Finance and Economic

When production lines close in the United States, protectionism tends to rear its head. In China, the opposite is happening.

A volatile mix of inflation, a rising yuan and new labor legislation has corroded profits in the country’s manufacturing heartland. Hundreds, possibly thousands, of factories have been forced to close or leave the Pearl River Delta, which churns out more than a quarter of China’s exports.

Some are moving inland. Others are going to places like Vietnam, where labor is even cheaper.

But analysts say the movement dovetails with — and in no small way results from — state policies designed to propel China’s economy up the value ladder. Guangdong led reforms, and it is leading the reinvention of China’s manufacturing industry.

China, like other rapidly industrializing economies, is learning it cannot compete forever by churning out cheap, simple goods while gobbling up increasingly costly resources such as oil and iron ore cash till payday. Policymakers are keen to promote more efficient industries and higher-value products as a route to more predictable and sustainable economic growth.

“The factories that are closing are really victims of creative destruction,” said consultant Edith Terry, author of a report on the changes in the Delta published in February.

Industry estimates put the number of factories closing in the Pearl River Delta as high as 15,000, although the Guangdong trade bureau has said fewer than 300 were shutting. Most were labor-intensive, small- or medium-sized producers of metal or plastic products, toys, garments and shoes, the government said.

About 90 percent are based in Hong Kong or Taiwan, which explains why industry groups there have been so vocal in calling for relief from the pernicious effects of fast-rising costs. 

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