Jun. 8 – As Foxconn looks set to double the salaries (and by proxy, mandatory welfare benefits) to its 800,000 Chinese assembly line workers, the end of an era is approaching as the China price of manufacturing begins to rise.
An aging workforce, coupled with China’s desire to move up the value added chain, is shifting the economics of global manufacturing. China’s coastal factories are raising salaries, local governments are hiking minimum wage standards and, if China allows its currency to appreciate against the U.S. dollar later this year, the cost of manufacturing in China will rapidly result in a fairly swift series of price rises.
“For a long time, China has been the anchor of global disinflation” Dong Tao, an economist at Credit Suisse, told The New York Times. Referring to how the two decade-long shift to manufacturing in China helped many global companies lower costs and prices, Tao said that “this may be the beginning of the end of an era.”
Although the salaries of factory workers in China are still low compared to those in the United States and Europe (the minimum wage in southern China is close to US$125 a month), economists say the changes will eventually ripple through the global economy, driving up the prices of everything from T-shirts and sneakers to computer servers and smart phones.
“The comparison is not necessarily to be made with U.S. and European manufacturing costs,” says Chris Devonshire-Ellis of Dezan Shira & Associates. “I’ve just had a now typical conversation with a New York based, China focused commercial lawyer who tells me his American clients are now looking at costings in Cambodia and Laos. It’s not the China price anymore, it’s the Asia price.”
Devonshire-Ellis says that the manufacturing game is evolving. “China is increasingly a destination to be to sell too, it’s recalibrating as a consumer society,” he says. “Export driven manufacturing is already moving to lower cost destinations in Asia and this trend will continue for the foreseeable future.”
Dezan Shira & Associates provide business advisory, corporate establishment, accounting and tax comparisons and services throughout China, India and Vietnam. Contact the firm for advice or information on investing in Asia at info@dezshira.com. Chris Devonshire-Ellis contributes to Asia Briefing’s other titles, India Briefing, China Briefing and Vietnam Briefing.
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Any chance of India picking up the manufacturing pie. Heard a lot about the next manufacturing hub after china in the media.
Yes, definately. For sales on to Asia, Australia and the US, from the Indian east coast, especially Chennai. Signs of some revival in Kolkata also. For markets in the Middle East, Africa & Europe then the west coast and Mumbai predominate. Plus of course India has a massive domestic market, so it’s a bit of a no-brainer really. That’s why we (Dezan Shira) have offices in each of these cities – handling client work for establishing sales/distribution channels, OEM agreements and manufacturing companies for our clients. – Chris