China: Samsung smartphone factory closure leaves local community counting the cost

At least 100 factories in Guangdong are going to close down. They can’t make it without the Samsung’s Huizhou factory, let alone those small shops and restaurants in the surrounding area.

(SCMP) – Looking out over her small restaurant in Huizhou city on the north of China’s Pearl River Delta, known to be the beating heart of China’s main manufacturing industry, Li Bing can still picture the hustle and bustle of a throng of customers from a nearby factory. But now, as Li looks up from her sweeping brush, she is greeted only by empty tables.

The reason behind the downturn is simple: the closure of Samsung’s complex in Huizhou, which until October was the South Korean company’s last smartphone factory in China.

Li’s restaurant had benefited from the thousands of migrant workers who had until recently lived within reach of the 120,000-square-metre (1.2 million sq ft) facility, which had provided the life blood for many other local businesses for almost three decades.

But after Samsung relocated production to Vietnam and India – in large part as a response to the trade war between China and the United States – industry insiders considered China’s changing position in the global supply chain, while businesses like Li’s were left counting the cost and wondering where to turn next.

“Before the Samsung factory moved, our turnover could reach 60,000 yuan [US$8,500] or 70,000 yuan [US$9,900] a month, most guests were employees and suppliers of Samsung, but now we can only earn a few hundred yuan a day, only two or three tables a night,” Li said.

Many of the employees who were forced to leave commented on social media that they had left unwillingly, with some sharing photos of the latest smartphones and watches they had been given as part of their redundancy packages.

With no new manufacturer in sight to take up the space, at least 60 per cent of the nearby businesses have already closed, with more to follow in the coming weeks if the situation does not change.

“Samsung is the world’s leading manufacturing enterprise. Its Huizhou factory had built an entire ecosystem of supply chains in Guangdong and nearby provinces in the past 20 years” said Liu Kaiming, head of the Institute of Contemporary Observation, which supervises working conditions in hundreds of factories in China.

“At least 100 factories in Guangdong are going to close down. They can’t make it without the Samsung’s Huizhou factory, let alone those small shops and restaurants in the surrounding area.”

The impact of the closure also stretches as far as the town of Changan in Dongguan city, some 100km (62 miles) west of Huizhou, where thousands of migrant workers and executives of a factory once owned by the Shenzhen-listed Janus Intelligent Group, a leading Chinese robotics company, have had their hours significantly reduced.

Some have been asked to take a three-month holiday, while some are handed one or two days’ work a week with Samsung having been the company’s largest client since the late 2000s.

Last year, Janus reported a 14.25 per cent year-on-year decline, or 2.86 billion yuan (US$405 million) of net losses, attributing the huge deficit to Samsung having halted orders from the fourth quarter of 2018.

In September, Janus sold most of the equity in the Dongguan factory to Firstar Panel Technology. A senior executive with Firstar’s board secretary office, who declined to offer his name, confirmed the drop in production but refused to comment on plans for lay-offs in the short-term.

“The factory no longer works on Samsung’s orders. [Employees taking holidays and days off] is part of optimising the employee programme,” he said.

On the first working day of December, many workers were seen sitting idly near the factory.

“We just went to work for four hours this morning and were then told to have a day off and that there was no need to work. The managers said there were not enough production materials,” a female worker from Sichuan province said.

Since last month, two-thirds of the factory’s workforce of more than 3,000 have been told they do not need to work for a variety of reasons, with most being asked to only work alternate days.

“We feel the factory is running such a strategy that it does not need to formally lay off staff, but lets executives take three month holidays with less than 2,000 yuan (US$283) monthly income and the production line workers work one day and then take one or two days off, so that we cannot earn a normal income and are forced to leave ourselves,” said Liu Fang from Henan province, who has worked at the factory for over five years.

According to local labour law, workers must work 22 days a month to receive the monthly basic salary of around 1,800 yuan (US$255).

“Many of our workers worked for only 15 or 16 days total last month. Due to the insufficient attendance, the factory even deducted our basic salary,” Liu added.

A few years ago, with a healthy order book from Samsung, the factory employed more than 10,000 workers. Janus plants stood on either side of the road, with the nearby bus stop even named after the company.

“At the peak time, the factory rented more than 40 private six- or seven-floor residential buildings nearby as staff dormitories, but now it has reduced to around 20,” Liu added.

Back in Huizhou, the local government has yet to confirm plans for the now abandoned site, with local residents eager for a replacement to be found soon.

“Local consumer spending has got worse and is dying,” said Li Hua, a convenience store owner. “Our business has seen at least an 80 per cent drop compared to August. A large number of workers left from September.

“Every store here – pharmacies, supermarkets, restaurants, convenience stores, internet cafes, rental houses, hotels and even adult stores – which one did not count on consumption of Samsung employees and workers?”

The Huizhou factory started life in August 1992, four days before the establishment of diplomatic relations between Beijing and Seoul, as the South Korean electronics giant signed a joint venture contract with the local government.

A year later, the company with a registered capital of US$32 million was officially put into production, and since then has produced the latest and most popular consumer electronics, from stereos in 1990s, MP3 players in early 2000s and smartphones since 2007.

“There are about 100 local residential buildings, six to seven floors, around 1,000 square metres [10,800 sq ft], in Jinxinda complex; most were leased to Samsung workers,” said Huang Fumin, a sales manager from Huizhou Star Real Estate Broker.

“As soon as the Samsung factory closed, the price immediately dropped from 4.8 million yuan [US$680,000] in August to 3.8 million yuan [US$540,000], and still none of the investors are interested at this price.

“Before, these residential buildings were full of workers from Samsung and its supplier factories nearby. No matter how late, young workers came and went, having supper at restaurants and playing online games in internet bars. Now it looks like a ghost town at night because most of the houses are empty.”

In its heyday in 2011, with Samsung’s smartphone sales ranked No 1 in the world, its two factories in Huizhou and Tianjin produced and exported 70.14 million and 55.64 million mobile phones respectively.

According to Huizhou customs data, in October, the first month after the Samsung factory closed on October 3, exports
from the city’s enterprises dropped to 14 billion yuan (US$2 billion), a year-on-year decline of 27 per cent.

In 2017, the Huizhou facility produced 62.57 million mobile phones, accounting for about 31 per cent of Huizhou’s total import and export volume, or more than 105.2 billion yuan (US$15 billion), leaving it inside the top 10 exporters for the whole of China.

Last year, the Huizhou factory dropped to 13 from 10, with import and export volume of around US$16.29 billion, according to a report published by consulting firm Askci.

Li’s restaurant and others nearby are under threat until a solution can be found, or they will be forced to close.

“We most hope the local government can introduce a factory with 2,000 to 3,000 workers as soon as possible,” said Li. “Only with workers can we have business to support locals’ livelihoods.”

An owner of another nearby restaurant would accept a plant with 1,000 or 2,000 employees, saying that his “business is dying and it can’t wait”.

South Korea’s Samsung closes its last smartphone factory in China