Date
6 December 2019
Factory operational costs in Dongguan are significantly lower than those in Shenzhen. Photo: Reuters
Factory operational costs in Dongguan are significantly lower than those in Shenzhen. Photo: Reuters

Manufacturing powerhouse Dongguan regains momentum

Dongguan’s GDP growth has accelerated to 7.2 percent for the first three quarters of 2019, from 6.9 percent in the first half of the year.

This is in sharp contrast with Shenzhen, which suffered a rapid slowdown in the third quarter.

Meanwhile, anther industrial town Foshan also posted a pick-up in GDP growth to 7 percent in the nine months to September.

The US trade war and property market cooling measures are some key factors behind Shenzhen’s slowdown. Another major factor, as reflected in the diverging performances between Shenzhen and its neighbors, might be relocation of plants out of the most expensive southern China city to cheaper locations nearby.

Dongguan is just half an hour’s drive away, hence it is one of the main beneficiaries of the trend.

In 2015, it only cost 15 to 18 yuan per square meter to rent factories in Shenzhen industrial parks. But now the rent has almost doubled. For comparison, the rental cost is only 18 to 25 yuan in Dongguan.

It’s said that many manufacturers have moved to Dongguan, and Foshan as well.

Meanwhile, Dongguan is sparing no effort to lure manufacturers with tax breaks and favorable land policies. Under the oversight of the new party boss Liang Weidong, the local government has also pledged to beef up its administration efficiency and enhance the business environment.

With a population of about 8.5 million, Dongguan ranks fourth in GDP among Guangdong Province cities,trailing only Shenzhen, Guangzhou and Foshan.

Most tech hubs in the world served as industrial centers in the early stage. As land and labor costs rise, their factories are typically relocated to cheaper regions. By keeping the high value-added operations and R&D functions, the tech hubs, however, continue to thrive.

Shenzhen has a strong foundation in R&D, and it is also a magnet for tech talent across the country. Given those strengths, the city should be able to shrug off the impact from the relocation of production elsewhere by focusing on upgrading its innovation capability.

This article appeared in the Hong Kong Economic Journal on Nov 7

Translation by Julie Zhu

[Chinese version 中文版]

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RC

Hong Kong Economic Journal columnist