Ceramics city

Is Foshan a weathervane for China’s economy?

Ceramics city

Prepare to be bowled over

It is the hometown of Chinese martial arts legends like Ip Man and Huang Feihong. Even Bruce Lee studied kung fu there. But today, Foshan, a city of about seven million people in Guangdong province, has a different reputation as China’s ceramics’ capital.

In recent years Foshan has accounted for over 70% of ceramics production in China. According to the China Daily total industrial output is $300 billion, with the majority of the ceramics produced for export. That led to problems two years ago, when the European Union launched an anti-dumping investigation into Chinese ceramic tableware and kitchenware. Brussels concluded that the industry had been enjoying a free ride on unfair subsidies and a low tax rate. As a result of the investigation, the EU adopted a new tariff scheme levying rates of up to 69.7% on imported ceramic tiles from China.

The effects were almost immediate and Foshan saw its exports drop by 24.4% in the first 10 months of 2011 after the new tariff was imposed. Southern Daily reports that more than 30% of ceramics producers went out of business.

In light of the gloomy reports coming out of Foshan, WiC decided to take a trip to the city, just 150 kilometres northwest of Hong Kong.

First impressions confirmed some of the bleaker news. Local traders admitted that sales have been hard hit, especially in the last quarter. Foreign buyers in particular have gone into hibernation and the slowdown in the domestic property market has hit demand too. But local salespeople also told WiC that things aren’t quite as disastrous as they might at first appear. Chen Yan, sales manager at Kangtuo, one of the largest tile producers in Foshan, admitted that the EU anti-dumping tariff had dampened demand. But she shrugged some of that off, saying that many manufacturers are instead selling to developing economies in Southeast Asia and the Middle East.

She also added quietly: “There are other ways to get around the tariffs.” Though Chen declined to elaborate, it is not uncommon for ceramic firms to send their products to a third-party country, where they receive a finishing touch. What was ‘Made in China’ notionally becomes another country’s export.

Another observation that caught WiC somewhat by surprise was Foshan’s clear blue sky and relatively fresh air (by Chinese standards, of course).

As it turns out, many of the local ceramics factories have been moved out of the city, giving residents a welcome break from years of coal-burning kilns. Kangtuo, for instance, has moved its entire production line to Hunan, while a local rival has moved its own production to Jiangxi.

“Foshan still remains the headquarter and distribution centre of the ceramic industry but the workshops are now in the backwater,” Liu Jun, a government official in Foshan, told 21CN Business Herald. “Many factories send their semi-finished products to Foshan and we finish the final steps like polishing so the products are still ‘Made in Foshan’.”

Additionally, the local government wants to attract higher-end businesses. It has improved the city’s infrastructure, adding new railway stations, a regional airport, and even China’s first intercity metro line (connecting Foshan to Guangzhou). The Foshan National Hi-Tech Industries Development Zone, with a planned area of 10 square kilometres, is targeting manufacturers of optical displays and high-end equipment.

Locals seemed unexpectedly upbeat. An employee at the Crowne Plaza Hotel in the city told WiC: “Foshan has changed so much in the last five months. I can’t even imagine what it’s going to look like in the next five years.”

Could Foshan’s experience reflect a case of China’s enigmatic economy in miniature? The headlines may be gloomy, but the city seems to be ticking over, fuelled perhaps by infrastructure spending. Much like the country itself, Foshan’s attempt to move up the value curve remains a work in progress. And as with so many aspects of Chinese business life, change is happening very quickly indeed.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.