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

    Top US General: Turkish Media Report ‘Absurd'

    General Dunford rejects ‘irresponsible' claims of coup involvement by former four-star Army General Campbell, who led NATO forces in Afghanistan before retiring earlier this year

    Video Saving Ethiopian Children Thought to Be Cursed

    'Omo Child' looks at efforts of one African man to stop killings of ‘mingi’ children

    Protests Over Western Troops Threaten Libyan 'Unity' Government

    Fears mount that Islamist foes of ‘unity' government plan to declare a revolutionaries' council in Tripoli

    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.
    London’s Financial Crown at Risk as Rivals Eye Brexit Opportunitiesi
    X
    VOA News
    July 25, 2016 5:09 PM
    By most measures, London rivals New York as the only true global financial center. But Britain’s vote to leave the European Union – so-called ‘Brexit’ – means the city could lose its right to sell services tariff-free across the bloc, risking its position as Europe’s financial headquarters. Already some banks have said they may shift operations to the mainland. Henry Ridgwell reports from London.
    Video

    Video London’s Financial Crown at Risk as Rivals Eye Brexit Opportunities

    By most measures, London rivals New York as the only true global financial center. But Britain’s vote to leave the European Union – so-called ‘Brexit’ – means the city could lose its right to sell services tariff-free across the bloc, risking its position as Europe’s financial headquarters. Already some banks have said they may shift operations to the mainland. Henry Ridgwell reports from London.
    Video

    Video Recycling Lifeline for Lebanon’s Last Glassblowers

    In a small Lebanese coastal town, one family is preserving a craft that stretches back millennia. The art of glass blowing was developed by Phoenicians in the region, and the Khalifehs say they are the only ones keeping the skill alive in Lebanon. But despite teaming up with an eco-entrepreneur and receiving an unexpected boost from the country’s recent trash crisis the future remains uncertain. John Owens reports from Sarafand.
    Video

    Video Migrants Continue to Risk Lives Crossing US Border from Mexico

    In his speech Thursday before the Republican National Convention, the party’s presidential candidate, Donald Trump, reiterated his proposal to build a wall along the U.S.-Mexico border if elected. Polls show a large percentage of Americans support better control of the nation's southwestern border, but as VOA’s Greg Flakus reports from the border town of Nogales in the Mexican state of Sonora, the situation faced by people trying to cross the border is already daunting.
    Video

    Video In State of Emergency, Turkey’s Erdogan Focuses on Spiritual Movement

    The state of emergency that Turkish President Recep Tayyip Erdogan has declared is giving him even more power to expand a purge that has seen an estimated 60,000 people either arrested or suspended from their jobs. VOA Europe correspondent Luis Ramirez reports from Istanbul.
    Video

    Video Calm the Waters: US Doubles Down Diplomatic Efforts in ASEAN Meetings

    The United States is redoubling diplomatic efforts and looking to upcoming regional meetings to calm the waters after an international tribunal invalidated the legal basis of Beijing's extensive claims in the South China Sea. VOA State Department correspondent Nike Ching has the story.
    Video

    Video Four Brother Goats Arrive in Brooklyn on a Mission

    While it's unusual to see farm animals in cities, it's become familiar for residents of Brooklyn, New York, to see a little herd of goats. Unlike gas-powered mowing equipment, goats remove invasive weeds quietly and without adding more pollution to the air. As Faiza Elmasry tells us, this is a pilot program and if it proves to be successful, the goat gardener program will be extended to other areas of New York. Faith Lapidus narrates.
    Video

    Video Scientists in Poland Race to Save Honeybees

    Honeybees are in danger worldwide. Causes of what's known as colony collapse disorder range from pesticides and loss of habitat to infections. But scientists in Poland say they are on track to finding a cure for one of the diseases. VOA’s George Putic reports.
    Video

    Video Wall Already Runs Along Parts of US-Mexico Border

    The Republican Party’s presidential nominee, Donald Trump, gained the support of many voters by saying he would build a wall to keep undocumented immigrants and drugs from coming across the border from Mexico. Critics have called his idea impractical and offensive to Mexico, while supporters say such a bold approach is needed to control the border. VOA’s Greg Flakus has more from the border town of Nogales, Arizona.
    Video

    Video New HIV Tests Emphasize Rapid Results

    As the global fight against AIDS intensifies, activists have placed increasing importance on getting people to know their HIV status. Some companies are developing new HIV testing methods designed to be quick, easy and accurate. Thuso Khumalo looks at the latest methods, presented at the International AIDS conference in Durban, South Africa.
    Video

    Video African Youth with HIV Urge More Support

    HIV, the virus that causes AIDS, is the top killer of teens in sub-Saharan Africa. But many youths say their experience with the virus is unique and needs to be addressed differently than the adult epidemic. VOA South African Correspondent Anita Powell reports.
    Video

    Video Pop-Up Art Comes to Your Living Room, Backyard and Elsewhere

    Around the world, independent artists and musicians wrestle with a common problem: where to exhibit or perform? Traditional spaces such as museums and galleries are reserved for bigger names, and renting a space is not feasible for many. Enter ArtsUp, which connects artists with venue owners. Whether it’s a living room, restaurant, office or even a boat, pop-up events are bringing music and art to unexpected places. Tina Trinh has more.
    Video

    Video Scotland’s Booming Whisky Industry Fears Brexit Hangover

    After Britain’s vote to leave the European Union, Scotland’s government wants to break away from the United Kingdom – fearing the nation’s exports are at risk. Among the biggest of these is whisky. Henry Ridgwell reports on a time of turmoil for those involved in the ancient art of distilling Scotland’s most famous product.

    Special Report

    Adrift The Invisible African Diaspora