Is It the End of “Made-in-China”?

Is the “Made-in-China era” gone?

On the back of cheap labor and tax incentives, China supplied the world with shoes, light bulbs, and clothing, just to name a few. However, the country is increasingly losing its competitiveness because of rising costs in labor and raw material along with the yuan appreciation. Manufacturing costs in China have risen over 50%.

In addition, the economic slowdown in the United States forced hundreds of foreign manufacturing plants in China to close their doors last year. Foreign companies that remain are considering moving their facilities elsewhere.

▽ Revised labor law pushes up costs sharply

The recent issue of BusinessWeek reported that since a new labor law of China took effect in January, manufacturing costs have jumped 40%. Under the new law, employers are required to give their workers social insurance benefits and to sign labor contracts.

Businesses are obliged to guarantee their labor unions the right to collective bargaining and employment for a fixed period. Unlike in the past, they can no longer hire workers temporarily for a low wage and fire them arbitrarily.

The weekly magazine added that the Chinese government’s abolition of a rebate on tariffs, applied to more than 2,000 export items, has added an additional 14-17% to manufacturing costs. Moreover, a further strengthening of the yuan is driving foreign companies out of the country.

According to a report by the American Chamber of Commerce in Shanghai (AmCham Shanghai), over half of the foreign manufacturers surveyed consider China less competitive than Vietnam or India.

20 percent of those surveyed are considering moving their Chinese operations to those countries. The Federation of Hong Kong Industries (FHKI) expects that 10 percent of the 60,000 to 70,000 factories run by Hong Kong corporations and located on the Zhujiang River Delta in Guangdong Province will shut down within the year.

However, the Chinese government does not seem troubled by the outflow. It plans to build high-quality, high value-added industries such as electronics, telecommunications, bioengineering and aviation to replace labor-intensive, low value-added and environmentally-unfriendly businesses.

The U.S. weekly magazine believes the exodus of foreign companies will hit the country harder than the government anticipates.

▽ Price of products to ultimately go up

BusinessWeek quoted an AmCham Shanghai official as saying, “Price hikes of all Chinese-produced household items including shoes and clothing is a foregone conclusion. The U.S. housing market virtually uses items all imported from China, from bedroom furniture to bathroom components.

Peter Lau, CEO of Hong Kong retailer Giordano, said, “Now China is exporting inflation.”

In regards to this, the International Herald Tribune (IHT) reported on Wednesday, “Because of inflation in developing Asian economies, like China, the United States and most European countries are importing at higher prices than before. Inflation is a threat not only to Asian countries but also to Western consumers.”

The IHT said the United States, which imports over half of the aforementioned items, suffers the double whammy due to an economic slowdown and a weakening dollar, by spending more money to buy products that have become more expensive.

myzodan@donga.com