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Do Chinese factories really migrate to inland provinces?

by Renaud Anjoran

One of the very clear trends over the past 15 years in China has been the migration of exporting factories from the Pearl River Delta to the whole coast, and then (to a much lesser extent) to land-locked areas.

However, my prediction is that this migration trend will slow down considerably, and for a simple reason: in many industries, it makes more sense to be located within the existing cluster of competitors rather than far away from them.

First, let’s look at the exceptions — those industries for which production is very widespread. Here are few examples:

  • Wood furniture
  • Jeans (denim)
  • Steel

What is special about these exceptions? The source of materials is spread out, so the processing & assembly factories are also spread out.

In most industries, though, production is clustered around a city. Here are just a few examples:

  • Lighters in Wenzhou (80% of the world’s output, according to Financial Times)
  • Socks in Zhuji (a third of the world’s production in Datang district, according to Wikipedia)
  • Ceramics in Chaozhou
  • Printers and consumables in Zhuhai
  • Knives in Yangjiang
  • Electronics in Shenzhen and Dongguan
  • Stones in Xiamen

You will notice that all these clusters are all along the coast. The raw materials / components suppliers have set up factories close by and won’t move. Processing industries requiring heavy equipment can’t relocate inland easily!

Based on my company’s data, more than 90% of export-oriented production is still in the following coastal provinces: Guangdong, Zhejiang, Fujian, Jiangsu, and Shandong.

The real migration has been from South to North. For simple consumer goods, Zhejiang has nearly caught up with Guangdong, and Fujian and Jiangsu have also become major players.

On paper, relocating a factory to an inland province presents many advantages:

  • Lower wages and lower staff turnover (more local workforce)
  • Lower electricity cost
  • Lower price for buying or renting factory space
  • Less disruption around Chinese New Year
  • Welcoming local authorities
  • Closer to raw materials (e.g. wood in Guangxi province)

However, there are also many disadvantages:

  • Higher cost for getting components from coastal areas or overseas
  • Higher cost for getting finished products to port – can be higher than international freight
  • Much fewer skilled managers, engineers, maintenance and QC specialists, and production operators
  • Relocating a factory is a very strong one-off disruption
  • All relationships with the local government need to be built from scratch

Here is my conclusion on this trend:

  • Relocating to an inner province makes more sense in labor-intensive industries, and for those factories that plan to sell part of their output on the domestic market.
  • A very small proportion of existing factories will relocate.
  • Factories in Jiangxi, Anhui, Henan, Shanxi, etc. are mostly new operations.
  • Costs are rising everywhere! A bowl of noodle is cheaper in Shenzhen’s industrial areas than in Chengdu.

Do you agree?

Renaud Anjoran has been managing his quality assurance agency (Sofeast Ltd) since 2006. In addition, a passion for improving the way people work has pushed him to launch a consultancy to improve factories and a web application to manage the purchasing process. He writes advice for importers on

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