Wednesday, October 15, 2008

Development in China's (interior) cities

From Peter Hessler on cities (Qiaotou, Wuyi, etc.) in Wenzhou that are not so close to the coast - actually about 100 miles.

All told, they had mapped out a 21,500-square-foot (2,000 square meters) factory, from bottom to top, in one hour and four minutes. Boss Gao handed the scrap of paper to the contractor. The man asked when they wanted the estimate.
"How about this afternoon?"
The contractor looked at his watch. It was 3:48 p.m.
"I can't do it that fast!"
"Well, then tell me early in the morning."

... Wenzhou had the priceless capital of native instinct. Families opened tiny workshops, often with fewer than a dozen workers, and they produced simple goods. Over time, workshops blossomed into full-scale factories, and Wenzhou came to dominate certain low-tech industries. Today, one-quarter of all shoes bought in China come from Wenzhou. The city makes 70 percent of the world's cigarette lighters.
...Qiaotou's population is only 64,000, but 380 local factories produce more than 70 percent of the buttons for clothes made in China. In Wuyi, I asked some bystanders what the local product was. A man reached into his pocket and pulled out three playing cards—queens, all of them. The city manufactures more than one billion decks a year. Datang township makes one-third of the world's socks. Songxia produces 350 million umbrellas every year. Table tennis paddles come from Shangguan; Fenshui turns out pens; Xiaxie does jungle gyms. Forty percent of the world's neckties are made in Shengzhou.

... That's one weakness of the Wenzhou Model. Entrepreneurs produce goods that require little capital and low technology, which makes it easy for neighbors to jump in. Boss Wang, the uncle, had slipped into the same pattern. Previously, he had manufactured the steel underwire for women's brassieres, and his profits had dropped steadily. When the two men joined forces, they decided to continue manufacturing underwire, but their goal was to find a more profitable main product.

Fortunately, the average bra is composed of 12 separate components. In a figurative sense, the men began their quest at the bottom, with the underwire, and worked their way up. They thought about thread; they looked at lace; they considered the clasp. But when they reached the top, where tiny 0- and 8-shaped rings adjust the bra straps, they found what they were looking for.

A bra ring consists of steel coated with high-gloss nylon, requiring a specialized manufacturing process. The key equipment is a computer-regulated assembly line, divided into three separate stages, each of which heats the object to over 500 degrees Celsius (930 F). Originally, Europeans produced the rings, but by the early 1990s Taiwan dominated the market. In the middle of that decade, a mainland Chinese company called Daming imported an assembly line.

After its arrival on the mainland, where production costs are much cheaper, "the Machine" essentially minted money. The boss got rich, and then a worker named Liu Hongwei got an idea. Despite his lack of formal education, Liu was a skilled mechanic, who worked closely with the Machine. Meticulously, he memorized the assembly line, piece by piece, and in secret he sketched out blueprints. When the plans were complete, he contacted a second boss at a company called Shangang Keji, in the city of Shantou.

In 1998, Boss Number Two hired Liu and took the blueprints to Qingsui Machinery Manufacture Company, in Guangzhou, which custom-built the assembly line. Initially, the new Machine didn't work—nobody's memory is perfect, after all—but two months of adjustments solved the problems. Shangang Keji began producing bra rings, but then Liu found Boss Number Three, at a company called Jinde. Every time Liu jumped, he demanded money for his blueprints and expertise; some believe he made as much as $20,000.

Without knowing it, the man was following a path blazed by other societies that had also experienced sudden manufacturing booms. In 1810, a wealthy American named Francis Cabot Lowell traveled to England, where he used his connections to tour the world's premier textile mills. British law forbade the export of machinery or blueprints, but Lowell had an excellent memory. He returned to the United States, where, in the words of his business partner, he re-invented the Cartwright loom. Lowell became an American hero, with a Massachusetts factory town named in his honor.

... New apartment complexes were rising all around Lishui, and one of the biggest was the Jiangbin development. Formerly, the 16.5 acres (6.7 hectares) had belonged to the village of Xiahe, but in 2000 the city government bought the land-use rights for one million dollars. Three years later, Lishui flipped the land to Yintai Real Estate for 37 million dollars. Given that corruption is endemic in Chinese real estate, the actual price may have been even higher.

In such an environment, everybody gambles on growth. Most of the city's massive investment in infrastructure had been borrowed from state-owned banks, which also loaned money to the developers—Yintai had borrowed over 28 million dollars for its Jiangbin venture. If the real estate market went cold, the whole system was in trouble, and the central government had recently instituted new laws intended to slow down such expansions. But the money kept pouring in—during the past five years, the average price of a Lishui apartment had risen sixfold.

On paper, it looked untenable, but the Chinese economic and social environment is unlike anything else in the world. Real estate laws are skewed in the government's favor, and migration and the export economy create a constant demand for expanding cities. After the hard times of the 20th century, the average citizen is willing to tolerate unfairness as long as his living standard improves. In Jiangbin, I met Zhang Qiaoping, whose family had formerly farmed one-third of an acre (0.13 hectare) on the site. The government paid him $15,000 for a plot of land that was worth at least $200,000. Zhang wasn't happy, but he hadn't protested; instead, he invested in a small shop next to the site. Most customers were construction workers. There wasn't much money trickling down to the lowest levels, but Zhang had tapped into enough to support his family.

Some peasants even made it to the top. Yintai is owned by the Ji family, whose patriarch had been a farmer before engaging in small-scale construction work in the 1980s. Eventually, he expanded into real estate, and now his three sons help manage the company. ...

A lot more within the link.

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