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| Massive Scale Industrial Relocation from Shenzhen Triggered Local Concern (Part 1) |
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Due to Shenzhen industrial upgrade and "hard" constraints such as land and environment, a huge number of companies in Shenzhen are now looking to relocate out of the coastal city, the earliest developed region in China's 25-year economic reform history. It has become a trend for business delegations from inland cities to flock to Shenzhen, in order to woo those relocating companies. But worthy of attention is that in this great tide of migration, not only those labor-intensive, low value-added industries which the government have wanted them to go are moving, but some high-tech enterprises and traditionally strong industries are also joining the outflow.
Massive outflow
Leaving Shenzhen is not a company-specific phenomenon. An enterprise relocation study by Shenzhen Trade and Industrial Bureau in June 2006 indicated that 119 industrial companies had been or were planning to move, totalling US $1.2 billion. 18 industries were involved, lead by companies from machinery, toy making, electronic instruments and plastics industries. Their destinations include cities like Dongguan, Huizhou, Zhongshan and Heyuan in the same Guangdong Province, or other provinces including Hunan, Jiangxi and Jiangsu. The latest figure from June 2007 further indicated that 522 companies in 4 districts of Shenzhen were on the move, out of them 499 had completed relocation.
"It's not a handful of companies in a few industries are moving, it's an organised, massive and collective action", said Deputy Chief of Shenzhen Trade and Industrial Bureau, Mr Yin Yong, "The most obvious indicator is that there have been more than 20 'Shenzhen industrial relocation parks' set up in other cities by district councils, industry associations and leading enterprises of Shenzhen, in the last 6 months."
Leading industries
It may be rarely known that the electronic instrument industry in Shenzhen is the heart to global digital instrument manufacturing. According to official statistics, there were around 400 electronic instrument companies in Shenzhen, employing 50,000 people, with a turnover of $2.7 billion and foreign trade value $180 million in 2005. Annual instrument production in Shenzhen amounted to 8.4 million units, exporting to 90 countries and taking 80% global product market share. But two of the world's largest digital instrument producers, Shenzhen Mastech and Unitrend, have now wholly moved to Dongguan City, about 2 hours drive from Shenzhen.
In Shenzhen, machinery industry is second only to the electronic instrument industry, but it is also the industry with the largest corporate relocation. At present, there are more than 10,000 machinery companies in Shenzhen, employing 650,000 people, with a turnover of $20 billion in 2005. The government study showed that by June 2006, there were 26 relocating companies in this industry, among them were 7 leading companies with annual turnover each exceeding $15 m. Today the relocation trend in machinery industry is getting even more severe. |
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Pillars outflow
As Shenzhen has been constantly restructuring its industrial composition since the very beginning, it shouldn't be a surprise to see companies moving out and in. After the 4 staged developments in the last 27 years, industries in Shenzhen have achieved 3 major changes: from OEM to proprietary production; from fragmented production to centralised mass production; and from traditional old industries to a high tech leading structure. Since 1995, high tech industries have become the major growth engine, and they amounted to 41% of the total industrial turnover in Shenzhen in 2000. It has become a consensus in Shenzhen to develop high tech and strong traditional industries, while retiring those low value adding and high polluting industries.
However, there is an unforeseeable and unintended consequence: a lot of high tech and strong traditional industries are joining the current relocation trend, some of which are even nationally leading companies.
Huawei, one of the major IT&T manufacturers in China, have secured 500,000 m2 of land in an industrial park in Dongguan City, and is planning a $260m facilities investment there. It will shift most of the production lines from Shenzhen to this new site, and the first stage is expected to complete in the next few months.
In addition, China's number one underwear company, Embry Group, has shifted its plants and main businesses to Jinan City of Shandong Province. HK-listed auto parts company BYD Auto has invested $1b production facility in Huizhou City, 2 hours drive from Shenzhen. The two above mentioned world leading electronic instrument manufacturers, Shenzhen Mastech and Unitrend, are also praised high tech companies in Shenzhen. "From a subjective point of view, Shenzhen hopes those low end labor-intensive production processes and polluting companies to transfer out. But companies targeted by surrounding cities like Dongguan, Huizhou and inland regions are those with high tech quality and high value adding manufacturing companies", the Shenzhen Trade and Industrial Bureau report stated. For example, Nanjing City delegations have successfully lured well-known high tech companies such as Huawei, ZTE and Bak Battery to open R&D centres there.
The most direct cause for this relocation rush is obviously the shortage of industrial lands. A government report from last October showed that of the 32 surveyed large companies that were relocating, 62.5% pointed out "failure to fulfil land requirement in Shenzhen" as the primary relocation reason, while the second reason used by 50% of respondent was "high real estate / rental cost in Shenzhen".
Shenzhen has a total area of 1953 square km2. Apart from a few mountains and ecological reserves, there are about 700 square km2 developable land, but now only less than 200 square km2 remain after 27 years. Based on the current speed of 10 square km2 per year, Shenzhen could be in an embarrassing predicament with no developable land in another 20 years.
(To be continued in part 2)
Sourced from www.nddaily.com
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