Economy

Factory farewell

Why Johnson Electric’s departure from Shenzhen is symbolic

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The Wang family behind Johnson Electric have a long history of riding the ups and downs of southern China’s manufacturing sector, dating back decades to the time when the People’s Republic of China was founded in 1949, and the family first arrived in Hong Kong.

They are still doing so today as their electronics company moves from its long-cherished home in Shenzhen’s Bao’an district to Jiangmen, a smaller city further along the coast in Guangdong.

Johnson Electric’s founder Wang Seng Liang came to Hong Kong after Mao Zedong’s rise to power in mainland China. His textile business in Shanghai got seized by the new regime, so he set himself up as a tailor in the British colony instead.

In 1959 Wang and his wife then established Johnson Electric to make motors for cheap plastic toys. His son Patrick, the company’s current CEO and chairman, has said that his father’s motivation was to find a business with greater predictability, where product ranges lasted for longer periods. “Toy trends change often. Less so for motors,” he explained.

The Wangs were key contributors to the ‘Made in Hong Kong’ label that symbolised the cheaper goods that were made in the city, especially its toy industry. But as the economy grew rapidly and labour costs rose, the family started to look for cheaper places for their production lines.

When China began to open up in 1979, Johnson Electric was one of the first of Hong Kong’s factories to shift its operations across the border. Wang junior spent three years hunting for suitable land before settling on the rural village of Shajing in Bao’an in 1982.

When he started his search, there were 100 people working in the electronics industry in Shenzhen. The city boasted 4,000 telephones lines for its 314,000 citizens and Johnson Electric’s first assembly line was installed in a former storage shed for grain.

And that is where it stayed for the next 38 years, growing in sophistication in an area that would come to be known as Johnson City. National Business Day, a local newspaper, described the firm as the “golden signboard” for the hordes of other electronics companies that came to Bao’an, one of Shenzhen’s nine districts. But that also means that Johnson Electric’s departure is a moment for reflection in the local media. Parts of the press see it as symbolic of the city’s upgrading of its manufacturing capacity, while others have asked whether rising costs in the city will mean that other iconic firms like Flextronics and Foxconn will be next to move.

And then there is Huawei, which has already moved more than half of its employees out of Shenzhen to a new campus in Dongguan.

There is symmetry here with Johnson Electric’s move away from Hong Kong in search of cheaper places to manufacture. But Song Qinghui, one of Shenzhen’s better known economists, writes that the city has nothing to fear from an exodus of some of its most familiar manufacturing brands. The city’s economy is evolving, he says, noting too that while Huawei is moving some of its staff to Dongguan, its headquarters will stay in Shenzhen.

“There’s only a crisis if the headquarters of large and growing enterprises are moving away,” he adds.

Johnson Electric – which derives $2.4 billion of its current $3.07 billion in sales from automotive parts – had earlier made headlines in March when it cancelled its final dividend for this financial year (it last took this drastic step in 2009). In the year ended March 2020, it posted a net loss of $494 million, compared to a $281 million profit the year before. It blamed a downturn in car sales, particularly in China, which overrode positive sales growth in Europe and the US.

The company is hoping for a return to profit in the months ahead, especially as car sales start to recover from the worst of the Covid-19 outbreak. The plan for its new factory in Jiangmen is also to pivot to more sales of “smart auto” parts, many of them supplied to the electric vehicle sector.


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