This is China! BLOG

How to Waste Space in China

The Chinese factory owners were near completion of another factory an hour and a half’s drive up the coast of Zhejiang, still more than two hours south of Ningbo. The owner’s had five years before bought about 40,000 square meters of land on which to build their dream factory compound. After driving narrow winding roads through picturesque mountain scenes we arrived at the half-finished compound, which hosted dormitories, warehousing space and workshops. The factory area was so remote that it had to be self-supporting. Other large factory spaces were going up around the area, too.

The group of Western businessmen I was with wondered aloud where all the business was going to come from to fill the spaces within the compound walls. The company’s export-led business had flattened of late because of the weakened economies abroad. Still, any thoughts of being unable to fill the potential capacity of the factory seemed far-removed from the reality of the buzz surrounding the place. In an odd sort of way it was reassuring to see that Chinese business owners, without much of a business plan, were still of the philosophy, “If you build it, they will come;” that is, by building spaces that would take years to fill they gain Face and through the Face they will gain business, which seemed rather contrary to the sensibilities of my clients.

I’ve seen this phenomenon time and again over the years in China: in Jiangsu province; Anhui province; Tianjin and Chongqing. This phenomenon of over-building factory space in the hopes of filling it seems to drive away potential JV partners from the West. If it’s not the sheer lack of business planning, then it’s the schemes the Chinese side has cooked up to fill the space to capacity. Many of the schemes seem to involve the Chinese running different businesses under the same roof, including the joint ventures with the Westerners. That seems to also include splitting the attentions of the Chinese management staff. “Oh, the managers will be able to spend about eighty percent of their time on the JV,” Tianjin company owners said once during a negotiation with Western clients of mine. Of course, the Westerners were not impressed with what the Chinese believed was a rational offer.

Much of the build-it-and-they-will-come attitude comes from the sense of insecurity that still permeates China’s nascent market economy. Companies do not know when policy winds will change, perhaps causing business owners to shutter their factory doors. The bigger the capital investment, though, the more Face they’ll have in the local business environment, and the more weight to dissuade local officials from enforcing State edicts.

Still, business reality bites, occasionally. I recall a 20,000 square meter factory space that was all but complete near Nanjing. Roughened concrete walls and floors needed plastering and painting, electricals still needed to be installed. The dark, dank super-space was clearly disintegrating for want of attention. “Why is the space empty?” I asked the attendant government administrator. She answered, matter-of-fact, “The company ran out of money. They didn’t know they would actually need twice the power generation they had actually planned for to run the operation. The costs of new back-up generators and of electricity were going to be more than they could afford.”

A great waste of space.