Vuvuzela sounds clarion call for China's manufacturers
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At the South Africa World Cup, the ubiquitous buzzing of vuvuzelas has triggered complaints from both players and television audiences -- despite their widespread popularity.
While the vuvuzela is widely seen as a South African tradition, few people know that 90 percent of the instruments were made in China.
But few Chinese manufacturers are feeling secure in their conquest of of the vuvuzela market.
The stresses of cut-throat competition have been exacerbated by rising labor costs, renewed flexibility of the yuan and the rolling back of export rebates.
For some the bee-swarm buzz of the plastic trumpet, which can hit 127 decibels, might be the last post.
Big hit
Chinese plastics manufacturer Wu Yijun first glimpsed a possibility for the vuvuzela in 2001 when he saw a cartoon on the Internet featuring Africans blowing bamboo vuvuzelas to drive away baboons.
In 2004, Wu, general manager of Jiying Plastic Product Corp., in Ninghai County, an industrial town in Zhejiang Province, two hours drive from Shanghai, saw his opportunity when South Africa was awarded the 2010 World Cup.
In August last year he sold 1,000 plastic vuvuzelas at three yuan (44 U.S. cents) each to an African merchant through Alibaba.com, China's largest e-commerce platform.
"They were the first batch of plastic vuvuzelas sold for the South African World Cup," Wu says. "It was also my only order with relatively big profits."
Wu has seen explosive increases in orders since January and by the end of April, he had sold 1 million vuvuzelas.
The vuvuzelas sell well in traditional and online shops in many countries. China has exported an estimated 50 million of them, Wu said.
He says only his firm had the product mold early on. "I might have sold up to 10 million units if I had have enough production capacity."
Low profit
The seeming success has brought Wu publicity, but failed to fill his bank account. Huge sales of the plastic horns, like many other China-made low-end products, do not bring in handsome profits.
The export price of the horns, which are up to 60 cm long, has dropped to just 30 U.S. cents each, he says.
"For each vuvuzela, the profit is just 0.1 yuan."
Wu says he only earned 100,000 yuan (14,720 U.S. dollars) after working overtime for half a year -- and the profits did not come from tax rebates.
Chinese manufacturers have profit margins as low as 5 percent even with 11 percent tax rebates for plastics exports included.
"When foreign traders make orders, they take into account the export tax rebates," he said.
The vuvuzelas are sold at up to 60 South African Rand (7.8 U.S. dollars) each, 26 times the export price. Traders and retailers rather than Chinese exporters make huge profits, he says.
Labor shortage
Wu's 80 workers left the factory after production for orders ended in April. However, he received a large number of new orders after the horns became a hit at the opening of the World Cup.
Wu now has around 40 workers and is recruiting more to cope with growing overseas orders. "I raised the workers' pay to 0.1 yuan from 0.08 yuan for each vuvuzela," he says.
Without the labor to meet orders, Wu refers some potential customers to to toymakers in Shantou, in the southern industrial province of Guangdong, but this has also fueled competition.
At a time when Chinese workers are increasingly agitating for higher pay, he finds it difficult to hire staff for what many see as low-paid hard work.
Employees work 12-hour shifts in a sweltering workshop. Two electric fans struggle to disperse the heat from the plastic injection moulding machines, which can exceed 100 degrees Celsius.
He Zongjun, a migrant worker from the southwestern province of Yunnan, produces around 1,000 vuvuzelas each nightshift, but he has no idea what they are used for.
"I don't watch the World Cup. I need to sleep after working a whole night," he says.
Chen Shida, head of the Zhejiang Academy of Work Security says, "Labor-intensive industry is becoming less attractive to workers born in the 1980s and 1990s. They find that their returns do not match their work."
Challenges
Labor shortages and rising labor costs are new challenges for China's manufacturers. The appreciation of China's currency, the Renminbi, and the scrapping of export tax rebates are nibbling away their meagre profits.
The RMB, or yuan, appreciated about 0.56 percent against the U.S. dollar last week after China's central bank made the exchange rate more flexible.
Economists at China International Capital Corp. projected on June 21 that yuan is likely to strengthen by 3 percent to 5 percent against the U.S. dollar by the end of the year.
"I can only tolerate a 2-percent appreciation against the U.S. dollar," Wu says. "If it goes to 5 percent, we won't make any profits."
His firm will face further pressures after the 11-percent tax rebate for plastics exports stops in July next year.
"Without the tax rebates, Chinese exporters will need to raise prices. Otherwise, we will have to close the factories," he says.
Luo Weidong, economist and vice president of Zhejiang University, says, "While the world enjoys cheap China-made products, China pays a huge price.
"The results are meagre salaries, environmental degradation, dissatisfaction and lack of adequate care for the tens of millions of children left in the countryside by migrant laborer parents."
Ultimately the currency appreciation and scrapping of export tax rebates are aimed at helping China's low-end manufacturers move up the value chain.
But it could also result in factory closures and lay-offs of migrant workers, says Chen Yixin, head of the Policy Research Office of Zhejiang Provincial Party Committee.
Increasingly calls for pay rises in wake of strikes at parts suppliers of Japanese automakers Honda and Toyota in China will increase pressure on already struggling manufacturers, Luo says.
"The end to cheap labor in China will bring long and hard times to manufacturers because industry upgrading cannot be easily achieved," Luo said.
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