SPECIAL REPORT: World's workshop heads to inland China

This region, too, has attracted a dragon head company -- Nasdaq-listed contract manufacturer Flextronics (FLEX.O). It will soon open a factory employing 11,000 in one of Ganzhou's new industrial estates to make transformers and power adaptors.

Rob Roohparvar, president of the Flextronics unit running the plant, estimates costs will be at least 10 to 15 percent cheaper in Ganzhou than the southern coast where the conglomerate and key rival of Foxconn runs its flagship China facility.

In the next five years, Zeng Weilin, vice director of the Ganzhou Development Zone, expects the region's GDP to quadruple and the number of factories to rise from 300 to over a thousand. Focusing on domestic buyers can help producers mitigate another risk: the appreciating yuan.

"The exchange rate has no effect on us, because our main market is 100 percent focused in mainland China," said Simon Lu Xingping, the head of Maniform, a fast-growing Chinese lingerie manufacturer headquartered in Shenzhen, which is building a 6,000-worker factory in Ganzhou.

Maniform is one of a batch of emerging Chinese manufacturers that started off as exporters or producers for overseas brands, picking up skills and know-how until they reached a point where they felt they could develop a brand themselves.

These Chinese competitors, often nimbler, highly entrepreneurial and more flexible than multinationals, have almost all targeted their lucrative home markets and have begun to set up vast retail networks and factories across the country.

Notable examples include those in the sportswear industry including Li Ning (2331.HK), Anta (2020.HK) and Hongxing Sports (CHXS.SI). Global brands like Spanish clothing giant Zara (ITX.MC) -- famed for the success of its rapid product development cycles -- and sportswear firm Puma PUMD.L are reportedly planning huge expansion plans to target China's future middle class consumers.

"The internal business of consumption is competing now with the export business for space, for people, and it's driving the costs up in China. So that party (of cheap labour and exports) that we've had in the last 15 years is going away," said Rockowitz of Li & Fung.

POOR INFRASTRUCTURE

But challenges loom for those moving to inland China.

Yifan Hu, chief global economist at Citic Securities, said the inland business environment is hampered by poor infrastructure, high transportation costs and a lack of developed free markets.

Ho, the Henan factory owner is critical of inconsistent and discretionary government policies that make it difficult for businessmen to map out longer term strategies and commit investment to the region, particularly smaller firms without the clout of a Foxconn.

"The legal environment isn't so good and everything is decided face to face with officials. You don't really know what you're getting. Their (preferential) policies need more clarity," Ho said.

Ho's transportation costs are almost double those in the Pearl River Delta, with the nearest port being the Lianyun port in Jiangsu province, almost 600 km (375 miles) away. Still, he says, transportation costs now only make up around 3.5 percent of his overall production costs so it's still manageable.

"There will be some shifting of products away from southern China to both the interior of China and outside of China," said Henry Tan, the CEO of Luen Thai Holdings, one of Hong Kong's largest listed textiles groups.

"However there will still be a portion of products that stay in the Pearl River Delta and the Yangtze River Delta, purely because of the convenience of supply chains, because all the fabrics, all the trims, all the development are there."

The waning of government stimulus efforts, which have done much to spur growth in China's rural areas over the past year or so, could also hamper the move inland. Local governments with shrinking budgets have less scope to scatter sweeteners to attract industry, Hu said.

Zhengzhou like other cities borrowed heavily to bankroll a blitz of marquee infrastructure projects, such as a new convention centre, renovation of the business district and high-end property developments.

China's switch to a domestic consumption model will take time, even as exports contribute less and less to China's GDP -- now around 10 percent, Hu estimates.

"Some people think exports will not be the driver of China's economy in the future. I agree," Hu said. "But China's exports are still very strong, accounting for 20 percent of the world's exports. The share may remain the same but the growth may decline." She said the export sector's real contribution was to employment, rather than economic growth.

"No matter if it's high value-added or low-value-added they have to recruit more people … so as exports slow down I think the employment issue will really become quite intensive, maybe in the next one to three years, before they really transform to a domestic consumption-oriented economy."

'TREASURE LIFE'

Back at Foxconn's headquarters in the Shenzhen district of Longhua on a late sunny afternoon last week, tens of thousands of young workers cast off their uniforms and inhibitions, put on costumes, glitzy bikinis and bright wigs for the company-sponsored "Treasure Life" celebration.

At the rally, aimed at mending the company's image and improving worker morale after the suicides, Foxconn unveiled the "transformation" of its human resources management and new industrial strategy in China.

Hosting reporters for a rare visit inside the factory, Woo said the usually secretive Foxconn would now "open up". As China's largest employer, Woo said he hoped this new approach to Chinese industrial management would influence other firms.

Besides pledging to improve the lives of its workers through measures including wage hikes, capping overtime work at 36 hours a month from 80 and setting up 24-hour counseling services, Woo said the future for Foxconn lay in moving its factories closer to China's workers.

"We want to take out the 'migrant' from migrant worker," he said. Besides its Henan plant, Foxconn is also building new factories in Chengdu and Chongqing in Sichuan province, while it is negotiating with several other Chinese provinces about building other industrial campuses.

As the workers wended their way through the 3.3 square kilometer Longhua industrial fortress that pioneered the manufacture of some of Apple's iPhones and iPods, there was the sense of an era coming to an end.

The self-contained industrial city with its banks, bakeries, post offices, restaurants, shops, parks and dormitories catering to more than a quarter of a million workers, will eventually evolve into a higher-end research and development campus.

"Shenzhen will have more engineers than (production) line workers" in the future, said Woo, a development resonating with Shenzhen's overall economic blueprint to upgrade its industrial base and move up the value-added chain.

Some workers in the crowd that gathered for an open-air concert on a large artificial grass sports ground spoke of new hope for the future -- away from the coast.

"Everyone's talking about the new factories. If they move, I definitely want to move with them," said Yang Ning, a chirpy 22-year-old factory girl from Chongqing, one of the sites of a new Foxconn factory.

"Life here in the Pearl River Delta has been tough," she added as workers chanted effusively behind her. "I'll be glad to leave".

(Editing by Bill Tarrant)