ASEAN markets are poised to become Asia’s next low-cost manufacturing powerhouse as wages in China’s Pearl River Delta (PRD) factory belt creep up, economists at Standard Chartered Bank said yesterday.
“As wage competitiveness in China is waning, ASEAN nations stand to gain with their lower labor costs and abundant supply of labor over the next 20 years,” the bank’s Hong Kong-based economist Kevin Lau (劉建恆) said in a teleconference on the company’s annual survey of 290 Hong Kong and Taiwan-based manufacturers operating in the PRD region — spanning nine cities in China’s Guangdong Province and accounting for 27 percent of Chinese exports.
More than 85 percent of the respondents said labor shortages are as bad this year as last year, while migrant worker wages might rise from 8.1 percent to 8.4 percent, creating an overall real wage growth of 6.8 percent, the survey said.
As wages account for more than 20 percent of the PRD manufacturers’ overall operating costs, another year of strong wage growth can materially impact their bottom line, Lau said.
Companies also expressed concerns over narrowing margins, tight credit conditions, cautious outlook for orders and an increasingly volatile Chinese yuan, the survey found.
Consequently, more than 30 percent of companies plan to relocate their factories, with some moving further inland in China and some to overseas markets, it said.
While wages might still be competitive in some parts of China, particularly in western provinces, the shrinking labor force means that wages in those areas are likely to catch up with those in eastern China, Standard Chartered’s Taipei-based economist Tony Phoo (符銘財) said.
“Companies that opt to move inland are buying time and will soon have to move again,” Phoo said.
Vietnam and Cambodia are the preferred destinations for relocation and might be the biggest beneficiaries as low-cost manufacturers shift away from PRD due to to their large labor population, the survey said.
Relocating to Vietnam could give companies average cost reductions of 19 percent and Cambodia could yield a 20 percent saving, Phoo said.
As a whole, ASEAN has strong and varied manufacturing capabilities ranging from low-cost factories in Cambodia, Laos, Myanmar and Indonesia to high-value-added production in Singapore, but the region’s high GDP growth and growing household affluence mean a share of a large and increasing consumer market for companies relocating from the PRD, the survey said.
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