Fresh challenges for ‘the world’s factory’

26 Feb



Pei Changhong, head of the Institute of Finance and Trade Economics at the Chinese Academy of Social Sciences (CASS), believes that countries such as Thailand, the Philippines and Indonesia will challenge China’s dominance of the world labour market.

Despite China becoming the world’s second largest manufacturer this year, data from the Economist Intelligence Unit (EIU) indicates that China’s labour costs per hour increased from $0.60 to $2.90 between 2000 and 2011. This is now 1.5 times higher than Thailand’s labour costs per hour, 2.5 times the Philippines costs and 3.5 times those of Indonesia, amongst others. It is not only an increase in labour costs that has reduced China’s competitive advantage in this field – increased average land prices in the country have also lead to increasing manufacturing costs.

A very distinct example of this trend is US sportswear giant Nike. In 2000, 40% of Nike shoes sold globally were manufactured in China and 13% made in Vietnam. This changed in 2010 when Vietnam overtook China as Nike’s largest shoe manufacturer, reflecting the worldwide movement to production bases in the Association of South East Asian Nations (ASEAN) 

The future is not bleak for Chinese manufacturing, however. Many analysts believe that improved quality of labour is developing as a key competitive advantage for China in high-end manufacturing and high technology, and in particular, industries such as clean-energy technology and biotechnology.

The increasing interest in Southeast Asian manufacturing will certainly provide a test for China over the next decade or so, despite its shift towards more skilled and high-end technologies.



5 Responses to “Fresh challenges for ‘the world’s factory’”

  1. kh13g11 February 26, 2013 at 1:18 pm #

    China… going green?

    The traditional view that China is an industry with no concern for the environment is becoming dated and not wholly accurate anymore.
    The Chinese are starting to care about the environment as well as growing as any developing nation should. Chinese Renewable Energy Law, proposed in 2003, has been described as the country’s “most successful piece of economic legislation to date”.
    The steps that are being taken include higher standards of what is acceptable for factory emissions, a view to look at renewable technologies and stricter monitoring of any potential polluters. Investment in renewable energies also received state backing
    75% of respondent to a survey carried out by a Shanghai based American company indicated that they were to introduce green technologies to their operations, which 60% of the respondents thought would bring savings.
    China became higher ranked than the EU (in absolute terms) for being the biggest market that used clean technology. The sale grew from €44bn to €57bn in 2011. China was also the 2nd quickest growing manufacturing location, only a bit behind Taiwan which grew 36%.
    However the Chinese demand for renewable goods didn’t last forever and the provinces that had invested in what was seen as a safe investment lost money by being overawed by the scale of the profits leading to a lack of macro control.
    52.7% year-on-year drop in industrial profits for the first half of 2012 in the city of Xinyu has contributed to LDK Solar having a 25 billion Yuan debt. It is reported that if LDK actually does go bust then the economy of Xinyu will be 10years behind.

  2. se2g10 February 26, 2013 at 2:52 pm #

    The change to high end manufacturing could be crucial to China’s continued economic growth and as a way of improving the standard of living for the millions of sweatshop workers. The future of the labour market is under threat from a new technology that is already gaining support and usage from many of the top companies in every field imaginable.

    3D Printing is a technology that has the potential to revolutionize the manufacturing process, cutting manufacturing time, cutting the production chain and has proved to be an environmentally sound technology.

  3. pw9g10 February 26, 2013 at 6:35 pm #

    The transition from low-tech production to high-tech production (or labour intensive to capital intensive production methods) will help China massively in dealing with the cheap labour competition from other Asian countries. In recent years China has experienced an increase in the production and export of electronic and high-tech products representing the transition away from labour intensive low-tech production. By having a large workforce (and by economic theory) China will still have cheap labour relative to the world’s industrialised countries. Therefore, it is plausible to expect that instead of China facing a challenge from countries such as Thailand or the Philippines in the production of low-tech goods it will be challenging the countries that are fully established in the production of high-tech goods such as Japan.

    Evidence of this comes in the car manufacturing industry with ‘some [Chinese]carmakers gearing up to export to, or even produce in, markets well beyond their own borders’ (Madslien, 2012). The car manufacturing industry is notoriously a competitive one and for Chinese manufacturers to be able to compete internationally would represent a huge success in their development. Furthermore, it wholly represents China’s ability to engage in high-tech production and may see China enter new markets and signal itself as competition to the world’s industrialised countries on a greater scale. Overall, I believe that the threat China currently faces in the production of low-tech goods will subside if they manage to fully immerse themselves in the production of high-tech goods.

    Madslien, J. (2012) ‘China’s car market matures after ultra-fast growth’, BBC News, 22 April, [Online]. Available at: (Accessed: 29 February 2013)

  4. iw4g11iw4g11 February 28, 2013 at 12:16 am #

    To echo the last comment. China is progressing into higher end technology . For example huawei is no the third largest mobile manufacturer worldwide after apple and samsung . It has no moved into the smartphone market and is expanding into european markets . It Is facing increased competition from countries such as Indonesia and other emerging Asian countries however it maintains the advantage of stability politically and economically that these other competing countries do not.. Indonesia currently has a large trade deficit and a failing currency . This coupled with the fact China has a huge domestic market to fall back on . So as china develops its manufacturing factors such as rising costs and a rising currency are causing friction but are “natural” economic barriers faced by a economy on the march. Investors and multinational corporations will keep China as a favourite for the lower end manufacturing requirements due to its established workforce. China will face fierce competition in its efforts to establish global brands and will be the next challenge for the corporations of China. As of yet we are yet to receive a accepted globally renowned brand in areas such as the car and phone industry but considering the relatively young nature of brands such as huawei the potential would appear to be abundant.

  5. samhemming March 11, 2013 at 7:02 pm #

    There is no real need to state it again, it is covered very well in the article and the earlier comments that with China’s increasing wages, labour intensive industry moves out of the country while more high technology jobs and similar develop. The process has also been covered in Barry Naughton’s 2007 book The Chinese Economy: Transitions and Growth. He calls it ‘The China Circle’ where industrial success leads to higher wages in turn causing labour intensive industries to leave the country but this is balanced by increasing production of higher technology goods. However Naughton is describing the earlier move of labour intensive industry into China from Hong King and Taiwan, who then increased their high technology producing sector. China was once in the position of countries like Thailand and now it seems to be moving into a similar role to Japan and Hong Kong.
    However there is a massive difference in the size China compared to Japan and Hong Kong, which combined with a change in the production focus could lead to social problems. China’s industrial success is yet to be distributed across the country as can be seen in the Gini Coefficient at approximately 0.47 according to the Chinese National Bureau of Statistics. The economic success is concentrated in cities along the coast in the south and east of China, the further away from such a situation you get the less success there is. The economic success in these regions will no doubt allow for the education of a workforce for more complex and profitable production jobs. However the areas yet to share the success may not be able to do so. They may also be about to lose their opportunity of generating the necessary capital as the low-skilled production jobs that allowed other areas of China’s economic growth move out of the country.

    Naughton Barry, The Chinese Economy: Transitions and Growth (Cambridge, Massachusetts: MIT Press, 2007)

    Yao, Shujie, Zongyi Zhang, and Lucia Hanmer ‘Growing Inequality and Poverty in China,’ China Economic Review(2004), 15, pp. 145–63

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