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Foreign investment pullout inevitable as economy grows

By Zhou Junsheng (Global Times)

08:31, July 23, 2012

Adidas will shut down its only company-owned factory in China, the German sportswear company announced last week. Adidas is not the only athletic apparel maker to have moved its manufacturing business out of China. Three years ago, its main competitor, Nike, closed its self-owned shoe plant in Taicang, Jiangsu Province.

Some may worry that this closure could lead other major foreign firms to pull out of China, further damaging the country's economy as growth slows. However, if one looks at the reasons why foreign businesses are shifting their manufacturing bases out of China, this new development may actually have a positive effect on the country's investment environment.

By many accounts, rising labor costs in China are among the chief reasons behind Adidas' decision to move. The monthly salary of Chinese workers in the sportswear industry is now somewhere between 2,000 yuan ($313.74) to 3,000 yuan per month, some three times more than Adidas is reported to pay to its factory workers in Cambodia.

In fact, Adidas's factory in China was closed not long after the salaries of the workers there were raised to 1,700 yuan per month, up from just 1,100 yuan during 2010, according to media reports citing a worker at the factory.

Along with hikes in salaries, foreign companies have been losing interest in investing in China since the end of 2010, when preferential policies which allowed them to pay less in taxes than domestic enterprises expired.

But while the policy support and working conditions which lured so many foreign companies to China's shores are now coming to an end, the nation has little to grieve over. Ultimately, the model China relied on for so long to absorb foreign investment is not sustainable and came at the expense of local workers' and indigenous companies' interests. It is unavoidable that wages will increase in China with the country's rapid economic development and attempts to hold back wage growth will only delay future economic growth by deflating consumption. Also, the favorable treatment many foreign companies received created an unfair business environment which stymied domestic competitors.

Thus, the withdrawal of some foreign companies is a necessary price for China to pay as it transits from being the world's factory to an economy focused on technical innovation, and a positive sign that China is on its way to adopting a healthier and more sustainable development model.


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