The European Union Chamber of Commerce in Shanghai recently hosted an insightful talk with the author of The China Price, Alexandra Harney. The American writer spent nearly two years in Guangdong amongst factory workers and their bosses understanding the work and economic environment. Penguin press published the book last year, just after the Perfect Storm of the Blizzard of 2008, price deflation, buyer exhaustion, salary and commodities inflation struck China.

Her presentation, “Factories in crisis: The Future of Chinese Manufacturing”, was an update of the material she wrote about, with observations on how the factories of the Pearl River Delta contributed to the global economic downturn, the affects of the downturn on the factories, and China’s future after the the world has moved through the financial crisis.

Some insights she shared that actually made me take pen to paper so as to not forget them included:

Currently, no one trusts anyone any longer in the international supply chain: “no one is honest about their true condition,” she said. Buyers are more frequently performing due diligence on suppliers; and suppliers are more often requesting credit checks on buyers.

The “Cluster Effect” of suppliers grouping together in cities throughout China (for instance, Dongguan used to produce 70% of the furniture manufactured in China) has become a “Domino Effect,” with great swathes of industrial parks and avenues idle now.

She sees a major shift in the Pearl River Delta from factories owned and operated by Taiwanese and Hong Kong businesses to Mainland ownership.

Workers in the last two years have become very conscious of the employee rights. “In general,” Ms. Harney said, “workers feel optimistic about the future, despite the downturn.” Ms. Harney saw no worker revolt on the horizon.

However, one of the greatest challenges Chinese leadership faces is the huge swell of semi-skilled factory workers who will still need to work for the next 20 years. Many of the factory jobs they used to have will simply not be coming back.

Ms. Harney believed that the West’s emphasis on currency exchange rates in China was misplaced. “Factories are not dying because of the exchange rate, but because of the lack of demand.”

One of the greatest differences she sees between Western management systems in China and Chinese (and especially Taiwanese and Hong Kongese) is that “Western companies treat labor as assets rather than as liabilities.” This is especially important for a workforce that is increasingly changing its value system: “Experience, skills development in a company that is striving forward is more important to today’s workers [than to their forebears. Now, they don’t just want to get a salary and then return to their hometown after a few years.”

And despite the race to establish export manufacturing bases in Vietnam in particular, Vietnamese workers tend to be rather militant, and less disciplined than Chinese workers, while Vietnam has a population the size of Jiangsu Province. “The alternative to China will be China for many years to come.”