So, let’s talk a little below the belt today, shall we? Do you wear underwear that is “Made In China”? Well, if you do, chances are that they come from Gurao, a small town in Southeastern China.
Gurao, if you haven’t heard of it, is the “Town of Underwear”. Its factories produce more than 350 million bras and 430 million vests and pants every year. Gurao is easily the Underwear Capital of the world. No competition here!
Production of underwear is the town’s principal occupation. Undies sold at home and abroad make up for 80% of the town’s industrial output. What will the economists call this? A “lingerie economy”?
Underwear production in the town started as late as 1982 thanks to investment from nearby Honkong and Taiwan. A strategic location contributed to cheap migrant labor and the town quickly grew into an underwear hub. The lingerie industry grew rapidly between 1995 and 2005 and Gurao became a prosperous and polluted industrial town.
One-trick Industrial Towns
From the Chinese perspective however, Gurao is not a peculiarity. China has several such “one-industry” towns, which produce all kinds of cheap goods ranging from plastic toys to lingerie. These small industrial towns fueled China’s export boom and created a global demand for such low cost consumer goods. One-trick low skill manufacturing clusters are a feature of every industrial revolution. This was witnessed in Britain’s 19th century industrial centers and America’s rust belt. However such industrial towns are typically vulnerable to competition. Thus the industrial hubs of Britain and China had declined after periods of rapid growth, when the production moved elsewhere.
China is witnessing an inflection point in its manufacturing history. For the past 15 years manufacturing costs have gone up by about 12% a year. Labor law reforms in recent years increased the income of workers. However China’s manufacturing businesses have taken a hit. Costs are increasing and customers are not willing to pay more. To make matters worse, Thailand and Vietnam, both having lower manufacturing costs and taxes are emerging as competing manufacturers of underwear. Starting from 2008, some of the mid-low-end orders have been shifting to these neighboring countries. Thus exports have been decreasing.
The Chinese economy has grown so rapidly that few one-industry towns have been able to diversify, the underwear town being no exception. The residents of Gurao are already worried about the future. Many of them are migrating to neighboring towns and countries where prospects are better. Many factory owners have already fled the town after shutting down their factories.
There is hope. however, that upgrading the technology and automating the production may revive the town’s economy. But with large migrant populations and poor education levels of residents, one-industry towns like Gurao might fade away, leaving behind a legacy of concrete shells and polluted soil and water. Undies may never be the same again !
Views presented in the article are those of the author and not of ED.