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» China-Business-Articles » Reading: "Is China Getting Too Expensive??"
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| Is China Getting Too Expensive?? |
By:
Mark Respinger |
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It seems that more people are becoming concerned about the rising cost of labor in China. Combine this with a spike in global oil and manufacturing input prices and China does seem to losing its shine for many manufacturers. But is manufacturing really disappearing from the Chinese economy?
China has experienced a boom over the last 30 years that has resulted in what is probably the largest build up of manufacturing capacity in human history. The result of this is a tremendously large a versatile manufacturing power house. It is clear that highly labor intensive industries or low technology production with tight margins will always be forced to be wherever the cheapest labor is and many of those factories will close. What is not talked about so much in the media are the efficiencies that manufacturing in China can bring to a business through economies of scale (when selling to the domestic Chinese market) and the cost savings on manufacturing inputs.
In industries with a lot of specialized components and machinery, being close to the factories that produce your inputs can be a real cost advantage. Chinese factories can often produce finished goods cheaper than factories in other countries are able to by their inputs. No other country on earth has the volume and variety of manufacturing facilities, all producing millions of distinct niche products. If your factory needs to be close to a tannery, a plastic molding facility and a copper wire manufacturer, there are very few places in the world where you would have so much choice of supplier and low relative logistics costs.
It is actually interesting to note that as China is developing, some businesses are finding it is actually getting cheaper to manufacture there.The first reason that usually springs to mind to explain this is the emergence of domestic consumerism. For factories selling to the Chinese market, this is often improving their economies of scale to a large enough degree that it outweighs the costs of rising wages, oil and other factory inputs. In industries where the efficiency and accuracy with which employees work is more important than the base wage, factories are finding cost benefits in a new generation of better educated Chinese citizens who make fewer mistakes and bring solid skills to the labor market. These workers are opening up new industries in China that simply would not have functioned 10 years ago, and as their skills improve, the efficiencies they generate translate to lower costs for the companies they work for.
So it seems the answer is full of mixed signals. China is far to diverse and complex a place to say anything as broad as it is getting too expensive. Some industries become more competitive as others lose their place in the sun. Certainly this is what 'Socialism with Chinese characteristics' is all about.
Mark Respinger is the Managing Director of Caerulean Consultants Ltd. Based out of the Toronto office, he has considerable experience working on projects in China and around Asia. For more information about Caerulean Consultants Ltd and its services call +1 (416) 821-5602, email info@caerulean.com or visit us at http://www.caerulean.com |
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