Chinese manufacturers setting up plants abroad

[TaiShang]

Chinese manufacturers setting up plants abroad
By Xie Jun 2015-8-10 23:43:01

Countries such as India offer advantages: experts

Chinese workers make projectors at a factory in Nanyang, Central China's Henan Province. File photo: IC


Domestic manufacturing companies are turning their eyes to overseas destinations to set up plants, showing a growing trend toward expansion abroad and industrial upgrading for China's manufacturing industry, experts said Monday.

China is seeing more and more of its manufacturing companies moving to other countries, such as India and Brazil, the China Business News reported on Monday.

Domestically, China has seen many cases of manufacturing enterprises shutting down since 2014, in places such as Dongguan in South China's Guangdong Province and Suzhou in East China's Jiangsu Province, finance information website finance.qq.com reported on February 9.

This is partly the result of factors such as increasing labor costs and overcapacity in the domestic manufacturing industry, the China Business News report said.

Manufacturing costs in China are close to those in the US, according to a 2014 report by global business consulting firm Boston Consulting Group (BCG). In August 2014, China's manufacturing cost index was 96, against the US benchmark manufacturing cost index of 100, the BCG report said.

The index was compiled after BCG analyzed manufacturing costs in the world's 25 leading exporting economies, based on four criteria: wages, labor productivity, energy costs, and exchange rates.

According to the China Business News, Foxconn Technology Group, a leading Taiwan-based manufacturer of electronics components, announced on Saturday that it would spend $5 billion in setting up an electronics equipment manufacturing plant in Maharashtra, a province in central India, in the next five years.

Foxconn could not be reached for comment by press time.

TCL Corporation, a leading global mobile handset and television manufacturer based in Huizhou, South China's Guangdong Province, also plans to build a manufacturing unit in India in 2015, Reuters reported on March 16.

Wang Lei, a researcher at Fudan Development Institute at Fudan University, told the Global Times on Monday that India offers certain advantages for Chinese manufacturers.

"Not only does India have lower labor costs than in China, Chinese companies that set up plants in India also have access to the local market, which is full of potential as India's population is large and Indian people have had greater buying power in recent years," Wang said.

Wang also noted that since India's export tax is lower than that in China, the country can serve as a good "intermediate station" for Chinese companies to explore the markets of South Asia, Africa and Europe.

Other advantages in India include the common use of the English language and encouraging government policies for overseas investment, Wang said.

But Sumeet Chander, general manager of Evalueserve Business Consulting (Shanghai) Corp, who is from India, told the Global Times on Monday that Chinese entrepreneurs also face various problems when setting up plants in India, such as underdeveloped infrastructure conditions and difficulties in adapting to local culture.

However, Chander noted that most Chinese companies know how to manage business in a developing economy, which puts them in a better position than companies from many other countries to succeed in the Indian market.

Countries like the US and Brazil have also become popular destinations for Chinese manufacturers. According to a report on August 4 by news website sohu.com, some of China's fabric enterprises started to open manufacturing units in the US as early as in 2013.

Xu Hongcai, director of the Department of Information under the China Center for International Economic Exchanges (CCIEE), told the Global Times on Monday that the transfer of manufacturing overseas has both pros and cons for the domestic economy.

"On one hand, China's employment rate might be affected as there will be fewer jobs in the manufacturing industry," Xu said. "On the other hand, domestic manufacturers will be under pressure to implement industrial upgrading with greater efficiency."

Wang said that it could pose a challenge for the domestic economy, which still has substantial demand for foreign investment. However, industrial upgrading and globalization are an "inevitable stage" for the domestic manufacturing industry, he noted.

Wang said that Chinese manufacturers who plan to set up units abroad will have to increase the competitiveness of their products in order to cope with the complexities of foreign markets.

 

[anon45]

and thus the cycle continue Capitalism is the path to global prosperity long term..

 

[Ryuzaki]

Hopefully various factories willl shift their base to India,then maybe after 3 decades they can shift to African countries

 

[AndrewJin]

Hopefully various factories willl shift their base to India,then maybe after 3 decades they can shift to African countries

Labour cost in India is cheap, but sometimes it's not cheap adding other cost, plus considering the productivity per capita.

Manufacturing costs in China are close to those in the US, according to a 2014 report by global business consulting firm Boston Consulting Group (BCG). In August 2014, China's manufacturing cost index was 96, against the US benchmark manufacturing cost index of 100, the BCG report said.

 

[Aepsilons]

Seriously? Impressive Japanese capabilities. Then again we have practically set standards in robotic mass production with qualitative lean measures.

 

[AndrewJin]

"On one hand, China's employment rate might be affected as there will be fewer jobs in the manufacturing industry," Xu said. "On the other hand, domestic manufacturers will be under pressure to implement industrial upgrading with greater efficiency."

Any country which neglects the ongoing industrial revolution will fail.
Manufacturing won't provide as many jobs as once did in China.
The road Japan/SK/Taiwan once walked on ends.
The only road for China is to equip all factories with automation if possible, thus increasing per capita productivity to lower the cost.

Seriously? Impressive Japanese capabilities. Then again we have practically set standards in robotic mass production with qualitative lean measures.

That's why the core of manufacturing chain is till in East Asia.

 

[Aepsilons]

Any country which neglects the ongoing industrial revolution will fail.
Manufacturing won't provide as many jobs as once did in China.
The only road for China is to equip all factories with automation if possible, thus increasing per capita productivity to lower the cost.


That's why the core of manufacturing chain is till in East Asia.

Won't that affect the employment aspect , China's having 1.3 billion people is one of the reasons why automation hasn't been sought after as rigorously as say in Japan, Germany or South Korea. Affordable man power isn't a problem there in China; one of the reasons why Japan has over 4500 manufacturing facilities in the country to begin with.

My analysis is that the populace in China require occupation, without it, there will be societal strains, instability, if you may. That's one of the reasons why automation is not going to be priority just yet. The overwhelming majority of Chinese population is in the countryside and they should be tapped rigorously. In fact, many Japanese facilities in China are moving into the interior of China for that very aspect.

 

[AndrewJin]

Won't that affect the employment aspect , China's having 1.3 billion people is one of the reasons why automation hasn't been sought after as rigorously as say in Japan, Germany or South Korea. Affordable man power isn't a problem there in China; one of the reasons why Japan has over 4500 manufacturing facilities in the country to begin with.

China won't provide that many labour any more. Tertiary sector needs more labour, in China, this tendency has just started. And young people are not willing to do basic labour work any more, but they are more willing to work in an automatic factory where salary is very high.

Many factories which provide only 2000-2500yuan/month salary are in shortage of labour. In the same time, young people are pouring into tertiary sector with better salary. In Lijiang, I see thousands of such cases. I kinda of think your viewpoint about China's population distribution is outdated. Mass labour manufacturing is dead.

 

[TaiShang]

Any country which neglects the ongoing industrial revolution will fail.
Manufacturing won't provide as many jobs as once did in China.
The road Japan/SK/Taiwan once walked on ends.
The only road for China is to equip all factories with automation if possible, thus increasing per capita productivity to lower the cost.


That's why the core of manufacturing chain is till in East Asia.

That's exactly in China's plan for next ten years: Made in China 2025. How much of it can actually be implemented remains to be seen; but, there is an understanding that China needs to upgrade manufacturing:

***

China unveils ambitious plans to upgrade manufacturing power
Updated: Mar 26,2015

China’s ambitious plans to upgrade its manufacturing power in the next 10 years were unveiled at a meeting of the State Council on March 25.

Chaired by Premier Li Keqiang, an executive meeting of the council announced that government support, including special funding and tax incentives, will focus on 10 industrial sectors capable of transforming the nation into a more competitive player globally.

The program, “Made in China 2025”, was first mentioned by Li in his Government Work Report to lawmakers at the annual session of the National People’s Congress at the start of this month.

The program is viewed by Chinese economists and industrial leaders as the nation’s answer to “Industry 4.0”, a concept about the future for industry that was first featured in a German government high-tech strategy in 2013.

In a statement released after the meeting on March 25, the government demanded “concrete results in key fields”.

It called for greener, more intelligent manufacturing, with an emphasis on quality and adapting well to the trend of being increasingly integrated with the Internet.

The government said it will draw up a list to include industrial sectors that will be given development priority, stating how they can be upgraded further. The list will be subject to adjustment if required.

The meeting described China’s industrialization as “uncompleted”, with manufacturing industry remaining the foundation of the economy.

The initiative to upgrade the nation from a big manufacturer to a manufacturing industry superpower is key to helping China maintain economic growth at a medium-to-high level and to move up the global value chain.

China has become the world’s second-largest economy by producing enormous amounts of consumer products and selling them overseas. But the days of double-digit growth in manufacturing output have gone, stemming from inefficient traditional methods and a lack of high-end manufacturing.

Domestic manufacturing fell to its lowest point in nearly a year this month, according to the HSBC flash manufacturing Purchasing Managers Index.

Chen Yao, director of the Institute of Industrial Economics at the Chinese Academy of Social Sciences, said China is a large manufacturing country, but not a manufacturing superpower because it lacks core technologies.

But Chen said the nation still holds an advantage as it has an established infrastructure to allow industrial manufacturing to boom.

Lin Zuoming, chairman of the Aviation Industry Corp of China, said this month during the two sessions－the country’s annual legislative meetings－that China’s plan to upgrade its industrial structure is challenged by an enormous shortage of highly skilled workers.

‘Made in China 2025’ lead sectors

Information technology

High-end numerical control machinery and automation

Aerospace and aviation equipment

Maritime engineering equipment and high-tech vessel manufacturing

rail equipment

Energy-saving vehicles

Electrical equipment

New materials

Biomedicine and high-performance medical apparatus

Agricultural equipment

 

[Aepsilons]

Many factories which provide only 2000-2500yuan/month salary are in shortage of labour. In the same time, young people are pouring into tertiary sector with better salary. In Lijiang, I see thousands of such cases. I kinda of think your viewpoint about China's population distribution is outdated. Mass labour manufacturing is dead.

You know that Toyota is opening new facilities in China ; one in Jilin, and the others are mostly around Tianjin area. Toyota is an example of an expansion in production facilities, i suppose the reasons for expansion into these areas is due to the lower wages as compared to more developed areas such as say Guangzhou, Shanghai, Ningbo (mostly coastal urban areas). I do know that Toyota is doing feasibility studies in expanding more facilities in Chongqing as well.

This is just Toyota; not counting Nissan / Infiniti, Honda / Acura, Mitsubishi, Isuzu, Subaru, Mazda, Kawasaki et al.

In fact I encourage this movement; its leaner for our factories, and it distributes wealth in China. A win win situation.

 

[AndrewJin]

That's exactly in China's plan for next ten years: Made in China 2025. How much of it can actually be implemented remains to be seen; but, there is an understanding that China needs to upgrade manufacturing:

***

China unveils ambitious plans to upgrade manufacturing power
Updated: Mar 26,2015

China’s ambitious plans to upgrade its manufacturing power in the next 10 years were unveiled at a meeting of the State Council on March 25.

Chaired by Premier Li Keqiang, an executive meeting of the council announced that government support, including special funding and tax incentives, will focus on 10 industrial sectors capable of transforming the nation into a more competitive player globally.

The program, “Made in China 2025”, was first mentioned by Li in his Government Work Report to lawmakers at the annual session of the National People’s Congress at the start of this month.

The program is viewed by Chinese economists and industrial leaders as the nation’s answer to “Industry 4.0”, a concept about the future for industry that was first featured in a German government high-tech strategy in 2013.

In a statement released after the meeting on March 25, the government demanded “concrete results in key fields”.

It called for greener, more intelligent manufacturing, with an emphasis on quality and adapting well to the trend of being increasingly integrated with the Internet.

The government said it will draw up a list to include industrial sectors that will be given development priority, stating how they can be upgraded further. The list will be subject to adjustment if required.

The meeting described China’s industrialization as “uncompleted”, with manufacturing industry remaining the foundation of the economy.

The initiative to upgrade the nation from a big manufacturer to a manufacturing industry superpower is key to helping China maintain economic growth at a medium-to-high level and to move up the global value chain.

China has become the world’s second-largest economy by producing enormous amounts of consumer products and selling them overseas. But the days of double-digit growth in manufacturing output have gone, stemming from inefficient traditional methods and a lack of high-end manufacturing.

Domestic manufacturing fell to its lowest point in nearly a year this month, according to the HSBC flash manufacturing Purchasing Managers Index.

Chen Yao, director of the Institute of Industrial Economics at the Chinese Academy of Social Sciences, said China is a large manufacturing country, but not a manufacturing superpower because it lacks core technologies.

But Chen said the nation still holds an advantage as it has an established infrastructure to allow industrial manufacturing to boom.

Lin Zuoming, chairman of the Aviation Industry Corp of China, said this month during the two sessions－the country’s annual legislative meetings－that China’s plan to upgrade its industrial structure is challenged by an enormous shortage of highly skilled workers.

‘Made in China 2025’ lead sectors

Information technology

High-end numerical control machinery and automation

Aerospace and aviation equipment

Maritime engineering equipment and high-tech vessel manufacturing

rail equipment

Energy-saving vehicles

Electrical equipment

New materials

Biomedicine and high-performance medical apparatus

Agricultural equipment

Set my city Wuhan as example.
20 years ago, nearly everyone in Wuhan worked in factories, including my mother whose military factory bankrupted years ago. Now, most people work in tertiary sector, only a small proportion of citizens work in manufacturing which requires fewer and fewer labour year after year because of automation. GDP per capita here is more than $16,000 in 2014 and still grows at 8.7% in the first six months of 2015.

Let's just have a look at the first six months, you will see cities like Wuhan/Chongqing/Xi'an/Hangzhou has done excellently, because they have vibrant tertiary sector, best universities and manufacturing which has been largely automised. On the contrary, some cities which only rely on low-productivity industries grow much slower.

You know that Toyota is opening new facilities in China ; one in Jilin, and the others are mostly around Tianjin area. Toyota is an example of an expansion in production facilities, i suppose the reasons for expansion into these areas is due to the lower wages as compared to more developed areas such as say Guangzhou, Shanghai, Ningbo (mostly coastal urban areas). I do know that Toyota is doing feasibility studies in expanding more facilities in Chongqing as well.

This is just Toyota; not counting Nissan / Infiniti, Honda / Acura, Mitsubishi, Isuzu, Subaru, Mazda, Kawasaki et al.

In fact I encourage this movement; its leaner for our factories, and it distributes wealth in China. A win win situation.

The cost u mention is not mainly about labour cost. Labour cost in my city in the interior is no smaller than in Guangdong/Jiangsu. A babysitter can earn 5000yuan per month here, a seasoned babysitter for the first month of infant can earn 8000-10000yuan per month. But still, manufacturing is moving here, because we have 50 universities here and we have the best logistics.

As I said many times, quite often wages are the least important part now. If wages are that much important, then no industry will move back to US. Productivity per capita is beyond all most essential.

 

[Aepsilons]

The cost u mention is not mainly about labour cost. Labour cost in my city in the interior is no smaller than in Guangdong/Jiangsu.

You do understand that the per capita in Guangdong is $10,300 USD vs the per capita in Hubei is $7,000 right? That's a substantial difference of $3000 USD.

Now, there are other plenty of less developed provinces in China that can host manufacturing ; for example Guizhou, Gansu, Yunnan, Guangxi, Anhui, Jiangxi et al.

Feasibility studies are conducted as we speak.

 

[AndrewJin]

You do understand that the per capita in Guangdong is $10,300 USD vs the per capita in Hubei is $7,000 right? That's a substantial difference of $3000 USD.

Now, there are other plenty of less developed provinces in China that can host manufacturing ; for example Guizhou, Gansu, Yunnan, Guangxi, Anhui, Jiangxi et al.

Feasibility studies are conducted as we speak.

Here in Wuhan is $16000 more than Shanghai.
Why are investors and manufacturers more confident in Wuhan than say in Dongguan?
Check our Optics Valley.
Btw few industries will move to Guizhou/Gansu/Yunnan even their salary is much smaller, again, productivity per capita and the consideration of overall cost rule.

I still strongly believe labour-intensive manufacturing is dead, not just in China, it will die around the world when the automation and 3D printing technology becomes maturer. Few days ago, I even read news about a successful trial of automation in textile industry. The Japanese companies u mention are not labor-intensive.
@Nihonjin1051

 

[TaiShang]

Labor productivity is increasing faster than wages

It is remarkable that China's share of manufacturing has been steadily increasing along with the wage rates. It's share of global garments exports increased over 1 percent from 2012 to 2013. The price of Chinese goods in the United States and Europe dropped instead of increasing with increasing wages. It is not counterintuitive or even surprising once you look closely at the evolution of manufacturing in China.

Source: The future of factory Asia: A tightening grip

Chinese manufacturing has come a long way. Even though it is commonly mistaken for being just the world's assembly line, it has been constantly innovating, fine tuning supply chains, accumulating human capital, increasing labor productivity to stay competitive despite rising wages. The Chinese government's push in developing transport infrastructure has given it the benefit of reduced transaction costs. For example, China has 4 of the six biggest ports in the world. Despite low wages, most other countries where manufacturing is expected to go when it leaves China needs decades to build this kind of infrastructure.

Manufacturing is seen as rising in China despite rising wages because of the following reasons:

• Advanced Supply Chains:Chinese factoring are not assembly lines anymore. Most of the components of products China sells are manufactured in China itself. The supply chains that were in Korea and Japan when China's manufacturing was in its nascent stage are now hoisted by China boosting the competitiveness of its factories. The Economist in the article I cited writes,
  
  IMI, for instance, is headquartered in the Philippines and would have preferred to scale up its manufacturing there, where wages and worker turnover are lower. But Michael Hansson, a director, notes that after adding in other costs, such as shipping and tax, China is still cheaper—thanks to the dense cluster of suppliers and customers that IMI now has around Jiaxing, a 40-minute train ride from Shanghai [1]

• High Labor Productivity:A simple hundred year old stylized fact in Economics, economies of scale. Labor productivity is still rising in double digits in China while other east Asian countries are still lingering around the productivity levels Chinese had in the 90's.
  
  
  
  
  
  Vietnam has similar wage rate growth but less productivity. Indonesia and India are at similar productivity levels but their growth is small. China is the stellar winner in balancing both.
• 
  
• Increased Automation: Chinese firms have started investing steadily in automating their manufacturing processes. Investing in automation is easy for Chinese factories with the smooth supply of credit by Chinese banks. Increasing automation by promoting import of machinery by way of reduced custom duties is one of the main priorities of the Chinese government in this five year plan. [2]
  
  Guangdong, south China's manufacturing powerhouse alone plans to invest over $152 billion in automation over the next five years to remain competitive. Most other provinces are planning investments on a similar scale if not larger. China's Guangdong province invests billions in robot factories
• 
  
• A Short Road Inland: Wages in interior China are lower than coastal China. They also have a good supply of surplus agricultural labor to draw from. 130 million Chinese live under $1.25 a day and most of them live in interior China. Many factories are shifting further inland to take advantage of this. Foxconn in addition to its plants in Shenzhen recently started plants in Henan and Sichuan. [3]
  
  Xi Jinping's big push is to develop infrastructure and competitiveness of this region. The new silk road project, the direct rail connection between Wuxi and Madrid, the train connection between Chongqing and central Asia and high speed rail connection between directly benefit the Chinese interior.
  
  
  
  
  * The Yuxinou Railway. It is still really difficult for any other east Asian country to compete with this infrastructure. [4]

• No Credible Alternatives: At present, no alternative exists that can replace China as the world's factory. The first region that comes to mind is Southeast Asia but it is decades behind China in infrastructure and investment is not moving into Southeast Asian countries the way it did into China during the past two decades. In most cases, the source of that investment is China [5]
  
  all of those countries have other problems, such as overburdened, unreliable electricity grids, which force companies to install costly generators and buy expensive diesel instead. [6]
  
  
  
  
  India, another emerging alternative has its own set of problems such as archaic labor laws, stiff resistance to change, high land acquisition costs and weak infrastructure.

All this is not to say China can hold on to its status as the world's factory forever.

It is expected that over the next decade, a lot of low end manufacturing like garments etc will move to Southeast Asian countries and factory China will slowly evolve into factory Asia with China at the lead. But at present, China has myriad of advantages in manufacturing that it has developed over the years with the foresight that someday wages will rise. These advantages are hard to beat for other nations. [7]

References:

[1] A tightening grip
[2] Analysis: Robots lift China's factories to new heights
[3] Central Region: Manufacturing base starts to move inland from the coast
[4] Rail route to Europe improves freight transport
[5] China set to become net capital exporter
[6] Even as wages rise, China's manufacturing grows -The New York Times
[7] Global manufacturing- Made in China? Very interesting article. It argues that China and east Asia might have been the only region to grow rich with low cost manufacturing and how this regions dominance in manufacturing is making development difficult for other countries.

 

[Aepsilons]

Here in Wuhan is $16000 more than Shanghai.

My friend, that is Wuhan, which is a provincial large city, lol. I'm not here to dispute in the growth of the capacity and capability of Wuhan, there's no doubt in my part. I'm talking about province-wide, my friend. Hubei province alone has a population of over 58 million; the majority of those don't live in large cities, but in rural communities such as Shennongjia, Songluo , Yangri et al. In fact many of these county-level areas can easily host manufacturing.

I've been to Gansu, Guangxi, Anhui; these provinces are largely underdeveloped, and standard of living substantially lower than say the larger more successful coastal areas such as Shenzhen, Guangzhou, Shanghai, Ningbo etc.
Don't you agree that by bringing manufacturing into these less developed provinces will bring the basis for infrastructure development and overall uplift the people by providing well paying jobs? I think so. And at the same time, it will be leaner for the manufacturing facilities.

I'm an avid proponent of redistributing manufacturing facilities from Eastern China to the interior as well as the southern part of the country. Its a win win; for Japanese employers and for Chinese workers in these provinces.