Cover Story

Increases in Christmas orders bring little joy

By Meng Jing (China Daily)
Updated: 2010-09-17 10:56

In addition, taking the advantage of the growing domestic market may not be an option for the Pearl River Delta manufacturers as the quality of their products are higher and more expensive than those from Yiwu, East China's Zhejiang province, which is known for small commodity trade and vibrant free market.

Between the 1980s and 1990s, many manufacturers moved into Guangdong from Hong Kong, Macao and Taiwan due to labor costs.

About 70,000 out of the 90,000 material processing enterprises in China are in Guangdong, which has helped the province maintain the top position in China's import and export trade since 1986.

However, it seems the status of the region being the world's factory has been shaken.

Latest statistics from the Customs show that the trade in Guangdong province from January to August, accounted for about 26 percent of that of the country, compared with 30.1 percent in 2005.

In the first eight months of this year, Guangdong's trade increased 32.5 percent year-on-year, lower than the national average of 40 percent.

Yuan Gangming, a professor with Beijing-based Peking University, said the delta heavily relies on overseas markets, preferential policies and cheap labor.

"That's why its performance can be influenced by the external factors so easily," Yuan, who specializes in regional economy, said.

"If they don't change, the heyday of the Pearl River Delta will be gone soon, with or without the global financial crisis."

Lung Cheong International Holdings Ltd, a major toy manufacturer in Changping town, also in Guangdong, has realized the importance of upgrading its products.

The Hong Kong company came to Changping in 1980 as an OEM but after decades of development it has successful turned itself a company that manufactures its own brand.

With rising labor costs in Guangdong, the company moved 80 percent of its OEM to Indonesia, employing 1,500 workers instead of hundreds when it opened a factory there in 1993.

"The production in Changping now is focusing on creativity and high-tech," Sam Leung, managing director of the company, said.

About 55 percent of the company's products are OEM while 35 percent are ODM (original design manufacturer). But Leung said profits from the ODMs are higher than from OEMs.

"When you put your own technology in the products, you can gain more power when negotiating price with buyers, even in a bad economy," he said.

Unfortunately, not every OEM in Changping is able to afford the annual 30 million yuan cost on technological research and development, like Leung's company.

The Changping government has a goal to push the 200 OEMs in the town to transform and upgrade their businesses. By the end of last month, about 90 agreed to do so.

Li Haoqiang, from the foreign trade and economic cooperation department in Changping, said: "The job is getting harder. Those who are able to do so have already made the moves.

"For some small factories, they'd rather shut down than transform their labor-intensive production mode."

China Daily