From automobiles to semiconductors, China is fast catching up with the rest of the world in manufacturing prowess, making it a formidable competitor for exporters everywhere. But does its rise necessarily spell doom for Southeast Asia's big manufacturing centers?
Not according to Teh Hok Peng, a manager at the Taiwanese electronics maker BenQ Corp's (
Four years ago, as high-tech factory jobs in Malaysia were shifting to China and obituaries were being written for Southeast Asia's electronics industry, Teh went with the trend -- he packed up his wife and two small children and moved to Suzhou to manage BenQ's factory there as it began shifting production out of Penang.
Since then, however, Southeast Asia's big economies have proved the doomsayers wrong. Instead of shutting their factories and relying on raw material exports as many pessimists predicted, the more prosperous countries -- Malaysia, Singapore, Indonesia, Thailand and the Philippines -- have generated a roughly US$20 billion trade surplus with China in 2004, supplying it with sophisticated electronic components.
For the first eight months of last year, the surplus was US$13.6 billion.
In contrast, the US trade deficit with China was US$201.6 billion last year, while the EU's was US$70 billion.
Today, Teh is back in Penang managing BenQ's factory, convinced that, while China may be closing the technological gap, it still has a long way to go to unseat Southeast Asia as a base for electronics exporters.
"China remains attractive thanks to the size of its market," he said, "but the multinationals will never leave here completely."
While Southeast Asia seems to have staved off the worst, a debate has arisen in the region: Can China's southern neighbors remain strong exporters, feeding its appetite for components, or will China inexorably draw those industries inside its own borders?
Trade figures indicate that China is fast gaining self-sufficiency in electronics parts, and that Southeast Asia's trade surplus may have peaked.
Yet Southeast Asia's factories are still humming, suggesting that two electronics centers are emerging, somewhat interdependent, but rivals all the same.
"People are suddenly saying, `We shouldn't be expanding in China at the exclusion of everything else,"' said Dharmo Soejanto, an analyst at Kim Eng Securities in Singapore.
"They're taking a more balanced view of the world. China is not going to manufacture everything," he said.
In particular, manufacturers have found unexpected obstacles in China. Rampant technology piracy, resurgent nationalism, and -- surprisingly in a country of 1.3 billion people -- a dire shortage of highly skilled labor are raising costs in China so fast that many manufacturers are looking back to Southeast Asia.
Even as foreign investment continued to flood into China last year, anecdotal evidence suggested that the pendulum might be swinging slightly to the south: Intel Corp has applied to build a US$605 million semiconductor factory in Vietnam; Infineon Technologies AG of Germany is building a US$1 billion chip plant near Penang; and the Japanese company Matsushita Electric Industrial Co is planning a plant in Singapore to assemble plasma-display televisions.
Others, however, believe China will prove a magnet, with its knockout combination of a huge market and low salaries.