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.