This is China! BLOG

North Korea: The New Vietnam

I recently talked with a Dutch friend with years of experience sourcing textiles in China. Months ago he had told me that production in Guangdong had diminished greatly and costs escalated. His company shifted sourcing to Qingdao – or rather, just outside Qingdao – in the northern province of Shandong. Qingdao is a charming seaside city with a strong South Korean and Japanese manufacturing base, and some Russian architecture. The greatest legacy of the colonial period to Qingdao was the brewery the Germans abandoned when they were told to get out of Qingdao at the end of World War I. It’s from that brewery that the Chinese learned how to make beer and to create a brand known world wide, the name of the city at the heart of the brand.

Still, the shakeout of low-end commodity industries in China has not ended, and Qingdao has hardly escaped. “Back five years ago,” my Dutch friend told me, “a primary vendor of ours in Qingdao had orders of 1 million pieces. He had landed Walmart as a customer. He went from being very small to very large and now is down to where he first started, 5,000 to 10,000 pieces. And whereas he had 1,000 employees at the peak of business, he now just has about 350. They don’t produce anything in the huge facility they have, they just assemble from smaller operations.”

But some of the more complicated pieces cannot even be handled in the area. “The owner of the factory has to outsource the manufacture of some knitted pieces, like collars. He gets those from North Korea.”

My jaw dropped. “North Korea as a production base?” I had visions of little girls stitching complicated knit pieces with bloodied fingers, soldiers with machine guns guarding the exits should the exhausted and hungry workers attempt to escape.

My friend nodded, drew a puff from his cigarette. “Yeah, so now he can get costs as low as they were ten years ago.”

“How do they get the orders into North Korea? How do they get the production out? Over land? Must be over-land.” I realized I was muttering to myself.

“Anyway, the guy isn’t hurting financially. He built a huge hotel across the street from the factory. Expects that as Qingdao becomes more wealthy, more foreigners will want to stay at the hotel – which was quite a nice place, really.”

And if the hotel investment doesn’t work out, I considered, and the textile industry booms again, he can always use the hotel as a dorm for migrant North Korean workers.