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China’s workshop gets transplanted Add to ...

Building new roads, railways and airports has not only created jobs and economic growth in the interior, it has also left a legacy of a more competitive manufacturing sector.

Although the shift away from Guangzhou and other coastal cities is a relatively new phenomenon, China’s manufacturing sector has a history of clustering in the most cost-efficient areas.

Now a financial centre as well as the world’s busiest container port, Shanghai was once the global hub of cotton spinning and textile manufacturing. Most of those factories left the city and headed south more than a decade ago.

Hong Kong too, was once home to thousands of factories, but is now a city centred on financial services that also serves as the executive headquarters for many companies whose production requires cheap labour from mainland China.

When it comes to maintaining low-cost production, China’s manufacturing sector adapts to shifting conditions faster than any one else, says David Fung, a Vancouver-based businessman and the former chairman of the Canadian Manufacturers and Exporters group.

“In North America we are so protective of our communities we try to preserve the old regime,” he says, referring to emotional efforts to resuscitate manufacturing towns in Canada and the United States. Yet when cost pressures become too much for private Chinese manufacturers, it’s often a simple decision “to move their factories away from the hot zones,” he says.

The scores of cranes and construction sites in Chongqing is a testament to this philosophy. While steeped in ancient tradition and thousands of years of history, China’s approach to economic development has long favoured progress over sentimentality.

Central and local government planning allows for rapid development. If the government decides that a road, railway or factory should be built somewhere, local residents have little choice but to accept compensation and, literally, move out of the way of progress.

In China, it is not uncommon for whole villages to be displaced and levelled to make way for new development. Despite protests to preserve them, Beijing’s Hutongs (traditional one-storey city dwellings) continue to be torn down to make room for new roads, metro lines and skyscrapers.

The destruction of historical buildings and in some cases traditional ways of life, is an unfortunate side effect of the government’s core objective of continued economic development that will improve living conditions of China’s almost 1.4 billion population.

China’s planned economy and the central tenet of bettering the fortunes of its citizens at the expense of almost all other goals will continue to give its manufacturers and exporters an advantage over Western competitors.

Local government officials in China are compensated, in part, based on their region’s economic growth. This gives them a vested interest in creating conditions and adapting to economic shifts in a way that will help manufacturers succeed.

Factories in Chongqing were once focused primarily on military and automobile manufacturing. Now the municipality is refashioning itself as a high-tech production centre providing incentives for laptop manufacturers to set up shop.

Zhou Shulin, the vice-director for the Chongqing Logistics Co-ordination Office, explained in stark terms what is driving the government’s fervent push for economic development in the region.

“Chongqing is not going to be Detroit,” he said.

Tensions rising

To be certain, no one is predicting a full-blown mass exodus from the manufacturing hubs centred around Guangzhou and Shanghai any time soon. The ports and exporting infrastructure around these areas remains the best and fastest way to ship Chinese-produced goods overseas.

But tensions are rising. An aging and undersupplied work force has driven wages higher, and those that aren’t getting a raise are fighting back. In May, rising inflation spurred an unprecedented strike by thousands of Shanghai truck drivers that disrupted shipping from the world’s largest container port. After a few days of violent clashes between the police and drivers, Shanghai’s local government cut tariff fees to convince the truckers to end the strike.

Some Chinese companies are even moving right out of the country in a bid to keep costs down. Some sectors, textile manufacturing in particular, are shifting production to countries where wages are even lower than in China. Nations like Vietnam, Bangladesh and Thailand have seen an increase in manufacturing activity as Chinese labour costs rise.

But as manufacturing operations shift to low-cost countries or areas inland, the question is how long can China continue to find ways to keep a lid on costs before they erupt and send prices of its goods surging.

At the Xinli barbeque factory, cost pressures are already brewing. In the past year, Mr. Liang has had to raise wages by about 10 per cent to match inflation.

As he explains: “If we don’t pay people at a certain level, they will not put all their might into the work.”

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