News / Economy

Manufacturers in China Search for the Next Low-Cost Base

Multimedia

With the revaluation of the yuan and a wave of wage increases, manufacturers in southern China are finding themselves under pressure to reduce costs.  The new economic climate is forcing factories to move inland, and others to leave China altogether.

Just like the 1980's when factories closed down in Hong Kong and moved to China's Guangdong province, today manufacturers in southern China are looking for the next low-cost base.

Cliff Sun, chairman of the Federation of Hong Kong Industries, an organization that represents 3,000 companies, most with manufacturing facilities in China, says costs in southern China's export hub are rising.

"The recent pay rise has a significant impact on a lot of small and medium enterprises as the cost of manufacturing becomes higher.  When they have to compete with other manufacturers in the mainland, if the cost of manufacturing keeps going up, that means their customers are going to give them less orders," Sun said.

The Guangdong provincial government raised the minimum wage by 21 percent in May. Labor strikes at Toyota and Honda plants in recent weeks only added pressure on wages.

And last month, China allowed the yuan to strengthen against the dollar, for the first time in nearly two years. That means Chinese exports are becoming more expensive overseas.

Sun expects at least 3,000 factories in the Guangdong area, still staggering from the global financial crisis, will not survive.

"It's not easy…. Some of our members are diversifying. They're integrating their manufacturing facilities from, for example, Shenzhen manufacturing base, shifting some of the labor intensive production, jobs into neighboring provinces like Jiangxi, Hunan, Sichuan." said Sun. "If that can be done, at least they're going to survive."

Beijing has been pushing exporters to move to the poorer inland regions, as a way to narrow the rural and urban income gaps.

But inland factories may face other problems. When factories move inland where wages are lower, suppliers may not be able to catch up said Standard Chartered Bank's regional economist Kelvin Lau.

"The layout of many of these manufacturing cities or towns is that a big factory is usually surrounded by many of the suppliers that they worked with…. The third way out in the face of rising cost is to actually relocate outside of China," said Lau.

And that is what some manufacturers have been doing in recent years - opening factories in Vietnam, Cambodia and Indonesia, where costs are lower.

Sun said Hong Kong companies in the mainland are looking for opportunities to move labor intensive activities to southeast Asia.

"They can consider the Asian countries like Burma, Vietnam, Laos, Cambodia - these are Asian countries that are not financially developed, their labor cost is still relatively inexpensive. You are talking about maybe $80 per month for casual worker, which [compared to] China, I think in Shenzhen, you have to pay twice as much or more."

Vietnam has invested in infrastructure such as ports and roads and dangled incentives to foreign companies.

Abe Junji runs a Japanese shoe factory outside Vietnam's Ho Chi Minh City. He thinks the future is good here because the government has made it easier for foreign investors to come to the country, granting them tax incentives.

But it may fall short of what China can offer, said Standard Chartered's Lau.

"There are also other considerations that they have to take into account. For example, whether the logistics or the infrastructure support is comparable to what they get in China," Lau said.

At Li & Fung, a major Hong Kong company that is one of the biggest suppliers of consumer goods to large overseas retailers, executives acknowledge that China's low-cost era may be over.  But they expect the country to be a dominant exporter for years to come. Li & Fung said China remains the biggest source of the company's products, with $8 billion in goods a year. The second biggest, Vietnam, supplies just $1 billion of merchandise.

You May Like

Ebola Death Toll Nears 5,000 as Virus Advances

West Africa bears heaviest burden; Mali toddler’s death raises new fears More

Jordan’s Battle With Islamic State Militants Carries Domestic Risks

Despite Western concerns that IS militants are preparing a Jordanian offensive, analysts call the kingdom's solid intel a strong deterrent More

Asian-Americans Assume Office in Record Numbers

Steadily deepening engagement in local politics pays off for politicians like Chinese-American Judy Chu 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.
Talks to Resume on Winter Gas for Ukrainei
X
Al Pessin
October 25, 2014 4:21 PM
Ukrainian and Russian officials will meet again next week in an effort to settle their dispute over natural gas supplies that threatens to leave Ukraine short of heating fuel for the coming winter. VOA’s Al Pessin reports from London the dispute is complex, and has both economic and geopolitical dimensions.
Video

Video Talks to Resume on Winter Gas for Ukraine

Ukrainian and Russian officials will meet again next week in an effort to settle their dispute over natural gas supplies that threatens to leave Ukraine short of heating fuel for the coming winter. VOA’s Al Pessin reports from London the dispute is complex, and has both economic and geopolitical dimensions.
Video

Video Smugglers Offer Cheap Passage From Turkey to Syria

Smugglers in Turkey offer a relatively cheap passage across the border into Syria. Ankara has stepped up efforts to stem the flow of foreign fighters who want to join Islamic State militants fighting for control of the Syrian border city of Kobani. But porous borders and border guards who can be bribed make illegal border crossings quite easy. Zlatica Hoke has more.
Video

Video Comanche Chief Quanah Parker’s Century-Old House Falling Apart

One of the most fascinating people in U.S. history was Quanah Parker, the last chief of the American Indian tribe, the Comanche. He was the son of a Comanche warrior and a white woman who had been captured by the Indians. Parker was a fierce warrior until 1875 when he led his people to Fort Sill, Oklahoma, and took on a new, peaceful life. As VOA’s Greg Flakus reports from Cache, Oklahoma, Quanah’s image remains strong among his people, but part of his heritage is in danger of disappearing.
Video

Video China Political Meeting Seeks to Improve Rule of Law

China’s communist leaders will host a top level political meeting this week, called the Fourth Plenum, and for the first time in the party’s history, rule of law will be a key item on the agenda. Analysts and Chinese media reports say the meetings could see the approval of long-awaited measures aimed at giving courts more independence and include steps to enhance an already aggressive and high-reaching anti-corruption drive. VOA’s Bill Ide has more from Beijing.
Video

Video After Decades of Pressure, Luxembourg Drops Bank Secrecy Rules

European Union finance ministers have reached a breakthrough agreement that will make it more difficult for tax cheats to hide their money. The new legislation, which had been blocked for years by countries with a reputation as tax havens, was approved last week after Luxembourg and Austria agreed to lift their vetoes. But as Mil Arcega reports, it doesn’t mean tax cheats have run out of places to keep their money hidden.
Video

Video Kobani Refugees Welcome, Turkey Criticizes, US Airdrop

Residents of Kobani in northern Syria have welcomed the airdrop of weapons, ammunition and medicine to Kurdish militia who are resisting the seizure of their city by Islamic State militants. The Turkish government, however, has criticized the operation. VOA’s Scott Bobb reports from southeastern Turkey, across the border from Kobani.
Video

Video US ‘Death Cafes’ Put Focus on the Finale

In contemporary America, death usually is a topic to be avoided. But the growing “death café” movement encourages people to discuss their fears and desires about their final moments. VOA’s Jerome Socolovsky reports.
Video

Video Ebola Orphanage Opens in Sierra Leone

Sierra Leone's first Ebola orphanage has opened in the Kailahun district. Hundreds of children orphaned since the beginning of the Ebola outbreak face stigma and rejection with nobody to care for them. Adam Bailes reports for VOA about a new interim care center that's aimed at helping the growing number of children affected by Ebola.

All About America

AppleAndroid

World Currencies

EUR
USD
0.7893
JPY
USD
107.68
GBP
USD
0.6238
CAD
USD
1.1214
INR
USD
61.185

Rates may not be current.