Foshan – From Buddhist hill to world manufacturing centre

11 September 2015

Foshan derives its name ‘mountain of the Buddha’ from the local discovery of three bronze Buddhist statutes during the Tang Dynasty in 628 AD. It evolved into a religious centre of Buddhism in Guangdong, with more than 160 temples and monasteries during the Qing Dynasty.

Now it has become a global manufacturing centre. In the city’s Shunde district, there are over 3,000 electrical appliance factories, about half of them foreign-invested. They are producing about 20% of the industrial output of the national electric appliance industry, making the district the largest maker of such goods in the world. Shunde is the largest Chinese production base for air-conditioners, refrigerators and electric gas heaters and the largest global production base for electric rice cookers and microwave ovens.

More than half of the world’s air-conditioners and refrigerators are made in Shunde factories. The city has overtaken Japan, Korea, Italy and Germany as the world’s largest producers of electrical appliances. Shunde is only one city in Foshan and its impact on the world market is enormous. Many brand names of Shunde have become national, regional and even global ones with their own complete production value chains.

In addition, there are more than 30 specialised industrial towns in Foshan, concentrating on furniture, machinery, metallurgy and beverages, in addition to ceramics and textiles, the city’s traditional products.

Foshan in 2014

According to figures from the annual report of the city’s statistical bureau, Foshan’s GDP in 2014 was 760.33 billion yuan, an increase of 8.6 per cent over 2013. Industrial output was 456.1 billion yuan, up 9.6 per cent.

In 2014, exports were US$46.72 billion, an increase of 9.9 per cent, while imports rose 3.2 per cent to US$22.098 billion. During the year, contracted foreign investment was US$3.732 billion, up 5.6 per cent.

At the end of 2014, the city had a permanent population of 7.35 million, an increase of 0.75 per cent over a year earlier. The disposable income of its urban residents in 2014 was 36,555 yuan, an increase of nine per cent over a year earlier. Its GDP per head is higher than in some member states of the European Union.

According to a city competitiveness index published by the China Academy of Social Sciences in May 2013, Foshan ranked eighth in the nation, ahead of Tianjin, Macao, Dongguan, Zhongshan and Zhuhai. The top four were Hong Kong, Shenzhen, Shanghai and Taipei.

The city’s annual GDP growth in 2014 was 8.6 per cent. That would be an excellent score for most cities in the world but was a disappointment for Foshan; it was its second lowest score for six years. The growth rates since 2009 were 13.3 per cent, 14.3 per cent, 11.4 per cent, 8.2 per cent and 10.0 per cent respectively. The slower growth in 2014 reflected the slowdown in many important export markets – Japan, the European Union and the U.S. – and a slowing of the Chinese economy itself.

History – silk and ceramics

Historically, Foshan was famous for silk and ceramics as well as Buddhism. Ceramic production was based in Shiwan, using raw materials from the local hills. With the expansion of production, raw clay materials were sourced from Panyu, Dongguan, and Qingyuan, all in the vicinity of Guangzhou and Foshan. From the Ming dynasty, two other important factors boosted the development of Shiwan. First was technology upgrading, with the introduction of more efficient dragon kilns. The second was the arrival of many craftsmen, especially from the famous government Jun Kiln in Henan in early Ming period after wars in the north, who brought with them advanced skills.

With growing export demand for China’s porcelain, Shiwan craftsmen began to imitate products from famous kilns in the north. At its peak in the last century of the Qing dynasty until 1908, Shiwan products of ceramics and imitation porcelain reached Japan, Southeast Asia and even Europe. The district housed 107 kilns with more than 60,000 workers. The number of guilds in the industry increased from eight in the 17th century to 28, plus eight associated trading guilds, in the 19th century.

More than half of the population of Shiwan — 6,000 to 7,000 households — was engaged in the trade. It had become a specialized craft industry town. However, in the 20th century, because of the numerous wars and political disturbances, the export trade of Guangzhou was disrupted and with it the demand for the ceramics produced by Shiwan.

The main growth of the local silk industry took place in the mid-19th century. The Suez Canal opened in late 1869, shortening the distance for goods to Europe from China, cutting transport costs and opening the European market more for the raw silk of Guangdong. This heightened demand and stimulated the rapid expansion of the silk-growing area in Shunde and Nanhai in Foshan and gave rise to the establishment of raw silk production factories by local people who had working experience and connections overseas. Modern production techniques had improved the quality of the silk produced locally to win overseas markets in Europe.

By the 1880s, raw silk from Foshan had driven the Italian competition from the European market. The boom continued into the 1920s. By the turn of the century, there were over 140 silk factories in Shunde supplying 80% of the provincial production. The great success had seen most of the paddy fields in Shunde and Nanhai and other counties in the greater Guangzhou area converted into mulberry fish dykes; it was the most ecology-friendly Chinese agro-ecosystem in pre-modern times.

But its excessive export dependence caused its fall. The outbreak of the Great Depression in Europe and North America removed the external demand for raw silk from Foshan. Despite the import substitution industrialisation of China to fill the gap, it was insufficient to support the Foshan industry. Together with the subsequent Japanese invasion and civil war, the local industry was in complete disarray until the Communist revolution in 1949 and the restoration of the local economy in the 1950s.

Modern era

Unification of China under the Communist regime since 1949 has brought social and economic stability to Guangzhou and Foshan. Because of economic sanctions by the USA and its allies, China was unable to re-engage in world trade. Guangzhou remained the main, if not the only, window of China’s foreign trade.

But, under the central planning system until the economic reform and open-door policy of the early 1980s, Foshan lost all the trading functions that it had enjoyed during the imperial times for almost 1,000 years. The economic planning system denied Foshan any revival of its pre-1949 industries by making the city mainly an agricultural area. Foshan lagged behind other cities in Guangdong in terms of population; it was the smallest of all the city-level administrative units in the province, with a population half of Guangzhou throughout the period. Neither Guangzhou nor Foshan were industrial target areas of the central government’s investment policy. They lagged far behind other new industrial regions in China in the north.

Reform era changes everything

Everything changed in the reform era. The city was incorporated into the Pearl River Delta economic open region to enjoy similar policy advantages as the special economic zones, ahead of the rest of the province and the country. Like many counties in the region, Foshan has a very large overseas community due to the emigration of the previous 100 years. The open-door policy attracted substantial direct investment from its overseas community from the 1980s in a way similar to the 100 years before 1949.

This foreign direct investment has combined with local entrepreneurship and collective rural industry to give rise to a massive industrialization of the city. This time, Foshan’s incorporation into the special policy region of Guangzhou and Shenzhen served the same function as its proximity to Guangzhou in imperial times. In both cases, it was the access to export markets that provided the basis for its industrial expansion; but since the 1980s, overseas sources of capital and technology have played a more important role.

Because of the decentralised nature of collective rural industry and foreign direct investment, the industrialisation of the city has taken place at the township and village levels. It has evolved into a spatial pattern of industrial concentration similar to the Third Italy in the more developed areas of Foshan — Nanhai, Shunde and Zhongshan, which was part of Foshan before 1988.

The spread of renewed industrial development in Foshan has not been limited to the pre-existing industrial foundation. Certainly, towns like Shiwan and Xiqiao which were the centres of ceramics and raw silk of the 19th century have again prospered but on new lines of related businesses.

Shiwan first imported new building ceramic production lines from Italy in 1983; since then, it has relied on imported technology to develop a very strong production base for building and sanitary ceramics. By 2003, a large cluster of several hundred manufacturing firms had emerged in the town. By 2006, with tiles produced mostly in Foshan, China had for the first time surpassed Italy and Spain in tile exports. In 2007, building ceramics produced in Foshan constituted 40% of national output and 25% of global production. Its sanitary ceramics occupied 16% of national output and 5% of global production and became the world’s largest production base. The industrial cluster centered in Shiwan and Nanzuang in the city centre of Chanzheng district and extended to Nanhai, Shunde and to the less urbanized and industrialized areas.

Because of pollution from ceramic production, the city government has since the 2000s tightened environmental controls and encouraged relocation of factories outside the city, Towards the end of the decade, the ceramics cluster in Foshan has expanded to the nearby Qingyuan, Heyuan and Zhaoqing cities; the so called pan-Foshan region contributed 50 per cent of the national total of building ceramics. In the process of relocation, Foshan shifted from manufacturing to wholesale and corporate headquarter functions. A few firms are from Taiwan, but the majority are local companies who have sprung up in Foshan and in the Pearl River Delta region. This is a typical example of a local industrial district; but its growth dynamics seems to have surpassed both Italy and Spain, the global leaders before the rise of Foshan, thanks to the local entrepreneurship, flexible economic and production systems and easy access to Italian technology and equipment, and domestic and overseas markets, via Guangzhou and Hong Kong.

Foshan has continued the pre-1949 tradition, but this time through the relocation and diversification of its firms’ manufacturing base; it has become the growth engine for the national industry with production spread from Foshan to other parts of Guangdong, to Shandong, Sichuan and Jiangxi. The achievement of the ceramic industry in present-day Foshan is even greater than at its historical peak. There is still a gap in quality between the ceramics made in Italy and those manufactured in Foshan and other parts of China by Foshan firms; it means there is still room of further development for the Foshan firms and industry.

(By Thomas Chan, Director of the Public Policy Research Institute at the Hong Kong Polytechnic University)