China's Factory to the World Is in a Race to Survive

"This is the worst time ever," said Yu, who saw her earnings almost triple during her time in the province. "The factories hurt by the 2008 financial crisis were the smaller ones, but this time the big ones are affected. My friends in Chongqing have been telling me that the development there is flourishing, and they have been trying to convince me to go back. Maybe it's time for a change."

Yu works at a clothing factory that supplies western brands. A year ago, more than 2,000 workers filled the gray dormitory block behind the production buildings. Now, only about 100 employees remain after the owner transferred most of the production to cheaper Southeast Asian countries like Vietnam.

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Six years ago, if you bought an Apple iPhone or a pair of Nike sneakers, they probably came from Guangdong. But as the days of cheap land and labor recede, the province's businesses are in a race to upgrade or move.

"There's growing pressure along with the rising labor costs and overall production costs," said Li Dongsheng, chairman and chief executive officer of TCL Corp., one of the world's largest makers of mobile phones and televisions, which has already moved some production to central Chinese cities like Wuhan.

More than half of the members of the American Chamber of Commerce in China said the increase in costs was the biggest challenge to their businesses in the country, according to a 2016 Business Climate Survey. About a quarter of respondents said they have either already moved capacity out of China or are planning to do so.

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"Empty the cages to welcome better birds," demanded former Guangdong Communist Party Chief Wang Yang, meaning let the old industries leave and replace them with new, higher-value ones.

"Replace humans with robots," added his successor, Hu Chunhua, 53, one of the youngest members of the Politburo, in a 950 billion yuan ($144 billion) plan to upgrade 2,000 companies in three years, the official Guangzhou Daily reported in March 2015, adding that the move is not expected to cause heavy layoffs.

Dongguan replaced 43,684 workers with robots in 2015, cutting costs at those factories by nearly 10 percent, according to the local government.

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Instead, officials point out how Guangdong province is attracting new businesses, especially entrepreneurs, and building campus-style high-tech parks that are a far cry from the pollution-choked factories of the region's industrial heyday--a program dubbed "to plant beautiful trees to attract the phoenix."... [Shenzen] boasts one of the largest concentrations of tech startups in China, where salaries for senior staff are similar to those in Silicon Valley. The local government offers cash rewards of 6 million yuan to "outstanding talents."

... But across Guangdong, most cities are struggling to match the transformation in Shenzhen. Many are counting on an older investment model to sustain growth: government spending. The province said it plans to invest 1.43 trillion yuan--almost the GDP of Greece--in the next five years on 158 projects to improve infrastructure.