so some of our suppliers have more aggressive factories to reduce labor costs, and have begun to invest in some more. Sophisticated sewing equipment.

Local governments such as Dongguan are striving to speed up the process of automation by providing subsidies. Yao Kang, deputy secretary of Dongguan Municipal Committee, made Dalang a typical example of knitting town. He said the factories in Dalang town used government funds to buy 40 thousand computer knitting machines, which could reduce 200 thousand workers.

although Manufacturer In order to solve the problem of rising labor costs, it is expected that this trend will continue to deteriorate, for many reasons. Part of the reason for the increase in wages is that the local government has raised the minimum wage standard. In the 2011-2015 year economic plan of Guangdong Province, the goal of increasing the minimum wage by 40% has been proposed. But the main reason is that in an increasingly tight labor market, factories are forced to pay higher wages to attract workers.

There are many reasons for the shortage of workers, but the main reason is population structure. Owing to the implementation of the family planning policy for many years, the labor age population in China (15 to 59 years) in 2012 declined for the first time in many years, to 937 million, a decrease of 3 million 450 thousand over the previous year.

Migrant workers now have better job opportunities in their home provinces, exacerbating the tight labour market in the Pearl River Delta region. These new opportunities are the result of the central government's policies, which are aimed at promoting the development of the mainland to reduce the income gap between the rich coastal areas of the mainland and the coastal areas. " Western Development "The strategy creates employment opportunities for the mainland provinces, especially for women who used to leave their children in factories at home and in Guangdong.

Another reason why manufacturers have to raise their wages is that workers are becoming more and more picky about their work because they have more choices as the labour market in the Pearl River Delta has begun to benefit workers. Compared with the previous generation of migrant workers, young workers are more reluctant to work hard.

Smart phone, micro-blog And the explosion of China's social media service WeChat (Overseas Edition WeChat) makes it easier for workers to know which factories can provide better treatment, which further increases their confidence.

Factories say recruitment of women workers is becoming more and more difficult. The family planning policy, coupled with the preference for boys in many places, has led to a gender imbalance in China and a decline in the number of female workers. However, young women are also more and more inclined to find jobs in the service industry rather than work harder.

Demographic and economic trends have triggered the wage increase in the Pearl River Delta region, forcing multinational companies to raise their prices and putting more pressure on suppliers to cut costs or directly accept lower profits.

But manufacturers like KTC in Heshan say that the more serious problem than wage increases is that it is difficult to recruit enough skilled workers to maintain sustainable production. Higher wages only add some cost to the factory.

KTC has opened a factory in Laos, but like the Jingyuan group, the clothes produced by the workers there are simpler than those produced in Heshan factories, because Lao workers are not as skilled as Chinese workers.

Top Form, an underwear manufacturer in Hongkong, is facing a similar problem. Huang Qicong, executive director of Kevin, said the company closed the Shenzhen plant in 2011 and opened a factory in Kampuchea.

Huang Qicong said that although the salary level of Southeast Asian countries is 1/4 of Shenzhen, this is not the main reason why she moved there.

Huang Qicong said: "labor costs have never been a problem. If you can't get workers, the cost of management will kill you. " He explained that it is impossible to find enough workers in Shenzhen.

In any industry, the challenges facing the PRD are forcing all manufacturers to find ways to cut costs. The most extreme way is to withdraw from China. But DEB said that multinationals are about to abandon China, which is exaggerated. Many companies have repeatedly threatened to evacuate China, but they have not really acted.

"People believe that China's cost and labor problems will inevitably force low value-added production," DEB said. Evacuate China, but now these factories are still here. "

Given its huge manufacturing scale, the PRD may remain a "world factory" for a long time. But manufacturers in the region and consumers who buy their products will face the prospect of price rise in the future.

Feng Guoguan William Fung, chairman of Li & Fung, said the rising cost of labour and raw materials means that the mode of service for China and the world has changed for 30 years. Li Feng is a large global sourcing company, purchasing products from WAL-MART (Walmart) to Taghit (Target).

Feng Guoguan said: "the era of subsidizing China's global standard of living has basically come to an end. From 1979 to 2009, China has provided the world with cheap and beautiful goods. In the future, people will have to pay a fair price for others.