Last call for Guangdong
shoemakers By Olivia Chung
HONG KONG - Guangdong's thousands of
shoemakers, many of whom saw the start of the
province's transformation into China's engine of
modernization, are packing their lasts and moving
elsewhere as the Pearl Delta Region undergoes
another economic metamorphosis.
The
once-dynamic shoemaking industry has become a
remnant of its old self, with more than 1,000
footwear and accessory producers going out of
business amid an increasingly unfriendly
environment for their operations.
They are
part of a mass-migration of manufacturing industry
from the delta, as factories shut up shop in
increasingly expensive Guangdong and open up
either in the country's more backward
hinterland or overseas,
frequently in other Asian countries such as
Vietnam.
As many as 10,000 factories, many
invested from Hong Kong, are expected to close
around the Lunar New Year holiday on February 7.
Millions of migrant workers heading home to inland
provinces with New Year bonuses in their pockets
are unlikely to have work to draw them back.
Driving the closures, as factory owners
face rising costs for land and wages, are
government policies aimed at forcing out from the
area production of low-value-added goods and at
pulling in businesses that pollute less, employ
higher-skilled workers and help move the region up
the value scale.
Guangdong will push ahead
with developing innovative and service industries
while combating pollution, provincial governor
Huang Huahua said when he delivered a report at
the Guangdong 11th People's Congress on January
17.
Measures such as the increased
protection of intellectual property rights (IPR)
will be introduced to develop a
service-and-technology-oriented and
environmentally friendly economy. A multi-tier
capital and corporate bond market are envisaged to
help catapult the capital Guangzhou and Hong
Kong's neighboring city of Shenzhen into a
financial hub status to attract multinational
firms.
Such changes may help white-collar
workers from expat bank executives to insurance
salespeople in Guangdong and across the border in
Hong Kong breath easier if it helps to reduce the
delta region's notorious air pollution, which has
been cited by companies as justification for
moving offices to Singapore to the south.
Less happy will be blue-collar workers who
lose their jobs and their families in the poorer
inland provinces that depend on their remittances.
Some, such as 34-year-old Xiao Hanjun, from Hubei
province in central China, heading home for the
new year, hoped to find work in Suzhou, Jiangsu
province, after being laid off a month ago, ending
10 years of working in a factory in Guangdong's
Foshan.
Others will be less lucky, as many
factories are moving sticks out of the country.
Hong Kong businessman Leung Ka-yiu, boss of a shoe
factory in the Guangdong city of Dongguan, broke
off an interview earlier this month for a phone
discussion on transferring the plant to Vietnam.
After hanging up the phone, Leung said:
"No one wants to leave, but we just couldn’t go on
doing business.''
Woe upon
woe His litany of woes included rising raw
material and energy costs, appreciation of the
Chinese currency, labor shortages and
protectionism overseas. A new labor law and
disincentives targeting highly polluting
industries in the Pearl River Delta region helped
him decide to move out.
"Since the second
half of 2006, the Chinese government has started
to make a number of processing trade policy
changes, including heavy taxes, cancellation or
reduction of tax rebates, and the new labor law.
And we expect more new [unfavorable] measures to
be in the pipeline this year," he said.
The Labor Contract Law, effective from
January 2008, puts greater emphasis on protection
of labor rights, which manufacturers fear will
hamper management flexibility in deploying workers
and bring extra costs.
"The changes of
policies are just like a number of knives hanging
over the heads of manufacturers," Leung said. "The
labor law can be said to be the last push for me
to leave. If the law is strictly followed, my
factory’s labor cost will increase by 20%, which
many shoe factories like mine can not afford,
given our profit margin of about 8%."
Leung also doesn't qualify for help under
the new Corporate Income Tax Law, which will phase
out tax concessions for general manufacturing and
export businesses of foreign investors, with
exceptions for foreign-invested enterprises
investing in research and development.
That will particularly hit Hong Kong
businessmen such as Leung. In the past two
decades, more than 90,000 export-oriented
processing firms have been set up operations on
the mainland, with nearly 70,000 based in
Guangdong. Of those, about 57,500 owe their
existence to investment from Hong Kong and employ
9.6 million workers, according to the National
Bureau of Statistics.
Leung's shoe
factory, set up at Dongguan’s Houjie county 18
years ago, used to hire more than 600 people. "To
avoid the new labor law, by the end of December we
had to lay off two-thirds of our people, which
cost us millions of yuan,'' Leung said.
Pointing to a map of Vietnam on the wall
behind his desk, Leung said: "My factory will move
to Binh Duong province, 17 kilometers north of Ho
Chi Minh City."
Leung 's factory is one of
more than 1,000 small and medium-sized footwear
and accessory producers in Guangdong that have
been forced to close down or move out of the
province in the past year, according to the Asia
Footwear Association.
"Up to 500 companies
have closed their doors in the last three months
alone, as Guangdong’s shoe industry faces
competition that is 10 times stiffer than in the
1990s," association secretary Li Peng said. The
province is a footwear manufacturing hub for
China, with 7,000 to 8,000 shoe factories,
according to the association. In Dongguan, home to
1,000 shoemakers alone, up to 300 firms had
closed, Li said.
Boom days
over The markets for leather and shoe
materials started to boom in Guangdong following
the establishment of numerous shoe, leather goods
and handbag factories in the Pearl River Delta
during the 1980s. The footwear and accessory
producers in the province supply material big
brand names such as Great Wall and Senda.
Li said these small and medium-sized
manufacturers, which rely on cheap pricing
strategies and often have weak management
practices, are increasingly unable to survive in
Guangdong.
About 50% of the shoemakers
that have closed down in Guangdong have moved
their factories to China’s hinterland, setting up
in Hunan and Henan in the center of the country,
in Jiangxi in the east, and in Guangxi, which lies
between Guangdong and Vietnam. A quarter have
moved to other Asian countries such as Vietnam,
India and Myanmar, while the remaining 25% have
shut up shop but are undecided about their next
move.
Jin Fei, general manager of Dongguan
Hong Teng Shoe Factory, said: "More than 80% of
the footwear factories are processing trade
activities surviving on low cost and low profit.
Given their profit margin of between 5% and 8%,
most of the footwear factories, plagued by
increasing cost of raw materials and labor due to
labor shortages, were probably in their last gasp
before the New Labor Contract Law came into
effect," he said.
At a forum on the
shoemaking industry in December, Liang Yaowen,
director-general of the Foreign Trade and Economic
Cooperation Department of Guangdong province,
pointed out that technological solutions were the
only way out for local shoemakers.
Shoemakers are not the only businesses
feeling the pinch. Zhu Yongxin, who has had a
clothing factory in Zhang Cha city in Foshan,
Guangdong, for 11 years, echoed Jin’s views,
saying the cost of steel for buttons had increased
to more than 60,000 yuan (US$8,350) a ton recently
from 20,000 yuan in 2004, while oil for sewing
machines cost 75 yuan a barrel, up from 60 yuan a
barrel a year ago.
The cost of unskilled
labor is also surging, with a worker's monthly pay
rising to about 1,200 yuan now from 800 yuan two
years ago, while a skilled worker could get
between 1,500 yuan and 2,000 yuan, said Zhu, who
is going to move his factory to Hunan after the
holiday break.
Chen Yonghan, chairman of a
trade union for factories in the Shenzhen area of
Guangdong, said stricter government regulations on
environment and labor rights meant that about
10,000 factories in Guangdong, mostly engaging in
processing trades, might close down around the
holiday period.
He expected the decreasing
number of factories in Guangdong will not only
cause economic loss to Guangdong province, but
also in other provinces as millions of rural
migrant workers will lose their jobs, hitting
remittances.
According to a Guangzhou
Daily report, migrant workers in Guangdong, the
country's richest province, earned more than 130
billion yuan last year. They remitted more than 70
billion yuan to other provinces last year, the
paper said.
Sichuan and Hunan were among
the biggest recipients for the cash, receiving
more than 20 billion yuan from Guangdong last
year, or about one third of the total.
Olivia Chung is a senior Asia
Times Online reporter.
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Asia Times Online Ltd. All rights reserved. Please
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