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China’s workshop gets transplanted Add to ...

Propane is escaping from a battered green metal cylinder beside a young factory worker testing barbeque gas lines and electric starters.

It’s dangerous work, but she stays focused, insistently pushing the igniter button as gas pools around the metal elements of a grill burner. Nothing happens. The smell is growing pungent.

The worker calmly removes and replaces the defective igniter with a new one, and with a single click a whoosh of flame bursts into the air. Amazingly, no one is hurt. She moves on to the next unit.

It’s just another day on the job at Yangjiang Xinli Industrial Co. Ltd. – the largest barbecue factory in the world.

The Xinli factory epitomizes China’s dominant position in the global consumer goods manufacturing chain. About 4,000 gas barbeque grills are produced each day here. At full capacity, it can churn out as many as 6,000, the company says. Embossed with a collection of familiar North American brand names, around 800,000 barbecues roll off the line each season.

China is the world’s workshop, but it’s getting more expensive to operate. Inflation is running hot and wages are soaring as companies are forced to pay more to keep workers on the job. That’s why Xinli has joined a growing number of Chinese companies moving their businesses to lower-cost areas inland, and built a new, massive factory here in Yangjiang, nearly double the size of its original 150,000-square-metre facility.

Steamy and persistently overcast, Yangjiang sits about 250 kilometres or a 3½-hour drive west from Southern China’s traditional manufacturing hub of Guangzhou and its frenzied factory cities of Shenzhen and Dongguan that are known as the Pearl River Delta.

Workers are drawn primarily from the local region and paid about 20 per cent less in than in Guangzhou, where labour inflation, unrest and a severe shortage of migrant workers have created a crisis for many Chinese manufacturers.

“Manpower is the problem in Guangzhou. It does not have many permanent residents. They come from outside which makes the cost of labour much higher,” says Liang Yuanmin, Xinli’s chairman and president.

Xinli used to have manufacturing operations in Guangzhou. But the new factory in Yangjiang, a so-called third-tier city with a population of about 2.5 million, will now serve as the company’s flagship factory. Xinli produces barbecues at a cost that would be almost impossible to match anywhere else in the world. It also makes turkey and fish fryers, small motorized pumps, and the new facility will also produce solar panels. With the solar business, the company hopes to cash in on the rush to green energy that has taken hold across China.

“Moving to third-tier cities will provide more resources,” Mr. Liang explains between drags on a Double Happiness cigarette.

“For research and sales Guangzhou will be the right place. But not for manufacturing,” he says.

A dying competitive edge

Manufacturing and export are the lifeblood of China’s economy, which overtook Japan last year to become the world’s second largest behind the United States. In 2010, China also surpassed Germany to become the world’s largest exporter.

The developed world has come to depend on cheaply produced consumer goods from China whose strong economic growth during the global financial crisis propped up a flailing West and helped pace the rebound.

Now, changing demographics, labour unrest and shortages, along with ever-growing pressure on wages are threatening the low-cost manufacturing machine that has given the North American consumer the $29 DVD player and $300 laptop at the local Wal-Mart.

Much of China’s manufacturing sector is facing a crisis that is blunting its competitive edge. Surging commodity prices, a rising Chinese currency and a sudden spike in wages is forcing factory owners to take drastic measures to reduce costs.

Last year, 30 provinces and municipalities in China raised local minimum wage levels by an average of about 23 per cent. Chinese finance officials are vowing to curtail inflation, running well above 5 per cent.

Cost pressures in China’s manufacturing sector have significant ramifications, not only for China, but the rest of the world that consumes its goods. Higher costs currently absorbed by manufacturers are starting to be passed on to the consumer. If this persists, it could stoke inflation in Europe and North America, a problem such industrialized economies can ill afford as they are already grappling with meagre growth despite ultra-loose monetary policies.

China’s response represents the beginning of the end of the biggest labour migration in modern history. For nearly three decades, millions of migrant workers from China’s interior provinces such as Sichuan, Anhui and Hubei were forced to move east to find work at coastal factories.

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