Changes a matter of death or survival for China's hanger makers

08:30, March 07, 2011      

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Lipu, a small land-locked county in southwest China, is located near the country's famed tourist spot Guilin, in Guangxi Zhuang Autonomous Region. But instead of tourism, Lipu emerges as China's major manufacturing base for clothing hangers.

Over the past few years, about 2 billion clothing hangers were manufactured annually by 126 makers in Lipu, accounting for a dominant 80 percent of the country's total output. The hanger manufacturing sector employs 30,000 local residents in the county, with a population of 370,000 and contributes 30 percent to the local government's tax income.

Ninety percent of the hangers made in Lipu are for export, statistics from the county's commerce bureau show.

But Lipu officials and businessmen said rising costs of labor and raw materials since last year has squeezed out profits from the sector and is now seriously threatening the survival of China's "capital of hangers."

"The hanger sector of Lipu is like a kid reaching puberty," said Liu Yingchun, head of Lipu County. "It is suffering from a lack of nutrition as the shortage in funds, resources, technology, and labor are threatening to kill the sector in market competition."

The cost of labor has doubled since last year, the cost of wood has grown over 30 percent, and the cost of transportation is surging with the rise in oil prices, said Chen Caihua, deputy general manager of Guilin Betterall Household Articles Co. Ltd., a leading hanger producer in Lipu.

Hanger companies have started to invest heavily on research and development in order to cut labor costs, Chen said.

"Despite technological innovations, the profits were halved," he said.

Lipu is just one of the many labor-intensive workshop-style manufacturing bases in China which are facing the pinch of rises in costs, particularly the cost of labor, at a time when the country's advantage in cheap and abundant labor is quickly vanishing.

A labor shortage that has been confounding manufacturers in China's burgeoning coastal regions is now spreading to the underdeveloped central and western areas, prompting most provinces to hike minimum wages by 10 to 20 percent after the Chinese New Year to attract employees.

Yao Shujie, professor of economics at Nottingham University in the United Kingdom, said China's labor shortage will be a long-lasting issue and the ultimate solution to the problem is the transformation of China's economy from a labor-intensive, low-skilled, manufacturing model to a high-tech, more diversified economy.

The government has inscribed economic restructuring into the draft 12th Five-Year Program, the national development plan for 2011 to 2015, which is under deliberation of legislators at the ongoing annual plenary session of the National People's Congress (NPC).

Restructuring is pivotal to the survival of Lipu's hanger sector, Chen said, as the land-locked county does not have an edge in resources or in transportation.

The county emerged as a major hanger manufacturing base as the county's hanger work-shops seized the market earlier than those in other parts of the country. Further, Lipu's market status in China's hanger sector had been consolidated over the years with significant support from the local government.

"We succeeded because Lipu's daring entrepreneurs entered the sector ahead of others in the 1990s," Chen said. "After about two decades, the sector is now facing tremendous challenges."

Lipu officials said the government is pushing for the merger of hanger workshops and the manufacturing of competitive hi-end products to help the county's hanger companies survive, while urging entrepreneurs to branch out to other sectors, including tourism and modern farming, in which Lipu has a potential edge.

It remains uncertain whether Lipu will emerge again from the country's sweeping economic restructuring. However, everyone in the sector knows that changes are needed, and immediately.

Otherwise, China's 'capital of hangers' will die with the country's other light industry towns, Chen said.

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