China isn't the dirt-cheap manufacturing base it used to be, a prominent economist said in a report released yesterday.
Morgan Stanley's chief Asian economist Andy Xie (
"The cost pressure in China is motivating electronics manufacturers to search for cheaper production locations," Xie wrote.
That has caused the profitability of China's export sector to decline, and margins may continue to weaken, Xie warned.
China has recently suffered from sharp markups in the price of crude oil and steel.
Three factors have been boosting China's labor costs, Xie said. The cost of food, electricity, water and housing in China's coastal areas is on the rise, and wages may have to increase by a whopping 20 percent to 30 percent to cover the higher cost of living, he explained.
Second, the government has tightened its enforcement of labor regulations and has increased labor benefits. This has increased some businesses' labor costs by 40 percent.
Finally, the government's plan to improve working conditions and narrow the country's income gap could mean that labor compensation will rise in line with productivity in the future, the economist said.
As a result, the momentum of factory relocation from Asian economies, like Taiwan and Japan, as well as from European countries may ebb to a much slower pace in the future, Xie added.
In the first nine months of this year, actual foreign direct investment in China dropped 2.11 percent from a year ago to US$43.25 billion, the country's Ministry of Commerce said in a statement released yesterday.
Hong Kong, the British Virgin Islands, and Japan were the top three origins of foreign investment into China, while Taiwan was ranked seventh over the same period, the statement read.
"Operating costs in China are indeed surging," said Kung Ming-hsin (
Kung added that other factors were contributing to the trend. China's gradual pullback on incentives for foreign investment, stricter tax inspection of China-based Taiwanese companies, the planned equalization of tax rates for local and overseas investors and the country's possibly strengthening currency could all increase costs, Kung explained.
Investors should also take into account the risks brought by the country's non-transparent policy-making processes, he added.
These explained some China-based Taiwanese companies' decision to move back or to divert investments to other Asian countries like Vietnam, which are less likely than China to be subject to Western trade barriers, Kung said.
From India to China to the US, automakers cannot make vehicles — not that no one wants any, but because a more than US$450 billion industry for semiconductors got blindsided. How did both sides end up here? Over the past two weeks, automakers across the world have bemoaned the shortage of chips. Germany’s Audi, owned by Volkswagen AG, would delay making some of its high-end vehicles because of what chief executive officer Markus Duesmann called a “massive” shortfall in an interview with the Financial Times. The firm has furloughed more than 10,000 workers and reined in production. That is a further blow
Answering to a reported request by Germany to help address a chip shortage in its auto industry, the Ministry of Economic Affairs (MOEA) yesterday said that it was in talks with domestic chip suppliers. Foreign media over the weekend reported that German Minister of Economic Affairs Peter Altmaier had sent a request to Taipei to ask Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) to cooperate more closely with German automakers to provide microchips and sensors, to bridge a shortage that has emerged over the past few months. The MOEA said that it had not yet received the request and could therefore not elaborate
FOCUS ON FOUNDRIES: An analyst said that some investors would be disappointed because they were expecting a larger announcement of a partnership with TSMC Intel Corp’s incoming chief executive officer Pat Gelsinger on Thursday pledged to regain the company’s lead in chip manufacturing, countering growing calls from some investors to shed that part of its business. “I am confident that the majority of our 2023 products will be manufactured internally,” Gelsinger said. “At the same time, given the breadth of our portfolio, it’s likely that we will expand our use of external foundries for certain technologies and products.” He plans to provide more details after officially taking over the CEO role on Feb. 15, but Gelsinger was clear that Intel is sticking with its once mighty
AWARENESS NEEDED: The central bank urged lenders to know their customers before undertaking business for them and to seek funding in conventional ways The central bank yesterday said that it would take action against four foreign lenders for their involvement in helping companies trade in the deliverable forward market in contravention of foreign-exchange regulations. Some grain merchants newly based in Taiwan have since July 2019 been practicing questionable currency-trading activity, with the help of branches and subsidiaries of six foreign banks, the monetary policymaker told an unscheduled news conference. Affiliated firms as of July last year completed currency-related deals they referred to as trading that totaled US$11 billion, which was not in sync with their real business needs, the central bank said after wrapping up