China | Dongguan: the nightmare flip side to China’s economic dream
Men work at one of Dongguan's many unregulated factory workshops. Photo: Johan Nylander
Men work at one of Dongguan's many unregulated factory workshops. Photo: Johan Nylander
ChinaEconomyTale of two cities

Dongguan: the nightmare flip side to China’s economic dream

In contrast to neighboring Shenzhen, Guangdong’s ”Sin City“ is seeing a proliferation of unregulated factories as it struggles to keep itself afloat

October 18, 2016 2:43 PM (UTC+8)

If Shenzhen is the model citizen in the context of the central government’s vision of a modern China, its nightmare scenario is a mere stone’s throw away.

Dongguan has become known as one of the workshops of the world. Just a few years ago it produced more than a third of the world’s toys, along with mountains of shoes, furniture and other low-quality mass-market products. More than two thirds of the city’s residents are guest workers from other provinces.

Traveling between Shenzhen and Dongguan it is hard to discern where one ends and the other begins — they are as good as joined. But in contrast to Shenzhen’s modern skyscrapers and green areas, Dongguan looks like one huge factory. Industrial plants fight for space with warehouses and grey-brown houses where workers live in dormitories. Wide highways thunder through the city and lorries cough out dark clouds of exhaust fumes.

Dongguan is one of many Chinese cities where the central government’s desired shift toward becoming a modern economy has had a tough time taking root.

Today, a ruthless wave of bankruptcies and factory shutdowns has swept through the city. With the number of minimum wage earners having soared in the past decade, competition from other low-income countries such as Vietnam and Bangladesh — or other parts of China where wages are lower — has presented a major challenge to their economic future. Also playing into the scenario are the government’s intensified environmental and sustainability requirements.

Guangdong’s former provincial party secretary, Wang Yang — now a vice premier — once used a metaphor to describe the change: “Empty the cage and let the right birds in.” But with the cage now empty, will new birds move in?

“No, it’s not happening,” says a local businessman whose company makes furniture and who gives the pseudonym Han Yulai. After many successful years, the company has lost most of its sales, primarily to Europe, and let go many of its employees. “Just in the past few weeks I have heard so many factory owners planning to close down or move their production,” he says. “They cannot afford to stay or are not willing to invest in more expensive production lines.”

Factory flight

We drive around the city’s factory areas for several hours. Everywhere we go we see empty or half-empty factories. Massive red banners hung in front of the buildings give phone numbers to call to rent or lease space.

According to Yulai, rents have dropped by half in only two years. In some parts of town, more than a third of all factories have shut their doors, he says. Factory owners are offering a finder’s fee of a month’s rent for info leading to new tenants.

Many factories have been turned into other types of businesses such as restaurants or department stores. We drive past a factory being used as a primary school in a contaminated industrial area.

“This is a catastrophe,” says Yulai. “The government should stop factories from moving to cheaper countries.”

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Empty buildings with space to rent can be found everywhere in Dongguan. Photo: Johan Nylander

Yulai’s father was a farmer. When the government confiscated his land 15 years ago, the family received enough compensation to build a house to live in and another two houses that they now use as small apartments for guest workers, with 20 square meters costing 200 yuan a month. Two years ago, workers were lining up to rent living space; today a third of the apartments are vacant.

“This is a downward spiral,” says Yulai. “The factories close, guest workers move, restaurants and shops close. I am concerned for the future of my family.”

Having flocked to the city for its cheap production costs, many companies have now long departed. In many cases, shutdowns have been abrupt, with workers met by locked gates when they arrive to work because the owner and management have left town.

According to the Economic Observer, more than 70,000 companies moved away from Dongguan or shut down between 2008 and 2012. Lost leasing revenues from factories and residential buildings have meant ever-burgeoning city debt since then. 

Desperate measures

The crisis has given rise to desperate measures. One way to lower manufacturing costs is to farm out production to illegal, unregulated small factories. Several people with whom I spoke confirmed that this practice has become systematized in recent years.

We take the car to a street where dozens of dirty workshops line both sides of the street. Manufacturing is underway inside the buildings and even out on the sidewalk. Here and there a noodle bar pops up between the factory buildings. One place is making shoes, another machines for making shoes; some make furniture, others bags.

“Whatever you want to manufacture, you can do it here,” says Yulai.

We enter one of the workshops. I have visited plenty of factories in my years in China but never any as downtrodden as this. The room looks like an aircraft hangar. The walls are made of corrugated sheet metal gaping with huge holes and pockmarked with rust. The air is filled with dirt and tiny particles. Workers in face masks stand bent over in one corner, grinding aluminum rods for chair frames. On the other side a woman sits and assembles parts. The floor is full of aluminum chips and oil. The workers are so absorbed with their duties that no one reacts as I walk around taking photographs.

“Many workers actually like working here,” explains Yulai as we stand at one of the workstations. “Even if the pay is lower, they have more freedom. They can work around the clock if they want. No one cares about the rules.”

A female purchaser of accessories for well-known European brands confirms this.

“The bigger factories are farming out more and more of their production to smaller plants, often small workshops. We do not know what goes on in those places,” she admits. “The manufacturers’ costs are rising quickly but we as buyers are not willing to pay more. So they have to find other ways of lowering costs.”

She also verifies that the habit of faking labor condition certificates is growing dramatically in cities like Dongguan.

One of Dongguan's many street factories. Photo: Johan Nylander
One of Dongguan’s many street factories. Photo: Johan Nylander

Dongguan’s Mayor, Yuan Baocheng, keeps up a constant effort in the media to maintain a positive image of the city. He says that massive investments are being made in robot automation and points to positive signs in the mobile phone and high tech manufacturing sectors.

However many businessmen and observers feel the measures being implemented by the local authorities are “too little, too late” and that the situation has turned into a race for the bottom as price competition rises and quality falls even further. 

Sex-trade wipeout

Two years ago, Dongguan was hit by another unexpected blow when police cracked down on its sex trade. Dongguan is also known as “Sin City” and it is estimated that around 300,000 people work in its sex industry. Police raids went on for three months and thousands of young women were arrested as saunas and Karaoke bars were shut down all over the city.

Lin Jiang, a professor of economics at Sun Yat-sen University in Guangzhou interviewed by CNN figured that the crackdown wiped out about 10% of the city’s economy, corresponding to about 50 billion yuan. The hardest hit were restaurants and hotels but local real estate and retail stores were also affected

“The raids have hurt the city’s image and that black cloud will not disappear,” he said. Jiang also speculated that the crackdown would hamper the development of advanced service sectors as company CEOs would get cold feet.

For Yulai, the effects are already obvious. He sighs: “I used to be able to offer my clients ‘a Dongguan standard’ at a karaoke bar,” he says, describing how the attitude to prostitutes works. “But that won’t work anymore. So far, fewer businessmen want to come here now.”

Before we part, he explains that he is looking for a new career. He might open a bar close to the university.

“Selling beer to the students would be a good idea. They are so bad at managing their money. I think people really like German beer,” he says. “Could you bring a case with you the next time you come here so we can test it? Or do you have any other ideas?”

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