Dongguan, a sprawling manufacturing base in the Pearl River Delta
that has also been dubbed "sin city", has already been grappling
with an economic slowdown and higher operating costs that have seen
scores of factories close or move to cheaper locations inland or to
countries such as Vietnam, Cambodia or Bangladesh.
In February, the city's second engine of growth was hit hard when
more than 6,000 police officers launched anti-vice raids, arresting
about 1,000 people and hitting businesses across the board, from
hotels, massage parlors and karaoke bars to taxi drivers and
"Manufacturing is unlikely to recover and the service industry has
been hurt, so Dongguan's economy in the first quarter should not
look good," said Qun Liao, chief economist at China Citic Bank
International. "If there's no manufacturing, there's no one to enjoy
The raids are expected to result in some 50 billion yuan ($8
billion) in losses for businesses in the city, according to the
official Xinhua news agency.
An agricultural backwater town until the late 1980s, Dongguan was
transformed into one of the world's most important manufacturing
hubs as China boomed, producing everything from electronics and
garments to furniture and toys.
GOVERNMENT COFFERS HIT
Persistent weakness in China's manufacturing sector has reinforced
fears of a sharper-than-expected slowdown at the start of 2014, and
some government economists think national authorities have already
started boosting spending to put a floor under growth.
The economic slowdown and vice crackdown have cast doubt over
Dongguan's ability to reach its 2014 economic growth target of 9
percent, a far cry from its heady annual growth rates of up to 23
In a city where the local government gets the lion's share of taxes
from the service industry, as opposed to the 25 percent share it
gets from the manufacturing sector, the impact from the anti-vice
crackdown on local coffers is cause for concern.
Dongguan's gross domestic product reached 520 billion yuan in 2013,
with tax revenues of over 30 billion yuan, said Lin Jiang, head of
Public Finance and Taxation Department of Lingnan College at Sun
Yat-sen University in the southern province of Guangdong, where the
city is located.
Of that, an estimated 3.6 billion yuan came from the entertainment
business, he told Reuters, adding that the impact from the crackdown
would extend across the board.
"The first impact from a slump in hotel business is a drop in
business tax, so local government's revenue drops. Other industries
that benefit from the hotel business, such as food and restaurants,
fashion, jewelry, retail, which all contribute to value-added tax,
are also hurt," Lin said.
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LIGHTS ON, NOBODY HOME
On a visit to Dongguan last week, the combined impact of the
economic slowdown and recent raids was clear.
By 7 p.m., bright, neon signs dangling from low-rise hotels, karaoke
lounges and bars lit up Swan Lake Road, among the most bustling
streets in the town of Changping, but there were few customers or
bar girls to be seen.
"Business is quiet nowadays. Police come and inspect three times a
week," said a bartender in one of the biggest clubs in town. He
declined to be identified due to the sensitive nature of his
business, as the crackdown continues.
Changping is close to a train station that links, in just over an
hour, directly to the Asia financial centre of Hong Kong, helping to
fuel its vibrant sex and entertainment industry that caters in large
part to travelling businessmen.
Chinese media reports have estimated that at least 300,000 people
are employed in Dongguan's sex industry and that it contributes
about a tenth of the city's revenue.
In the industrial area of Changping, many empty factories had bright
yellow signs plastered on shuttered gates advertising them for rent.
A factory owner from Hong Kong said the Changping industrial park
had seen just 20-30 percent occupancy rates since it opened five
years ago, with most tenants local textile companies.
In Houjie, another factory town in Dongguan hit hard by the
anti-vice crackdown, many hotels offered steep discounts, while
others had been forced to close along with karaoke bars.
Taxi drivers and cosmetics salespeople said revenue had dropped by
"I hope the prostitutes come back," said the owner of one cosmetics
($1 = 6.2122 Chinese yuan)
(Reporting by Clare Jim and Yimou Lee; writing by Anne Marie Roantree;
editing by Kim Coghill)
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