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South China factories on the move – relocation has begun
Fujian, Zhejiang and Northern Vietnam main new destinations for low end
sourcing / manufacturing
Quoted from China Brief
SHENZHEN, April 11 - South China, long the country’s epicenter of low-end
manufacturing and sourcing, is seeing a massive slowdown in new
investment as companies look to move further inland and elsewhere.
Dezan Shira & Associates, which has maintained offices in the region for
16 years, reports that its clients’ foreign direct investment (FDI) in South
China has seen a steep decrease in the first quarter of 2008. The findings,
part of the firm’s first-quarter national assessment of FDI in China,
represent the first large-scale decline in the region, with Guangdong
province among the hardest hit. Inbound FDI to Shanghai and the Yangtze
River Delta, or the Beijing-Tianjin corridor, remains strong.
“What we are seeing in South China is a massive change in the nature of
the business environment here,” says Chris Devonshire-Ellis, the firm’s
senior partner.
The flagging investment, says Devonshire-Ellis, comes amid a government
push to attract added-value businesses and more hi-tech industry,
including the development of the Shenzhen Hi Tech Zone. However, new
foreign investors in high-tech by and large haven’t yet seen the
opportunities here and remain aloof, opting instead for Shanghai and
Hangzhou.
At the same time, Guangdong province’s one-time strengths as a low-cost
manufacturing hub are declining fast as the government works to deter
such industries. Companies face stepped-up environmental controls,
tightened applications approval procedures and steeper minimum
registered capital amounts. The higher taxes foreign companies must now
pay in China don’t help matters.
Some companies are mulling whether to leave China altogether. In a
recent survey conducted by Booz Allen Hamilton and the American
Chamber of Commerce in Shanghai, nearly one in five companies said
they plan to move at least part of their China operations to other countries.
Vietnam topped the list of alternative countries among 63 percent of these
corporations; India was first among 37 percent. Almost 90 percent of these
companies said lower labor costs originally drew them to China, but now
they’re finding other countries offer cheaper labor and tax benefits. Other
companies, however, cited China’s vast market as a main reason for
staying put.
While foreign companies aren’t shutting their doors en masse, the firm is
increasingly busy devising relocation plans for companies on the move.
Among the top destinations are areas further inland, toward south coast
cities such as Zhongshan, Jiangmen and Zhuhai, or further north-east to
Fuzhou, Yiwu and Ningbo. Sourcing companies are heading to the east
coast because of its easy and still inexpensive port facilities, while low-end
manufacturers are moving somewhat more inland, north of Guangdong.
Many of the firm’s clients – both foreign invested and Chinese companies –
are looking to move from Guangdong to Vietnam, especially from Daxin on
the Chinese side and to Dong Cang on the Vietnamese side.
“This trend is growing and we expect to see a lot of relocation and
restructuring of such businesses during the latter part of this year and into
next,” says Alberto Vettoretti, the firm’s managing partner for China.
With the government working to shift the country from old, low -tech industry
to new, hi-tech industry, a slowdown in South China manufacturing might
be expected. But Devonshire-Ellis notes that the region’s hi-tech sector isn’
t growing quick enough yet to compensate for the loss of low-tech
businesses.
He says Guangdong province, and Shenzhen in particular, is well suited for
high-tech business, already home to U.S. and Japanese multinationals
such as IBM. Other MNCs will eventually catch up with the changing
business climate, though this could take time.
As Guandong province re-invents itself, Shanghai and regional cities in the
Yangtze River Delta should take note: they could face similar challenges in
two or three years.
“When the head office accountants back home start to compare costs of
manufacturing business around Shanghai with elsewhere in China, blood
will be shed, and the region will go through its own relocation evolution —
just as Guangdong is doing now,” says Devonshire-Ellis. “It’s only a matter
of time.”
Fujian, Zhejiang and Northern Vietnam main new destinations for low end
sourcing / manufacturing
Quoted from China Brief
SHENZHEN, April 11 - South China, long the country’s epicenter of low-end
manufacturing and sourcing, is seeing a massive slowdown in new
investment as companies look to move further inland and elsewhere.
Dezan Shira & Associates, which has maintained offices in the region for
16 years, reports that its clients’ foreign direct investment (FDI) in South
China has seen a steep decrease in the first quarter of 2008. The findings,
part of the firm’s first-quarter national assessment of FDI in China,
represent the first large-scale decline in the region, with Guangdong
province among the hardest hit. Inbound FDI to Shanghai and the Yangtze
River Delta, or the Beijing-Tianjin corridor, remains strong.
“What we are seeing in South China is a massive change in the nature of
the business environment here,” says Chris Devonshire-Ellis, the firm’s
senior partner.
The flagging investment, says Devonshire-Ellis, comes amid a government
push to attract added-value businesses and more hi-tech industry,
including the development of the Shenzhen Hi Tech Zone. However, new
foreign investors in high-tech by and large haven’t yet seen the
opportunities here and remain aloof, opting instead for Shanghai and
Hangzhou.
At the same time, Guangdong province’s one-time strengths as a low-cost
manufacturing hub are declining fast as the government works to deter
such industries. Companies face stepped-up environmental controls,
tightened applications approval procedures and steeper minimum
registered capital amounts. The higher taxes foreign companies must now
pay in China don’t help matters.
Some companies are mulling whether to leave China altogether. In a
recent survey conducted by Booz Allen Hamilton and the American
Chamber of Commerce in Shanghai, nearly one in five companies said
they plan to move at least part of their China operations to other countries.
Vietnam topped the list of alternative countries among 63 percent of these
corporations; India was first among 37 percent. Almost 90 percent of these
companies said lower labor costs originally drew them to China, but now
they’re finding other countries offer cheaper labor and tax benefits. Other
companies, however, cited China’s vast market as a main reason for
staying put.
While foreign companies aren’t shutting their doors en masse, the firm is
increasingly busy devising relocation plans for companies on the move.
Among the top destinations are areas further inland, toward south coast
cities such as Zhongshan, Jiangmen and Zhuhai, or further north-east to
Fuzhou, Yiwu and Ningbo. Sourcing companies are heading to the east
coast because of its easy and still inexpensive port facilities, while low-end
manufacturers are moving somewhat more inland, north of Guangdong.
Many of the firm’s clients – both foreign invested and Chinese companies –
are looking to move from Guangdong to Vietnam, especially from Daxin on
the Chinese side and to Dong Cang on the Vietnamese side.
“This trend is growing and we expect to see a lot of relocation and
restructuring of such businesses during the latter part of this year and into
next,” says Alberto Vettoretti, the firm’s managing partner for China.
With the government working to shift the country from old, low -tech industry
to new, hi-tech industry, a slowdown in South China manufacturing might
be expected. But Devonshire-Ellis notes that the region’s hi-tech sector isn’
t growing quick enough yet to compensate for the loss of low-tech
businesses.
He says Guangdong province, and Shenzhen in particular, is well suited for
high-tech business, already home to U.S. and Japanese multinationals
such as IBM. Other MNCs will eventually catch up with the changing
business climate, though this could take time.
As Guandong province re-invents itself, Shanghai and regional cities in the
Yangtze River Delta should take note: they could face similar challenges in
two or three years.
“When the head office accountants back home start to compare costs of
manufacturing business around Shanghai with elsewhere in China, blood
will be shed, and the region will go through its own relocation evolution —
just as Guangdong is doing now,” says Devonshire-Ellis. “It’s only a matter
of time.”
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