Edward Kang spent 15 years building textile maker Ever-Glory International into a symbol of China's world dominance in cheap clothes, shoes and toys. With $70 million in annual sales, the company has won customers including Levi Strauss & Co. and Tesco Plc.
With rising labor costs and the Chinese yuan's appreciation against the dollar threatening profits, Kang, 45, considered moving from Nanjing, near China's Pacific coast, to the interior to take advantage of a government program to entice businesses into lower-wage provinces. He decided instead to shift 40 percent of his manufacturing capacity to a new plant in northern Vietnam's port city of Haiphong within five years.
The provincial Chinese workers didn't have the appropriate experience, and transportation to distant ports was too expensive, Kang says: ''If we cannot meet customers' price expectations, they will say, 'Bye-bye, Ever-Glory.' ''
Thousands of companies are arriving at similar conclusions. With Vietnam, India and other Asian nations mounting aggressive campaigns for foreign investment, a third of the manufacturers in Guangdong province — which produces 30 percent of China's exports — will be closed in three years, according to an April 29 report by Tao Dong, chief Asia economist at Credit Suisse in Hong Kong.
''The end of an era in terms of China's mighty export industry has just begun,'' he said.
The factory closures and departures to foreign shores aren't likely to dampen growth in the world's fastest expanding major economy, as China increases its production of higher-value goods — computer chips, electronic gadgets, automobiles.
What it does, in the world's largest Communist country, is increase the disparity between residents in the wealthy coastal areas and the more than 700 million people in inland provinces — more than half of China's population — who might find themselves excluded from the country's success story.
''It is absolutely key that China push its development model westward,'' says Stephen Roach, chairman of Morgan Stanley's Asia division in Hong Kong. ''The jury's out on whether they will pull it off.''
China's shipments of higher-technology products surged 412 percent since 2002 to 347.8 billion yuan ($47.6 billion) last year, or 28.5 percent of total exports, fueling 11.9 percent growth in gross domestic product. The economy is forecast to expand 10 percent this year and 9.5 percent
in 2009, according to 21 economists surveyed by Bloomberg News.
Growth is concentrated mainly in four provinces on China's southeastern coast: Guangdong, Jiangsu, Fujian and Zhejiang.
China won more than 65 percent of the $792 billion in investment received by 21 Asian countries during the past five years, according to the Asian Development Bank. Such dominance prompted Singapore's founding father, Lee Kuan Yew, to say in 2002 that China is ''a vacuum cleaner for foreign direct investment.''
About 90 percent of the money has gone into the coastal southeast, which accounts for 60 percent of the country's total exports. That's helped to double average monthly pay in the Guangdong province city of Dongguan, China's largest manufacturing center, to 2,594 yuan ($373) in December 2006 from 1,284 yuan ($185) in 2001, according to New York-based CEIC Data, an economic-research firm.
So far, the rest of China hasn't shared in the prosperity. Incomes in western China's poorest regions are one-tenth those of the richest areas on the east coast. The average monthly wage for the city of Gansu in the northwest is 1,437 yuan ($207).
To help encourage investment and narrow the disparity, the government adopted a ''Go West'' policy in 2000. It spent 1 trillion yuan ($1.4 billion) through 2005 on 70 major infrastructure programs including a 1,140 kilometer railway to Lhasa, Tibet's capital, according to China's National Development and Reform Commission.
Foreign companies announced last year that they intend to invest $11.6 billion in central and western China, up 30 percent from $8.9 billion in 2003, according to Belfast, Northern Ireland -based FDI Intelligence, a provider of data on foreign direct investment. That's well below companies' investment intentions for Vietnam, which totaled $40.1 billion in 2007, up 354 percent from 2003, and for India, which rose 174 percent to $52.6 billion, FDII said.
Vietnam's laborers earn an average of 1.669 million dong ($104) a month, 41 percent less than China's lowest-paid workers in the central province of Jiangxi, according to World Bank data.
India's wages are lower than Vietnam's, averaging 3,843 rupees ($87) a month, according to CEIC.
India is copying China's economic zones, building more than 400 that will provide low-cost land and rents, tax breaks and duty-free imports.
