“Over the past decade, the price of a can of lotus root soup (1 kg) has risen 37%, but labor costs have tripled.” On February 25, Wang Hongwei, general manager of Wuhan Xiangmanyuan Food Co., Ltd., looked helpless. He said that the labor cost per can is 2.3 yuan, accounting for 10% of the total cost of 23.2 yuan, with an average annual increase of 8%. Wang Hongwei provided a bill to reporters showing that a can of lotus root soup sells for 32.9 yuan, with a cost of 23.2 yuan. Besides labor, transportation costs 1.5 yuan, packaging 1 yuan, taxes 1.9 yuan, raw materials 13.92 yuan, and the remaining 2.58 yuan of costs are not itemized. “A 5,000-square-meter factory has a monthly rent of at least 50,000 yuan,” Wang said. If factory rent and asset depreciation are included, annual sales of over 20 million yuan still make it difficult to profit. Perhaps the high production costs at Xiangmanyuan are just a microcosm of China's manufacturing industry. “The weakening of cost advantages is indeed the biggest challenge facing China's manufacturing industry,” said Li Zuojun, deputy director of the Institute for Resources and Environment Policy under the State Council Development Research Center. China's secret to becoming the “world's factory” lies in its low-cost competitive advantage. With rapid industrialization and urbanization, constraints from population, resources, and environment have intensified, and costs for land, raw materials, energy, labor, financing, and logistics have risen. Coupled with increasingly fierce international competition, the traditional competitive advantage of “Made in China” is indeed not what it used to be. However, experts say that while “Made in China” faces many challenges in its transformation to “Created in China,” it still has comprehensive competitive advantages. As the demographic dividend diminishes, moving toward “intelligent manufacturing” will be an important direction for China's manufacturing to grow from big to strong. Labor costs have tripled in 10 years For Wuhan Xiangmanyuan Food Co., Ltd., the once cheap labor cost advantage has been lost and has become an obstacle to development. After the Spring Festival, Wang Hongwei has been thinking about how to reduce labor costs, but so far without a clue. Wang, a graduate of Wuhan Grain Industry School who was laid off early, founded Xiangmanyuan in 2004 with funds raised from multiple sources. Initially, he made dried Wuchang fish products, but after three years, fierce market competition led to losses. In 2006, he had an idea to make lotus root soup, and by 2007, his products had entered large supermarkets such as Zhongbai, Wushang Liangfan, and Carrefour. “A can of soup costs 24 yuan, and ordinary families would spend the same to make it themselves,” Wang said. At that time, they opened the market with low prices, relying on cheap labor. The workers hired were residents near the factory, and they were paid a small fee plus three meals a day. Labor costs were very low then. However, the once negligible labor costs now give him a headache. Wang said that 10 years later, a can of soup (1 kg) sells for 32.90 yuan, an increase of 8.9 yuan, or 37%. But compared to the price increase, labor costs have tripled. Now, labor cost per can is 2.30 yuan, accounting for 10% of the total cost of 23.2 yuan, with an average annual increase of 8%. “Ten years ago, workers earned less than 800 yuan a month; now it's about 2,600 yuan,” Wang said. In addition to cash wages, the company also pays social insurance for workers, costing about 1,100 yuan per worker. So the company pays about 3,700 yuan per worker per month. Compared to 800 yuan ten years ago (when social insurance wasn't required), that's an increase of 3.6 times. Wang once had an idea to give the social insurance money directly to workers and let them pay it themselves, which workers were willing to do. This would reduce interactions with government departments and save manpower and resources. But this violated regulations and was not implemented. What troubles Wang even more is the seasonality of lotus root soup production. Production only lasts about five months a year, and for the rest of the time, most workers are idle, but the company cannot afford to pay them for doing nothing. So when signing labor contracts, they mostly set a five-month term to reduce labor costs. However, that's where the problem lies. Workers who are laid off without pay will find other jobs, and when the company needs them back, they may not return, forcing the company to hire new people. New workers are not as skilled as experienced ones, requiring training and an adaptation period. If order volumes are large, production can be severely affected. On the morning of February 25, a reporter from the Yangtze River Business Herald saw at the Xiangmanyuan factory that the lotus root soup production line was halted, and more than ten workers were busy on the chicken soup line. A worker surnamed Li told reporters that these workers are long-term employees and core technical staff, and the company keeps them even when there's no work. Wang told reporters that last September, the company hired about 40 short-term workers who only did simple tasks. Low capital turnover and high financing costs High financing costs for small and medium-sized enterprises are also a challenge for Xiangmanyuan. The bill Wang provided shows that a can of lotus root soup sells for 32.9 yuan, with a cost of 23.2 yuan. Besides labor, transportation costs 1.5 yuan, packaging 1 yuan, taxes 1.9 yuan, raw materials 13.92 yuan, and the remaining 2.58 yuan is not itemized. When asked, Wang retorted, “Why are financing costs for Chinese companies so high?” Wang revealed that Xiangmanyuan, as an agricultural product processing enterprise, has been borrowing from a large state-owned bank for over a decade, being a long-term stable quality customer, and the bank offers an annual interest rate of 5%. “Every September, we need to raise 8 million yuan in cash to pay for raw materials, so we borrow from the bank,” Wang said. What he finds unacceptable is that despite the preferential rate, he only needs the loan for about four months, but the bank sets a one-year term and doesn't allow early repayment, which effectively raises the cost. To deal with the extended loan term, the shrewd Wang diversified his borrowing across several banks, but then another problem arose. One bank assessed assets and gave a credit line of 6.5 million yuan, but another financial institution didn't recognize that credit line and required a guarantee company, adding guarantee fees that increased borrowing costs. “The government has been trying to help companies reduce financing costs, but the difficulty and high cost of financing for small and medium-sized enterprises still exist,” Wang said. He privately learned that many companies have similar experiences. Investigations by reporters found that over the past year or so, to ease financing difficulties for SMEs, the central bank has cut interest rates six times and reserve requirements eight times. Currently, the minimum annual financing cost for SMEs is around 6%, and many exceed 7%, not including guarantee fees, appraisal fees, and other loan-related costs. In fact, the real reason Wang feels financing is expensive may be low capital turnover and severe capital occupation. Reporters noted that Wang obtains loans every September to buy large quantities of raw materials and repays them before September the next year. During this period, capital turns over only once, and some funds sit idle in accounts. However, Wang is already thinking of ways to solve this. He revealed that this year he will increase investment in the chicken soup production line and promote pigeon soup and duck soup products, aiming for chicken soup sales to surpass lotus root soup. “Chicken, duck, and pigeon soup production is not seasonal,” Wang calculated. Once production is in full swing, capital efficiency and turnover will improve, reducing loan costs. This would not only solve the capital cost problem but also address the labor issue. Facing pressure from economic transformation and upgrading, Wang lamented that labor, land, logistics, and other costs are still rising, leading to continuously increasing production and operation costs, making it difficult to form effective competitiveness. However, he revealed that the company is actively deploying and seeking new breakthroughs, striving to reduce comprehensive production and operation costs from multiple aspects. 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