Different biz sectors deciding whether to stay or leave China

"To leave or stay, that is the question."

Multinational companies operating in China are suffering from rapidly rising labor costs, and have different strategies to cope with the situation.

According to the Korea Trade-Investment Promotion Agency, or KOTRA, Thursday, manufacturers of consumer goods including fashion and IT are pulling out of China, while those in machinery, cars, shipbuilding and aviation are expanding facilities in the country.

Adidas decided last month to shut down its plant in China due to rising wages, following Nike`s decision to do the same with its footwear factories three years ago. Among IT companies, Intel decided in 2009 to integrate its Pudong, Shanghai, plant with that in Cheongdu, Sichuan. Panasonic plans to close its plasma display panel plant in Shanghai this year. Such companies are migrating to other areas in China or Southeast Asian countries such as Vietnam and Bangladesh for cheaper labor.

By contrast, heavy industry companies are moving in the different direction. SAIC Motor Corp. and Shanghai GM, a joint venture between SAIC and General Motors, is building a plant worth 7 billion yuan (1.1 billion U.S. dollars), while BMW launched a new plant in Shenyang.

According to KOTRA, heavy industry companies are increasing investment in China because parts and facilities procurement systems are more important than labor costs. The Shanghai-Guangzhou automotive production base, the shipbuilding base in Jiangsu Province, and the Shanghai-Shenyang aircraft manufacturing base are well equipped with parts supply chains thanks to Chinese government support, making it difficult for companies to leave for better conditions.

A KOTRA official said, “In Southeast Asia, it`s hard to procure components with quality as good as those made in China, and it will cost more in logistical expenses to transport large machinery assembled in Southeast Asia to China.”

“Automakers and other companies targeting China’s domestic consumption market seem to believe that the higher wages rise for Chinese people, the higher their purchasing power will rise."

tesomiom@donga.com