Frank Sieren & Andreas Sieren: No dolls from Shenzhen
The economic crisis has hurt the "factory of the world" badly. Guangdong is going high-tech but needs help from Beijing
The economic crisis has hurt the “factory of the world” badly. The southern Chinese province of Guangdong is going high-tech but needs help from Beijing.
If you take the train from Hong Kong to Guangzhou, the capital of the province Guangdong, you travel through a landscape of factories. Huge warehouses of grey and blue. Wide, busy streets in between. Here and there, still a rice field and a basin for growing shrimp. It is difficult to say where one city ends and the next begins. A juggernaut of the Chinese economic boom, shrouded in a combination of smog and subtropical mist.
Guangdong, the 110-million people province in southern China, has always marched ahead of the rest. Thirty years ago, people here used to be as poor as the rest of China. In the intervening years this region has become the factory of the world. Nowhere else in China has the per capita income risen as fast as in Guangdong. The significance of the region for the global economy is immense. A quarter of all foreign direct investment targets Guangdong, 30 per cent of the Chinese trade volumes are processed here, and 12 per cent of the national economic output is generated here. Guangdong’s gross national product is higher than that of Indonesia.
Even now, during the economic downturn Guangdong is ahead of the pack. In the ports of the Pearl River Delta, which are among the biggest in the world, empty containers are piled up. The handling of containers has been reduced by 25 per cent. The economic output has not decreased as much as elsewhere in the world, such as the US or Germany, but economic growth is much slower than usual: in 2007 the growth rate was 14 per cent. In 2008, this dropped to 10 per cent. And in 2009 it is hoped to reach 8.5 per cent, the lowest in 30 years.
The crisis has arrived quickly — and unexpectedly. About a year ago, politicians and factory owners had trouble finding workers. Not enough Chinese were willing to take the long journey from the west to the south to attach dolls’ body parts, sew wind breakers or assemble coffee makers. This was a direct result of an improved economic performance of China.
In the west of China, where all migrant workers originate, the economic situation has eased. While the economic boom there has been a lot more modest compared to Guangdong, it has been strong enough to make the long journey into the south less attractive. First, factories in the south with hazardous working conditions had difficulties attracting workers. Since 2006 the workers had the upper hand in dealing with greedy company bosses. Their minimum wage in the capital Guangzhou rose by 14 per cent, in Shenzhen even by 17.4 per cent — and all of this took place without pressure from trade unions and mass protests.
But now the factory of the world gets only a faint echo of the orders it once received for its goods. “This is the biggest crisis for Guangdong since China opened up to the West,” the Governor of Guangdong, Huang Huahua, declared a few weeks ago. 600,000 migrant workers have already left the province, and Huang has to figure out what to do with the 1.68 million migrant workers who do not have jobs and who are straying across to the province. They constitute about 18 per cent of the 9.5 million migrant workers of Guangdong.
Certainly one could downplay the issue: this economic stagnation will be over at some stage, and the province is used to major crises. This current crisis though hits the region at an inconvenient time: During the economic boom years, Guangdong was on its way to turning a cheap manufacturing location into an industrial region. The crisis has caused a serious setback.
Huang and his strategists took rising productions costs not as a threat but as an opportunity for an economic miracle. The south of China, says Huang, is going through a transition. At some stage it is no longer profitable to make t-shirts. “Guangdong is at the start of a new phase of economic development,” he says openly while meeting with disgruntled entrepreneurs who keep insisting on low wages.
During the first half of 2008, already 76,000 companies had to close shop. Huang had even decided to artificially accelerate this development: Closing down t-shirt factories to give way to manufacturers of circuit boards. He raised the minimum wages, the last time during the first half of 2008 by 13 per cent. The company owners were less pleased, but they succumbed to the political pressure, many had to close their factories. An unavoidable consequence: 3,631 toy factories in Guangdong had to close down between January and September 2008, according to the Chinese official press agency Xinhua. That means more than half of the manufacturers in this sector. All in all, 67,000 companies across sectors were forced to close in Guangdong during the first half of 2008.
Huang called this a policy of acceleration. He did not mind that manufacturers of clothing, shoes, toys and kitchenware were moving to the west of China where labour is still cheap. As a result, many company owners have moved to the west of China. Migrant workers followed them. Warning bells are being rung: “Guangdong has entered a critical period of industrial transition,” says Di Ling, a researcher with the Guangdong provincial situation research and study centre. But Governor Huang was proud of his numbers. For him, they indicate progress.
And now? Should Guangdong return to the manufacturing of slippers, Barbie dolls and bras? Are there even any factories left to do this? “We will try to set up more high-tech industries,” says the leader of the Communist Party of Guangdong, Wang Yang. Even Western economists such as those of the Standard Chartered Bank observe “signs of improvements in the manufacturing sector”. That may just be an interim high. But the economic strategists of the government are confident that they have sufficient reserves to upgrade the economic locomotive of Guangdong.
But it will only succeed with a strong helping hand from Beijing. A few weeks ago, Prime Minister Wen personally announced another gigantic project: the construction of a $10.6 billion, 30-km long bridge from Hong Kong to Zhuhai and Macau at the southern tip of Guangdong. The bridge will reduce the travel time between the cities from four hours to 30 minutes. The central government is fully supportive of its boom province, 3,000 km in the south. It is a bet on a better future after the crisis.
The bestselling author Frank Sieren has been living in Beijing for 15 years and is regarded as one of the leading German China experts. His brother Andreas is a specialist in international relations and development aid. He worked for many years for the United Nations in Asia and Africa.