Sat, Apr 18, 2015 - Page 14 News List

China firms downsizing as costs rise

Reuters, HUIZHOU, China

Eight years ago, Pascal Lighting Co (惠陽祥耀) employed about 2,000 workers on a leafy campus in southern China. Today, the Taiwanese light manufacturer has winnowed its workforce to just 200 and leased most of its space to other companies: lamp workshops, a mobile phone maker, a logistics group, a liquor brand.

“It used to be, as long as you had more orders, you could get everything you needed to expand your factory, and you could expand,” Pascal general manager Johnny Tsai (蔡世雄) said.

No longer. The Chinese factory — an institution that was once so large, it was measured in football fields — is shrinking.

Rising labor costs, higher real-estate prices, less favorable government policies and smaller order volumes are forcing Chinese plants to downsize just to survive.

Their contraction suggests a new model of light manufacturing emerging from China’s economic slowdown: Smaller plants are replacing the vertically integrated behemoths that defined Chinese manufacturing in the early 2000s.

Cankun (燦坤), an appliances factory in southern China featured in the documentary Manufactured Landscapes, had more than 22,000 manufacturing employees in 2005, according to its annual report. Today, that number has shrunk to just 3,000, a senior executive said.

Some Hong Kong-owned factories in southern China have cut their staff by 50 to 60 percent, said Stanley Lau (劉展灝), chairman of the business lobby Federation of Hong Kong Industries.

To be sure, the giant Chinese factory is hardly extinct.

Taiwan’s Foxconn Technology Group (富士康科技集團) still employs about 1.3 million people during peak production times, many of them piecing together Apple Inc iPhones. And factories that can afford to, including Foxconn, are increasing automation.

However, for industries where product design changes frequently, such as lighting, robots add little value.

Chinese factories’ contraction illustrates how much the advantages they once enjoyed have eroded. In the 1990s and early 2000s, cities in Chinese coastal regions competed to offer investors discounted land. Today, the same land is scarce, and dear.

New labor and environmental laws have also been introduced, making life tougher for employers.

And the workforce has changed. China’s working age population began to contract in 2012. The number of strikes more than doubled last year compared with 2013. Jobs have shifted into the services sector. And labor costs have more than quadrupled in US dollar terms since 2005, according to the Economist Intelligence Unit.

Higher wage costs are in turn making it more expensive to close down, move or restructure. Chinese law requires companies terminating employees to pay compensation worth one month’s salary for every year of employment. In addition, workers at struggling plants often demand back payment of unpaid social welfare and pension benefits. Having fewer employees makes it cheaper to shutter a plant.

Nor are orders what they used to be.

On Monday, China announced that export volumes fell 15 percent last month compared with the same period last year. China’s manufacturing purchasing managers’ index, which measures activity in the industrial sector, has been hovering at about 50, the inflection point between expansion and contraction, for nearly two years.

Pascal, which Tsai says is still profitable, began to shed workers through natural attrition during the global financial crisis. It now sells lights that it designs — a practice that allows it to command higher prices. The rent from its tenants, including a Chinese company that designs and assembles mobile phones for export to India, also helps.

This story has been viewed 2631 times.

Comments will be moderated. Remarks containing abusive and obscene language, personal attacks of any kind or promotion will be removed and the user banned.

TOP top