Saturday, January 10, 2009

Made for China

Dispatch from China's 'Puppet Capital'

by Jonathan Adams
December 23, 2008

QUANZHOU, China -- On a factory floor in this city on China's southeast coast, 15 women huddle over sewing machines, stitching the clothes of the gods.

They're skilled laborers, embroidering detailed, brightly colored dieties' outfits, banners and wall hangings for Buddhist, Taoist and folk temples. They also make clothes for the hand puppets and marionettes that have earned Quanzhou fame as China's "puppet capital."

The factory used to make products for export, particularly to neighboring Taiwan. Now, it's increasingly selling to domestic Chinese buyers. Take puppets. Fifteen years ago, this factory sold all of its puppets to Taiwan, said factory manager David Zeng. These days, he says, they only ship 20% of their puppets across the Taiwan Strait; most of the rest are sold in China.

"Taiwan buyers are still purchasing the higher-end products," Mr. Zeng said. "But now we have a bigger demand in the Chinese mainland."

Mr. Zeng's factory reflects a dramatic shift in Chinese manufacturing. The export model that made it rich—becoming the world's cut-rate factory floor—is becoming obsolete. China's exports just aren't as cheap anymore, thanks to rising labor costs and a slew of new laws and tax policies. The current global downturn is sapping demand in key export markets like the U.S. and Europe, making a tough climate worse.

In response, China's exporters are either shutting down or adapting to the new economic reality. Media attention has focused mostly on hard-hit, low-end manufacturers. More than half of China's toy companies went out of business this year, according to the Chinese government.

But the shift also applies to skilled and higher-end manufacturing, such as Quanzhou's many craft workshops. In addition to embroidery and puppet-making, these include wood and stone carving, porcelain, and bamboo weaving. Like China's other exporters, many of these firms have downsized sharply, and now look to the domestic market to take up the slack in falling export orders.

Mr. Zengs' factory is typical. In the 1990s his factory began taking orders from Taiwan, which shares a common "Minnan" culture with southern Fujian province. They began doing a brisk business supplying Taiwan temples and puppet troupes, seizing a cost advantage. "Ten or 15 years ago, it was about 1/3 the cost to make these supplies in China versus making them in Taiwan," said Mr. Zeng. "But now it's not so cheap."

Mr. Zeng says their production costs are now only about 80% to 90% that of Taiwan—still less expensive, but not by much. One reason is salaries. Fifteen years ago a typical skilled embroiderer made about 800 renminbi per month, now the average is 2,000. As their exports have become pricier, they've begun targeting their home markets downsized sharply. From 600 workers five years ago, they now have only 60.

Not everyone can make the switch from exporting to the domestic market so easily, of course. Orders are drying up, and China’s exports fell in November for the first time in more than seven years. In addition to fewer export orders, many factories are finding it difficult to find enough staff. "Every factory now in China is finding difficulties in recruiting new workers—not to mention factories that require specialized skills which take time and patience," Mr. Zeng said.

He expects they may shrink again by half in the next five years, to just 30 workers. And they may move their factories further inland where costs are cheaper. But he worries that he may not find workers there with the special skills that have made Quanzhou a crafts exporter.

"It's difficult," said Mr. Zeng. "There may be nowhere else to go."

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