By John Lyons
SHENZHEN, China--U.S. President-elect Donald Trump's threat to compel Apple Inc. and others to manufacture more at home should strike fear into this Chinese megacity where many of the world's high-tech gadgets are made.
Once a sleepy village, Shenzhen today is the sprawling epicenter of China's consumer-electronics industry, the country's top export. At two Foxconn Technology Group factories here, some 230,000 workers make gear for Apple and global rivals, including Chinese communications giant Huawei Technologies Co., which has its base in Shenzhen.
Yet many executives here say they aren't worried by Mr. Trump. The economic forces that transformed this once-poor backwater in Guangdong province into a sea of skyscrapers are too massive to be rolled back, their thinking goes. Even if Mr. Trump imposes tariffs on Chinese-made goods, as he has threatened to do, it's now so efficient to engineer, produce and ship electronics from this region of southern China that it could still outcompete the U.S., they say.
"We are very relaxed about all the talk of tariffs, although the noise it creates is not good," said a senior executive at a global consumer-electronics firm with operations in Shenzhen, who spoke anonymously to avoid entering the debate over Mr. Trump's proposals.
More than Mr. Trump, what worries businesses here is simply surviving the Darwinian competition of global commerce. While Shenzhen is mostly a winner in globalization, it is buffeted by the same competitive forces Mr. Trump is seeking to reverse in the U.S.--forces the president-elect has blamedfor hollowing out American industry and jobs.
As wages rose since 2010, many of Shenzhen's once-thriving clothing and toy factories moved to lower-cost regions of China and countries such as Vietnam. Now, some consumer-electronics makers are moving, too. Others are cutting labor costs by using robots instead of people.
"There is too much competition, too many low-price offerings on Amazon," says Emily Wu, who is struggling to keep her Shenzhen Wonda Tech Co. Ltd. operation afloat. Wonda makes 40,000 cameras a month for brands sold on Amazon.com Inc. and elsewhere. Rising labor costs mean she is producing some orders at a loss.
Mr. Trump is using coercion and enticement to get firms to manufacture in the U.S. During the campaign, he vowed to get Apple to "build their damn computers and things" in America. This month, Apple supplier Foxconn said it may expand operations in the U.S.
But it remains unclear what operations orhow many jobs such a move would generate. The other trend under way at Foxconn is a shift to more-automated factories using cost-saving robots. Foxconn declined to comment on its specific customers and plans.
"If these jobs come back to the U.S. they are going to be for people who manage 1,000 robots in an automated factory," said Christopher Balding, a finance professor at Peking University in Shenzhen. "It will be jobs for computer nerds, not the people who voted for Trump."
Shenzhen's global competitiveness has limits. China restricts the internet, meaning innovators have less access to open-source software and ideas. China's weak intellectual-property protections mean entrepreneurs are constantly at risk of having their ideas stolen.
But the city has weathered economic shifts before. Former Chinese leader Deng Xiaoping in 1979 named Shenzhen as a special economic zone where market forces would have freer rein, sparking more than a decade of 40% annual growth as a low-cost manufacturer. Concerned textiles were becoming a dead end, Shenzhen brought in national universities to produce a higher-skilled workforce. In recent years, the city's economy averaged 13% growth, according to official data--more than the national rate.
The city found its comparative advantage assembling smartphones and devices from a supply chain of specialized parts made in Japan, Taiwan and South Korea. Shenzhen's army of university-trained engineers made it a global center for product prototyping.
Mock-ups that take weeks to produce in the U.S. can be done in a day for a fraction of the cost in Shenzhen, according to Duncan Turner, a venture capitalist who helps run Hax Accelerator, a workspace that sponsors inventors from around the world here.
"Shenzhen was known for making things cheap, then it was known for making things well," says Mr. Turner, whose firm sits above a giant bazaar of electronics parts serving local engineers and factories. "Now, anyone who wants to prototype anything does it here."
The growth rate of Shenzhen's manufacturing has slowed while sectors like software and scientific research are surging ahead. Industry grew at 8% annually between 2012 and 2014, the latest year available, while research averaged 16%.
The proportion of Shenzhen's economy related to industries such as manufacturing fell 7 percentage points in that period, while that related to information technology and research grew by 3 percentage points, according to the 2015 Shenzhen Statistical Yearbook.
The shift is easy to see. On the city's manufacturing outskirts, more concrete factory bays are going vacant. Meantime, neighborhoods of gleaming office buildings are sprouting up in the high-tech districts.
Globally competitive firms relying on design and branding are taking root. Da-Jiang Innovations Science and Technology Co., among the world's biggest makers of drones, is based in Shenzhen to take advantage of "access to the suppliers, raw materials, and young, creative talent pool necessary for sustained success," according to its website.
Daimler AG joined Chinese car maker BYD Co. Ltd. in 2011 to develop an electric car in Shenzhen. Apple is opening a research and development center in the city, where some 100,000 programmers produce software for Apple's operating system. In a nod to Shenzhen's rise as an innovation center, Chinese internet giants Baidu Inc. and Alibaba Group Holding Ltd. opened large offices.
Some small manufacturers are shifting to design and branding. In two years, Qiwo Smartlink Technology Ltd. has gone from a maker of cheap cameras and gizmos for others to a design house with $100 million in annual sales. "All the supply chains and related companies are here, I don't think you can move this to the U.S.," said James Guo, Qiwo's head of exports.
If anything, higher U.S. tariffs would accelerate economic trends already under way, Shenzhen business owners say. Shenzhen's factories may leave--but for low-wage provinces in China, not the U.S. Meanwhile, the city will add jobs in design, engineering and marketing.
That process is already under way. On a recent Thursday night at the Hax inventors' workspace in Shenzhen, 26-year-old Junyi Song was working a robot arm he hopes to sell as cheaply as $7,000 a pop. At that price, even small factories could replace labor with automation.
"It's the future," said Mr. Song.
Yifan Xie contributed to this article.
Write to John Lyons at email@example.com
(END) Dow Jones Newswires
December 21, 2016 05:45 ET (10:45 GMT)
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