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Yulin: the Cradle of Guangxi's Support Sector

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Yulin: the Cradle of Guangxi's Support Sector 4 March 2015 Economists' Pick > Research Articles > Research Articles Yulin: The Cradle of Guangxi’s Support Sector Yulin City is one of four demonstration zones designated for industrial relocation in the Guangxi region. It was established by the National Development and Reform Commission (NDRC) in 2010[1]. According to the Yulin Commercial Bureau, as of July 2014, 165 Hong Kong-invested companies had been given approval to operate in Yulin. These companies have investments totalling more than US$750 million, and cover a wide range of industries, including leather, electronics, textiles, garments, and toy manufacturing. This relocation of labour-intensive manufacturing has driven a parallel demand for related supporting industries. In Guangdong, with the supporting industries sector beginning experience the same issues as manufacturers – restricted labour supply and rising production costs – they, too, have begun to move on. Given its proximity to Guangdong, in recent years Yulin has been attracting upstream and downstream supporting industries. At the same time, the Yulin government has been actively wooing these supporting businesses. It believes that the local industry chain will gradually improve in tandem with the growing maturity and scale of industrial transfer into the city. Support Sector Moving to Yulin As manufacturers from Guangdong expand their operations into Yulin and, in turn, boost local demand for upstream and downstream supporting industries, support sector players from Guangdong are following their lead. One case in point is a Hong Kong electronics manufacturer of computers, notepads and e-book readers. In 2010, the company set up an additional production plant in Yulin’s Beiliu County. Previously, the firm sourced electronic components and other auxiliary production items (such as printed plastic packaging and manuals) from support services suppliers in Guangdong. These were trucked from Guangdong to the Beiliu County factory, a journey of about 10 hours. In recent years, however, the manufacturer has been able to begin sourcing locally, as more supporting industries from Guangdong have made the move to Guangxi. The firm’s LCD screens, for example, used to come from Jiangmen in Guangdong. Faced with a tight labour supply and rising production costs in Guangdong, however, the Jiangmen supplier decided to expand its operations into Beiliu County. This has allowed the electronics manufacturer to procure the LCD screens locally, thereby saving on transportation costs and time. The manufacturer is now keen to source more parts locally but, given the dearth of suppliers of electronic materials in Guangxi, it has to still look to suppliers in Guangdong for most of its components and parts. 1 Yulin: The Cradle of Guangxi’s Support Sector A Beiliu toy production line Growth of Support Sector Leads to Changes in Production Strategies Aside from electronics, toy manufacturers from Guangdong have also established plants in Beiliu County in recent years. One toy maker from Hong Kong set up its Beiliu County production lines in 2012 in order to supply semi-finished toys to its main factory in Zhongshan, in Guangdong. The raw materials and production parts required by the Beiliu factory are delivered by truck from the Zhongshan plant. The semi-finished items are trucked back to the Zhongshan plant for final completion, and the finished products are then packed in coloured packaging prior to shipment from Shenzhen or Hong Kong. Having been in Beiliu County for more than two years, the company has found its operating costs, in terms of both industrial land[2] usage and wages[3], to be lower than when it operated out of Guangdong. This, coupled with its confidence in the local business environment, has encouraged the company to expand its plant and production lines in Beiliu County. The workforce there is set to double from its current headcount of about 500 to 1,000 employees. It will also set up a toy-testing laboratory, ensuring that the Beiliu plant can conduct the entire toy production and testing process on an independent basis. It is also understood that the toy maker’s Shenzhen-based printing firm and carton/coloured box suppliers have also set up in Beiliu. In light of his, the company plans to carry out the entire toy packaging process at its Beiliu plant and will truck its products directly from Beiliu County to Shenzhen or Hong Kong for export, thereby shortening its lead time. Although the company still needs to transport its upstream production materials (such as pigments and toy components) from Guangdong, the supporting packaging industry chain in Beiliu County is gradually improving. 2 Yulin: The Cradle of Guangxi’s Support Sector Government Backing for the Development of Supporting Industries The Yulin government is actively encouraging the high value-added electronics industry, the emerging low-carbon and environmental-protection sectors, and the energy-saving industry to move into Yulin. Moreover, the government is also gearing up its industrial parks for a concurrent influx of a diverse group of supporting industries from Guangdong. In addition to developing the local ceramics industry, the Beiliu Ceramics Industrial Park, for example, is the transfer hub for colour packaging, stained paper and other supporting industries to the region. The Bobai Industrial Zone accommodates the plastic products, parts and components, packaging and other supporting industries, in addition to the furniture manufacturing and metal products industries. The Fumian Garment Industrial Zone focusses on developing the production of garment accessories, garment machinery manufacturing and establishing apparel information networks. According to the Yulin Commercial Bureau, when the city first became a demonstration zone for industrial relocation, it had already pinpointed labour-intensive manufacturing as its investment target. The goal was to entice manufacturers to set up in Yulin as a result of its stable labour supply and lower production costs. As industrial clusters began to take shape, demand also grew among the local companies for upstream and downstream supporting resources. As a result, the investment targets have been expanded to encompass suppliers to manufacturers as well as related supporting industries. At the same time, in Guangdong, suppliers and supporting industries are facing similar labour shortages and rising production costs to those experienced by manufacturers. A number of these will inevitably follow the lead of manufacturers and shift into other regions. Given Yulin’s proximity to Guangdong, and the Yulin government’s supportive approach, the competitiveness of local enterprises can be expected to grow with the expansion of the industry chain, as they leverage the advantages of upstream and downstream integration. Appendix: 3 Yulin: The Cradle of Guangxi’s Support Sector 4 Yulin: The Cradle of Guangxi’s Support Sector [1] The four demonstration zones are located in Wuzhou, Guigang, Hezhou and Yulin. [2] The minimum cost of industrial land is Rmb384 per square metre in Zhongshan, compared to Rmb144 per square metre in Beiliu. [3] According to the company, the average monthly wage at its Beiliu plant is Rmb1,000 lower than that of its Zhongshan plant. Find this page at http://economists-pick-research.hktdc.com/business-news/article/Research-Articles/Yulin--The-Cradle-of- Guangxi’s-Support-Sector/rp/en/1/1X000000/1X0A1AFR.htm Copyright©2015 Hong Kong Trade Development Council. Reproduction in whole or in part without prior permission is prohibited. While every effort has been made to ensure accuracy, the Hong Kong Trade Development Council is not responsible for any errors. Views expressed in this report are not necessarily those of the Hong Kong Trade Development Council. 5.
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