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

UN: 1 Million Somalis at Risk of Hunger

Group warns region is in dire need of humanitarian aid, with at least 200,000 children under age of five acutely malnourished as drought hits southern, central part of nation More

Human Rights Groups Allege Supression of Freedoms in Thailand

Thailand’s military, police have suppressed release of independent report assessing human rights in kingdom during first 100 days of latest coup More

Jennifer Lawrence Contacts FBI After Nude Photos Hacked

'Silver Linings Playbook' actress' photos were posted on image-sharing forum 4chan; Federal Bureau of Investigations is looking into matter 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.
Larger Than Life Chinese Lanterns Make Southern California Appearancei
X
Elizabeth Lee
September 02, 2014 8:57 PM
Chinese lanterns with a long history are lighting up in 21st century style at the Los Angeles County Fair in southern California. Visitors can see traditional lanterns that hang, but also lanterns in the shape of animals, iconic landmarks and many other objects, all created by artisans from a place in China known for its lanterns. Elizabeth Lee has the details from the fair in the city of Pomona.
Video

Video Larger Than Life Chinese Lanterns Make Southern California Appearance

Chinese lanterns with a long history are lighting up in 21st century style at the Los Angeles County Fair in southern California. Visitors can see traditional lanterns that hang, but also lanterns in the shape of animals, iconic landmarks and many other objects, all created by artisans from a place in China known for its lanterns. Elizabeth Lee has the details from the fair in the city of Pomona.
Video

Video Experts See Rise of ISIS as Significant Development

The Islamic State’s rise seems sudden. It caught the U.S. by surprise this summer when it captured large portions of northern Iraq and spread its wings in neighboring Syria. But many analysts contend that the group - which grew out of al-Qaida in Iraq - has been rebuilding for years. VOA's Jela de Franceschi takes a closer look at the rise of ISIS and its implications for the Middle East and beyond.
Video

Video Israel Concerned Over Syrian Rebels in Golan

Israeli officials are following with concern the recent fighting between Syrian rebels and government forces near the contested Golan Heights. Forty-four U.N. peacekeepers from Fiji have been seized by Syrian Islamist rebels and the clashes occasionally have spilled into Israel. VOA’s Scott Bobb reports from Jerusalem.
Video

Video Ukraine Schools Resume Classes, Donate to Government Forces

A new school year has started in Ukraine but thousands of children in the war-torn east are unable to attend because of ongoing clashes with pro-Russia rebels. In Ukraine's capital, patriotic education has become the norm along with donations to support injured security forces fighting to take back rebel-held areas. VOA's Daniel Schearf reports from Kyiv.
Video

Video US Detainees Want Negotiators for Freedom in North Korea

The three U.S. detainees held in North Korea were permitted to speak with foreign media Monday. The government of Kim Jong Un restricted the topics of the questions, and the interviews in Pyongyang were limited to five minutes. Each of the men asked Washington to send a representative to Pyongyang to secure his release. VOA’s Carolyn Presutti has our story.
Video

Video Turkmen From Amerli Describe Survival of IS Siege

Over the past few weeks, hundreds of Shi'ite Turkmen have fled the town of Amerli seeking refuge in the northern city of Kirkuk. Despite recent military gains after U.S. airstrikes that were coordinated with Iraqi and Kurdish forces, the situation remains dire for Amerli’s residents. Sebastian Meyer went to Kirkuk for VOA to speak to those who managed to escape.
Video

Video West Africa Ebola Vaccine Trials Possible by Early 2015

A U.S. health agency is speeding up clinical trials of a possible vaccine against the deadly Ebola virus that so far has killed more than 1,500 people in West Africa. If successful, the next step would be a larger trial in countries where the outbreak is occurring. VOA's Carol Pearson has more.
Video

Video Survivors Commemorate 70th Anniversary of Nazi Liquidation of Jewish Ghetto

When the German Nazi army occupied the Polish city of Lodz in 1939, it marked the beginning of a long nightmare for the Jewish community that once made up one third of the population. Roughly 200,000 people were forced into the Lodz Ghetto. Less than 7,000 survived. As VOA’s Kane Farabaugh reports, some survivors gathered at the Union League Club in Chicago on the 70th anniversary of the liquidation of the Lodz Ghetto to remember those who suffered at the hands of the Nazi regime.

AppleAndroid

World Currencies

EUR
USD
0.7537
JPY
USD
103.79
GBP
USD
0.6032
CAD
USD
1.0957
INR
USD
60.522

Rates may not be current.