Recruiting in China

Closures, overseas investments illustrate plight facing local factories

Now is not a good time to be a Chinese factory owner. According to recent media reports, a growing number of local manufacturers are opening plants in the US as they seek to avoid the badge that comes with selling "Made in China" products.

Meanwhile, many other local factories are struggling with labor shortages, rising costs, overcapacity problems and thinning demand. In response to such pressures, low-end manufacturers are increasingly investing in Southeast Asia, where production costs are more competitive.

Both of these trends signal the need for change in China's manufacturing sector. Over recent decades, Chinese factories have become synonymous with low-quality, low-value-added products. Local manufacturers need to shake off this image by moving up the production chain. And with China's GDP slowdown weighing on the country's industrial sector, the need to advance is more pressing than ever.

According to reports, several of China's largest and historically most successful manufacturing enterprises have not been immune to the challenges brought by changing times. Silitech Technology Co, a major supplier for Nokia, has suspended production since November. At its peak, the Suzhou-based company had more than 10,000 employees, but has reportedly struggled since Nokia sold off its handset division to Microsoft last year.

In December, United Win Technology Co, also in Suzhou, Jiangsu Province, announced its closure due to a financial crisis. It had previously been a major supplier for Apple Inc and had also cooperated with Chinese smartphone brand Xiaomi. The company's closure is said to have left more than 2,000 workers unemployed.

Similar shutdowns are also said to be plaguing many of China's traditional manufacturing hubs - including Dongguan, Guangdong Province, and Wenzhou, Zhejiang Province.

Of course, not all of the worries facing factory bosses are bad. Improvements in Chinese labor laws have made workers more willing to fight for better pay and conditions. For instance, upwards of 2,000 workers at Yue Yuen, a shoe factory in Dongguan, reportedly protested recently in front of the company's gate for greater social security benefits. Yue Yuen is an assembler and producer for a host of big-name global brands, including Reebok, New Balance, Puma and Timberland.

But while China's manufacturing sector has been expanding at a rapid clip for decades, most local factories remain at the bottom of the technological food chain, where they subsist on rock-bottom unit pricing and outdated technologies. Without upgrades and reforms, producers will become even more marginalized. Those who cannot adapt will be weeded out by the market.

Chinese planners have suggested that the country's path toward a "new normal" pattern of development will necessitate greater innovation in the manufacturing sector. In a report issued Tuesday, research firm IDC described the agonies facing Chinese factory owners, while also putting forward predictions for the year ahead. During 2015, analysts at IDC foresee - among other things - the rise of intelligent factories, cloud computing and industrial robots (the latter of which could soon put many low-skilled Chinese workers out of jobs).

Chinese manufacturers will have to pursue these and other technological innovations if they want to stay in business. Fortunately, China is rapidly emerging as a research powerhouse. In 2012, the country overtook the European Union in terms of research spending as a percentage of GDP, according to a report issued in 2014 by the Organization for Economic Co-operation and Development.

The need to transform through innovation and research is particularly great among manufacturers focused on the highly competitive consumer market. If given the choice, many Chinese will purchase Japanese or South Korean-made goods. Such products typically carry high-price tags but are widely seen as being of higher quality than Chinese-made equivalents.

Chinese manufacturers need to focus especially on technologies that will help them become more specialized. They must also build brand value through higher-grade products. Ultimately, companies will have to choose development models that conform to their own conditions. Finding the right path forward won't be easy, but sitting still in changing times is a surefire way to fail.

Chinese cellphone makers on Wednesday expressed their support of a record anti-trust fine levied on U.S. chip maker Qualcomm.

The National Development and Reform Commission (NDRC) ruled Qualcomm had abused its market dominance and charged discriminatory fees in the Chinese market when licensing mobile chip technology. The company was ordered to pay 6.09 billion yuan (994 million U.S. dollars).

Telecom giant Huawei told Xinhua that the NDRC's decision would benefit telecom product manufacturers and Chinese consumers, as well as improve intellectual property protection.

Huawei said the decision would create a fairer competitive environment and would prompt domestic research.

ZTE also welcomed the anti-trust ruling as it would have a significant effect on the global telecom industry.

The NDRC's investigation began in November 2013. The watchdog said the fine would stop the company's monopolistic practices, safeguard fair market competition and protect consumers' interests.

It said Qualcomm improperly bundled unrelated licenses with baseband chip sales, forcing Chinese customers to pay for licenses they did not need.

San Diego-based Qualcomm said in a statement that it would honor the fine and modify its licensing practices.

China's machinery industry continued to expand in 2014 but at a softer pace due to sluggish domestic demands and piling inventories, new data showed on Wednesday.

The added value of the sector increased 10 percent year on year in the last year, slightly down from 10.9 percent in 2013, data from the China Machinery Industry Federation (CMIF) said.

Chinese machinery enterprises posted combined revenues from main businesses at 22.2 trillion yuan (3.62 trillion U.S. dollars), up 9.4 percent from a year ago. The revenues grew 13.8 percent in 2013.

Chen Bin, executive vice president of the CMIF, said the industry, still plagued by overcapacity, will likely continue to slow as they are confronted with weakening demands and fierce competition at home.

Walkie-talkie and radio systems maker Motorola Solutions Inc is looking into a possible sale, Bloomberg reported, citing people familiar with the matter.

Potential buyers could include private equity firms and defense contractors including Raytheon Co, Honeywell International Inc and General Dynamics Corp, Bloomberg reported, citing one of the sources.

The 87-year-old company is working with financial advisers as it looks for a buyer, Bloomberg cited the sources as saying.

The sale process has been going on for several months, though a deal isn't on the immediate horizon, one of the sources told Bloomberg.

Motorola Solutions spokesman Kurt Ebenhoch declined to comment on rumors or speculation.

US company considers regaining Chinese consumers as top priority after food supply scandal last year

Yum! Brands Inc, operator of big-name fast-food chains like KFC and Pizza Hut, has recorded a drop in its China unit sales in the fourth quarter ending December 27, 2014 due to a food supply scandal, which analysts Thursday said will continue to weaken Chinese consumers' confidence in the following year.

The same-store sales in China, the US fast-food company's No.1 market for profit, slid 16 percent year-on-year in the quarter, according to a full-year earning report released by Yum! on Wednesday US time.

The fall in the China division, however, was less severe when compared with the 19.4 percent dip projected by analysts surveyed by Consensus Metrix.

As for the whole year, the company posted a 8 percent drop in the operating profit of its China unit, in comparison with a 1 percent increase globally.

The losses for Yum! stood at $0.20 per share in the fourth quarter, or $86 million in total.

The company put down the underperformance to a food supply scandal erupted in 2014.

"Overall results in 2014 were disappointing as the Chinese supplier incident in July offset our strong first half of the year," Greg Creed, Yum! Brands Inc's CEO, was quoted in the report as saying.

After media reported on July 20 that one of Yum!'s suppliers, Shanghai Husi, was using expired meat, sales in China's KFC and Pizza Hut chain restaurants suffered a massive blow.

The company, which quickly cut ties with the supplier as well as its parent OSI Group LLC, still saw same-store sales in China fall 14 percent year-on-year in the third quarter ending September 6. By contrast, the quarter ending roughly one month before the scandal tidings recorded a robust growth of 15 percent.

Greed said the company's top priority now is to restore Chinese consumers' confidence, anticipating "a strong second half of 2015" due to "the turnaround gains momentum, led by menu innovation across the year."

New offerings would include premium coffee and revamped children's dishes, according to media reports, citing Joey Wat, president of KFC China.

In late January, Beijing Morning Post reported that over 300 KFC stores in Beijing had started to sell coffee products.

Its major rival McDonald's Corp is also reportedly trying to win back Chinese consumers via menu adjustment. McDonald's on January 23 reported a 4.8 percent drop in fourth-quarter sales for the region including China and Japan amid the fallout from the Shanghai Husi scandal.

Despite the efforts, analysts holds a pessimistic attitude toward the recovery of Yum! as well as that of McDonald's in the Chinese market.

"The food supply scandal severely dampened the faith for the US fast-food chain brand in China, where consumers are paying increasing attention to food quality along with the rising standard of life," Yan Qiang, a partner and industry analyst with Beijing-based Hejun Consulting, told the Global Times Thursday.

Yan noted that a full recovery needs at least one more year.

It is not the first food scandal to have occurred to Yum! in China. Chinese media allegations that KFC used tainted chicken in 2012 already caused a national scare and some damage to Yum!'s reputation in the country.

Regardless of those food scandals, US fast-food chains are also confronting fierce competition from domestic fast-growing counterparts, Tian Guangli, an expert at Beijing-based consultancy Longce Think Tank, told the Global Times Thursday.

"Many new rising stars such as pancake brand Huang Tai Ji have a better understanding of how to draw and maintain consumers' attention in this modern Internet era than traditional fast-food chain operators including Yum!," said Tian.

China's first funding program aimed at providing finance exclusively to female entrepreneurs has been launched by a group of heavyweight finance organizations.

International Finance Corporation, Ant Financial Services Group, a subsidiary of Alibaba Group Holding Ltd, and Goldman Sachs Foundation will jointly run the program.

The funds to be offered - through loans from Ant Financial Services' microcredit arm Ant Credit, with the backing of IFC and Goldman Sachs - are expected to benefit around 46,000 female entrepreneurs. The program has 500 million yuan ($80.13 million) available to it.

"The market opportunity for financial products designed specifically for female entrepreneurs is huge", said Ji Min, deputy director of finance research institute of the People's Bank of China, with few, if any, currently on the market.

Karin Finkelston, IFC's vice-president for Asia Pacific, said women starting out tend to invest their business knowhow in different directions from their male counterparts, for instance into family-oriented fields, including children's education and family healthcare, which often represent appealing prospects for financial companies.

On the flipside, however, research shows that women entrepreneurs have traditionally found it hard to get financed, and if they do, the amounts approved can be tiny, even as little as 10 percent of what they are seeking, said Finkelston.

She claims her own organization, however, is female-friendly when it comes to financial support, a philosophy shared with its partner in the new fund, Ant Financial Services, which already has a strong client base of female-led startups, many of which run their businesses on Alibaba's online market platform.

Yu Shengfa, Ant Financial's vice-president, said that just over half of the business owners using Alibaba's online market platforms are female.

IFC provided 1 billion yuan in senior loan funding to Ant Credit in 2014 which it loaned, in turn, to 62,000 micro-, small and medium-sized enterprises across China.

Online-based Ant Credit's role is to evaluate potential borrowers' creditworthiness based on their transactional and behavioral data, without the need for deposits, it says, or using any assets as guarantees.

By the end of March 2014, Ant Credit had loaned 190 billion yuan for more than 700,000 small and micro-business.

Ding Qinyan, 26, an Ant Credit customer, started her online apparel store on taobao.com when she was still in college.

Her first online business loan was granted in 2013, for the deposit needed to join an online sales campaign.

Based on Ding's sales records and credit history, the application was approved within a minute at an interest rate of 0.0005 percent per day.