China Ventures Southward

Chinese manufacturers are now expanding into Vietnam, in part to lock up shares of the Southeast Asian market ahead of the creation of a planned free-trade agreement with China. Textile and garment-makers are shifting to Vietnam to sidestep quotas on their shipments into Europe and the United States.

Some investment is propelled by stricter enforcement of environmental standards in some areas of China. According to entrepreneurs in China who spoke on condition of anonymity for fear of angering government officials, leaders in coastal areas have been encouraging pollution-intensive industries such as plastics, steel and electronics to consider relocating to Southeast Asia.

A strong push is coming from Wenzhou, a city in Zhejiang province south of Shanghai that has long served as a locomotive for growth in China's private sector.

In recent months, officials in Wenzhou have convened roundtables with local entrepreneurs to encourage major polluters to move. At one meeting, a vice mayor of Wenzhou specifically declared that high-polluting industries would be deprived of access to land, water and electricity, according to two participants.

This year, the Wenzhou city government and the Zhejiang provincial government have jointly organized roughly 50 all-expenses-paid trips for local businesses to survey prospective industrial sites in Vietnam and elsewhere in Southeast Asia, the entrepreneurs said.

While few would describe China as a beacon of labor safety or high wages, Chinese investors acknowledged in interviews that Vietnam beckons as an even cheaper, less regulated place to run a factory.

"Here, the workers can really accept hardship," said Qing Song, deputy general manager at Lifan Vietnam, a motorcycle factory opened outside Hanoi by a Chinese company. "Whatever requirements you set out for them in a day, they meet."

At the factory on a recent afternoon, men uncoiled sheaths of aluminum without protective gloves, while others operated heavy machinery without goggles or earplugs. The work went on beneath corrugated aluminum ceilings in poorly ventilated structures. Men in flip-flops used a donkey cart to move bricks to a construction site.

For Li, Vietnam has offered refuge from the brutal competition of Chinese business. Born and raised in Wenzhou, he launched his plastic-bag factory in Henan province in 1992 as a joint venture with a local cement maker. They supplied animal feed and fertilizer companies with plastic sacks.

In the first years, wages in impoverished Henan ran as little as $12 per month. But as China has boomed and factories proliferated, wages climbed, reaching about $72 at the Henan factory. At the same time, China's appetite for energy has exceeded its generation capacity, forcing factories such as Li's to shut down during key hours.

A flood of cheap bank credit has nurtured many competing factories, keeping prices down and eroding profits. Today, Li's Henan factory sells bags for roughly the same price as five years ago even while the costs of plastic and energy have increased by nearly one-fifth.

"Now," said Li, "we can't make any money."