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

Unpaid Kurdish Fighters Sign of Economic Woes

Sharp cuts in Kurdistan's budget by Baghdad, falling oil revenue, coping with refugees, inflated public sector have hit regional economy hard More

Koreas Exchange List of Envoys for Family Reunion Talks

Officials will discuss date, venue and number of participants for reunion; Seoul hopes to hold event late this month More

China Targets 197 in Online Speech Crackdown

Nearly 200 punished for 'spreading rumors' online in ongoing crackdown on free speech 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.
Calais School Offers Another Face of Europe’s Migrant Crisisi
X
Lisa Bryant
September 02, 2015 6:19 PM
Europe is facing mounting criticism over how it’s handling its biggest migration crisis since World War II. But not all Europeans believe building walls or passing repressive policies are the answer. A school for migrants in the French port city of Calais, is opening doors and building bonds across nationalities. VOA's Lisa Bryant reports.
Video

Video Calais School Offers Another Face of Europe’s Migrant Crisis

Europe is facing mounting criticism over how it’s handling its biggest migration crisis since World War II. But not all Europeans believe building walls or passing repressive policies are the answer. A school for migrants in the French port city of Calais, is opening doors and building bonds across nationalities. VOA's Lisa Bryant reports.
Video

Video Russia-Japan Relations Cool as Putin Visits China for WWII Anniversary

Russian President Vladimir Putin is in Beijing for commemorations of the 70th anniversary of China's WWII victory over Japan. Putin is expected to visit Japan later this year, but tensions between Tokyo and Moscow over islands disputed since the war, and sanctions over Ukraine, could pour cold water on the plan. VOA's Daniel Schearf reports.
Video

Video Kurdish Fighters on IS Frontline Ready for Offensive

Finger on the trigger, the Kurdish Peshmerga soldier stared across the dust at a village taken over by Islamic State extremists. The Kurdistan’s Khazir frontline, just 45 minutes from the Islamic State stronghold of Mosul. And at this point, the militants were less than two kilometers away. VOA's Sharon Behn reports.
Video

Video Yemen ‘on Brink of Disaster’ as Medical Shortages Soar

Aid agencies warn Yemen is on the brink of humanitarian disaster – with up to half a million children facing severe malnutrition, and hospitals running out of basic medicines. There are fears Yemen's civil war could escalate as the coalition led by Saudi Arabia tries to drive back Houthi rebels, who seized control of much of the country earlier this year. Henry Ridgwell reports.
Video

Video Apps Helping Kenyan Businesses Stay Ahead of Counterfeiters

Counterfeit goods in Kenya cost the government as much as $1 billion each year in lost tax revenues. The fake goods also hurt entrepreneurs who find it hard to carve out a niche in the market and retain customers. But as Lenny Ruvaga reports from Nairobi, information technology is being used to try to beat the problem.
Video

Video Nobel Prize Winner Malala Talks to VOA

Nobel Peace Prize winner Malala Yousafzai met with VOA's Deewa service in Washington Sunday to talk about women’s rights and unveil a trailer for her new documentary. VOA's Katherine Gypson has more.
Video

Video War, Drought Threaten Iraq's Marshlands

Iraq's southern wetlands are in crisis. These areas are the spawning ground for Gulf fisheries, a resting place for migrating wildfowl, and source of livelihood for fishermen and herders. Faith Lapidus has more.
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 Rebuilding New Orleans' Music Scene

Ten years after Hurricane Katrina inundated New Orleans, threatening to wash away its vibrant musical heritage along with its neighborhoods, the beat goes on. As Bronwyn Benito and Faith Lapidus report, a Musicians' Village is preserving the city's unique sound.
Video

Video In Russia, Auto Industry in Tailspin

Industry insiders say country relies too heavily on imports as inflation cuts too many consumers out of the market. Daniel Schearf has more from Moscow.
Video

Video Scientist Calls Use of Fetal Tissue in Medical Research Essential

An anti-abortion group responsible for secret recordings of workers at a women's health care organization claims the workers shown are offering baby parts for sale, a charge the organization strongly denies. While the selling of fetal tissue is against the law in the United States, abortion and the use of donated fetal tissue for medical research are both legal. VOA’s Julie Taboh reports.
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 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 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.

VOA Blogs

World Currencies

EUR
USD
0.8905
JPY
USD
120.20
GBP
USD
0.6541
CAD
USD
1.3262
INR
USD
66.242

Rates may not be current.