China factories: glory days are over

GUANGZHOU, China — Only a few years ago, the Haizhu district’s garment factories worked around-the-clock, spilling out of apartment blocks, storefronts and any other available space, cranking out clothes for the world.

These days, the thousands of garment and shoe factories of Haizhu, and many other parts of China’s Pearl River Delta, have slowed to an uneasy hum. Orders are fewer and farther between and many of the workshops shut down for weeks at a time.

Many companies say they’ve let big portions of their workforces go, keeping on just the bare minimum needed to get by when sporadic orders come in. While work is still busy in some sectors like electronics, lower-end manufacturing in China is changing fast.

Inside a converted five-story walk up that once held apartments and now contains factories that have seen busier days, migrant workers from Sichuan province sew away on skirts bound for the Middle East. It’s their only big order right now and once they’re finished, they aren’t sure when they’ll have work again.

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Li Kaigan, a 20-year-old factory supervisor from Sichuan, came here when he was just 14 and started making clothes for export. He laughs when prodded about the obvious violation of China’s child labor laws, saying that’s how everyone here does it. But after investing six years in sewing clothes, mostly for people in other countries, Li can see his future is changing quickly.

“This year has been especially bad for business,” he says, brushing some loose threads away from his sewing machine. “A few factories have orders, but not very many. Lots of small factories around here have just given up and closed.”

The factories here are not unique, given the numbers. Data released June 30 showed China’s manufacturing sector grew by the slowest rate in 28 months, still expanding but barely.

China’s manufacturing slump appears to be the result of several dynamics coming together at once. Labor prices have risen in recent years, thanks to increases in minimum wages and continuing inflation. On top of that, costs are going up quickly for raw materials.

At the same time, investment in the rural countryside in infrastructure that was intended to buoy China through the global economic downturn has changed the equation. Migrant workers are no longer desperate for work and struggling to raise their incomes by traveling across the country and sacrificing their families. Many say they can make almost as much money back home, so they don’t want to bother striking out for Guangzhou and the rest of the Pearl River Delta.

“A lot of smaller factories pay really low wages, so it just isn’t worth it,” said Han Lin, a 19-year-old who makes jeans bound for Africa.

“Migrant workers are much more aware of their own rights these days,” said Zeng Feiyang, who runs an aid group for migrants in Guangzhou. “They know they have certain rights under the law.”

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All this has further exacerbated the strange side effect of a labor shortage. Yet still, it seems American and European consumers never picked up the slack and resumed buying Chinese-made goods at the same level as before the 2008 economic crisis.

Across Guangzhou, factory bosses and workers say it seems clear the glory days of making cheap products 24 hours per day are over. The question now is what comes next. Cutting out cheap, low-end manufacturing is actually in line with China’s plan to move toward becoming an economy based on innovation rather than production.

Chinese economist Mao Yushi says the service sector is the key. Factory bosses and workers need to figure out how to transition from manufacturing to the service industry. The transition time might be difficult, but Mao said China’s current economic structure will not support factories and manufacturing at previous levels.

“Companies should learn new things, while government also should assist new industries,” said Mao. “A way out is the service industry, which can absorb a lot people.”

But as recent unrest in factories across the south illustrates, the change won’t be easy.