China based manufacturers are leaving Shenzhen in search of cheaper land and labour – but its is not always that simple

 By Wang Jing – Caixin Online – Silas Berry – Asiaconsult.org

SHENZHEN  — A decision to close an optical components factory in Shenzhen triggered a nine-day walkout in March by more than 1,000 workers. Officially, employees at the Oclaro (Shenzhen) Technology Co. Ltd. plant staged the strike to protest possible severance pay problems after the shutdown, which the company said would be completed by 2015. But on a deeper plane, the strike reflected gnawing frustrations in Shenzhen over the rapid disappearance of local manufacturing jobs.

Companies are leaving the city — home to China’s oldest economic development zone — as labour and property costs rise. Moreover, the Shenzhen municipal government has been encouraging factory closures in certain sectors, while promoting more high-tech manufacturing and the service sector.

A city government directive released in November laid out plans for “industrial transformation and upgrading” that included “cleaning out and eliminating low-end companies.” A related goal called for clearing up to 25% of the city’s commercial land to make way for high-tech and service sector development. The plan calls for moving about 10,000 companies, including 4,000 that will have to relocate to a commercial district called the Shenzhen-Shantou Special Cooperation Area and 5,500 transferring to other parts of Guangdong Province.

Shenzhen officials would like most of the city to follow in the footsteps of its Futian District, which successfully built up a financial and service sector. Offices for media concern Global Sources, power sector supplier ABB, shipping giant COSCO and banks such as Standard Chartered and HSBC are located in some of Futian’s 139 office buildings, generating healthy tax revenues. Being shown the door by the local government are older, labour intensive companies that manufacture goods for export and run the risk of being embroiled in labour disputes.

Half of all labour disputes in Shenzhen since late 2011 were tied to company decisions to move from this sprawling city of assembly lines and warehouses near Hong Kong, said Duan Yi, head of the Guangdong Laowei Law Firm, which specializes in labor law. That’s a much higher proportion than in the past, he said.

Jin Xinyi, a member of local branch of the National People’s Political Consultative Conference, said many big companies are shifting manufacturing operations to other parts of China or abroad but keeping their headquarters in Shenzhen. Smaller companies, meanwhile, are moving lock stock and barrel to cut labour costs.Workers unable or unwilling to relocate often have to fight for severance pay or their last pay checks. Sometimes, as in the case of Oclara, disputes erupt. ” Strikes usually happen at medium-sized and large companies,” said Duan. “Sometimes when small companies relocate, they disappear overnight without a trace, leaving workers without an opportunity to protest.”

The latest economic data suggests Shenzhen’s effort to overhaul its economy has had at least one intended effect by slowing manufacturing. Local gross domestic product growth is declining, and plant exports in monetary value fell 6% in January and February compared to the same period 2011, the city’s statistics bureau said.

Among the earliest signs of change was the 2009 decision by American optical products maker JDSU to sell its Shenzhen manufacturing facilities, triggering strikes. More labor strife followed announcements by local optical goods manufacturers NeoPhotonics and Finisar to move their operations to other Chinese cities. Electronics manufacturer Foxconn FXCNY  which supplies parts for computer companies such as Apple, has been expanding from its traditional Shenzhen base by opening factories in other parts of China. The company hiked wages in 2010 in the wake of staff suicides, which fanned unrest among workers across Shenzhen.

A few weeks after its March strike, Oclaro started removing factory equipment and loading it on ships bound for a company facility in Malaysia. The company’s 1,800 workers are to be dismissed after the production line transfer is complete.

Jin said Shenzhen is no stranger to upheaval attached to industrial transformation. The first overhaul occurred around 1985 as the city industrialized and labor-intensive companies in the processing trade flooded the city. The second big change came in the mid-1990s after the government stopped accepting registration requests for low-end processing factories to encourage high-tech industries. Shenzhen manufacturers with low profit margins that paid few taxes “gradually became unwelcome,” Jin said. “But this transformation led to relocations for some processing companies, and the farmers who had leased land to the companies felt their own interests had been harmed. So they sued the municipal government.”

“Whenever companies relocate, pain is inevitable,” Jin said. Since 2000, Shenzhen’s labour and land costs have soared, eroding company profits and giving them incentive to relocate. The city’s minimum wage has jumped to 1,500 yuan ($237) per month — the highest in the country. Factory rents have risen more than 30% since 2000. The government has had a hand in the economic shifts out of necessity, local officials say. Guandong Communist Party chief Wang Yang said in 2008 “if we don’t actively adjust the industrial structure today, we’ll be adjusted by the industrial structure tomorrow.”

Small companies that abandon Shenzhen don’t necessarily find the grass is greener on the other side.

Last year, for example, Huang Zhijun moved his furniture factory and about 30 workers from Shenzhen to Langfang, near Beijing. The new plant is larger, but from day one he felt uneasy about the new environs. Langfang “is too remote. There wasn’t even anywhere to get a meal, not to mention entertainment,” Huang said. He also ran into trouble with local residents. “When there is a little labor dispute” in Langfang “the bosses can call in the underworld. It’s not like that in Shenzhen,” he said. Huang and a few workers later returned to Shenzhen. Huang’s vote of confidence in Shenzhen is shared to some extent by the region’s labor force, even in the face of company relocations. Duan notes that the city and the rest of the Pearl River Delta shows a more liberal attitude toward labor issues than other parts of China, which has given plant workers a good feeling and a degree of power.

Labour unity is not uncommon. In some cases, unhappy workers at a shut down-targeted plant in Shenzhen have decided to stick together for a mass dismissal rather than let a departing company slowly whittle down their ranks. Workers in the city have stopped using standard channels for expressing grievances offered by governments in other parts of China, such as the formal petition process. Instead, Duan said, they’re launching strikes and slowdowns in ways that force employers to the negotiating table.

Meanwhile, the Guangdong provincial government has increasingly found itself involved in encouraging peaceful settlements for strikes and other labour disputes. After a strike at a Honda factory in 2010, Wang set the current tone for all local government officials by telling reporters that labour and management should negotiate, rather than let disputes lead to social instability. Local government labour officials were prepared to intervene last November during a strike in a local factory, for example, but in the end, didn’t get involved. Duan said the government has also played a neutral role in several recent disputes, reflecting Shenzhen’s decision to encourage the next phase of its economic development.

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