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OM in the News: China’s Fading Factories

January 21, 2016
Workers walk past notices listing factory space for rent in Dongguan, a once thriving manufacturing hub.

Workers walk past notices listing factory space for rent in Dongguan, a once thriving manufacturing hub.

For decades, the Dongguan region of China’s Pearl River Province drove that country’s global ascent in exports, producing furniture, garments, shoes and other goods. But the world’s workshop has been stumbling as cheaper production bases in Asia have gained ground, reports The New York Times (Jan. 20, 2016). Last year, Chinese exports fell for the first time since the recent financial crisis, a situation that is likely to be further eroded by the Trans-Pacific Partnership. The U.S.-led trade agreement deepens American ties with Asian countries like Vietnam and Malaysia, but it excludes China.

Chinese leaders have started to encourage the phasing out of low-end exports in favor of promoting the service sector and high-tech manufacturing. Some traditional manufacturers have responded to the downturn by relocating farther inland or overseas, where costs are generally lower.  The shift away from low-end, labor-intensive manufacturing “is an unavoidable part of the structural change that the economy is undergoing,” says a China expert at Oxford.

At their peak, factories in Dongguen accounted for 1 in every 4 pairs of athletic shoes sold globally. Now, while costs are rising, demand from overseas customers has also been declining. So some companies are making a future bet by expanding to a less-developed province, Guizhou, where labor costs are 40% less than those in Dongguan. Other large Dongguan shoe companies have shifted production to Bangladesh.

Other sectors have similarly been struggling, including some electronics manufacturers. In October, Fu Chang Electronic Technology, a supplier to the telecommunications equipment makers Huawei and ZTE, shut its doors unexpectedly. The closing prompted a protest by thousands of workers.

Classroom discussion questions:

  1. How is China following American manufacturing trends?
  2. Is automation a major factor in Chinese production?
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