This week, lorries will pick up several thousand Acer computers from a factory owned by Quanta, the world’s largest notebook contract manufacturer, in the western Chinese city of Chongqing. Though unseen by consumers, the shipment will kick off the largest change in global PC manufacturing and logistics in more than a decade.
Driven by a surge in labour and land costs as well as labour shortages in China’s established export manufacturing hubs around Shanghai and just over the border from Hong Kong, the world’s largest PC vendors and the half-dozen contract manufacturers serving them are moving inland.
The PC industry is setting up vast new factories, development and logistics centres in the cities of Chongqing and Chengdu in western China.
Hewlett-Packard, Acer and Asustek, the world’s number one, three and six PC brands by shipments, chose Chongqing. Dell and Lenovo, ranking second and fourth, picked Chengdu, the capital of Sichuan province less than 300km away.
That spurred Quanta, HP’s largest manufacturing partner, which also supplies all other leading notebook brands, to set up shop in Chongqing as well. Foxconn, which serves HP, Dell, Apple, Asustek and Sony, set up facilities in both cities while Compal and Wistron, two other large notebook contract manufacturers, are building factories in both places. Inventec, a smaller manufacturer, is ramping up operations in Chongqing.
“We will become the world’s largest notebook manufacturing base within a year as a result,” says Huang Qigang, a senior Communist party official of the Liangjiang New Area, home to the new factories in Chongqing. “The industry will create total revenues of Rmb700bn and output of 100m notebooks next year.” That would be more than one-third of all notebooks produced worldwide.
Chengdu has similar aspirations: Li Yi, vice-director of the city’s investment promotion commission, estimates local notebook output for 2015 at 80m, and of tablet PCs at 150m – more than twice the 2012 global tablet market, according to Barclays Capital.
The industry has not seen such a big shift since the early 1990s, when Taiwan’s contract manufacturers started moving their mass production lines to eastern and southern China, winning an ever-larger share of the market from suppliers based in south-east Asia.
Conditions are ripe for a rapid expansion in western China. HP shipped its first made-in-Chongqing computer last year. But the world’s largest PC vendor makes only a fraction of its PCs itself, and apart from Foxconn, its external producers were not yet ready in the new location.
Now, Quanta’s factory has started production. “Compal and Wistron will get ready in Chongqing in July and August,” says Oliver Ahrens, president of Acer China, adding that the Taiwanese company expects 50 to 60 per cent of its global PC shipments to come out of Chongqing in the long term. “We will move our complete tablet production over here in the third quarter,” he says.
Foxconn, the main manufacturer of Apple’s iPad and therefore the company with the biggest impact in numbers, has already started. One-third of the world’s iPads are being made in Chengdu, with the remainder shipped out of Shenzhen, Foxconn’s traditional main manufacturing hub in the south, say local government officials. “Foxconn employs 80,000 workers in Chengdu now and will have 100,000 by the end of the year,” says Mr Li. “The plan is to expand up to 300,000.”
HP and Lenovo say the focus of their new facilities is the local market – more than 50 per cent of China’s PCs now sell in smaller cities away from Beijing and Shanghai. “Moving manufacturing closer to HP users in western and central China results in improved logistics and a shortened delivery cycle; users in western and central China enjoy more timely and convenient access to HP’s products,” says HP.
But the new hub has global significance. To offset its inland location, Chongqing has been linked up to transcontinental freight services. This month, an air freight service to Antwerp was inaugurated.
In March, a freight rail line that previously ran only to Moscow was extended to Duisburg in western Germany, close to the Netherlands, Belgium and France. Two weeks ago, it was extended to Antwerp, Europe’s third-largest container port after Rotterdam and Hamburg.
Mr Ahrens says that this link can help cut transport time to Europe, Acer’s most important market, by two weeks. Shipping out of Shanghai takes 24-28 days, while rail freight out of Chongqing is expected to take 12-14 days.