Guangdong Party Boss Warns CPPCC of Hard Times Ahead
Jan. 13 – Wang Yang, the head of the Communist Party for China’s wealthy Guangdong Province, has alerted the Chinese People’s Political Consultative Conference (CPPCC) that the province faces a tough and difficult year ahead in 2012. Guangdong is by far the richest province in China, having boomed during China’s export crescendo, but has been hit with rising labor costs and falling orders. Many businesses in the province over the last three years have either closed or relocated to cheaper destinations in China or to Vietnam, Bangladesh or India.
Yang told the CCPPC that the next 12 months would likely be the toughest the province would face in the past 30 years of China’s reform and development, and stated the province “sat on the edge of economic difficulty, social conflicts and even political risk.”
“Given the economic status of the world’s economic powerhouses, the international economic crisis is still in progress. China’s domestic funding isn’t abundant and financial support from the central government will not be as strong as in 2008. Guangdong is now facing a series of new problems brought by economic and social transformation,” he said while addressing the CPPCC on Wednesday.
Guangdong has been the scene over the past two years of several high profile strikes, in response to a toughening of labor laws in China, a more militant attitude from Chinese labor unions, and unscrupulous bosses who even will not or cannot afford to pay workers’ salaries or redundancy costs. A heavy police presence at some disturbances has also occasionally backfired, with heavy handed tactics to dispel angry crowds sometimes resulting in increased levels of violence and on some occasions, deaths.
“The key to Guangdong’s growth is domestic demand. The Province is vulnerable to slumps in Europe and the United States and there will be much uncertainty for Guangdong’s future economy if the industrial transformation fails,” Professor Lin Jiang, an economist at Sun Yat-Sen University, told the South China Morning Post.
China’s moves to bring the economy towards a consumer-based society have been patchy and in certain market sectors have visibly damaged the economic viability of domestic companies.
Buyers in the West have been able to take advantage of fierce competition among Chinese firms for orders, meaning profit margins have been driven down and increased costs of labor in China, a rise in inflation, and increases in commodity costs have forced many businesses to the wire.
Government policies have also driven high labor intensive industries out of the province, with many leaving China entirely. Much of the recent FDI boom in Vietnam, Bangladesh, and parts of Southeast India have been driven by Guangdong-based manufacturers relocating. With remaining employers in the province being hit with mandatory minimum wage increases, and costly penalties for downsizing workforces, local businesses are increasingly feeling the pinch. What remains to be seen is whether the situation Guangdong finds itself in impacts upon other cities and provinces in China such as Shanghai, Jiangsu and Zhejiang.
Dezan Shira & Associates is a specialist foreign direct investment practice, providing business advisory, tax, accounting, payroll and due diligence services to multinationals investing in China, Hong Kong, India, Singapore, and Vietnam. Established in 1992, the firm is a leading regional practice in Asia with twenty offices in five jurisdictions, employing over 170 business advisory and tax professionals. To contact the firm please email firstname.lastname@example.org, visit www.dezshira.com, or download our brochure here.
Developing Your Business from China to India and Vietnam
Our complimentary report looks at the operational costs of a typical factory in South China, and makes comparisons between these and similar operations in India and Vietnam. We also take a look at Indochina – home to even cheaper labor, and additionally examine the legal and tax positions of China, India and Vietnam, looking at where future policies concerning FDI are heading.