As Wages Rise in China, Manufacturers Look Elsewhere

Long the ubiquitous source of low-priced goods around the world, China is losing its appeal for foreign manufacturers. From the New York Times:

Bruce Rockowitz, the chief executive of Li & Fung, the largest trading company supplying Chinese consumer goods to American retail chains, said in a speech here on Tuesday that the company’s average costs for goods rose 15 percent in the first five months of this year compared with the same period last year. Executives at other consumer goods companies have encountered similar or larger increases.

Airline flights to Vietnam, Bangladesh, Indonesia and other low-wage Asian countries are packed these days with executives looking for alternatives to double-digit wage increases in China. But wages are rising as fast or faster in many of these countries, following China’s example, while commodity prices have surged around the world, leaving buyers with few places to turn.

Bangladesh raised its minimum wage by 87 percent late last year, yet apparel factories there are still struggling to find enough workers to complete ever-rising numbers of orders. “Everywhere you see signs saying ‘people wanted,’ “ said Annisul Huq, the chairman of the Mohammadi Group, a large Bangladesh garment manufacturer.

An article in the Washington Post points to the role demographics is playing in this change:

In a shift that is intensifying the economic competition between China and the United States, China’s working-age population has plateaued in size and will begin getting smaller sometime in the next five years, according to demographers and recently released census data. The number of 20-to-24-year-olds, a main source of entry-level and factory labor, is already shrinking, the leading edge of an eventual decline in the overall population.

The demographic change is ushering in higher wages and inflation and remaking the country’s social fabric — particularly in rural villages such as this one south of Beijing, where working adults have all but disappeared to major cities. If there are children, they are living with or visiting grandparents.

American companies that earned ill-will at home for shipping workers overseas are now starting to bring them back home, a column in the Globe and Mail states:

Caterpillar Inc. decided to build its next manufacturing plant in Texas. NCR Corp. decided to move production of its automated teller machines from China to Georgia. Wham-O Inc., the iconic toy maker, decided to repatriate 50 per cent of its Frisbee and Hula Hoop production from China. BCG said many more such decisions will occur as wage rates for skilled workers rise in China, year after year, at double-digit rates.

“All over China, wages are climbing at the rate of 15 per cent to 20 per cent a year …,” Harold Sirkin, a BCG senior partner, said in a release. “We expect net labour costs for manufacturing in China and the U.S. to converge by around 2015. As a result … you’re going to see a lot more products ‘Made in the USA’ in the next five years.”


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