Make or break for manufacturers

Wan Li, the 29-year-old manager of a French home furnishings export company in Wuxi, has seen profits slide over the past two years.

The cost of manufacturing a single bedsheet has increased 15 percent since the beginning of this year and the company has lost over $400,000, or 60 percent in net profit, in the first two months.

The new Labor Contract Law, which stipulates higher pay and full insurance cover for workers, has added to Wan's woes.

"The minimum monthly wage has been raised by 200 yuan," Wan said. "Think of that. There are more than 200 migrant workers at my company, all in need of insurance now. My costs have doubled."

Labor costs

Labor is increasingly more expensive in the Yangtze River Delta. Many companies put the extra cost at between 15 and 20 percent - a substantial slice of their profits. But it has not led to a large-scale industry exodus from the region, as seen in the Pearl River Delta, where many labor-intensive manufacturers have been forced to close or move.

"As the first area in China to encourage foreign investment, the Pearl River Delta is home to a large number of labor-intensive manufacturers, mainly from Taiwan and Hong Kong," Liu Zhibiao, a professor at Nanjing University's international economics and trade department, said.

"In contrast, since it opened up in the 1990s, the Yangtze River Delta has drawn a large number of European and US investors and created a niche in the hi-tech and service industries, which are less sensitive to increases in manufacturing costs."

The region is also known for its concentration of private companies. Liu said these specialized, service-oriented firms have much to contribute to the area's industrial restructure.

Tech upgrade

Xia Weiqiang, owner of a mechanical and electrical product exporter in Wuxi, is optimistic about his company's future.

Xia invested in technology and has developed new products tailored to a more diverse customer base.

He said this has helped the business claw back losses and continue to grow despite a sluggish market.

But that's just the first step for Xia, who sees potential in industrial design under Wuxi's plan to build its software and service outsourcing sectors as it tries to restructure and cut down on industrial pollution.

"Wuxi has the first and only national-level industrial design park and the local government offers good incentives for start-ups like us," Xia said.

The Yangtze River Delta soaked 50.1 percent of the nation's total foreign investment in 2007, up 18.4 percent from a year earlier, the National Bureau of Statistics said.

Foreign capital continues to flow to the region, with a large proportion of technical and white-collar workers. And with foreign investment comes advanced technology and management systems.

But an increasing number of international hi-tech companies are shifting production to Shanghai and its neighboring areas, the statistics bureau said.

In Shanghai alone, foreign hi-tech products like computers, telecommunications and other electronic equipment made up more than half the industrial product export in the first 11 months of 2007, a year-on-year increase of 23 percent.

Local services

The region also boasts services for industries including iron and steel, electrical, mechanical and chemical products, which offer abundant resources and reduce operating and transaction costs for local exporters.

Ma Linyan, a sales representative for foreign solar energy firm Greenway Solar-Tech (Shanghai) Co Ltd, said the company benefits from the local network of material suppliers and a dedicated cargo service, which has helped to keep costs down.

Ma said it's integrating cross-industry technology to its energy-saving photovoltaic products, which has been a hit on the European market and generated 30 percent of its sales revenue last year.

(China Daily 04/15/2008 page39)