The challenge of heading west in China
Dispatched by his superiors from the eastern manufacturing hub of Wenzhou, Sun Bin arrived 1,500km westward in the metropolis of Chongqing in January with a simple task: to make and sell as many shoes as possible. Since then, Mr Sun, the local president for Aokang, the big domestic shoemaking company, has discovered it is not an easy assignment.
He has been trying to fire up workers by holding screenings of the Hollywood hit Pearl Harbor, hoping they will believe in the unlikely heroics of the US Navy cook-turned-gunman played by Cuba Gooding Jr. He is often puzzled by the local business environment, in disbelief at how local bosses immediately spend earnings on expensive cars while he insists those in Wenzhou would reinvest it.
Mr Sun's experience in Chongqing is a small but telling example of some of the challenges domestic and foreign-invested manufacturers face when migrating to western China, a vast and unfamiliar place to do business.
"I have no results to report yet," he says after spending the morning barking into his mobile phone. "It is more tiring than Wenzhou - or they wouldn't have sent me." One big challenge is finding skilled labour. The vast western region which stretches across most of the country's land mass has slipped behind China's much wealthier eastern coast, which has developed to be the centre of global manufacturing. The average per capita gross domestic product (GDP) last year in western China is about Rmb7,500, much lower than the national average of about Rmb10,500.
Concerned by the growing income disparity, the government launched its "Go West" policy five years ago. The initiative included large-scale funds for infrastructure projects and incentives for foreign and domestic investors -- easier bank credit, tax preferences and simpler land approvals. Since then, the government has poured billions of dollars into new dams, highways and railways, much of it around Chongqing in the hope that private investment will follow.
Since then, Haier, the household goods maker, and Aokang have been examples of large Chinese companies to have gone west in an effort to expand production capacity. Haier has committed itself to help build a Rmb2.8bn industrial park in Chongqing. Aokang has been leading the way in developing a Rmb1.0bn shoe-making park that aims to produce 1100m pairs of shoes a year. Mr Sun works in a factory complex within the industrial park, which is still being built. One of the reasons manufacturers such as Aokang have made the move is because they believe the local consumer market, now poor, will grow over time. Sichuan, Chongqing's home province, is one of the country's most populated, with 87m people. Chongqing, which lies on the Yangtze river, is one of the country's biggest cities. Ford Motor has a production facility in the city which is also a base for motorcycle manufacturing. Intel has a chip packaging plant in the nearby city of Chengdu, Sichuan's capital. Along with the government incentives, the region has an abundance of energy resources and land. It also has a vast pool of cheap labour.
Wei Houkai, director of the Centre for Development of Western China, estimates labour costs in the west are 25 per cent lower than the east. However, the productivity and skills of workers lag well behind. Hans van de Glind, a Beijing-based expert with the International Labour Organisation, says that, as China's coastal areas reach saturation point, it makes sense for the west to try to attract low-end, labour intensive manufacturers.
However, sceptics point out that the task of moving manufacturing west is difficult. There are few modern cities in the region and some lie in harsh nataral conditions. Unlike the coastal areas, there is no cluster of industries to make the sourcing of parts easy and it can also be a logistical headache for exporters, due to its distance from ports. "The west is still 10 to 15 years behind [the east] but the situation is much better around the bigger cities," says Mr Wei, adding that cities such as Chongqing, Chengdu and Xi'an will develop more quickly than other areas. He says even though the region's infrastructure has much improved, there are still drawbacks -- such as local government inefficiency. Despite Beijing's high hopes, it has been a struggle to woo investors to the region. Li Zibin, an official in charge of the "Go West" policy, estimates foreign investment in western China is about 4.0 per cent of the country's total inward investment.
While Aokang is one of the largest manufacturers in Wenzhou in eastern Zhejiang province, it is in start-up mode in Chongqing. Aokang as a whole has about 10,000 employees making 10m pairs of shoes a year, with exports going to US and European retailers. Aokang's Chongqing operation involves just 600 employees making about 1.0m pairs of shoes a year. Mr Sun is confident things will work out over time. "Making shoes is not that complicated," he says.
Under syndication arrangement with FE