China Shock of 5% Growth Seen Deferred by Migrant Factories
By Bloomberg News - Nov 14, 2011
Guangzhou Constant Shoes Co. is set to abandon Guangdong, the southeastern province at the center of China’s exporting boom since the 1980s, by shifting most of its production 500 kilometers (311 miles) inland.
Rising labor costs and a shrinking supply of workers in coastal areas are threatening to sap China’s strength in exports, which account for more than a fifth of gross domestic product. To cope, the maker of women’s and men’s fashion footwear chose to tap a pool of cheaper labor in Yongzhou, Hunan province.
“Within a year, our Guangzhou factory will only make samples,” sales manager Leon Zeng said.
The more companies that join Guangzhou Constant in keeping production within China’s borders instead of decamping to Asian neighbors such as Bangladesh, Vietnam or Indonesia, the longer the world’s second-largest economy may avoid slumping to less than 5 percent annual growth, an outcome investors in a Bloomberg poll forecast by 2016.
“If we do this shift right, we can buy two decades and avoid shock therapy for the economy,” said Cai Fang, a Beijing-based member of the standing committee of the National People’s Congress who helped draft China’s five-year plan through 2015.“We still have low-hanging fruit to pick.”
The transition won’t be easy. While its new location provides Guangzhou Constant with tax breaks and cuts wages by about 17 percent, transportation costs will rise by about 20 percent because of the longer distance moving goods to port.
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