Aug. 3 (Bloomberg) -- Liao Ping says it’s like winning the lottery when he convinces a worker to accept a job offer for Luyang Shoes Co. at his roadside stand in China’s southern Guangdong province. “Sometimes I get two in a day, most times the result is zero.”
The region that drove China’s rise after market barriers started coming down in 1978 is among the nation’s slowest-growing as faltering demand cuts exports and workers exit for the central and western areas powering the nation’s expansion.
Deserted factories and worker dormitories litter the Guangdong manufacturing hub of Dongguan, where walls are plastered with recruitment posters. The province is set for the weakest full-year expansion since 1989 as toy, shoe and textile industries move inland or abroad and a transformation to higher-value production and services remains unfinished.
“It’s painful, and the process of economic upgrading is not smooth, but it’s the only way of moving forward,” said Cheng Jiansan, a researcher with the Guangdong Academy of Social Sciences who studies Pearl River Delta economies and has advised provincial leaders over the past decade. “The current slowdown in external demand may help us in the long-run as low-end production will exit.”
The province’s 7.4 percent growth in the first half compares with full-year rates as high as 23 percent in the early 1990s when investment was pouring in from Taiwan and Hong Kong and millions of migrant workers were chasing jobs. The picture is bleaker now in some pockets, with Dongguan’s expansion just 2.5 percent in the first half.
Perks for Workers
Local numbers for gross domestic product can be overstated, according to Lu Ting, a Hong Kong-based economist for Bank of America Corp. Added up, they amount to more than the central government’s calculation of the national total.
Wearing plastic sandals in the tropical heat, Liao has time to talk as he sits on a stool on the street in Chiling, part of Dongguan. A green board leans against his desk advertising base salaries of 2,100 yuan ($330) a month, free food and accommodation, 10 days’ paid leave from the second year, and library and entertainment facilities.
“The factory is always short of hands, but there are not enough people,” he says.
About 30 kilometers (19 miles) away, at a factory which formerly made door and window frames, the workers’ basketball court stands idle and the dormitories are empty. The compound is locked, windows and doors are smashed and pages from the June 9, 2011, edition of the Guangzhou Daily are plastered over the guardhouse windows. Hand-written posters say “plant for rent.”
Dream of Leaving
Hu Zhijia, 35, a migrant worker, is cycling from one factory gate to another, looking for a job that pays at least 3,200 yuan per month. After 14 years in Guangdong, he says his ambition is like everyone else’s: to make enough money to return home, in his case Hunan province.
Guangdong is betting its future on developments such as a 72-square-kilometer “high-technology zone” at Songshan Lake, where Taiwan’s Wintek Corp., a maker of liquid-crystal displays, is expanding even as it uses Vietnam for labor-intensive work. Qianhai, a 15-square-kilometer zone on the west side of Shenzhen, is being developed as a financial services center.
Another prospective growth engine: becoming a services hub for southern China and Southeast Asia, building on Guangdong’s existing base in finance, says Ben Simpfendorfer, an economist and managing director of Silk Road Associates in Hong Kong.
For now, the province is suffering an expansion rate that was the second-lowest of China’s provinces and municipalities in the first half, with only Beijing and Shanghai weaker at 7.2 percent, local-government data show.
Guangdong’s growth compared with top-performer Tianjin’s 14.1 percent. The national expansion was 7.8 percent.
“Guangdong has to face the fact that, for now and the foreseeable future, growth will be slower than the national average,” Cheng said, predicting an annual 6 percent expansion over the next decade.
“The year 2012 is particular severe with about one-third fewer migrant workers than last year, and the labor shortage has become the No. 1 problem here,” says Chen Jian, a manager with the Lixiang Human Resources, a labor agency in the downtown area of Dongguan’s Houjie town. “Labor costs are rising sharply, and many small factories and labor-intensive businesses are under huge pressure.”
Migrant worker Guan Shiyou, 25, says his monthly base salary is 2,400 yuan, more than triple what he earned in Guangdong a decade ago and comes with free food, accommodation and overtime pay that he didn’t get when he started. He’d go home to his village in Guangxi if he could secure a 1,500 yuan per month job there, he says.
“You can’t find a worse place to recruit labor than in Dongguan now,” says Deng Bin, the sales manager for Weida Electronics Factory, a maker of capacitors for electronic devices which shifted production to Changzhou in Jiangsu province.
Companies including Dell Inc. and Intel Corp. are investing in plants in inland cities. Similarly, Foxconn Technology Group, the largest assembler of devices for Apple Inc. and Hewlett-Packard Co., is expanding factories in the provinces of Sichuan and Henan.
Emptying the cage for new birds is the term used by Guangdong Communist Party chief Wang Yang to describe replacing low-end producers with manufacturers such as the Shenzhen-based telecommunications equipment makers ZTE Corp. and Huawei Technologies Co. For Wang, success for the province would burnish his political career. He’s a candidate to join the Politburo Standing Committee, Hu Yifan, an economist at Haitong International Securities Group, said this year.
Race for Patents
Huawei spent 23.7 billion yuan on research and development last year, according to the company’s website, while ZTE ranked first in the world for patent applications, according to the World Intellectual Property Organization.
ZTE and Huawei “are not Apple or Samsung for now, but maybe they can be in the future,” said Cheng.
In Houjie, the hotel receptionist with the cigarette tucked behind his ear is the owner, Deng Ge: he says he can’t find anyone else to do the 2,000 yuan per month job. Deng reminisces about the glory days in 2008 before the global financial crisis hit China.
“Friday and Saturday nights were always fully booked as young men and women left factory dormitories seeking privacy and romance,” says Deng, who’s been trying to hire a receptionist for six months. “This year, even on the best days, I still have 30 percent vacancy.”
The notion that Guangdong’s growth model needs to be remade extends to workers such as Gao Liwen, 43, who says he’s been here since the early 1990s. He remembers days he was dizzy from processing as many as 1,800 pairs of shoes on the production line.
“China has to move up the value chain -- in my view, the price of a pair of good-quality shoes should be at least 300 or 400 yuan to foreigners, not a few dollars,” Gao says, adding that he plans to learn the manufacturing process and then set up his own shoe factory in Hebei.
“Guangdong is not a land for old people, and I have to think about the future,” Gao says.
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