Dongguan, once hailed as the "world's factory within the world's factory," offers a glimpse into China's industrial landscape. However, on January 10, 2023, Dongguan's largest lingerie manufacturer, Dongguan Gogo Garment announced its closure. The company cited a drastic decline in customer orders and unsuccessful efforts to penetrate the domestic market as reasons for its downfall. Within one week, all employees were asked to vacate the premises. With its founding in 1980, the company specialized in OEM production for prestigious international lingerie brands. Over the years, it had grown from a modest workforce to nearly ten thousand employees at its peak, occupying a factory area of tens of thousands of square meters. It was the preferred partner for renowned global high-end lingerie brands and had a history of 43 years, weathering numerous market competitions. Nevertheless, despite its resilience, the company ultimately succumbed to bankruptcy in 2023.
It is reported that all employees leaving the company may not receive any compensation as the company's funds are nearly depleted. In its heyday, employees who worked for 15 years or more could receive a gold medal made of pure gold. During that time., its employees would proudly claim that their welfare benefits at that time surpassed 80% of private enterprises in China. It is known that the current shareholder of the company, Hong Kong’s Clover Group, has invested in factories in Sri Lanka, where local workers receive a monthly wage of only approximately RMB 1000, much lower than that in China, to the point where the employees reportedly remarked that they too would relocate if they were the bosses under such circumstances. To make matters worse, Dongguan was repeatedly under lockdown in 2022 due to the COVID-19 pandemic, but the factory was still required to pay wages and social insurance, further depleting the money of the manufacturing industry.
The plight of Gogo Garment in Dongguan is by no means an isolated case.
Dongguan's Nanzha International Stationery Manufacture, once a massive enterprise with over 60% of the global market share in stationery, was a proud epitome of "Made in China". However, due to the impact of the pandemic, mounting debts, and bankruptcy, the factory has ceased operations. In July 2022, Koppo Electronics, a Fortune 500 company with a history of employing over 6,000 workers, decided to officially shut down due to unpaid cross-border e-commerce payments, a backlog of finished goods, and a sharp decline in domestic and international orders. Similarly, Kiddieland, a toy factory with a history of over 30 years, also announced closure. In August 2022, ALCO Electronics., a company that had operated for 36 years and employed over 20,000 people at its peak, declared bankruptcy and ended its operations due to overwhelming debts. The owner of the company even committed suicide due to the unbearable pressure.
According to incomplete statistics, in 2022, there were over 3,000 foreign trade factories in Dongguan that went bankrupt. Even after the relaxation of COVID-19 measures in 2023, the situation has not improved much. Many factories are struggling under heavy burdens, and are on the verge of collapse, or could close at any time. In February 2023, Dongguan Chitwing Tech issued a notice stating that due to a sharp reduction in orders, a portion of the employees would be put on "leave" which may be "extended". Chitwing is a top 100 enterprise in Dongguan and a core supplier to companies such as Huawei, Samsung, and TCL. It is a large company and even listed on the Shenzhen Stock Exchange, yet it is still unable to sustain itself, and this came as a surprise to everyone.
It is reported that the products currently being produced by the company are all from last year's orders, and there have been no orders this year. This company is a high-tech enterprise in the true sense, but even such a company has to shut down and put employees on leave.
In Dongguan, numerous factories are experiencing prolonged periods of shutdown and leave. Despite the expectations of many that surviving 2022 would bring relief, the reality is that there is no indication of improvement in 2023. Many manufacturing companies there have noted the significant shift in global supply chains, as they have yet to receive any orders this year. Notices of factory closures are becoming increasingly concise, some with only a few words. The manufacturing industry in Dongguan has experienced a significant blow to its confidence.
It’s not just Dongguan, but the entire Pearl River Delta region, including the Greater Bay Area, that is facing a dire situation of shutdowns, closures, bankruptcies, and collapses. This out-of-control situation is affecting even the last remaining "Made in China" manufacturers who have persevered and struggled to the end. Many of these established enterprises have been in business for decades, and their owners thought they could maintain a prosperous business indefinitely. However, in reality, in the southeastern coastal regions of China, both private and state-owned manufacturing industries are facing challenges, with some companies only able to pay 70% of wages to their employees.
In retrospect, the past situation of China's manufacturing industry could be likened to a lurking danger, akin to submerged bombs in deep water. Although the potential risks were widely recognized, they remained latent and unnoticed. However, in the present, these hidden risks are progressively detonating, one after another, signaling an imminent critical moment. This trend indicates that China's economy is approaching a precarious state of losing control.
Given the current state of manufacturing, can the real estate sector truly weather the storm? While it may be wishful thinking for some, the reality is far from reliable. As of February, this year, an estimated 3.5 billion square feet of completed residential buildings in China remain unsold, equivalent to around 4 million residential units. Real estate consulting agencies estimate that approximately one-third of all newly constructed homes in China in 2022 remain unsold, marking the highest proportion since 2015. The housing market is facing a challenging time with properties struggling to sell.
From an economic development perspective, the most straightforward and uncomplicated path to prosperity is through land and real estate development. This is considered simple because one can potentially make substantial profits from owning a piece of land. However, this seemingly effortless approach to wealth accumulation relies on assumptions that houses will always be sellable, people will always have stable employment with consistent wage and income growth, investments will perpetually yield positive returns, and real estate prices will continue to rise while social inflation remains unaffected. While this facade has been sustained for an extended period of time, when the deep-rooted issues of the manufacturing industry eventually detonate, it signifies the collapse of all assumptions about China's economy. The lack of employment opportunities leaves people unable to afford to purchase houses, and those who have already purchased houses struggle to repay their mortgages.
Therefore, in the future, the focus of China's economy may shift from industrial economy and digital economy to agricultural economy. The decline in the industrial economy may be much more severe and rapid than expected. The remaining forces in China's manufacturing sector may only be the military-industrial enterprises that are willing to invest regardless of costs, but these enterprises are like bottomless pits when it comes to funding. Whether such an assessment is exaggerated or not remains to be seen.
Final analysis conclusion:
In Dongguan, a window of "Made in China", many decades-old enterprises are unable to secure orders, with their capital chains drying up, leading to closures and bankruptcies. This demonstrates that China's industrial sector, which was once a source of pride, is facing unprecedented challenges. The actual operations of businesses in the real world differ from the resilient and optimistic recovery portrayed by statistical data. It can be predicted that the decline in China's industrial economy will exceed expectations in terms of speed.
