MELISSA BLOCK, host:
From NPR News, this is ALL THINGS CONSIDERED. I'm Melissa Block.
ROBERT SIEGEL, host:
And I'm Robert Siegel.
South China is the world's factory floor. For years, it has churned out cheap products: toys, shoes and clothing. But now rising costs — and shifts in Chinese government policy — are knocking smaller factories out of business.
China's state-run press says 1,000 shoe factories closed last year in Guangdong province alone. And as profit margins disappear, some companies are even moving to lower-cost countries like Vietnam.
In the first of two reports, NPR's Frank Langfitt looks at the changing face of made in China.
FRANK LANGFITT: Travel around parts of south China's Guangdong province and all you will see are factories, tens of thousands of them mostly bathed in white tile and blue glass. But look closely these days and you'll notice something new - more and more are lock-shut and abandoned - factories that used to make bicycles, furniture and shoes. And slapped on the front gate, you'll usually see a seal from the local court saying the company has gone belly-up.
I'm standing here in a factory in Guangdong province and I got to say this is a sight I didn't think I'd ever see. The factory went bankrupt three months ago - it makes shoes. And today, there are all these workers here who are pulling boards and metal and other machinery out of the factory to recycle it. The place is completely deserted. And it's one of hundreds of factories that have gone bankrupt in this area.
(Soundbite of pouring rain)
LANGFITT: As rain pours down on the factory's aluminum roof, I poke around. Straw mats still liter the floors of dorm rooms where workers once slept. Torn shoe soles and broken swivel chairs lay in puddles around the courtyard.
(Soundbite of Chinese workers)
As workers toss scrap wood onto a truck, they address me as Lao Ban. That's boss in Chinese. They think I'm here to buy the place. Then I meet the scrap workers' boss. His name is Huang Jin. He tells me the company went bankrupt last fall. The owner fled leaving hundreds of workers unpaid. Huang says he stripped lots of shoe factories.
Mr. HUANG JIN (Scrap Worker Boss): (Through translator) Since last Chinese New Year, it's been about 30 or 40.
LANGFITT: He sells the equipment to other factories in China's inland provinces or Vietnam. He says the business of scavenging bankrupt manufacturers is booming.
Mr. HUANG: (Chinese spoken)
LANGFITT: I asked by what percent it's gone up. He laughs.
Mr. HUANG: (Chinese spoken)
LANGFITT: It's hundreds of percent, he says, not how much percent.
Factories have gone bankrupt for several reasons. Huang, the scavenger boss, says one is a labor shortage, as workers can find more jobs elsewhere than ever before.
Mr. HUANG: (Through translator) If a boss opens a factory, it's very hard to find workers. And even if you find workers, they're not skilled. They don't know how to make shoes.
LANGFITT: Some Chinese dream of running a factory here. But Huang says the conditions are so bad now, it's safer to keep stripping them.
Mr. HUANG: (Through translator) Last year, I was going to invest in a motorcycle fuel business. I flew to meet my friend and told him. I wanted to open a factory affiliated with his in Changsha. Then he told me, Huang Jin, don't do it. Don't think that I'm flourishing. It's empty inside. You probably have more money than I do.
Mr. SAMUEL KUO (Owner and Chairman, Lacquer Craft Furniture): Made in China is not cheap anymore.
LANGFITT: That's Samuel Kuo. He oversees Lacquer Craft Furniture in south China's Dongguan City. Last year, he laid off one-third of its 6,000 workers here. He couldn't afford to pay rising labor costs. Other factories have been pinched by increasing material prices for things like glass, paint and steel pipe.
Mr. KUO: (Through translator) The low value-added products will have a hard time surviving in China anymore because the costs here are too high. So they'll have to move to some low-cost countries.
LANGFITT: Instead of making it easier on these factories, China's government is making it harder, deliberately. After encouraging cheap manufacturing for more than a decade, the regime wants to push investment towards high-tech. So last summer, it reduced a tax rebate to squeeze low-end exporters.
Fred Chen runs the Taiwan Furniture Manufacturing Association here. He says the days when the government welcomed cheap factories are over.
Mr. FRED CHEN (Chairman, Taiwan Furniture Manufacturing Association): (Through translator) Before, when China was poor, any kind of factory could come in. They will give you a lot of preferential treatment — no taxes, cheap rent.
LANGFITT: China is the world's fourth-largest economy and a rising global power. It wants more sophisticated factories with higher-wage jobs. Sounding like a jilted boyfriend, Chen explains the change with a Chinese idiom.
Mr. CHEN: (Through translator) We say the government breaks the bridge after crossing the river. We helped you develop. Now you're dumping us, you're kicking us out.
LANGFITT: If Chen sounds bitter, he says he isn't. He may not like the new policy, but he says it's a natural progression. China is just trying to follow countries like Japan and Taiwan, which climbed the manufacturing ladder from low-end to high-tech.
Mr. CHEN: (Through translator) If more valuable investment comes in, it's good for the government and ordinary people.
(Soundbite of machinery)
LANGFITT: But that leaves many small firms struggling. Becky Song is sales manager at Creation Furniture. In the last year, she says…
Ms. BECKY SONG (Sales Manager, Creation Furniture): We have two factories closed.
LANGFITT: Now, there's only one left. In addition to losing much of the tax rebate, the company is struggling with another policy change. China is allowing its currency, the RMB, to rise against the dollar. But as the RMB goes up, the money Song gets for each piece of furniture goes down. She explains over bottles of water around the table in her office.
Ms. SONG: We always sell the product to U.S. Payment is by the U.S. dollar, such as this table or we give you the price is (unintelligible) maybe three years ago. We can get 800 RMB. But right now it's only 730, so there's plenty RMB losing.
LANGFITT: Song says profit margins at some companies like hers have evaporated, and at least 30 companies have moved to Vietnam in the past year to save money. Others in the industry put the figure higher.
Ms. SONG: If you keep doing this, you will keep losing, and no one can survive.
LANGFITT: All told, I spent a week in Guangdong province. No one I talked to was optimistic about low-end factories. One Hong Kong businessman told me the era of such small manufacturers is ending. And he said he expected 1,000 more to close in the coming months.
Frank Langfitt, NPR News.
SIEGEL: Tomorrow, we look at China's new labor contract law and we'll hear from an activist who was stabbed by thugs for teaching workers how to apply it.
Mr. HUANG QINGNAN (Labor Activist): (Through translator) After the first attack, I started fighting back. They cut me here, here, and here. They cut me on the thigh and on the back.