When someone shares with you something of value, you have an obligation to share it with others.
China’s manufacturing exodusRelentless rises in production costs and wages are forcing mainland manufacturers - and product buyers - to the cheaper markets of Southeast AsiaDenise Tsang in Guangzhou17 October 2011As overseas buyers flood China’s largest and most established trade show, the Canton Fair, change is afoot in the world’s largest exporter.Relentless inflation in production costs and wages had forced many manufacturers to relocate production from the Pearl River Delta or Yangtze River Delta to Southeast Asian countries such as Vietnam and Indonesia, some buyers said at the 110th China Import and Export Fair at the weekend.They said moving offered a solution for manufacturers, who had limited room to raise costs for buyers at a time of a possible double-dip recession in the United States and European Union, China’s largest trading partners. It also came at a time when Beijing’s policy was to force factories to upgrade or migrate.Despite the economic turmoil abroad, the trade fair, held each spring and autumn in Guangzhou since 1957, was packed with visitors from across the globe on Saturday, the first day of a 15-day show.A bellwether of trade, the show runs across three weeks. This week, it centres on home appliances, electronic goods, construction materials and machinery, switching to gifts and home decoration next week, with garments, shoes and food the theme for the final week.“One in every four of my Chinese suppliers have moved to Vietnam and another 20 per cent will be moving before the Chinese New Year [in January],” said a Hong Kong-based Canadian trader of home electrical appliances named Richard, a fair regular for the past 40 years.“Labour cost inflation in China is not going away,” he said, adding that inflation was stable relatively in Vietnam and Indonesia. He expected 60 per cent of his company’s products to be sourced from Southeast Asian countries by 2013, but China was now the group’s dominant source, supplying 80 per cent of products.Guangzhou-based Lebanese Farhad Ziad, who sources consumer goods from the mainland for retailers in Lebanon, said he was planning to move to lower-cost Vietnam next year. “Commodities are too expensive here,” he said. “Business is tougher and tougher, particularly [now that] there is political unrest at home in Lebanon.”He said political turmoil in Eastern Europe and North Africa meant that only about 20 of his customers showed up at the trade show, compared with more than 50 at the spring fair in April.Inflation is also spreading across the supply chain as costs rise for raw materials, rent, utility bills and labour, while the yuan keeps hitting new highs against the US dollar.Premier Wen Jiabao, who officiated at the fair on Friday and toured Guangzhou at the weekend, promised to keep the yuan’s value stable to protect exporters.The yuan was at 6.378 per US dollar on Friday. It has gained 3.31 per cent this year, and 7.02 per cent since it was delinked from the dollar in June last year. Economists expect it to hit 6.25 or 6.20 per dollar by December 31.The persistent inflation and the strong currency effectively means China’s days as a low-cost producer are numbered, particularly in the Pearl River Delta. Shenzhen, for example, recently raised the minimum wage 16.6 per cent to 1,320 yuan (HK$1,600) a month, the highest in China, and surpassing the average 1,310 yuan in Zhejiang province in the Yangtze River Delta.Average wages for one exhibitor, Gusto of Zhejiang, which makes thermoelectrically controlled cooling and warming containers for food and beverages, jumped 20 per cent this year but it only raised factory-gate prices by about 10 per cent, marketing manager Jerry Cheng Bangjie said. This was still not enough to cover a 15 per cent rise in overall cost, he said. “Buyers bargain very hard and they don’t want to swallow the price increase,” he said. “But we swallowed some already.”
Suzhou-based exhibitor TEK Electrical chose to focus on high-end products by improving functions of its robotic vacuum cleaner. A spokeswoman said the company kept factory-gate prices the same, but expanded distribution channels through selling in Hong Kong and emerging markets like Brazil.Yves Renaud, a vice-president of Planterra in Quebec, Canada, which puts on Christmas decorations for hotels and office buildings, flew to the mainland for the second time to look for suppliers instead of through resellers in the US to cut cost.“Corporate clients are more careful in spending, but demand is still good,” he said. “The Chinese suppliers have not given me good deals so far. The negotiation will be tough.”The fair attracted a growing crowd of buyers from Latin America countries such as Brazil and Chile.Brazilian trader Ricardo Santana Alves, a fair regular, led a delegation of eight entrepreneurs, who had come to China for the first time.“Many Brazilian traders are coming to China even though it’s getting more expensive,” he said in Putonghua. “I may have to learn other languages as some factories are moving to Southeast Asia.”
Post a Comment