Two-way opening-up in Dongguan

By Chen Qingqing Source:Global Times Published: 2018/2/21 18:28:40

Guangdong factories shift from OEMs to build their own brands

As Chinese lunar new year loomed, Dongguan in South China's Guangdong Province turned almost into a ghost town.

"As a large part of the people living here are migrant workers, it's now time for them to go home," said the owner of a local restaurant surnamed Zhang.

Dongguan is a manufacturing hub in South China's Pearl River Delta, which has been growing into the world's factory since the country unveiled its economic reform and opening-up plan 40 years ago.

"At the early stages of opening-up, China needed foreign capital to help its industries grow, so many favorable policies including tax cuts, lower land use cost as well as cheap labor costs attracted foreign investors to set up factories here," said Kwokwah Lui, director of the Dongguan City Dongcheng Association of Enterprises with Foreign Investment. 

Lui, a businessman originally from the Hong Kong Special Administrative Region, came to Dongguan in 2004.

"Many investors who came to invest in the Chinese mainland in the 1990s were from Hong Kong because of its proximity to this area. Local factories worked as OEMs [original equipment manufacturers] for foreign firms," he told the Global Times.

Dongguan is composed of 28 counties, and each of them specializes in different kinds of manufacturing ranging from cloth and shoes to electronic molds and components. The city has also welcomed the establishment of the first factory that operated under a model designed to promote processing activities and compensation trade.

The first handbag plant called Taiping was jointly set up by the local textile bureau in Dongguan and a handbag company from Hong Kong in 1978, domestic news site reported in 2015. All the materials and equipment were shipped from Hong Kong and the factory earned part of its profits from processing - the only foreign-funded manufacturing model at the early stage of China's opening-up.

Four decades later, various kinds of local factories continue to contribute to the city's rising trade volume. Dongguan recorded a total trade volume of 1.23 trillion yuan ($194.4 billion) in 2017 alone, up 7.5 percent year-on-year, according to an annual report released by the local government on February 1. The city accounted for about 4.4 percent of the country's overall trade volume in 2017, according to Global Times calculations.

In a factory that produces circuit boards, which are sourced by multinational tech companies like Cisco Systems Inc, dozens of Chinese workers carefully check blueprints for production targets, while others place components in their proper positions. Another factory nearby is producing smartphone shells for foreign companies like Samsung.

"Here, in an unremarkable factory, workers are probably making accessories and components for well-known brands like Gucci, that's the attractiveness of this manufacturing hub," said a local businessman surnamed Xu, who has been working in the city for years.

Rising local firms

When foreign companies originally came to set up plants in Dongguan, they also brought technologies to the city, which helped local industries grow, Lui noted.

"As a result, local firms have been more and more competitive in the market in recent years," he said.

Some Chinese entrepreneurs whose factories now see production equivalent to millions of yuan every year first started their careers in foreign-owned factories in the Pearl River Delta area.

Cai Wenzhen, the owner of a Dongguan-based optoelectronics company, left his hometown of Putian in East China's Fujian Province in 1992 for Shenzhen's Baoan district to work at a mold and plastic factory. Putian is about 800 kilometers from Shenzhen, and at that time, it took Cai two days and nights to reach the city by bus. The plant was initially set up by a firm investing in the mainland from the island of Taiwan.

"I accumulated experience in that factory. With the help of its suppliers, I designed some molds and offered product maintenance," Cai said, noting that he earned his first barrel of gold in that factory and started his own molding business with just 6,000 yuan in 1996.

The thin, shrewd businessman had previously set foot in a range of businesses related to electronics such as smartphone accessories, buttons and display production. But then, when Shenzhen-based lighting product manufacturer Shenzhen Diguang Electronics Co approached him, Cai made a technology breakthrough with a certain molded product that could replace some components in a lighting system, which had to be made in Japan.

"It was a turnaround in my career. Then I started my optoelectronics business," he told the Global Times.

His company - Dongguan Xinju Optoelectronics Technology - set up for the first time a stand at CES 2018, the world's largest tech trade show held in Las Vegas in January.

"I, personally, have participated in CES for three years. As we [the company] have been selling components and accessories in the past few years, we had our clients and suppliers [already], so we did not have to make an appearance at the global event [prior to 2018]," he said.

"As part of our global expansion strategy, we started our own brand-building last year and came up with our own products like an LED photo frame, so [we thought] CES [2018] would be a good opportunity for us."

Xinju has also designed some LED-powered pictures of Jesus Christ and impressionist flower paintings to impress customers overseas.

Decline in foreign capital

As China's economy has been maintaining solid growth momentum, both labor costs and land use fees have largely increased over the past few years. "We used to hire a worker for 600 yuan per month, now it's 3,000 yuan on average. It's no surprise labor-intensive industries have fled," he said.

"Also, the business environment in China has matured with improved rules and regulations on environmental protection and labor rights protection. Foreign firms face more restrictions when abiding by those rules, compared to local private firms," Lui noted.

Rising costs are not the only reasons for those foreign firms moving their production lines to Southeast Asian countries such as Vietnam and Cambodia. More intense competition with local rivals is a more important factor.

Some Chinese enterprises in Dongguan, which have accumulated experience in some rather niche sectors such as the magnet business or sensor control production, now intend to further expand their businesses to the lower-end of the supply chain by building up their own brands.

"It's time for us to make a step forward in the global market, not just play the role of an OEM," said Xu Bin, head of Dongguan Jinconn New Material Holdings Co. Jinconn, which got listed on China's National Equities Exchange and Quotation (NEEQ) in 2016, has been expanding in Southeast Asian countries in recent years. The company, with the help of capital, is also looking beyond this region and seeking more opportunities in major markets like the US, Xu said.

Workers at an original equipment manufactuerer factory in Dongguan, South China's Guangdong Province. Photo: Chen Qingqing/GT





blog comments powered by Disqus