Dongguan Q & A: Business Answers

Q: Why is Dongguan often referred to as the “world’s factory?”

A: Beginning in the late 1970s, manufacturing enterprises from Hong Kong and Taiwan were attracted to Dongguan by its proximity to Guangzhou, Shenzhen and Hong Kong, and also by its abundant supply of cheap labor and land. Along with the relocation wave, massive capital flows, advanced manufacturing techniques, cutting-edge equipment and leading industrial designs have been brought in presenting the city with incredible development opportunities.

After two decades of development, “Made in Dongguan” is now well-known in and out of China. While the city has lost some manufacturing to more inexpensive locations, Dongguan continues to be an important city for foreign investment in certain industries. Dongguan holds nearly 50 percent of the market share for high-tech products in the processing industry.

Q: What industries in Dongguan will see the most growth in the next 3 to 5 years?

A: Dongguan’s five pillar industries for the past ten years were electronic information, machinery, textiles and garments, food and beverage processing and paper making. The gross value added industrial output from these industries added up to RMB 117.34 billion in 2012, increasing by 7.8 percent year on year. In the interest of continued success, Dongguan will need the high-tech, advanced information and energy-saving industries.

businessQ: What Major Development Zones does Donggaun have and how have they contributed to Dongguan’s growth?

A: Dongguan owns over 180 industrial districts and economic parks in all, more than 30 of which are large projects, including the Dongguan Songshan Lake Science and Technology Industry Park, Dongguan Urban Science and Technology Industry Park, and the Shilong National Star Class Technology-intensive District. The unified and standard management of these industry parks, along with a well integrated transportation system, has contributed to the rapid growth of Dongguan.

Q: How will the most recent Five-Year Plan (2011-2015) affect Dongguan’s economy?

A: In the 12th Five-Year Plan for Dongguan’s Economic and Social Development, the municipal government aims to turn the city into an important production base for national strategic emerging industries, specifically:

• Advanced information industry
• Electric vehicle industry
• Solar energy industry
• Semiconductor lighting industry
• Biochemical industry
• Civilian nuclear industry
• New material industry
• Energy-saving industry
• Marine industry

This will be part of a wider effort to upgrade the city into an important modern manufacturing center at the international level by 2015. Specifically, the added-value of advanced manufacturing industries in the city will be over 50 percent of the total local industrial added-value by that time.

Q: What incentives are there to do business in Dongguan?

A: The government has investment incentives for high-quality, large-scale projects related to fund management, R and D, marketing, logistics and support services. These incentives include cash rewards proportional to registered capital and R and D expense reimbursements. There are also similar financial incentives for large foreign enterprises that meet the city’s industrial development-oriented goals. Other incentives include lower operating costs then neighboring Shenzhen and Guangzhou while still offering the ideal location in the heart of the Pearl River Delta.

Q: What are some of the barriers to entry in Dongguan?

A: Before entering the market in Dongguan, you must consider which industry you are entering and the barriers of entry that may exist. It may be hard to compete in the pillar industries as large companies are already well established. Second, the Chinese tax system and legal regulations are highly different from those in the United States and Europe and may be confusing and frustrating for companies to understand. Other barriers of entry include untangling and understanding the complex Chinese supply chain as China has actively encouraged the setting up of industrial clusters in specific cities or regions, in many cases entire industry supply chains can be concentrated in a small handful of cities.

Q: What are the costs of running a Wholly Foreign Owned Enterprise (WFOE) in Dongguan?

A: WFOE’s are considered resident enterprises in China and profits are subject to corporate income tax (CIT), which is generally 25 percent. Other costs include recruiting, payroll, tax compliance and auditing related fees. The minimum wage for employees in Dongguan is currently RMB 1,310 a month along with mandatory social insurance contributions from the employer. There are five types of social insurance: pension, unemployment, medical, occupational and maternity—plus a mandatory housing fund for Chinese employees. Finally there is the costs of office rental in Dongguan which varies depending on the location. It is often around RMB 60 per sq. meter per month.

 

Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.

For further details or to contact the firm, please email prd@dezshira.com or visit www.dezshira.com.

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