News / Asia

Higher Production Costs Shift Chinese Manufacturing

Staff members work on the production line at the Foxconn complex in the southern Chinese city of Shenzhen, Southern city in China, May 26, 2010
Staff members work on the production line at the Foxconn complex in the southern Chinese city of Shenzhen, Southern city in China, May 26, 2010

Multimedia

Audio
Heda Bayron

For decades, China’s factories have supplied the world with cheap goods - from denim jeans to desktop computers. But export prices are expected to go up as Chinese manufacturers are battered by higher wages, more expensive raw materials and an appreciating currency.

iPhone to invest in Brazil

India's Prime Minister Manmohan Singh, Russia's President Dmitry Medvedev, China's President Hu Jintao, Brazil's President Dilma Rousseff and South Africa's President Jacob Zuma (L-R) pose during the BRICS (Brazil, Russia, India, China and South Africa) s
India's Prime Minister Manmohan Singh, Russia's President Dmitry Medvedev, China's President Hu Jintao, Brazil's President Dilma Rousseff and South Africa's President Jacob Zuma (L-R) pose during the BRICS (Brazil, Russia, India, China and South Africa) s

During her recent visit to Beijing, Brazil’s President Dilma Rousseff said Foxconn International Holdings, the company that manufactures Apple’s popular iPhone, plans to spend $12 billion building factories in her country.

For some time, Foxconn has been expanding outside of its traditional manufacturing base in southern China, shifting north to Hebei province, to cut costs. The company, which employs hundreds of thousands of workers in China, reported a loss for 2010 because of higher production costs.

Companies opt out

Companies increasingly are moving out of southern China’s manufacturing hub in the Pearl River Delta as profits decline.

Stanley Lau is managing director of Renley Watch Manufacturing Company. He also heads the Pearl River Delta Council of the Hong Kong Federation of Industries.

“Wages are going up. The minimum wage has gone up by about 20 percent in 2010. And again this year wages have gone up by 20 percent roughly," said Lau. "When you look at any part of the world, I think you cannot find any other place with such kind of increase in wages.”

What is more, he says, the cost of raw materials such as cotton, plastics and electronic components, is rising. Although the Chinese currency has been rising against the dollar, which could help ease rising costs for imported raw materials, manufacturers say even locally made materials are getting more expensive. China’s inflation rate reached 5.4 percent in March, the highest in nearly three years.

At the same time, the yuan’s appreciation, which the United States and other Western nations say is essential to reduce China’s trade imbalance, makes Chinese products more expensive overseas.

Export prices to increase

Li and Fung, a Hong Kong sourcing company that supplies the U.S. retailer Wal-Mart and other global retail chains, says Chinese export prices will increase as much as 15 percent this year. Company executives last month warned that Chinese goods are entering a new era of rising prices.

The challenges Chinese exporters confront are not new. They have been ramping up over the past two years. In 2008, China implemented a new law that increased factory workers’ salaries. At that time, manufacturers warned that many of them would be forced to close because of rising wages.

Pansy Yau, deputy chief economist of the Hong Kong Trade Development Council, says Chinese exports have stayed strong since then.

“When we look at the share of China export in Europe and the [United] States, we find that the import share from China continues to increase. It proves that China is not only competing on cost because after all these years the wages in China are already higher than some Southeast Asian countries and other low-cost countries,” said Yau.

The Chinese government has been encouraging manufacturers to move factories to poorer inland regions as a way to distribute economic development. Lau says not all industries can do so because they rely on the efficient supply chain in southern China, near other factories making needed components.

Southern China is blessed with deep ports that allow access for container ships bringing raw materials and carrying finished products to the rest of the world. Also, electricity and water supply are stable. Moving factories inland could prove costlier than staying put because companies may have to pay more in shipping costs.

Relocating to Vietnam, Indonesia

When it comes to moving overseas, the Federation of Industries’ Lau says it will be easiest for textile manufacturers to relocate to places like Vietnam and Indonesia, because the infrastructure is already there.

“Years ago when they had a problem with the [export] quotas, many textile industries moved part of their production to these countries in order to get a better quota for their textile products," said Lau. "So there’s a good set up in those countries. For the other industries like electronics, plastics, the watch and clock industries, it’s more difficult because if you’re going to move you need the whole supply chain to move together with you. You will have problems in the delivery of parts.”

At the Hong Kong Trade Development Council, economist Yau says the pinch that Chinese exporters are feeling could well reverberate in supermarkets and shops across the world. She says it is inevitable rising costs will be passed on to customers.

“Once they can prove that their product is good and [has] value for money, then they have the bargaining power to ask for a price increase,” added Yau.

China’s ruling Communist Party has made clear it wants to hold the line on prices - for goods sold at home and abroad. The government is working to tamp down inflation to make sure high prices for food and housing do not spark unrest. And Beijing has moved slowly on its pledge to let the yuan trade more freely - fearing that a sharp gain in the exchange rate could make exports even more expensive, forcing factories to close and eliminate jobs.

You May Like

Will Cuba Follow the Southeast Asia Model?

Decision to restore ties between US and Cuba has some debating whether it will lead to enhancement or regression of democracy for Communist island nation More

Kenyan Designer Finds Her Niche in Fashion Industry

‘Made in China’ fabrics underlie her success More

Report: CIA, Israel's Mossad Killed Senior Hezbollah Commander

The Washington Post story says Imad Mughniyah was killed instantly by a bomb "triggered remotely" from Tel Aviv by Mossad agents More

This forum has been closed.
Comments
     
There are no comments in this forum. Be first and add one

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Jefferson's Library Continues to Impress, 200 Years Lateri
X
Deborah Block
January 31, 2015 12:12 AM
Two hundred years after the U.S. Congress purchased a huge collection of books belonging to former President Thomas Jefferson, it remains one of America’s greatest literal treasures and has become the centerpiece of Washington’s Library of Congress. VOA’s Deborah Block reports.
Video

Video Jefferson's Library Continues to Impress, 200 Years Later

Two hundred years after the U.S. Congress purchased a huge collection of books belonging to former President Thomas Jefferson, it remains one of America’s greatest literal treasures and has become the centerpiece of Washington’s Library of Congress. VOA’s Deborah Block reports.
Video

Video Egypt's Suez Canal Dreams Tempered by Continued Unrest

Egypt plans to expand the Suez Canal, raising hopes that the end of its economic crisis may be in sight. But some analysts say they expect the project may cost too much and take too long to make life better for everyday Egyptians. VOA's Heather Murdock reports.
Video

Video Threat of Creeping Lava Has Hawaiians on Edge

Residents of the small town of Pahoa on the Big Island of Hawaii face an advancing threat from the Kilauea volcano. Local residents are keeping a watchful eye on creeping lava. Mike O’Sullivan reports.
Video

Video Pro-Kremlin Youth Group Creatively Promotes 'Patriotic' Propaganda

As Russia's President Vladimir Putin faces international pressure over Ukraine and a failing economy, unofficial domestic groups are rallying to his support. One such youth organization, CET, or Network, uses creative multimedia to appeal to Russia's urban youth with patriotic propaganda. VOA's Daniel Schearf reports.
Video

Video Filmmakers Produce Hand-Painted Documentary on Van Gogh

The troubled life of the famous 19th century Dutch painter Vincent van Gogh has been told through many books and films, but never in the way a group of filmmakers now intends to do. "Loving Vincent " will be the first ever feature-length film made of animated hand-painted images, done in the style of the late artist. VOA’s George Putic reports.
Video

Video Issues or Ethnicity? Question Divides Nigeria

As Nigeria goes to the polls next month, many expect the two top presidential contenders to gain much of their support from constituencies organized along ethnic or religious lines. But are faith and regional blocs really what political power in Nigeria is about? Chris Stein reports.
Video

Video Rock-Consuming Organisms Alter Views of Life Processes

Scientists thought they knew much about how life works, until a discovery more than two decades ago challenged conventional beliefs. Scientists found that there are organisms that breathe rocks. And it is only recently that the scientific community is accepting that there are organisms that could get energy out of rocks. Correspondent Elizabeth Lee reports.
Video

Video Paris Attacks Highlight Global Weapons Black Market

As law enforcement officials piece together how the Paris and Belgian terror cells carried out their recent attacks, questions are being asked about how they obtained military grade assault weapons - which are illegal in the European Union. As VOA's Jeff Swicord reports, experts say there is a very active worldwide black market for these weapons, and criminals and terrorists are buying.
Video

Video Activists Accuse China of Targeting Religious Freedom

The U.S.-based Chinese religious rights group ChinaAid says 2014 was the worst year for religious freedom in China since the end of the Cultural Revolution. As Ye Fan reports, activists say Beijing has been tightening religious controls ever since Chinese leader Xi Jinping came to office. Hu Wei narrates.
Video

Video Theologians Cast Doubt on Morality of Drone Strikes

In 2006, stirred by photos of U.S. soldiers mistreating Iraqi prisoners, a group of American faith leaders and academics launched the National Religious Campaign Against Torture. It played an important role in getting Congress to investigate, and the president to ban, torture. VOA's Jerome Socolovsky reports.
Video

Video Former Sudan 'Lost Boy' Becomes Chess Master in NYC

In the mid-1980’s, thousands of Sudanese boys escaped the country's civil war by walking for weeks, then months and finally for more than a year, up to 1,500 kilometers across three countries. The so-called Lost Boys of the Sudan had little time for games. But one of them later mastered the game of chess, and now teaches it to children in the New York area. VOA’s Bernard Shusman in New York has his story.
Video

Video NASA Monitors Earth’s Vital Signs From Space

The U.S. space agency, NASA, is wrapping up its busiest 12-month period in more than a decade, with three missions launched in 2014 and two this month, one in early January and the fifth scheduled for January 29. As VOA’s Rosanne Skirble reports, the instruments being lifted into orbit are focused on Earth’s vital life support systems and how they are responding to a warmer planet.

Circumventing Censorship

An Internet Primer for Healthy Web Habits

As surveillance and censoring technologies advance, so, too, do new tools for your computer or mobile device that help protect your privacy and break through Internet censorship.
More

All About America

AppleAndroid