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China’s workshop gets transplanted Add to ...

Now, places inland like the booming municipality of Chongqing with a population of 32 million and nearby Chengdu in Sichuan, China’s most populous province, are becoming manufacturing hubs in their own right.

“The manufacturing industry is moving from around Guangzhou and around Shanghai to the Chongqing/Sichuan economic circle. Manufacturers need a lot of human resources and we have such a big population in this region we can meet that demand,” says Liu Xiaoning, a manager with shipping giant Cosco Logistics in Chongqing.

The annual salary for a skilled worker in Chengdu is about 20,000 yuan (China’s currency) or about $3,090 (U.S.), according to human resources consulting firm Aon Hewitt. In coastal cities such as Guangzhou, it is more than 24,000 yuan or about $3,700.

Part of the government-backed push westward is to produce goods destined not for export, but for a growing domestic market. A key pillar of China’s economic strategy is to shift demand for its goods from export to the domestic consumer market. It will take years if not decades, however, to refashion the Chinese economy where GDP per capita is just $4,000, or less than a 10th of what it is in North America.

Indeed, the 800,000 barbecues produced each year at Mr. Liang’s factory in Yangjiang are all destined for foreign markets such as Australia and the United States.

“The Chinese people do not have a lifestyle like in the West where people get together for a barbecue,” he explains, glancing at an iPad in front of him on a huge boardroom table.

Even though Yangjiang is located on the South China Sea Coast, Xinli must transport the barbecues it makes by truck east to the major coastal port. The small port in Xinli is not equipped to handle container shipping.

Still, government investment in infrastructure projects has greatly improved the region’s competitiveness as a location for manufacturing. Ten years ago, it took eight hours to drive from Guangzhou to Yangjiang. Today it takes 3.5 hours.

Wage pressures in the factories of Guangzhou, Shenzhen and Dongguan have sent business owners looking for lower-cost alternatives. Mr. Liang says his factory-owner friends on the east coast are having trouble finding workers and are thinking of moving their operations west.

“In Dongguan, a lot of factories are empty now. They have “For Rent” signs,” he says.

As Chinese factory production moves west and away from the traditional manufacturing port regions of the Pearl River Delta, Yangtze River Delta and Bohai Rim surrounding Beijing and Tianjin, inland provinces that had previously depended on agriculture are enjoying unprecedented economic growth from increased industrial output.

GDP in Chongqing jumped 17 per cent last year. Next door, Sichuan province’s GDP surged 15 per cent in 2010 and, for the first time, overtook Shanghai’s in total economic activity.

A number of high-profile manufacturers have moved from Guangzhou to the interior province of Anhui, including television maker Konka and electronics firm Midea. Consumer products giant Unilever moved to Anhui in 2002 and said last year it would boost its investment in the province by $103-million. Anhui’s GDP climbed 14.5 per cent in 2010 compared with 12.2 per cent in Guangzhou.

This month, as inflation in China reached an almost three-year high, tensions in two factory cities close to Guangzhou boiled over. In the jeans manufacturing hub of Zengcheng, migrant workers rioted for three nights straight in response to a police crackdown on street vendors. Further away in Chaozhou, a mob trashed cars and attacked government buildings after a fellow worker was stabbed after demanding unpaid wages from his bosses at a ceramics factory.

Last year, Taiwanese electronics assembly giant Foxconn was hit by a raft of worker suicides at its factory in Shenzhen while three Guangzhou plants that produced cars for Japan’s Honda staged strikes. Both Foxconn and Honda raised wages to appease workers.

Foxconn, which assembles Apple products including the iPad and iPhone, recently built a massive factory in Sichuan’s capital Chengdu to produce more smart phones and tablet computers. The company believes workers will accept 15 per cent lower wages in Chengdu than at its factory in Shenzhen in exchange for working closer to home.

An adaptive culture

China’s “Go West” strategy offers tax breaks and other incentives to business that set up operations away from manufacturing hubs on the coast. It’s been in place for more than a decade, but only recently has it begun to take root and help attract major manufacturers to places like Sichuan and Anhui.

In addition to cost pressures on the coast, desperately needed infrastructure improvements in the interior have made the hinterland more economically viable. Much of the massive $586-billion (U.S.) stimulus package initiated by China’s central government in response to the global financial crisis in 2008 has been spent on upgrading infrastructure in less developed regions.

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