Chinese firms to move overseas due to rising costs

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Chinese manufacturers are moving to neighboring Southeast Asian nations or seriously considering moving due to rising wages and shrinking export demand, according to a foreign trade official from the Ministry of Commerce.

A clothes workshop in Heilongjiang province [file photo]

In the fields of textiles, garments, shoes and hats, nearly one-third of manufacturers are working" under growing pressure and have moved all or part of their production outside China, said the official, who declined to be named.

Vietnam, Indonesia, Malaysia and other members of the Association of Southeast Asian Nations are their favored destinations and the trend will continue with more traditional labor-intensive manufacturers transferring production, China Daily reproted.

But the foreign trade official said that while some job losses occurred during the transfer, the phenomenon is "basically positive," and is "in line with" government commitments to upgrade China's industrial power and change its model of economic growth.

The 12th Five-Year Plan (2011-15) urges exporters to produce more high-end goods.

Exporters are also actively seeking new ways to conduct business as export momentum declines due to a combination of negative factors at home and abroad, from higher labor costs to sluggish demand from the European Union and the United States.

China's labor costs have surged recently by 15 to 20 percent annually, squeezing margins and driving some companies to bankruptcy.

According to the Ministry of Human Resources and Social Security, from January to June this year, the minimum wage was raised, on average, by 20 percent in 16 provinces.

Many developing countries in Southeast Asia have lower labor costs.

The monthly wage for manufacturing jobs in Vietnam was, on average, 600 yuan in 2011, equivalent to the level of 10 years ago in Dongguan, an industrial town in South China's Pearl River Delta.

Partly because of China's rising costs, foreign direct investment has been suffering in recent months.

According to a survey by the Capital Business Credit, a US-based financial consultancy firm, 40 percent of major companies interviewed said they have plans to move factories from China to other locations, including Vietnam, Pakistan, Bangladesh and the Philippines.

But lower costs in other countries could soon change, some said.

"The advantage (of labor and production costs) in Southeast Asian countries will only last for a few years," said Chen Jian, a general manager of a garment company headquartered in Foshan, on the Pearl River Delta.

"The trend is just like what happened some 10 years ago when many manufacturing industries in Hong Kong and Taiwan moved to the Pearl River Delta to chase cheap labor. But now you can see how much our labor costs have gone up."