Beijing: Edward Kang spent 15 years building textile maker Ever-Glory International into a symbol of China’s world dominance in cheap clothes, shoes and toys.

With $70 million in annual sales, the company has won customers including Levi Strauss & Co and Tesco Plc.

With rising labour costs and the yuan’s appreciation against the dollar threatening profits, Kang, 45, considered moving from Nanjing, near China’s Pacific coast, to the interior to take advantage of a government programme to entice businesses into lower-wage provinces. He decided instead to shift 40% of his manufacturing capacity to a new plant in northern Vietnam’s port city of Haiphong within five years.

The provincial Chinese workers didn’t have the appropriate experience, and transportation to distant ports was too expensive, Kang says: “If we cannot meet customers’ price expectations, they will say ‘Bye-bye, Ever-Glory.’”

Thousands of companies are arriving at similar conclusions. With Vietnam, India and other Asian nations mounting aggressive campaigns for foreign investment, a third of the manufacturers in Guangdong province — which produces 30% of China’s exports — will be closed in three years, according to an April 29 report by Tao Dong, chief Asia economist at Credit Suisse in Hong Kong.

“The end of an era in terms of China’s mighty export industry has just begun,” he said.

The factory closures and departures to foreign shores aren’t likely to dampen growth in the world’s fastest expanding major economy, as China increases its production of higher - value goods - computer chips, electronic gadgets, automobiles.

What it does, in the world’s largest Communist country, is increase the disparity between residents in the wealthy coastal areas and the more than 700 million people in inland provinces -more than half China’s population - who may find themselves excluded from the country’s success story.

“It is absolutely key that China push its development model westward,” says Stephen Roach, chairman of Morgan Stanley’s Asia division in Hong Kong. “The jury’s out on whether they will pull it off.”

China’s shipments of highertechnology products surged 412% since 2002 to 347.8 billion yuan ($47.6 billion) last year, or 28.5% of total exports, fueling 11.9% growth in gross domestic product. The economy is forecast to expand 10% this year and 9.5% in 2009, according to 21 economists surveyed by Bloomberg.

Growth is concentrated mainly in four provinces on China’s southeastern coast: Guangdong, Jiangsu, Fujian and Zhejiang.

Clothing, shoe and toymakers there sparked China’s manufacturing boom, with much of the initial push coming from foreign companies attracted by cheap labour, easy access to ports and special economic zones that offered duty-free imports and other tax incentives.

China won more than 65% of the $792 billion in investment received by 21 Asian countries during the past 5 years, according to the Asian Development Bank. Such dominance prompted Singapore’s founding father, Lee Kuan Yew, to say in 2002 that China is “a vacuum cleaner for foreign direct investment.”

About 90% of the money has gone into the coastal southeast, which accounts for 60% of the country’s total exports. That’s helped to double average monthly pay in the Guangdong province city of Dongguan, China’s largest manufacturing centre, to 2,594 yuan in December 2006 from 1,284 yuan in 2001, according to New York-based CEIC Data, an economic-research firm.

So far, the rest of China hasn’t shared in the prosperity. Incomes in western China’s poorest regions are one-tenth those of the richest areas on the east coast. The average monthly wage for the city of Gansu in the northwest is 1,437 yuan.

Source : DNA