Rapid wage increases are threatening China’s competitiveness, but improved productivity and other advantages mean it will continue to attract investors, analysts say.
Labor costs in China would match those of the US within four years, catching up with eurozone countries in five years and with Japan in seven, the French bank Natixis said in a study last month.
China “will soon no longer be a competitive place for production given the strong rise in the cost of production,” the bank said.
Photo: AFP
It is a view backed by the respected Boston Consulting Group (BCG), which said in a study in August last year that by around 2015 manufacturing in some parts of the US would be “just as economical as manufacturing in China.”
Examples of major manufacturers leaving China abound — BCG said US technology giant NCR has moved its manufacture of ATMs to a factory in Columbus, Georgia, that will employ 870 workers as of 2014.
Adidas announced recently that it would close its only directly owned factory in China, becoming the latest major brand to shift its manufacturing to cheaper countries, though it maintains a network of 300 Chinese contractors.
Chinese workers making athletic shoes are paid at least 2,000 yuan, or 258 euros (US$313), a month, while their Adidas colleagues in Cambodia only earn the equivalent of 107 euros, the German company said.
Underlining the trend, the salaries of Chinese urban-dwellers rose 13 percent in the first half of this year, compared with the same period last year, the government said in the middle of this month. Migrant workers, who are among the lowest-paid in the country, saw raises of 14.9 percent for an average salary of 2,200 yuan a month.
The most significant wage hikes in 2010 and last year often came following strikes at Japanese companies such as Toyota and Honda and a wave of suicides at the factories of the Taiwanese electronics giant Foxconn (富士康).
Natixis said the increases could spur manufacturers to relocate to South and Southeast Asia, where labor costs are much lower, and could also benefit countries such as Egypt and Morocco, or even European ones like Romania and Bulgaria.
However, not all economists believe China will lose its manufacturing edge, thanks in part to improvements in productivity.
“Most of the increase in wages has been offset by strong productivity growth,” said Louis Kuijs, project director at the Fung Global Institute, a research body that specializes in Asian economies.
Worker productivity has increased at a faster rate than wages in the southern Pearl River Delta, the heart of China’s vast manufacturing industry, according to 200 companies surveyed early this year by Standard Chartered Bank.
“China’s share of the world’s low-end exports has started to fall after years of rapid rises in wages, land costs and appreciation of renminbi [the currency],” said Wang Qinwei (王秦偉), a China economist at Capital Economics.
“But this has been offset by a growing market share in high-end products,” he added.
Capital Economics said in a research note published in March: “China’s export sector overall appears no less competitive now than a few years ago,” adding that “Average margins in light industry have increased over the past three years thanks to rapid productivity growth.”
China’s coastal areas offered an effective business environment that would continue to draw investors, as would lower costs in inland provinces, said Alistair Thornton, a China economist at IHS Global Insight These advantages could limit a shift in manufacturing to lower-paying countries such as Vietnam, Bangladesh, Pakistan and Indonesia.
“Guangdong and other coastal provinces have a superb advantage over most of Southeast Asia and South Asia in their efficient supply chains, strong economies of scale and reliable business environment,” Thornton said.
Among the rows of vibrators, rubber torsos and leather harnesses at a Chinese sex toys exhibition in Shanghai this weekend, the beginnings of an artificial intelligence (AI)-driven shift in the industry quietly pulsed. China manufactures about 70 percent of the world’s sex toys, most of it the “hardware” on display at the fair — whether that be technicolor tentacled dildos or hyper-realistic personalized silicone dolls. Yet smart toys have been rising in popularity for some time. Many major European and US brands already offer tech-enhanced products that can enable long-distance love, monitor well-being and even bring people one step closer to
Malaysia’s leader yesterday announced plans to build a massive semiconductor design park, aiming to boost the Southeast Asian nation’s role in the global chip industry. A prominent player in the semiconductor industry for decades, Malaysia accounts for an estimated 13 percent of global back-end manufacturing, according to German tech giant Bosch. Now it wants to go beyond production and emerge as a chip design powerhouse too, Malaysian Prime Minister Anwar Ibrahim said. “I am pleased to announce the largest IC (integrated circuit) Design Park in Southeast Asia, that will house world-class anchor tenants and collaborate with global companies such as Arm [Holdings PLC],”
Sales in the retail, and food and beverage sectors last month continued to rise, increasing 0.7 percent and 13.6 percent respectively from a year earlier, setting record highs for the month of March, the Ministry of Economic Affairs said yesterday. Sales in the wholesale sector also grew last month by 4.6 annually, mainly due to the business opportunities for emerging applications related to artificial intelligence (AI) and high-performance computing technologies, the ministry said in a report. The ministry forecast that retail, and food and beverage sales this month would retain their growth momentum as the former would benefit from Tomb Sweeping Day
TRANSFORMATION: Taiwan is now home to the largest Google hardware research and development center outside of the US, thanks to the nation’s economic policies President Tsai Ing-wen (蔡英文) yesterday attended an event marking the opening of Google’s second hardware research and development (R&D) office in Taiwan, which was held at New Taipei City’s Banciao District (板橋). This signals Taiwan’s transformation into the world’s largest Google hardware research and development center outside of the US, validating the nation’s economic policy in the past eight years, she said. The “five plus two” innovative industries policy, “six core strategic industries” initiative and infrastructure projects have grown the national industry and established resilient supply chains that withstood the COVID-19 pandemic, Tsai said. Taiwan has improved investment conditions of the domestic economy