In China’s manufacturing hub of Dongguan, a sock maker struggles to keep his factory from folding

15-Jul-2020 Intellasia | South China Morning Post | 6:02 AM Print This Post

After nearly three decades, Lin Danru, 54, fears that his sock factory’s days are numbered. Export orders have dried up amid the coronavirus pandemic. Domestic sales have plunged. And frankly, none of his five daughters want anything to do with the antiquated manufacturing business model.

The warehouse of his factory, Staryee Knitting, in the manufacturing hub of Dongguan in southern China’s Pearl River Delta, is full of boxes upon boxes of unsold socks. Lin estimates 4 million unsold pairs are in his inventory.

His production lines are idle, without a single worker in sight about 30 were furloughed, but he pays them each 1,700 yuan (US$243) a month in case there is a sudden turnaround in his business and he needs to call them back quickly.

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“The factory survived the severe acute respiratory syndrome (Sars) outbreak in 2003, the global financial crisis in 2008, and the trade war with the US… but I am afraid it can’t survive 2020,” Lin lamented. “I haven’t received a single call from the exporting traders in Hong Kong since February, and daily sales at my 40 stores have dropped to an average of 600 yuan from [about] 2,000 yuan.”

From 2018-19, Lin had more than 50 employees working in two shifts, with an annual output of around 5 million socks. Roughly a third were exported, and the rest were sold as his 40 retail locations across Guangdong province.

But business has taken a serious turn for the worse this year, and Lin was forced to suspend production and dismiss his staff on July 1.

“I feel my heart has been hollowed out since that day,” Lin said. “I can’t afford the nearly 200,000 yuan (US$28,600) a month to continue operating, and I’ve already sold a flat this year to keep my factory.”

Lin joined the business in 1992 when it was owned by a Hong Kong manufacturer. He took over the factory in 2014 when his Hong Kong boss decided to retire.

The plight of Lin’s factory is not unique in Fenggang township, Dongguan, where many small factories and merchants have been forced to close up shop. Labour-intensive manufacturing jobs in the area, which once attracted tens of thousands of migrant workers, are not the draw they once were.

Factory owners there have had to engage in near-suicidal price wars to get a leg up on the competition, Lin said, adding that he and other manufacturers feel like “trapped animals” desperately searching for a way out. With several daughters, aged 16-27, he said he even went as far as telling local media that he was seeking a “capable son-in-law” to help him keep his business afloat.

“I’ve tried really hard to promote [my socks]. I spent hundreds of thousands of yuan to build up an online store, and I tried every platform from Tmall and Taobao to Pinduoduo,” Lin said, referring to the major e-commerce sites in China. Tmall and Taobao are run by Alibaba, which owns the South China Morning Post. His factory even has a small studio for live-streaming a popular online sales tactic with the studio walls lined with socks. He says the revenue he earns barely covers the marketing costs.

To be fair, the decline in China’s low-end manufacturing sector and its exports started long before the coronavirus outbreak, as the nation has been gradually losing its traditional low-cost advantages. The Chinese government has also been pushing businesses to move up the global supply chain for many years. About a decade ago, Guangdong province rolled out a policy of “emptying the cage for new birds” meaning kicking out low-end factories to make room for hi-tech businesses.

As a result, the broader economic data for all of Fenggang paints a relatively rosy picture. The township’s industrial output actually increased around 0.4 per cent in the first five months of 2020, relative to the same period last year, while fixed-asset investment surged 18.5 per cent in the same period.

But the overall situation in Dongguan is not as positive, as the city’s industrial output fell 9.1 per cent in the first five months while exports plunged 14.8 per cent, year-on-year. Nationwide, Chinese exports fell 4.7 per cent in the period, and traditional exports such as suitcases, footwear, textiles, garments, and clothing accessories have been harder hit than some other sectors, slumping by an average of more than 25 per cent from January to May.

We are seeing that such traditional labour-intensive manufacturing factories have been continuing to shut down… due to the ongoing and worsening pandemic

Liu Kaiming

However, Liu Kaiming, head of the Shenzhen-based Institute of Contemporary Observation, which monitors working conditions at hundreds of Chinese manufacturers, said factories still contribute the largest and most stable share of China’s exports and jobs.

“We are seeing that such traditional labour-intensive manufacturing factories have been continuing to shut down… due to the ongoing and worsening pandemic,” he said. “About 20 million-plus people work in the export-oriented textile and apparel sector, not to mention other sectors.”

At the same time, the pandemic has also raised questions as to whether China is moving too fast in a state-led upgrade of its economy by neglecting its grass-roots factories and workshops that have provided jobs to many of the country’s 290 million migrant workers.

“It will have a huge impact on China’s job market, as China’s so-called emerging new economy, such as e-commerce, has no way of absorbing so many jobless workers from labour-intensive factories,” Liu said.

Beijing is aware of the problem and has made job creation a top priority this year. It also urged local authorities to create more urban jobs, while nudging banks to lend more to small businesses.

Still, as Lin can attest, manufacturing does not hold much appeal for the younger generation. And if he does not receive any large orders that turn things around, he said he will have to permanently shut down both his factory and the 40 retail outlets he operates a move that would cost about 100 workers their jobs.

“None of my five daughters want to run the factory,” Lin said. “They don’t think there’s any hope in being a traditional exporting manufacturer. For young people, it’s all about e-commerce, real estate and tech innovation… but I still believe that factory workers are the real core of the economy”.


Category: China

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