China's manufacturing sector faces cost challenges
Adidas China said on July 18 that the company will close its last self-owned factory in China – a wholly-owned subsidiary in Suzhou Industrial Park – by the end of the year. Its competitor Nike shut down its only shoe factory in China as early as March 2009.
MNCs close self-owned factories in China amid rising costs
Like Adidas and Nike, many U.S. and European multinational corporations have been relocating their production facilities to Southeast Asian countries, particularly Vietnam and Bangladesh, in recent years. The main reason is that labor costs are much lower in these countries than in China.
A foreign institution said in a research report that Chinese textile workers take home an average monthly wage between 188 euros and 300 euros, while their counterparts in Bangladesh and Vietnam earn only around 80 euros and less than 120 euros, respectively, a month on average. The labor cost in China is now more than twice that of these Southeast Asian countries.
A questionnaire survey covering nearly 1,900 domestic exporters conducted by the General Administration of Customs (GAC) in late 2011 found that over 80 percent of respondents agreed that domestic labor costs were rising, over 56 percent agreed that exchange rate costs were rising markedly, and 56 percent agreed that raw material costs were rising, said Zheng Yuesheng, director of statistics at the GAC.
Rising production costs have greatly reduced the competitiveness of Chinese products in international markets.
Customs statistics showed that the industrial competitiveness of Vietnam, Indonesia, and some other Asian countries has improved markedly since 2010. Certain countries in South and Southeast Asia are eating into the shares of China's labor-intensive products in the European, Japanese, and U.S. markets.
China's manufacturing sector maintains core competitive advantage
Luo Zhongwei, director the Research Center for Small and Medium-sized Enterprises at the Chinese Academy of Social Sciences, said that after many years of development, China's manufacturing sector has formed complete industrial chains and industrial systems, particularly in coastal areas with a mature inter-industry collaboration model. Those Southeast Asian countries cannot achieve it overnight.
Experts said that foreign investors had swarmed into China since the 1980s and 90s as the demographic dividend, relatively cheap land, and other favorable factors made the country the top investment destination in the world.
However, as these favorable factors gradually disappear, investors are naturally turning their attention to certain emerging economies, which is in line with the nature of capital flows. The continuous influx of foreign capital will encourage these emerging economies to accelerate improving supply chain logistics and infrastructure, placing Chinese manufacturers under increasing competitive pressure.
“Under the guidance of the central government's macro-control policies, Chinese exporters will adhere to the path of technological innovation and upgrading,” Zheng said.
In fact, the structure of China's manufacturing sector has undergone quiet changes in recent years.
Many multinational corporations such as Siemens, Samsung, and Philips have set up research and development centers in Suzhou Industrial Park to design and develop new products catering to the needs of Chinese consumers.
Suzhou Industrial Park is the home to 46 headquarters projects and 117 foreign-funded research and development institutions.
The output value of emerging industries in the industrial park exceeded 200 billion yuan in 2011, accounting for over 53 percent of the total output value of the park.
Analysts noted that China's manufacturing sector must make full use of limited time to achieve industrial upgrading, adjust its structure to shift from low-cost competition to diversified competition, and make technological breakthroughs to improve products and production processes. By doing so, China will evolve from a “big manufacturing country” to a “strong manufacturing country.”
This is the right direction for China's manufacturing sector.
Like Adidas and Nike, many U.S. and European multinational corporations have been relocating their production facilities to Southeast Asian countries, particularly Vietnam and Bangladesh, in recent years. The main reason is that labor costs are much lower in these countries than in China.
A foreign institution said in a research report that Chinese textile workers take home an average monthly wage between 188 euros and 300 euros, while their counterparts in Bangladesh and Vietnam earn only around 80 euros and less than 120 euros, respectively, a month on average. The labor cost in China is now more than twice that of these Southeast Asian countries.
A questionnaire survey covering nearly 1,900 domestic exporters conducted by the General Administration of Customs (GAC) in late 2011 found that over 80 percent of respondents agreed that domestic labor costs were rising, over 56 percent agreed that exchange rate costs were rising markedly, and 56 percent agreed that raw material costs were rising, said Zheng Yuesheng, director of statistics at the GAC.
Rising production costs have greatly reduced the competitiveness of Chinese products in international markets.
Customs statistics showed that the industrial competitiveness of Vietnam, Indonesia, and some other Asian countries has improved markedly since 2010. Certain countries in South and Southeast Asia are eating into the shares of China's labor-intensive products in the European, Japanese, and U.S. markets.
China's manufacturing sector maintains core competitive advantage
Luo Zhongwei, director the Research Center for Small and Medium-sized Enterprises at the Chinese Academy of Social Sciences, said that after many years of development, China's manufacturing sector has formed complete industrial chains and industrial systems, particularly in coastal areas with a mature inter-industry collaboration model. Those Southeast Asian countries cannot achieve it overnight.
Experts said that foreign investors had swarmed into China since the 1980s and 90s as the demographic dividend, relatively cheap land, and other favorable factors made the country the top investment destination in the world.
However, as these favorable factors gradually disappear, investors are naturally turning their attention to certain emerging economies, which is in line with the nature of capital flows. The continuous influx of foreign capital will encourage these emerging economies to accelerate improving supply chain logistics and infrastructure, placing Chinese manufacturers under increasing competitive pressure.
“Under the guidance of the central government's macro-control policies, Chinese exporters will adhere to the path of technological innovation and upgrading,” Zheng said.
In fact, the structure of China's manufacturing sector has undergone quiet changes in recent years.
Many multinational corporations such as Siemens, Samsung, and Philips have set up research and development centers in Suzhou Industrial Park to design and develop new products catering to the needs of Chinese consumers.
Suzhou Industrial Park is the home to 46 headquarters projects and 117 foreign-funded research and development institutions.
The output value of emerging industries in the industrial park exceeded 200 billion yuan in 2011, accounting for over 53 percent of the total output value of the park.
Analysts noted that China's manufacturing sector must make full use of limited time to achieve industrial upgrading, adjust its structure to shift from low-cost competition to diversified competition, and make technological breakthroughs to improve products and production processes. By doing so, China will evolve from a “big manufacturing country” to a “strong manufacturing country.”
This is the right direction for China's manufacturing sector.
