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

Video Video Claims to Show Shi'ite Forces in Iraq Executing Sunni Boy

While not yet independently confirmed, brutal killing already has gotten attention of Islamic State followers on social media More

After Six Years, Little Change for Niger Delta's Former Militants

Nigerians who laid down arms in exchange for government amnesty subsidies fear program may end with upcoming presidential elections More

Vietnam Pushes for More Educated Drivers to Curb Road Deaths

Transportation officials hope that making a greater effort to get drivers to learn the rules of the road will reduce fatal crashes 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.
NASA Spacecraft Approaches a Dwarf Planeti
X
George Putic
March 04, 2015 8:51 PM
NASA’s Dawn spacecraft will make history on Friday, March 6, when it becomes the first man-made object to orbit a dwarf planet named Ceres. It is located in the asteroid belt between Mars and Jupiter, almost 500 million kilometers from Earth. Among other objectives, Dawn will try to examine two mysterious bright white spots detected on the planet’s surface. VOA’s George Putic has more.
Video

Video NASA Spacecraft Approaches a Dwarf Planet

NASA’s Dawn spacecraft will make history on Friday, March 6, when it becomes the first man-made object to orbit a dwarf planet named Ceres. It is located in the asteroid belt between Mars and Jupiter, almost 500 million kilometers from Earth. Among other objectives, Dawn will try to examine two mysterious bright white spots detected on the planet’s surface. VOA’s George Putic has more.
Video

Video Young Muslims Radicalized Online

Young Muslims are being radicalized ‘in their bedrooms’ through direct contact with Islamic State or ISIL fighters via the Internet, according to terror experts. There are growing concerns that authorities and Internet providers are not doing enough to counter online extremism - which analysts say is spread by a prolific network of online supporters around the world. Henry Ridgwell reports from London.
Video

Video African Americans Recall 1960's Fight For Voting Rights

U.S. President Barack Obama and thousands of people will gather in the small southern U.S. city of Selma, Alabama, Saturday, March 7th to commemorate the 50th anniversary of a historic voting rights march that became known as “Bloody Sunday." VOA’s Chris Simkins traveled to Alabama and introduces us to some of the foot soldiers of the voting rights struggles of the 1960’s.
Video

Video Positive Messaging Transforms Ethiopia's Image

Ethiopia was once known for famine and droughts. Now, headlines more often point to its fast-growing economy and its emergence as a regional peacemaker. How has Addis Ababa changed the narrative? VOA's Marthe van der Wolf reports.
Video

Video Cyber War Rages Between Iran, US

A newly published report indicates Iran and the United States have increased their cyber attacks on each other, even as their top diplomats are working toward an agreement to guarantee Iran does not develop a nuclear weapon and to free Iran from international sanctions. The development is part of a growing global trend. VOA’s Al Pessin reports from London.
Video

Video Answers Elude Families of MH370 Passengers

For the families on board Malaysia Airlines flight MH370, an airline official’s statement nearly one year ago that the plane had lost contact with air traffic control at 2:40 AM is the only thing that remains confirmed. William Ide reports.
Video

Video Land Disputes Arise Amid Uganda Oil Boom

Ugandan police say there has been a sharp increase in land disputes, with 10 new cases being reported each day. The claims come amid an oil boom as investors appear to be cashing in by selling parcels of land to multiple buyers. Meanwhile, the people who have been living on the land for decades are chased away, sometimes with a heavy hand. VOA's Serginho Roosblad reports.
Video

Video In Russia, Many Doubt Opposition Leader's Killer Will Be Found

The funeral has been held in Moscow for Boris Nemtsov, the opposition leader who was assassinated late Friday just meters from the Kremlin. Nemtsov joins a growing list of outspoken critics of Russia under the leadership of President Vladimir Putin who are believed to have been murdered for their work. VOA’s Daniel Schearf reports from Moscow.
Video

Video Simulated Astronauts Get Taste of Mars, in Hawaii

For generations, people have dreamed of traveling to Mars to explore Earth's closest planetary neighbor. VOA's Mike O'Sullivan reports that while space agencies like NASA are planning manned missions to the planet, some volunteers in Hawaii are learning how humans will cope with months in isolation on a Mars base.
Video

Video Destruction of Iraq Artifacts Shocks Archaeologists

The city of Mosul was once one of the most culturally rich and religiously diverse cities in Iraq. That tradition is under attack by members of the Islamic State who have made Mosul their capital city. The Mosul Museum is the latest target of the group’s campaign of terror and destruction, and is of grave concern to archaeologists around the world. VOA’s Kane Farabaugh reports.
Video

Video Smartphones May Help in Diagnosing HIV

Diagnosing infections such as HIV requires expensive clinical tests, making the procedure too costly for many poor patients or those living in remote areas. But a new technology called lab-on-a-chip may make the tests more accessible to many. VOA’s George Putic reports.
Video

Video Afghan Refugees Complain of Harassment in Pakistan

Afghan officials have expressed concern over reports of a crackdown on Afghan refugees in Pakistan following the Peshawar school attack in December. Reports of mass arrests and police harassment coupled with fear of an uncertain future are making life difficult for a population that fled its homeland to escape war. VOA’s Ayesha Tanzeem reports from Islamabad.

All About America

Circumventing Censorship

An Internet Primer for Healthy Web Habits

As surveillance and censoring technologies advance, so, too, do new tools for your computer or mobile device that help protect your privacy and break through Internet censorship.
More

World Currencies

EUR
USD
0.8954
JPY
USD
119.75
GBP
USD
0.6515
CAD
USD
1.2518
INR
USD
61.921

Rates may not be current.