Pearl River Delta (PRD) – Still Going Strong. By Jens Martin Alsbirk, Consul General in Guangzhou

Back to the contents

The “Year of the Rat” has not all been smooth sailing for the South China region. 2008 started off on a bad note with millions of migrant workers stranded in Guangzhou, Shenzhen and Dongguan because of the collapse of transportation routes caused by the unusually cold weather during the Chinese New Year. A lot of the workers that did make it back to their hometowns never returned to the Pearl River Delta because of new opportunities closer to home, resulting in labour shortages when production resumed after the New Year break. Others simply lost their jobs because a lot of factory owners decided that now was the time to relocate their factories to areas more suited for labour-intensive manufacturing. On top of all this the Olympic Games related visa restrictions made it cumbersome for foreigners to even enter the PRD. This contributed to the steep drops in attendance rates at trade fairs and other events aimed at boosting local suppliers’ exports – and all of these challenges happened in a year where the global financial crisis took everybody by surprise!

However, contrary to what one might expect from reading the (Danish) press, overall growth in the PRD remains impressive (around 10% in the first half of 2008) and it is certainly a good deal higher than in the depressed OECD markets. The PRD is obviously no longer a low-cost area seen in the Asian context but for many international companies the area is still the obvious first choice for their China operations. The Guangzhou Development District is fully booked and hosts 102 Fortune 500 companies – not bad considering the abundance of such Industry Parks in the PRD! A company like FMCG giant Proctor & Gamble have their most modern manufacturing facility in the World in Guangzhou and they are expanding their sales and manufacturing facilities here at double digit rates.

The region’s proximity to Hongkong is a huge advantage – not only because of the market possibilities in this highly lucrative market but also because of the availability of the strong service industry and managerial capacities there.

The present transformation of the PRD could become a market driver in many sectors for Danish companies (i.e. environmental technology/fashion) and the availability of world class clusters within electronic equipment, textiles, furniture etc. still makes it very attractive to set up a sourcing base here, even if price increases are taken into account.

We thus remain convinced that the PRD still offers an abundance of opportunities for Danish companies whether they are interested in sourcing, production or sales.

The Consulates in Guangzhou and Hongkong have many years experience in assisting Danish companies in the area and you are always welcome to contact us for more information about sales, establishment, sourcing etc.

Read more about the Trade Council of Denmark in China at: www.dtcchina.um.dk/en

Chinese Labour Contract Law – good or bad news for Danish companies?
One of the most important legislative initiatives in 2008 has been the Chinese Labour Contract Law. The law entered into force January 1, 2008 after a lengthy consultation process involving both domestic and foreign business associations. The aim of the new Labour Contract Law is to increase the obligations of employers and the rights of employees. All employers are to sign written labour contracts with every single employee. The law stipulates penalties for not doing so within a month of employment, regulates probation periods, defines rules regarding overtime compensation, severance pay, etc.

These obligations should hardly be considered revolutionary for Danish companies with operations in China. Danish companies already offer their employees contracts, decent overtime compensation, severance payment etc. However, a lot of Chinese and foreign manufacturers  have for many years taken advantage of the surplus of desperate migrant workers and have offered appalling working conditions for their employees, not least in the Pearl River Delta.

These employees are now able to challenge employers in court if they do not follow the law. The intention behind the law is thus to help transform the manufacturing base in the South into a more harmonious society, where production takes place in a regulated and orderly manner.

Danish production companies in China might in fact see their competitiveness strengthened by the law, since cost increases will be higher for their local competitors than for their own operations. This optimistic scenario however hinges on implementation measures. If the authorities do not take steps to ensure implementation of the law vis-a-vis local companies we run the risk that this will be (yet another?) good law that is mainly being implemented in the foreign-invested business sector. The diplomatic missions in China will be very interested in feedback from DCBF member companies in this regard.

There is an abundance of information about the Labour Contract Law on the internet; i.e.:
www.chinalawblog.com/2008/09/the_impact_of_chinas_labor_con.html

For more information about how the Labour Contract Law might affect your business in China please contact the undersigned or Alexander Schultz (aleshc@um.dk), Head of the Commercial section at the Embassy in Beijing.

Yours sincerely,

Jens Alsbirk
Consul General of Denmark in Guangzhou
jenals@um.dk

Back to the contents