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

Obama: Alaskans Feel Signs of Climate Change

They're seeing bigger storm surges as sea ice melts, more wildfires, erosion of glaciers, shorelines More

1855 Slave Brochure Starkly Details Sale of Black Americans

Document lists entire families that were up for sale in New Orleans, offering graphic insight into the slavery trade More

Katrina Brought Enduring Changes to New Orleans

The city’s recovery is the result of the people and culture the city is famous for, as well as newcomers and start-up industries 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.
Colombians Flee Venezuela as Border Crisis Escalatesi
X
August 27, 2015 2:08 AM
Hundreds of Colombians have fled Venezuela since last week, amid an escalating border crisis between the two countries. Last week, Venezuelan President Nicolas Maduro ordered the closure of a key border crossing after smugglers injured three Venezuelan soldiers and a civilian. The president also ordered the deportation of Colombians who are in Venezuela illegally. Zlatica Hoke reports.
Video

Video Colombians Flee Venezuela as Border Crisis Escalates

Hundreds of Colombians have fled Venezuela since last week, amid an escalating border crisis between the two countries. Last week, Venezuelan President Nicolas Maduro ordered the closure of a key border crossing after smugglers injured three Venezuelan soldiers and a civilian. The president also ordered the deportation of Colombians who are in Venezuela illegally. Zlatica Hoke reports.
Video

Video Is China's Economic Data Accurate?

Some investors say China's wild stock market gyrations have been made worse by worries about the reliability of that nation's economic data. And some critics say the reports can mislead investors by painting an unrealistically-strong picture of the economy. A key China scholar says Beijing is not fudging ((manipulating)) the numbers, but that the economy is evolving quickly from smoke-stack industries to services, and the ways of tracking new economic activity are falling behind the change. V
Video

Video Next to Iran, Climate at Forefront of Obama Agenda

President Barack Obama this week announced new initiatives aimed at making it easier for Americans to access renewable energy sources such as solar and wind. Obama is not slowing down when it comes to pushing through climate change measures, an issue he says is the greatest threat to the country’s national security. VOA correspondent Aru Pande has more from the White House.
Video

Video Shipping Containers Provide Experimental Housing

Housing prices around the San Francisco Bay area are out of reach for many people, so some young entrepreneurs, artists and tech industry workers are creating their own houses using converted shipping containers. But as VOA's Mike O’Sullivan reports from Oakland, the effort requires ingenuity and dealing with restrictive local laws.
Video

Video Arctic Draws International Competition for Oil

A new geopolitical “Great Game” is underway in earth’s northernmost region, the Arctic, where Russia has claimed a large area for resource development and President Barack Obama recently approved Shell Oil Company’s test-drilling project in an area under U.S. control. Greg Flakus reports.
Video

Video Philippine Maritime Police: Chinese Fishermen a Threat to Country’s Security

China and the Philippines both claim maritime rights in the South China Sea.  That includes the right to fish in those waters. Jason Strother reports on how the Philippines is catching Chinese nationals it says are illegal poachers. He has the story from Palawan province.
Video

Video Technique May Eliminate Drill-and-Fill Dental Care

Many people dread visiting dentists because they're afraid of drills. Now, however, a technology developed by a British firm promises to eliminate the need for mechanical cleaning of dental cavities by speeding a natural process of tooth repair. VOA’s George Putic reports.
Video

Video China's Spratly Island Building Said to Light Up the Night 'Like A City'

Southeast Asian countries claim China has illegally seized territory in the Spratly islands. It is especially a concern for a Philippine mayor who says Beijing is occupying parts of his municipality. Jason Strother reports from the capital of Palawan province, Puerto Princesa.
Video

Video Ages-old Ice Reveals Secrets of Climate Change

Ice caps don't just exist at the world's poles. There are also tropical ice caps, and the largest sits atop the Peruvian Andes - but it is melting, quickly, and may be gone within the next 20 years. George Putic reports scientists are now rushing to take samples to get at the valuable information about climate change locked in the ice.
Video

Video French Experiment in Integrating Roma Under Threat

Plans to destroy France’s oldest slum have sparked an outcry on the part of its Roma residents. As Lisa Bryant reports from the Paris suburb of La Courneuve, rights groups argue the community is a fledgling experiment on integrating Roma who are often outcasts in many parts of Europe.
Video

Video Kenyans Turn to Agriculture for Business

Each year Kenyan universities continue to churn out graduates for the job market despite the already existing high rate of unemployment among youth in the country. Some of these young men and women have realized that agriculture can be as rewarding as any other business or job, and they are resorting to agribusiness in large numbers as a way of tackling unemployment. Rael Ombuor reports for VOA.
Video

Video First Women Graduate Elite Army Ranger School

Two women are making history for the U.S. Army by proving they are among the toughest of the tough. VOA's Carla Babb reports from Fort Benning, Georgia as 94 men and those two women rise as graduates of the difficult Ranger school.

VOA Blogs