Thirty years ago Dongguan was just a collection of villages and towns spread out over 2,500 square kilometres on the Pearl River Delta. However, thanks to the ‘reform and opening-up’ introduced in 1978, generous fiscal support from both the central and local government has transformed this erstwhile rural backwater into one of today’s leading global manufacturing centres. In 2012, the city’s GDP alone exceeded the RMB 500 billion benchmark for the first time, registering at RMB 501 billion (USD 80 billion). Yao Lu from Dezan Shira & Associates takes us on a tour of this former ‘factory of the world’.

Geographical overview
The city’s initial economic growth spurt can be largely attributed to its strategic location. Lying in the central-southern part of Guangdong Province and east of the Pearl River, it adjoins Guangzhou to the northwest, Shenzhen to the south, and is positioned ideally at the centre of the Guangzhou-Hong Kong economic corridor. This, along with its abundant supply of cheap labour and land, began to attract manufacturers from Hong Kong and Taiwan in the late 70s.

Manufacturing base
More than three decades on, goods produced in Dongguan are well known around the world. The city has formed an advanced and comprehensive manufacturing system that covers more than 60,000 types of products across 30 different industries, and almost every one of Dongguan’s individual towns has its own unique industrial expertise, such as:

Southern China’s Clothing Kingdom
Humen, a town which lies to the southeast of Dongguan, started its apparel manufacturing in 1993. The region now has more than 1,200 clothing manufacturing enterprises, with more than 300,000 employees engaged in the industry. Humen is famous for its production of women’s jeans and fashion garments. In 2011, the town sold 250 million pieces of clothing worldwide with total sales reaching RMB 20 billion.

Shoe-making base
Houjie is one of the largest shoe-making bases in China. There are more than 500 factories in the town involved in shoe making, and over 800 engaged in the supply of raw materials, machinery and leather for the industry. In 2010, 600 million pairs of shoes were made in the town, with sales revenues rising to RMB 20.9 billion. It is expected that by 2015, 900 million pairs will be produced with sales revenues amounting to RMB 28.5 billion.

Construction of the World Shoe Centre, located in the Houjie Ecology Industrial Park, started in 2011. Total investment into the project is estimated at roughly RMB 1.6 billion, and after its completion, it will serve as the international centre for shoe material procurement, shoe exhibitions and trade fairs, and a hub for R&D of new materials and techniques.

Economic Transformation

By transforming Dongguan from a collection of small towns into an international manufacturing giant in less than three decades, the so-called ‘Dongguan Model’ has received worldwide recognition.

It even continued to thrive during 2006 when the appreciation of the renminbi caused other manufacturing centres to struggle due to rising production costs. However, in the fallout from the global financial crisis, Dongguan’s GDP growth slowed to 5.3 per cent, the city’s lowest growth level since 1978. As a result the local government realised that the city’s low-end manufacturing model needed to be upgraded and, in 2010, the city was designated as a pilot city to be upgraded and undergo industrial transformation.

Despite these improvements Dongguan has failed to regain its former reputation as the ‘world’s factory’. However, changes and developments are actually taking place in the city, specifically:

• Share in processing trade increased by 11.3 per cent
  The exportation of high-tech products in the processing industry has increased its share of the total from 38.1 per cent in 2008 to 49.4 per cent in 2011.
• Foreign-invested enterprises more than doubled domestic sales levels over three years
  Sales increased from RMB 133.9 billion in 2008 to RMB 247.9 billion in 2011, taking up 34 per cent of the total trade sales in 2011, compared with 26 per cent in 2008.
• Original brands doubled from 2008-2012
  Since 2008, original brands developed within the city’s processing industry increased from 2,068 to 4,325, while the newly-established research institutions of the processing industry reached 441, forty-nine times the number in 2008.
• Labour-intensive industries see factories shrink but values jump
  While the number of enterprises and employees involved in labour-intensive industries are slowly decreasing, the overall export value of labour-intensive products is increasing. Take Houjie for example, the amount of shoe-making factories in the town decreased from more than 600 in 2007 to only 400 in 2011, and the number of employees engaged in the industry dropped from 150,000 to 100,000. However, the value of shoe exports increased from RMB 15 billion to RMB 30 billion at the same time, while the average export price for a single piece of clothing increased by 61 per cent.
• More than 1,500 low-end manufacturing projects transferred
  As the city seeks to upgrade its manufacturing base, Dongguan has transferred more than 1,500 projects to other parts of Guangdong Province in the last two years, with most of them belonging to low-cost, low value-added, labour-intensive, pollution-intensive industries.

In addition, the city’s industrial fixed assets investment in projects above RMB 5 million in the last two years totalled RMB 69.5 billion. When this production capacity is finally unleashed it is expected to generate RMB 200 billion in industrial output and RMB 40 billion in industrial added value.

Dezan Shira & Associates is a specialist foreign direct investment practice providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. For further details or to contact the firm, please email alberto.vettoretti@dezshira.com or visit www.dezshira.com.