Huawei employees walk in Songshan Lake Base. Picture/Visual China
Relying on Cost, Land, Geography and Other Advantages
Dongguan has become the preferred place for industrial transfer in Shenzhen in recent years
Source: Journalist of China Newsweek/Horsley
This article was first published in the 887 issue of China Newsweek.
On the morning of December 18, 2018, Huawei introduced light rail trains from Switzerland, carrying global vision, shuttling between 12 European towns in Dongguan Songshan Lake Base. Fourteen top international media journalists, including Ryan, were invited by Huawei to visit its advanced thermal technology laboratory, advanced structural materials laboratory and internal network security laboratory in the new park.
Hours later, they sat around a round table, the first official response of Huawei to international public opinion after Meng's late boat incident, in Dongguan.
Questions arise from the contrast of impressions. In the past, Dongguan was dominated by labor-intensive export processing trade and was full of OEMs. In recent years, Huawei has grown into a business card of China's high-tech enterprises at an extraordinary speed. Such enterprises will decide to move key terminal departments and several core R&D institutions into Dongguan, which is thought-provoking.
In fact, this is not the first time Huawei has laid out in Dongguan.
As early as 2005, Huawei's subsidiary Juxin Technology Co., Ltd. was established in Songshan Lake. Its positioning is Huawei's network communication products production, manufacturing and distribution base in South China. In 2009, Huawei Southern Factory, located on Xincheng Avenue in the north of Songshan Lake, was put into operation. From 2011 to 2012, several Huawei insiders told the media that most of Huawei's supply chain departments had moved to Dongguan. In August 2013, Huawei President Ren Zhengfei announced that Huawei Terminal Company would move to Songshan Lake. In 2018, boots finally landed.
On August 11, Huawei relocated in the second batch, with about 5,400 people. On November 26, the third batch of people relocated, with a total of about 4500 people. Three times, a total of 12600 people were stationed in Dongguan. According to previous project planning, 30,000 R&D personnel will gather here after the completion of Songshan Lake Base.
Over the past decade, Huawei's layout in Dongguan has shifted from the original processing base to the front end of the industrial chain such as R&D institutions.
The arrival of Huawei has created an ecological environment for Dongguan.
In 2012, due to the high cost and limited land in Shenzhen, memory technology (Shenzhen) Co., Ltd. changed from traditional processing enterprises to R&D enterprises, seeking to move out of Shenzhen. According to Jia Zongming, general manager of Dongguan Memory Storage Technology Company, there were three choices at that time. One was Suzhou, where the company had a research and development center before. The other was the mainland city, such as Xi'an. The third was the surrounding city of Shenzhen, which mainly considered Dongguan and Huizhou.
Songshan Lake Hi-tech Industrial Development Zone, adjacent to Shenzhen and Hong Kong, is planned for 2001 as the innovation driving engine of Dongguan. In recent years, Huawei, Dajiang and other well-known enterprises have been introduced into China.
Jia Zongming said that the first reason for settling down in Songshan Lake was cost considerations. He calculated an account, considering land prices, rent, water and electricity, taxes and labor costs, from Shenzhen to Dongguan, the comprehensive cost of memory technology can be saved by about 30%.
Compared with Shenzhen, the labor price in Huizhou is also very low. Jia Zongming said that Dongguan has a better industrial base and complete supporting facilities, which is very important for an enterprise that develops and manufactures simultaneously.
As the second largest independent memory module provider in the world, as well as the strategic supplier of PC brand manufacturers and information and communication equipment manufacturers, memory technology needs semiconductor support. In Songshan Lake, not only supporting materials and equipment (such as laser printing) are complete, but also the price is competitive. Take semiconductor printing as an example, Dongguan's matching will be about 10% cheaper.
Huawei's layout also plays an important role in the relocation of memory technology to Songshan Lake. According to people familiar with the situation, although Ren Zhengfei announced that Huawei Terminal was moving out in 2013, the two sides had reached an agreement as early as 2012. Huawei Terminal (Dongguan) Co., Ltd. was registered with Dongguan Industry and Commerce Bureau on November 23, 2012. At the same time, Huawei's suppliers were notified.
From a time point of view, since Huawei decided to relocate in 2012, as the core supplier of Huawei, memory technology has followed closely, in the words of Jia Zongming, so that it can be close to customers.
In addition to memory technology, Huawei suppliers such as Softpower, China Software International, Ebao Software and Huawei Tomorrow have also landed in Songshan Lake. These enterprises provide a large number of jobs and human resources for the local, and also promote the development of the surrounding industries.
Dongguan turn around
At the end of May 2007, the factory building of Taiping Handbag Factory in Humen Town of Dongguan collapsed.
In the late 1990s, small and medium-sized labor-intensive enterprises in Dongguan, which rely on low cost and demographic dividend, began to close down because of the increasing labor costs. Data show that from 2008 to 2015, the minimum wage in Dongguan was raised from 770 yuan per month to 1510 yuan per month.
Dongguan villages and towns, which live on rent, are facing debt crisis because of the vacancy and dilapidation of their factories. According to the data, in 2011, there were 329 villages in Dongguan, nearly half of the total number of villages in Dongguan, accounting for nearly 60% of the total number of villages in Dongguan. In this year, more than 3,500 toy factories in Dongguan closed down about 1,800, forming the first wave of bankruptcy.
This model makes Dongguan's processing and trading enterprises have no pricing initiative, but can only get small profits by cheap labor and factory buildings. This also solidifies Dongguan's international division of labor status. Most enterprises are in low-end production links for a long time, with low added value.
That's true. With the tide of bankruptcy sweeping Dongguan, there is also a wave of enterprise transfer. Due to rising costs, a large number of Hong Kong-funded and Taiwan-funded enterprises have turned to Vietnam, Cambodia, Myanmar and other Southeast Asian countries with lower production costs to set up factories.
Dongguan itself is also aware of the risks facing the foreign economy.
In the "Dongguan Key Emerging Industries Development Plan (2018-2025)" released in 2018, Dongguan will be further positioned as an advanced manufacturing center and innovative city with global influence.
How can we keep it when we introduce it?
Wang Zhaohong, deputy director of Dongguan Development and Reform Bureau, told China News Weekly that Dongguan's expectation of Songshan Lake is to promote the development of related supporting industries in Dongguan by introducing leading projects from domestic and foreign industries and to form a radiation-driven effect on the upgrading and transformation of Dongguan's industries.
It was at this tea party that Xie Hongwei met a matchmaker under Ali's banner.
In 2001, Dongguan Municipal Government set up Songshan Lake Science and Technology Industrial Park. Located in the center of Dongguan City, Laozi covers an area of 72 square kilometers. It is a new ecological science and technology city integrating science and technology, industry, ecology and humanities, with special emphasis on ecology.
Li Lixun, a professor at the Center for Urban and Regional Studies of Sun Yat-sen University, pointed out that Songshan Lake was built as an ecological zone at the beginning of the planning. Many ecological lands were reserved. The park has 8 square kilometers of freshwater lakes and 14 square kilometers of ecological green space.
In 2012, Huawei photographed four areas of 1,900 mu of Songshan Lake, next to Songhu Huahai, the elite scenic spot of Songshan Lake, surrounded by top-grade luxury residential areas in Dongguan. From the map, the straight line distance from CBD in Futian, Shenzhen, is 40 kilometers, and the driving time from Huawei's headquarters in Bantian is one hour.
Danger and opportunity
Gong Jiayong, director of Dongguan Strategic Emerging Industries Research Center, pointed out to China News Weekly that Shenzhen is now entering the post-industrialization stage, and its economic structure is changing to service-oriented and knowledge-based, which will surely lead to an increase in resource factors, followed by industrial spillovers.
Industry insiders observed that since 2014, Shenzhen's industrial spillover effect has accelerated. Depending on the advantages of cost, land, geography, industry supporting and government services, Dongguan has become the preferred place for industrial transfer in Shenzhen in recent years.
In 2015, Xinjiang Innovation Science and Technology started its headquarters construction in Songshan Lake; in March 2017, Lance Science and Technology and Kangjia Group expanded their troops in Guanguan one after another. According to incomplete statistics, from 2014 to 2016, Dongguan introduced 604 Shenzhen enterprise projects, including 184 in 2014, 233 in 2015 and 187 in 2016.
Moanda, director of the Pearl River Delta Enterprise Economic Research Center of Dongguan Institute of Technology, pointed out that Shenzhen enterprises have experienced several relatively concentrated stages when they entered Dongguan. The first wave is mainly labor-intensive processing trade enterprises, and the second wave is mainly the production and manufacturing links of domestic SMEs. Now the third wave is dominated by high-tech enterprises such as smartphones. The position of the industrial chain has moved from low-end to high-end links.
But Ding Li, director of the Regional and Enterprise Competitiveness Research Center of Guangdong Academy of Social Sciences, believes that industrial transfer between Guanzhou and Shenzhen is still a passive industrial undertaking, not a normal state of cross-regional industrial division and deep integration. The danger of this model is that, due to the lack of endogenous power and high-end talent in Dongguan, once the cost advantage weakens or even disappears, the enterprises that move in are also easy to move out.
Gong Jiayong also pointed out that at present, the siphon effect in Shenzhen and Guangzhou has a great impact on Dongguan. He said that in order to retain talent, we need to continue to improve Dongguan's lagging urbanization and achieve the same level of public services as Shenzhen and Guangzhou, so as to weaken the siphon. At present, there is still a big gap between Dongguan and Shenzhen and Guangzhou in this respect.