Navigating the Future: China’s New Generation of Factory Owners Amid Global Challenges

Like the sudden rise of young monarchs to power, the Gen Z and millennial generations in China find themselves taking the reins of their family’s businesses, inheriting a legacy of growth amid trying times. The old generation that made China the manufacturing capital of the world is being phased out, leaving the young and often unprepared successors to shoulder the burden. But it’s their fresh ideas that might just be the savior of the industry.

Rachel He, after working in various fields for ten years, decided in 2021 to return home and assume control of her father’s 30-year-old factory. She did so because her parents, now in their sixties and declining in health, were unable to handle the daily operations of a factory employing around 50 workers.

“I’m their only child. If I don’t go back, is the factory really going to be shut down?” said the 34-year-old Rachel. “Then what about those employees who have been following my dad for over 10 or 20 years?”

Located in Foshan, Guangdong, her factory is part of an industrial hub specializing in aluminium plating, a critical material used in construction. However, Rachel knew little about the industry before taking over. Two years into her role, she’s grappling with economic challenges and balancing visits to her ailing father.

She often turns to a chat group of hundreds of “Changerdai” or second-generation factory owners, like her, for advice on everything from recruitment to possible exit strategies.

These young entrepreneurs are taking over from their parents, who capitalized on China’s golden era of growth, benefiting from rapid urbanization and the nation’s entrance into the World Trade Organization. These small-sized facilities played a vital role in China becoming the “world’s factory” and the second-largest economy. Now, the new generation is responsible for the future of “Made in China,” and whether it will continue to thrive rests in their hands.

With rising office vacancy rates and suppressed new infrastructure projects due to the pandemic, Rachel is not hopeful about her factory’s prospects. The competition is fierce, and as her father noted, the era of making fortunes in the industry is over. The thought of quitting crosses her mind, but she can’t abandon the workers who’ve known her since childhood.

The decline in the property market has also affected others like Zheng Shijie. In 2019, he took over a manufacturing plant from his uncle in Wuhan, Hubei province, producing power-distribution equipment. Now, with accounts receivable totaling almost 10 million yuan, accumulated from real estate companies since 2021’s property-sector crisis, he feels the pinch.

“We are a sunset industry. The whole market is in decline,” the 30-year-old commented.

Zheng’s revenues from municipal projects are dwindling too, as local governments become more cash-strapped. Several of his peers have left the industry, a stark contrast to when the older generation was eager to enter.

“It feels exactly like the [Chinese] saying, ‘It’s easy to conquer a territory, but hard to guard it,’” Zheng observed.

Export-oriented manufacturers are not faring any better. The global economic slowdown has curbed overseas demand for Chinese products, and Western nations, particularly the U.S., are diversifying their China-centric supply chains.

This trend is apparent in the apparel industry. According to Sheng Lu, an associate professor at the University of Delaware, U.S. fashion companies are cutting their “China exposure,” shifting orders to other Asian competitors. In the first five months of 2023, the share of U.S. apparel imports from China dropped to 18.3 per cent from nearly 30 per cent in 2019.

The sudden transition of leadership in China’s manufacturing powerhouse from an older generation to their often-unprepared offspring presents both opportunities and challenges. As a new wave of second-generation factory owners take charge, they bring fresh ideas and innovation that could potentially save an industry in flux.

The Changing Landscape of Manufacturing

For many young factory owners like 34-year-old Rachel He, the decision to take over family-run factories, often with no prior experience in the industry, is a challenging but necessary step. He’s aluminum plating factory, a crucial part of local industry in Foshan, Guangdong, faced potential closure as her aging parents were no longer able to manage the daily operations.

Like He, many other new-generation factory owners across China are engaging in online forums, sharing ideas and seeking advice. They are collectively referred to as “Changerdai,” or second-generation factory owners, despite He’s own belief that they are akin to first-generation entrepreneurs.

Their parents once profited from China’s unprecedented economic growth and real estate boom, contributing to the rise of China as the world’s second-largest economy and the mainstay of global manufacturing. Now, the responsibility and the future of “Made in China” rests on the shoulders of this new generation.

Facing Economic Slowdown and Global Shifts

With economic slowdowns and increasing competition, optimism for business prospects has dwindled. The declining profitability of various industries, coupled with a widespread property-sector crisis, has left many factories, like He’s, struggling for survival.

He is not alone in her concerns. 30-year-old Zheng Shijie, who took over a manufacturing plant in Wuhan, is facing similar challenges, with almost half the factory’s balance sheet tied up in accounts receivable. The market decline has led some of Zheng’s peers to quit the industry altogether.

Adapting to Western Trends

Meanwhile, export-oriented manufacturers are feeling the impact of a global economic slowdown and an accelerating trend of Western countries, especially the U.S., diversifying away from China-centric supply chains.

This trend has particularly affected industries like apparel, as U.S. fashion companies reduce their “China exposure” in favor of sourcing from other Asian countries. The first five months of 2023 saw China’s share of U.S. apparel imports fall to 18.3%, while the share of total imports from Vietnam, Bangladesh, Indonesia, India, and Cambodia reached a new high of 44.3%.

27-year-old Jenny Jiao found herself at the heart of this shifting landscape when she returned to her father’s casual-suits factory, only to face broken contracts and heavy loans. With the pressure piling up, Jiao and her father are exploring new avenues, including direct outreach to foreign brands and promoting on local apps, and even incorporating independent design to shift away from traditional contract manufacturing.

The Need for Innovation and Reform

While navigating external economic challenges, second-generation factory owners must also prove themselves to their parents and long-standing employees, often having to strive to secure their own clients.

In traditional manufacturing sectors where price competition is often the main strategy, many are looking to reform and upgrade, though such decisions are fraught with risk. Zheng’s consideration of shifting to green energy products is an example of balancing potential innovation against the current economic climate and financial pressures.

Other success stories, like 29-year-old Kitty Pan’s spa-pedicure chair and shampoo station factory, highlight the potential rewards of focusing on quality rather than price. By finding a stable international client and focusing on export, Pan has managed to stabilize her factory’s operations and even gain recognition as a “hi-tech enterprise.”

27-year-old Gloria Liang, who joined her father’s metal-plate-processing factory, represents the future competitiveness of the manufacturing industry. With a master’s degree in innovation and entrepreneurship, she has successfully expanded the company’s business online, embracing smart manufacturing and innovating in products and services that can’t be easily replicated.

Environmental Concerns and Emerging Markets

The importance of environmentally friendly practices and adherence to global environmental standards is also driving changes in industries like chemical manufacturing. Sun Chuanzhen, another young factory owner, emphasizes the need to develop more advanced and environmentally friendly adhesive formulations.

Sun’s insight into the global landscape recognizes the rise of emerging countries in Southeast Asia, Latin America, and Africa that want to build their chemical industries. “If we don’t take a step forward, we will surely be replaced by them. And this is the crisis of China’s manufacturing sector,” he warns.

Read More:

• Chinese Factory Owner Applauded for Innovative Childcare Solution for Employees
• Metaverse frenzy cools as tech giants shift focus to AI-generated content
• Preserving the Rich Heritage of Guangcai Porcelain for Future Generations