Economy

Through a glass darkly

Shanxi tries to stop an industry fleeing to Vietnam

Bye-bye Qixian, Good morning Vietnam

We used to make that here” is a refrain commonly heard in the US and Europe, especially in places where factory jobs vanished long ago to low-wage countries.

For years those jobs went to China, but now some of that industry is on the move again.

To be clear – China’s manufacturing growth is still strong. The country is far from deindustrialising.

But what’s true for China as a whole, doesn’t apply universally. And a few single-product towns have recently found themselves in the unwelcome position of having to empathise with their struggling counterparts in the West.

One of those places is Qixian County in Shanxi. The county is currently the largest maker of blown-glass in China, but it may not hold that title for too much longer.

Glassware makers had it particularly rough during the global financial crisis. Overseas demand slumped for wineglasses, vases and cups.

Qixian was not spared the fallout. At its commercial peak there were over 160 glass-blowing firms in the county. An estimated 80% of them were forced to close.

So several business owners decided to do something that’s been happening in the West for decades: move production abroad.

“I would only do it as a last resort,” local business owner Zhao Li (not his real name) told the Economic Observer. But when the crisis hit, Zhao and several of his glassmaking brethren made just such a choice, moving their businesses to Vietnam.

Wages were the key factor. Several Chinese provinces now have a minimum wage of more than $147 a month. The average monthly wage for workers in China’s southern neighbour is reportedly less than $60.

The pressure on the industry isn’t just coming from wages. In May, an edict from the State Council (China’s Cabinet) directed local governments to shutter ‘excess capacity’ in six industries. Glassmaking was one of them. Beijing’s policymakers said that they were promoting “energy conservation and emissions reduction”. “[Glassware] is not a sunrise industry,” explains Zhang Teng, director of Shanxi Hongyi Glassware, “it’s resource-based and energy-hungry.”

That’s bad news for Qixian County, where the industry is a major employer and its taxes account for roughly a third of the county’s revenue.

The State Council’s decision also means that many of Qixian’s glassware companies need to invest in energy-efficient technology if they want to continue to operate. But that requires a significant amount of capital, not something that most glassware firms have much access to at the moment.

Their money raising choices are limited. Chinese banks prefer to lend to state-owned firms, and credit unions charge punitively high interest rates.

So moving southeast into Vietnam is often the best alternative option for many of Qixian’s business owners: lower wages, fewer environmental policy restrictions, and even incentives in tax and subsidised power and water. Sounds just like China in the ‘good’ old days?

Not everyone intends to make the journey quite yet. Zhang Teng is betting that Shanxi Hongyi Glassware still has a future in Qixian. His plan is to increase his prices by producing higher-end products for the domestic market. He says that this is what Italy and the Czech Republic did when much of the European glass industry started losing out on business that was moving to China.

He may be right, but much of Qixian’s mainstay business appears to have left for good.


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