China's manufacturing sector faces cost challenges

Adidas China said on July 18 that the company will close its last self-owned factory in China – a wholly-owned subsidiary in Suzhou Industrial Park – by the end of the year. Its competitor Nike shut down its only shoe factory in China as early as March 2009.

MNCs close self-owned factories in China amid rising costs

Like Adidas and Nike, many U.S. and European multinational corporations have been relocating their production facilities to Southeast Asian countries, particularly Vietnam and Bangladesh, in recent years. The main reason is that labor costs are much lower in these countries than in China.

A foreign institution said in a research report that Chinese textile workers take home an average monthly wage between 188 euros and 300 euros, while their counterparts in Bangladesh and Vietnam earn only around 80 euros and less than 120 euros, respectively, a month on average. The labor cost in China is now more than twice that of these Southeast Asian countries.

A questionnaire survey covering nearly 1,900 domestic exporters conducted by the General Administration of Customs (GAC) in late 2011 found that over 80 percent of respondents agreed that domestic labor costs were rising, over 56 percent agreed that exchange rate costs were rising markedly, and 56 percent agreed that raw material costs were rising, said Zheng Yuesheng, director of statistics at the GAC.

Rising production costs have greatly reduced the competitiveness of Chinese products in international markets.

Customs statistics showed that the industrial competitiveness of Vietnam, Indonesia, and some other Asian countries has improved markedly since 2010. Certain countries in South and Southeast Asia are eating into the shares of China's labor-intensive products in the European, Japanese, and U.S. markets.

China's manufacturing sector maintains core competitive advantage

Luo Zhongwei, director the Research Center for Small and Medium-sized Enterprises at the Chinese Academy of Social Sciences, said that after many years of development, China's manufacturing sector has formed complete industrial chains and industrial systems, particularly in coastal areas with a mature inter-industry collaboration model. Those Southeast Asian countries cannot achieve it overnight.