China’s New Vision of Manufacturing Welcomes Israeli Startups

With an eye on the future, some in China want to shift focus to making smart products not only ‘in China’ but ‘by China’ – and the model is very welcoming of foreign startups.

State of the art manufacturing by robot at the T&F plant in Dongguan, Shenzhen: This is an example of the direction China would like its industry to go - making smarter products using smarter processes.
Ruth Schuster

SHENZHEN – The manufacturing facility of T&F in Dongguan is a microcosm of China’s hopes, dreams, visions and problems. With a few differences from the West for good measure, like the altar to Buddha on one of the intermediate floors.

T&F is not one of the Chinese mega-factories that Westerners read about with mixed feelings of awe and fretfulness. It’s more like a sampler kit of tea, with a little bit of many flavors and marble floors. T&F has no products of its own: entrepreneurs bring it their design and T&F manufactures it, or connects the entrepreneur to a more suitable (read, larger-scale) manufacturer.

On its own premises, T&F features state-of-the-art manufacturing by robots (and people) in a clean, dust-free environment. It also has testing facilities with an impressive range of machines to stress-test products for durability and resistance to temperature changes, humidity, aging under ultraviolet light, and much more.

Elsewhere, T&F has low-tech assembly lines making covers for tablets. And cases for Samsung phones. And watch straps. And other low-tech things. T&F handles both cutting-edge, smart manufacturing, hand in hand with labor-intensive work.

In other words, this facility has no ideas of its own; its clients are companies such as startups that have a viable idea ready for production. It can supply employment to skilled workers and unskilled ones too – and it reflects the Chinese government vision of a path to sustainable economic growth and development: a shift from labor-intensive mega-plants employing countless millions to advanced, largely automated mass manufacturing.

The low-tech side of production at the T&F factory in Dongguan.
Ruth Schuster

But what would happen to the countless millions if the plants producing the world’s stuff are manned by robots?

When 300 million people move

The issues China faces are not things to which anybody else can necessarily relate. Such as what to do with the approximately 300 million farmers that Beijing expects to move to the cities in a plan to better their lives, who will add to the millions who could lose their jobs to robot manufacturing, according to Prof. Xu Hongcai, director of the Economic Research Department of the China Center for International Economic Exchanges. Hongcai spoke with the international press Friday at the China Insights Forum, which centered on Implications of China’s Economic Restructuring.

Organized by China Daily and cohosted by IngDan, the forum was held in the Shenzhen IngDan Space. China is starting its 13th Five-Year Plan, as well as the first stage of the “Made-in-China 2025” strategy initiated by Premier Li Keqiang to transform China into a smart and innovative global manufacturing power by 2025, explains the China Daily.

Meanwhile, it sounds like China would have all the hands it could wish for to fill factory jobs – in fact, why would it want to advance from labor-intensive manufacturing, given this gargantuan anticipated social movement? Because relocating agrarians today aren’t what they used to be.

A high-rise accommodating workers in Dongguan, China.
Ruth Schuster

“Times have changed since the 1980s and ’90s, because then, people coming from the rural areas to the cities would take whatever job they could find,” explains a source at the China Daily. Thus, China became the world center of labor-intensive manufacturing, making everything from cars to toy kitchens.

But since then, the cost of living – particularly in the top-tier cities – has climbed. Moreover, the Chinese government jacked up the cost of employment by introducing more and more regulation to protect workers’ rights.

Yet salaries in labor-intensive manufacturing hasn’t expanded commensurately. Farmers moving cityward find the life in industry for unskilled workers isn’t much of an improvement. Worst of all for a family-oriented society, the workers live in what Westerners would call a dorm – a tiny apartment in a vast high rise shared by four to six men sleeping in bunk beds, with the family back in the village.

So farmers may be streaming to the cities, but they would rather find work in the services industry – which is where China expects roughly half of its migrating people to wind up. And they’re increasingly finding it, not necessarily in the tier-1 cities, where the cost of living is sky-high, but in bitty second or third cities (which means they only have, say, 5 million people). They’re finding jobs at restaurants, hotels, you name it.

One end result is that college graduates, of which China has some 100 million, says Xu, are starting to take manufacturing jobs that the unskilled scorn.

This all helps explain why on the tour for the foreign press, organized by China Daily (which wants to publicize China’s new manufacturing policies) and Hong Kong-based IngDan, we found at least some machines standing idly at T&F.

China has manufacturing capacity standing empty, because the cost of living has been climbing and farmers leaving the land for the cities would rather work in higher-paying service jobs.
Ruth Schuster

IngDan is just two years old, a company founded by serial Chinese entrepreneur Jeffrey Kang. Like T&F itself, IngDan has no products of its own. Devoted to the Internet of Things, it is essentially a platform through which startups that have actual products (Kang calls them “makers”) receive advice and are connected to suppliers. Like so many things Chinese, IngDan is simply vast in scale, with over 10,000 companies on its roster that it connects with over 8,000 suppliers, Kang tells Haaretz. T&F is just one of them. And among its startups are Israeli ones, though offhand Kang isn’t sure quite how many.

Dolls and levitating speakers

The tour starts at the section of T&F that the manufacturer would most like to emphasize – the clean room. Or floor. Despite a problem finding skilled workers for its machinery, the company is already building a second clean floor.

Smart manufacturing based on OEM or OED arrangements is quite the model for the new China. The client brings the design of a product – anything from a low-tech watch strap to a levitating Bluetooth speaker that uses mag-lev technology. It produces great sound, vows a company rep who introduces himself as Kyle. You can get it on Amazon.

Kyle? Hazel? Betty? Asked about their Western names, Betty explains that since Westerners would find it difficult to pronounce their real Chinese names, some people take on Western nicknames that they find appealing. She then tells me her Chinese name. We Westerners appreciate the courtesy.

Upon receipt of a design, T&F critiques the concept – consults, they call it. Its experts work with the client on the final design. Then, it either manufactures the thing – if the volumes required are not large – or it brokers with a large-scale Chinese manufacturer. “We help entrepreneurs realize dreams,” says Kyle.

Another product T&F is producing for one of IngDan’s companies is a sort of babysitting robot with a range of activities to keep kids busy and that can respond to the child. It also has a videocam so the parents, wherever they may be, can keep an eye on what offspring and machine get up to.

Two out of three ain’t bad

So, does that mean you can mass-manufacture cheaply and efficiently in China? Hmm. “In manufacturing, there is good, fast or cheap. You can have two of the three, but not all three,” smiles Kyle as he escorts the media tour around the premises, proudly pointing at wall signs attesting that the company’s processes have passed quality certification tests by the likes of Amazon, Office Depot, HP and Walmart.

The vision for China involves a lot of companies like T&F, and more. China’s manufacturers should aim to become “global corporations,” said Wang Zhile, a research fellow at the Chinese Academy of International Trade & Economic Cooperation of the Ministry of Commerce and director general of Beijing New Century Academy on Transnational Corporations, who also spoke at the Forum on Friday.

So possibly the oceans of cheap Chinese dolls and clothes flooding the world markets will be diminishing, if not drying up – but they will be joined by seas of smart products that are not only made in China, but “made by China,” as IngDan likes to say – products that involve innovation and thinking outside the box. But it doesn’t cavil at making things in China that were invented somewhere else. Which is why IngDan is actively wooing Israeli startups. But only ones with real products. And maybe some of their doohickeys will be made by T&F in Shenzhen.