PRD terminals feeling effects of changes in China manufacturing
Stay and pay more, go west, close down or move out of China – the choices facing companies outsourcing production to the mainland.
Remember when all toys had “Made in Hong Kong” stamped underneath? As kids we regarded Hong Kong as an exotic Santa’s workshop, the source of every plastic action figure, or spinning top or cowboy pistol.
By the 1980s, the stuff all had a Made in Taiwan or made in Korea stamp, but it wouldn’t be long before Made in China took over.
Manufacturing is now spread across Asia with many countries involved in the producing of components. Regional supply chains link these suppliers with assembly lines and intra-Asia trade now rivals the major East-West trades in cargo volume.
It wasn’t always like that. When China opened up in 1978 and special economic zones were created, manufacturing hit the boom times in the Pearl River Delta. Cheap labour was in limitless supply, as was demand for low cost goods among consumers in the US and Europe.
Manufacturing grew in all the Asian Tigers, but over the next couple of decades it was the PRD that became the manufacturing centre of China and earned the nickname, “Factory of the World”. Hong Kong’s container terminal operators were quick to jump in bed with the Shenzhen port authorities and build facilities in Chiwan, Shekou and Yantian.
The growth of Shenzhen as a container port hub has been rapid and despite concerns of overcapacity during its development, the annual export growth continued.
Until now, that is. Manufacturing in South China, and indeed throughout the country, appears to have reached a turning point. With supply chain risk, rising costs and potential protectionist issues, many companies are embracing a “China plus one” or even “plus two” strategy. Mainland production remains the core of their manufacturing but the companies can easily switch to factories outside China when required.
Many factories have also been forced to close. It is a low margin business even in the good times and the factories have been unable to offset the rising costs of production. Other factories have moved to central China manufacturing centres around cities such as Chongqing and Chengdu, or Wuhan and Changsha, attracted by the incentives offered by Beijing as part of its “go west “ policy.
All that low value stuff made by the migrating factories is exported as ocean freight in containers, and the Pearl River Delta ports experienced volatile throughput in 2012. Hong Kong is expected to report negative growth, with Shenzhen growing slightly.
Amid the gloomy forecasts, one terminal operator has a good deal to crow about. Just over 18 years after opening a terminal in the sleepy fishing village of Yantian in eastern Shenzhen, Yantian International Container Teminal has handled its 100 millionth TEU.
The Hutchison Port Holdings terminal hit its latest milestone yesterday. In 2007 YICT was the first terminal to reach an annual throughput of more than 10 million.
Interestingly, YICT says it has handled every container vessel in operation with a capacity of 10,000 TEUs and up. Back in 1994 when it opened its first berth, the biggest ship to come calling would have been little more than 4,000 TEUs.