starting a business in China?
In these times of economic and financial crisis, What do you think about starting a business in China?
I don't think that would be a very good idea, at least not right now. Below is a related news article and a post I made on the "ancestor" of this site. I hope they can give you a bit of perspective.
As factories close, Chinese workers suffer
By Edward Wong
Friday, November 14, 2008
CHANG'AN, China: Wang Denggui, father of three, arrived more than a year ago in the palm-lined streets of this southern Chinese town with a single goal: toil in a factory to save for his children's school tuition.
But the plans of Wang and thousands of co-workers unraveled at noon on Nov. 1, when the Taiwan chairman of their ailing shoe factory climbed over a factory wall to flee the country and his debts. That left several U.S. shoe companies with unfilled orders and 2,000 workers without jobs.
"He just ran without telling anyone," Wang said.
For decades, the Pearl River Delta that includes southern Guangdong Province served as a primary engine for China's astounding economic growth. But an export slowdown that began this year and that has been magnified by the global financial crisis of recent months is contributing to the closure of tens of thousands of small and midsize factories here and in other coastal regions, forcing laborers to scramble for other jobs or return home to the countryside.
The slowdown also inhibits the ability of China to work with other nations in alleviating the worldwide crisis.
The Pearl River Delta, known as the world's factory, powered an export industry that pushed China's annual growth rate into the double digits and provided work for migrants from interior provinces with poor farmland. But circumstances have changed quickly. The slowdown in exports contributed to the closing of at least 67,000 factories across China in the first half of the year, according to government statistics. Labor disputes and protests over lost back wages have surged, igniting fear in local officials.
After the shutdown of their shoe factory, called Weixu in Chinese and China Top Industries in English, Wang and other workers took to the streets in protest, demanding two months of back pay, or $440 on average. The government called in the riot police. Seven workers were thrown in jail and six were beaten, including Wang, he said.
"I plan to return home once I get my money," Wang said as he stood outside the factory Tuesday, showing the bloody shin wound that he said resulted from a blow from a metal baton. (The police declined to comment.) "I'm over 50 years old, and I won't be able to find work. I'll just retire."
Under pressure from Beijing to maintain social stability, local officials are also trying to tamp down unrest by doling out back wages. Here in Chang'an, after the worker protest, the government shelled out more than $1 million to pay back wages to most of the workers at the shoe factory. (Wang and some other laborers say they are still without back pay.)
The slowdown in exports has accelerated a major shift in the nature of Chinese manufacturing: small factories that were already being pinched by rising costs of labor, transportation and raw materials, as well as by the appreciating yuan, are closing en masse. That is especially the case in these towns scattered around the city of Dongguan, known for churning out low-end products. Soon the labor-intensive factories that rely solely on migrant work could disappear from southern China, and foreign companies could contract with similar factories in Vietnam and other countries where costs are lower.
"There's very serious damage being done down there, I don't deny it, and I think it'll get worse because we haven't seen the full impact of the economic downturn in Europe," said Arthur Kroeber, managing director of Dragonomics, an economic research and advisory firm based in Beijing. "I think next year we might see export growth in the country as a whole go down to 0 percent."
The export sector is still growing but has slowed considerably; year-on-year growth was at 9 percent in October compared with 26 percent in September 2007, Kroeber said.
The social problems arising from the slowdown is thought to have stirred anxiety in the top leadership of the Chinese Communist Party. Prime Minister Wen Jiabao is pushing for policies that will increase domestic consumer consumption to wean China off its reliance on exports. Last Sunday, the government introduced a stimulus package worth $586 billion over the next two years — the largest ever announced in China — to help create jobs, mostly by building transportation infrastructure.
Foreign governments expecting China to take the lead in addressing the global crisis will be disappointed, analysts and scholars say. Chinese officials say they are focused on trying to ease domestic problems and keeping the country's annual economic growth rate above 8 percent, which they see as vital to generating enough jobs. Some analysts say economic expansion could drop to as little as 5.8 percent in the fourth quarter this year, down from about 11 percent in 2007.
"I think China foresees that it'll need to spend a lot of money to get itself out of the current domestic situation," said Victor Shih, an assistant professor of political science at Northwestern University who studies the political economy of China. "On the global financial crisis, China will not take a leading role."
The mass layoffs have led to a profound change this year in the movements of migrant workers like Wang, who spend virtually the entire year away from home. Many are heading home early for the Chinese New Year, in late January, and say they might not return to work in the coastal regions. A worker in the railway station in Guangzhou said that from Oct. 11 to Oct. 27, there were 1.17 million passengers on trains leaving the station, an increase of 129,000 over the same period last year. There have been reports of a similar jump in other regions.
Once in the interior, the workers will have less incentive than before to return to the coastal provinces. Rising grain prices have made farming more profitable. The Chinese government announced changes to rural land policies last month that could spur some farmers to stay on their land and make better use of it.
A growing number of factories have opened in the interior provinces as well. Wages are still lower than on the coast, but have risen quickly in recent years.
In Zhangmutou, a town here in the Dongguan area, many of the 7,000 workers who lost their jobs when a Hong Kong-owned toy factory called Smart Union shut down last month have returned home. Li Dongmei, a former human resources employee, said her two older brothers who worked in the factory had taken the 20-hour bus ride home to Hunan Province. Li, though, still lives across from the abandoned factory building because she is eight months pregnant.
"This place isn't too stable economically," Li, 25, said as she sat on a terrace outside her cramped apartment. "Guangdong isn't so good anymore."
As was the case with the Weixu shoe factory, Smart Union closed without any notice, and hundreds of angry workers poured into the streets to demand that the local government pay them back wages. Many such factories were run by Taiwan or Hong Kong managers who fled the mainland. The mainland Chinese police and courts have limited reach in Hong Kong, which has a separate legal system, and they have almost no ability to prosecute people in Taiwan, which does not have formal political or diplomatic relations with the mainland.
The wave of factory shutdowns is taking place at a time when migrant workers are more aware than ever of their legal rights and know-how to put pressure on local governments. Two national labor laws were enacted in January that, among other things, require companies to pay severance and give out more long-term labor contracts. The laws could lead to more labor disputes and protests, said Mary Gallagher, director of the Center for Chinese Studies at the University of Michigan.
"Increasingly, the migrant workers know their rights," she said.
Here in Chang'an, nearly 200 workers showed up outside the south gate of the four-story Weixu factory Tuesday to demand from the government severance payments that generally ranged from $1,500 to $3,700 each. They signed their names on a list and put a red fingerprint stamp next to each signature.
"No one's gotten this subsidy yet," said a woman from Qinghai Province who spoke on condition of anonymity because local officials had scolded her for talking to a local newspaper. "The government has been helpful in giving us our back pay, but it hasn't been helpful in paying the subsidy."
The Taiwan chairman of the shoe factory, Zhuang Jiaying, did not return calls seeking comment. The collapse of the factory started a domino effect: Related businesses, like a smaller factory that put labels on Weixu's shoe boxes, have also failed. Hundreds of additional laborers have lost their jobs, and more than 200 creditors have yet to collect millions of dollars, said Yang Qiusheng, the manager of the factory that handled the labels.
"I had to fire people who had worked for me for a long time," he said. "When I see this shoe factory, this enterprise, I feel very sad and sorry. I never thought it would end like this."
You are pretty much spot on about the cyclical nature of the Zhuhai real estate market. Let me see if I can fill in some of the detail. Before I go any further, however, let me put up this disclaimer. I do not now, nor ever have, claimed to be, an expert on the Zhuhai real estate market in particular, or the Zhuhai economy in general. What I am about to write here are purely my own observations and assumptions. I do, however, tend to be either blessed or cursed (depending on your particular point of view) with a keen memory for past events and trends, and the ability to put 2 and 2 together and come up with 4 (sometimes 3 or 5, again depending on your point of view).
In 2002, when I was seriously looking at the local real estate market as a potential buyer, the two “hottest” properties in town were Horizon Cove (HC) and Phoenix Gardens (PG). The market for properties in and around Gongbei was pretty much stagnant. The big attraction(s) for HC were that the units were designed very much to western standards as opposed to Chinese standards, their size, their relatively low price (anywhere from 4200 to 6500 RMB per meter, depending on size and degree of built-in decoration), and HC’s proximity to the Zhuhai end of the proposed HK- Macau – ZH bridge. I remember the sales person at HC telling us that 20% to 25% of the “Phase 1” units had been bought by HK residents in the pre-construction phase. The big draw for PG was its in-town location (Xiangzhou), and its view of the sea. PG units (completely undecorated) were priced at anywhere from 5500 RMB to 7000 RMB per meter; depending on which floor, and on which side (east or west) of the buildings they were on; the most expensive units being on the upper floors facing east.
Indeed, there was a significant amount of other residential building going on at that time. Many of the high-rise buildings along Lovers Road in Xiangzhou and Jida were then in various stages of construction; and there were a number of developments beginning to spring up along the coast road from Xiangzhou northward to Zhongshan University. At the same time, however, there were some very visible signs that the Zhuhai real estate market was not as “rosy” as many of the high-pressure real estate sales companies would have liked for everyone to believe.
There was (and still are) an alarming number of derelict, abandoned, either unfinished, or unoccupied commercial buildings and residential developments all over the city. The most notable (because they are still in the same condition as they were in 2001) of these are: the derelict building next to the new clock tower building in Gongbei, the unfinished derelict building three blocks north of Jusco in Xiangzhou, the unfinished derelict building directly behind the Hita Plaza duty free shopping center in Jida, and the unfinished derelict “garden” of “villas” on Lovers Road in northern Gongbei. There are several others around town, but these (at least to me) are the most notable eyesores and monuments to the ever-present “guanxi” business system because they have been untouched for the last 8 years, and remain with us to this day.
As 2002 turned into 2003, residential real estate prices began to drop. The reason for this, as I was told by someone in the business, was that Zhuhai had been over-built, and that the SARS issue in HK was having an impact on the local Zhuhai market. Then, in mid to late 2003, the whole ballgame changed because of two significant events.
The first “game changer” happened in the summer of 2003 when Macau decided to break the decades old gambling monopoly in the region by offering gaming licenses to any organization, foreign or domestic, that could qualify and come up with the cash to purchase said licenses. Almost instantly, gambling interests in Las Vegas announced that they would be investing scores of billions of US$ into the development of new casinos in Macau. As far as Macau is concerned, the rest is history. The second big “game changer” came from HK a couple of months later, but it takes a bit of background description to put it in the proper perspective.
During mid-2003, HK was still reeling from the financial ravages of the SARS scare, and was desperately trying to pull its shattered economy, particularly its devastated tourist industry, back together. Until the aftermath of the SARS crisis, free travel in and out of HK and Macau for mainlanders was heavily restricted. Mainland citizens, if they wanted to visit HK or Macau had to either join an expensive “tour group”, or have a legitimate business reason, such as working on the mainland for a branch of a HK or Macau based company.
This all changed in mid 2003 when both HK and Macau suddenly realized that the mainland was not just a source of potential illegal immigrants, but rather as a source of much needed revenue; and therefore removed virtually all previous restrictions to cross-border travel for mainland Chinese. Once these old travel restrictions were abolished, the Zhuhai real estate market, especially in and around Gongbei, exploded into an orgy of development and new construction.
I was back in the US from late 2003 until late 2006. During that time I maintained contact with several friends and former colleagues in Zhuhai via the internet for the entire 3 years I was away. I distinctly remember one conversation I had in mid 2004 with a dear friend (and member of this board) during which he told me that “This is certainly NOT the same Zhuhai you left last year. Housing costs have gone up by 25%, and the increase in traffic on the streets is unbelievable. Should you come back here, you won’t recognize the place.” He was correct.
When I returned to Zhuhai in December of 2006, I couldn’t believe my eyes. It seemed that new housing developments were being constructed on every square meter of available space. What had once been parks were now huge holes in the ground where new, high rise apartment buildings were being constructed and whole mountains were being excavated to make room for even more “luxury” high rise developments. I know that Zhuhai’s population is growing; but it is certainly not growing at a rate sufficient to fill all of the thousands of new and proposed housing units currently in the works, especially at the prices at which these new units are being offered.
There is absolutely no doubt in my mind that Zhuhai is being over-built and over-priced… again. When one combines this with the recent downturn in the manufacturing business in Guangdong, the devaluation of the HK$ against the yuan/RMB, the recent 100% increase in the down payment requirements for mortgages, and the recent restrictions on the number of Macau border crossings that mainlanders can make each month, is it any wonder that the previously rapidly increasing property prices in Zhuhai have leveled off, or, in some cases actually begun to decline? I don’t think so. I think that is pretty much of a “no-brainer”. Will real estate prices come back down to the pre-2003 levels? Certainly not! I firmly believe that those days of “bottom feeding” are long-gone.
All of this begs the question: Is this a good time for a laowai to invest in Zhuhai real estate? The answer is a resounding NO! This statement has nothing to do with the recent fluctuations in the Zhuhai real estate market. Indeed there may be some very attractive bargains out there these days; but it has everything to do with the instability and unpredictability in the visa/residence permit situation. How smart would it be for a laowai to make a significant investment in a Zhuhai property, only to be told in six months to a years time that “Sorry, but because of your age, or because of something that your home country did that hurt our feelings, or for some other “solid reason”, we are not going to renew your residence/work permits, so you’re going to have to leave China for some unspecified period of time. Have a nice day”.
Don’t get me wrong. I love living in Zhuhai. I have a really great job that I enjoy every minute of; and I hope to retire here some day. But, for the time being, I’m going to stay out of the local real estate market.
Again this rather long post is definitely NOT intended to be “China bashing” or “Zhuhai bashing”, but merely an articulation of how I see things through my eyes.
I think it depend on what kind of business you want to start in China.
Can anyone tell me the average rent & rates for various size premises in Zhuhai to invest in a restaurant later this year or next year. Also any info on ideal location would be great whether it be Jida, Gongbei or Xianzhou, i'd just like your views.
Well, I agree on Monika's point. There are many poor people in the word, but at the same time, there are still many millionaires in the world. It depends on the way how you deal with your business. I registered a company for a foreigner recently. It runs very well. You will also see there are many foreign companies are established.
Regarding to the rent, it depends on the location, the furnitures, the decoratation etc. It is about RMB45-70 per square meter without any furniture, only basic decoration.
Look forward to hear from you RESTAURANT in Zhuhai.
I think that still a good chance to start it, but maybe you can just come and see it.
Nothing is easy actually.
It is always best to start setting up your business in bad times then you are ready when the economy bounces back