When I lived in Shanghai I had a friend from Taiwan, Mr Wang . Mr. Wang owned a factory that made Christmas lights. It was a fairly large factory by China standards and every summer Mr Wang’s business was thriving – getting ready for the annual flood of Christmas orders from Taiwan and the UK. I always think about Mr. Wang around this time of year. I wonder how he is doing now, because the toy and seasonal gift industries in China have been heavily impacted from external events – the Global Economic Crisis – and internal pressures: rising wages and higher production costs. Of more than 6000 toy and seasonal gift companies in the Pearl River Delta region (where over 80 % of the World’s toys are manufactured, to the tune of $ 1 billion in annual sales) over 3000 business have shut down during the past two years. There is widespread worker dissatisfaction with wages because of successful high–profile walkouts at neighboring Japanese automotive factories resulting in steep wage increases – and this is taking its toll on the manufacturers in the reason. Although most manufacturers can only withstand slight wage increases ( 5-10 %) workers expect much more because they have heard that workers in other industries have had their wages doubled in many instances. In China, rumors spread like brush fires especially among workers who often do not have access to computers and cannot verify the information they are fed. And much of the work force is simply illiterate.
I have visited many factories over the years and I always make a point to talk to workers. They often have interesting stories to tell, they can sometimes tell you things about how the factory is run that the manager himself would not tell you, and, most importantly, they are making your products. If nothing else I just like to make sure they are following the specs and thank them for their efforts, something they always appreciate. I have noticed in recent years, however, that there is more grumbling than usual about wages. As cities grow and the cost of living rises, workers who are used to making $10.00 day – a standard wage in most rural factories – find that they can no longer afford basic staples. It is a given nowadays that if you visit a factory and talk to one of the workers you will almost certainly hear a gripe about wages.
The result is that many of these factories – owned by Taiwan and Hong Kong manufactures – are relocating their operations to Vietnam where wages and production costs are still relatively low. Still, as more companies leave, I think this represents a good opportunity for the American buyer in China. China after all has many advantages that Vietnam does not, namely a large number of skilled workers (China, for example, employs more workers in the apparel industry than Vietnam employs in all of its industries). And the costs of inland transportation in China – from factory to port –are much cheaper than they are in Vietnam.
It is also good to remember that many inland provinces in China are as yet underdeveloped. When we read about labor unrest or shutdowns of factories due to high production costs, these are invariably stories from special investment zones or relatively developed coastal provinces like Guangdong, Hainan and Zhejiang. However, much of China remains untapped. Travel to a city like Fuyang, in Anhui province and you will feel like you are back in Shanghai circa 1982. The contrasts are stark. But cities like Fuyang, where wages and production costs are still low, where there is a large labor pool ( Fuyang’s population is almost 9 million) are the future of China and represent a significant opportunity to the buyer. Who knows Fuyang may one day replace Dong Guang as the artificial Christmas tree capital of the world.