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Dongguan, the World’s Factory in Transition

By Dezan Shira & Associates
Posted: 8th March 2013 09:41
Dongguan, the city known as the “world’s factory” even within China, is home to more than 10,000 foreign-invested enterprises and one of the largest global manufacturing bases. However, 30 years ago the city was just a collection of villages and towns spread out over 2,500 square kilometers on the Pearl River Delta.
Thanks to the “reform and opening-up” introduced in 1978, generous fiscal support from both the central and local government has transformed the former farm town into one of today’s leading global manufacturing centers. In 2012, the city’s GDP alone exceeded the RMB500 billion benchmark for the first time; registering at RMB501 billion (US$80 billion).
Geographical overview
The city’s initial economic growth spurt can be largely attributed to its strategic location. Lying in the central-southern part of Guangdong Province and east of the Pearl River, Dongguan adjoins Guangzhou to the northwest, Shenzhen to the south, and is positioned ideally at the center of the Guangzhou-Hong Kong economic corridor.
Beginning in the late 1970s, manufacturing enterprises from Hong Kong and Taiwan were attracted to Dongguan by its proximity to Guangzhou, Shenzhen and Hong Kong, and also by its abundant supply of cheap labor and land. Along with the relocation wave, massive capital flows, advanced manufacturing techniques, cutting-edge equipment and leading industrial designs have been brought in, presenting the city with incredible development opportunities.
Manufacturing base
After two decades of development, “Made in Dongguan” is now well-known in and out of China. The city has formed an advanced and comprehensive manufacturing system that covers more than 60,000 types of products across 30 different industries, and almost every one of Dongguan’s individual towns has its own unique and well-known industrial expertise.
Southern China’s Clothing Kingdom
Humen, a town which lies to the southeast of Dongguan, started its apparel manufacturing in 1993. The region now has more than 1,200 clothing manufacturing enterprises, with more than 300,000 employees engaged in the industry. Named as “Southern China’s Clothing Kingdom,” Humen is famous for its production of female jeans and fashion garments. In 2011, the town sold 250 million pieces of garments worldwide with total sales reaching RMB20 billion.
Oriental Furniture Empire
Dalingshan, known as the “No.1 furniture export town” in China, is also the largest furniture manufacturing base in the Asia-Pacific region. There are now over 500 factories in the town involved in the production of furniture and relevant accessories.
Besides, the region boasts a complete production chain for the furniture industry – ranging from raw materials supply to processing, manufacturing, packaging and exporting – and its furniture exports have topped the country for 14 year in a row.
Shoe-making base
Houjie is one of the largest shoe making bases in China. There are more than 400 factories in the town involved in shoe-making, and over 800 engaged in the supply of raw materials, machinery and leather for the industry. In 2010, 600 million pairs of shoes were made in the town, with sales revenues rising to RMB20.9 billion, and it is expected that, by 2015, 900 million pairs will be produced with sales revenues amounting to RMB28.5 billion.
The World Shoe Center, located in the Houjie Ecology Industrial Park, started construction in 2011. Total investment into the project is estimated at roughly RMB1.6 billion, and after its completion, the center will serve as the international center for shoe material procurement, shoe exhibitions and trade fairs, and a hub for new material and technique R&D.
By transforming Dongguan from a collection of small towns into an international manufacturing giant in less than three decades, the so-called “Dongguan Model” has received worldwide recognition. Even when many manufacturing enterprises in China began suffering from rising production costs brought on by the appreciation of the renminbi in 2006, the manufacturing industry in Dongguan still presented a thriving scene.
However, in the fallout from the Global Financial Crisis, Dongguan’s GDP growth slowed to 5.3 percent – the city’s lowest growth level since the “Reform and Opening Up” began in 1978. As a result, the local government realized that the city’s low-end manufacturing model needed to be upgraded and, in 2010, the city was designated as a pilot city to undergo industrial transformation and upgradation.
Despite this economic transformation and upgradation, Dongguan has failed to regain its former reputation as the factory of the world. However, changes and developments are actually taking place in the city, specifically:
Exports of high-tech products have increased share in processing trade by 11.3 percent
The exportation of high-tech products in the processing industry has increased its share of the total from 38.1 percent in 2008 to 49.4 percent in 2011.
Foreign-invested enterprises more than double domestic sales levels from 2008 to 2011
Domestic sales of foreign-invested enterprises increased from RMB133.9 billion in 2008 to RMB247.9 billion in 2011, taking up 34 percent of the total trade sales in 2011, compared with 26 percent in 2008.
Original brands have doubled during the 2008-2012 period
Since 2008, original brands developed within the city’s processing industry increased from 2,068 to 4,325, while the newly-established research institutions of the processing industry reached 441, forty-nine times the number in 2008.
Labor-intensive industries see factories shrink, values jump
While the number of enterprises and employees involved in the labor-intensive industry are slowly decreasing, the overall export value of labor-intensive products is increasing. Take Houjie for example – the amount of shoe-making factories in the town decreased from more than 600 in 2007 to only 400 in 2011, and the number of employees engaged in the industry dropped from 150,000 to 100,000. However, the value of shoe exports increased from RMB15 billion to RMB30 billion at the same time, while the average export price for a single piece of clothing increased by 61 percent.
More than 1,500 low-end manufacturing projects transferred
As the city seeks to upgrade its manufacturing base, Dongguan has transferred more than 1,500 projects to other parts of Guangdong Province in the last two years, with most of them belonging to low-cost, low value-added, labor-intensive, pollution-intensive industries.
In addition, the city’s industrial fixed assets investment in projects above RMB5 million in the last two years totaled RMB69.5 billion. When this production capacity is finally  unleashed, it is expected to generate RMB200 billion in industrial output and RMB40 billion in industrial added-value.
12th Five-Year Plan
In the “12th Five-Year Plan for Dongguan’s Economic and Social Development,” the municipal government aims to turn the city into an important production base for national strategic emerging industries, specifically:
  • Advanced information industry
  • Electric vehicle industry
  • Solar energy industry
  • Semiconductor lighting industry
  • Biochemical industry
  • Civilian nuclear industry
  • New material industry
  • Energy-saving industry
  • Marine industry
This will be part of a wider effort to upgrade the city into an important modern manufacturing center at the international level by 2015. Specifically, the added-value of advanced manufacturing industries in the city will be over 50 percent of the total local industrial added-value by that time.

This article was first published on China Briefing.
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
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