Made In China: Advantages Have Quietly Gone Abroad.

Following Adidas's recent confirmation that it will close its only direct factory in China, it may move to Southeast Asia.

Businesses are also starting to divide their production capacity overseas.

A number of large factories will have capacity to move out, and perhaps less than 30% in China by 2015.

According to a survey conducted by the Federation of Hongkong industries, 15% of the surveyed enterprises intend to move away from the Pearl River Delta to 15% of the provinces and the central and western regions, accounting for about 10% of those in Southeast Asia or elsewhere.

Hongkong's TDC believes that as China shifts to produce high value-added products, some of the low value-added production activities will be pferred to other Asian emerging suppliers, which can be seen as an extension of the regional production chain.

Ma Xiaoli, director of the basic theory research office of the Institute of labor and wages of the Ministry of social affairs of China, believes that a simple processing industry outflow has some advantages, and this flow is also an adjustment of the industrial structure.

OEM enterprises continue to move out

Following Adidas's recent confirmation that it will close its only direct factory in China and possibly move to Southeast Asia, many Chinese manufacturers have begun to divide their production capacity overseas.

Van gall, chief executive, said recently that he had recently visited the manufacturing enterprises in the South and found that the future layout of some enterprises is changing quietly: a factory of tens of thousands of people will move fifty percent of its capacity to Vietnam in 2015, and twenty percent will go up to India or Sri Lanka, leaving less than 30% of China.

In fact, China's manufacturing has been moving out since the financial crisis.

Previously, dozens of multinational companies involving household appliances, electronics, building materials, toys, food and other industries have shut down or pferred Chinese factories.

In addition, from the Hongkong Federation of industry, the Chinese manufacturers' Federation of Hongkong and the Hongkong Trade Development Bureau (TDC), a survey of Hongkong enterprises in the Mainland shows that in recent years, some enterprises have pferred some of their capacity to foreign countries.

A survey conducted by members of the Hongkong Federation of industry in May on the status quo and prospects of Hong Kong funded enterprises in the Pearl River Delta showed that 15% of the respondents said they would move to the provinces and the central and western regions, accounting for about 10% of those in Southeast Asia or elsewhere.

In addition, according to the latest survey conducted by the Hongkong Manufacturers Association in March this year for the Pearl River Delta member enterprises, in response to the current situation, 3.3% and 11.7% of the responding enterprises respectively indicated that they would end their operations or abandon their production business instead of trade, and 23.9% of the enterprises would be reorganized or merged. 24.4% of the enterprises should consider moving the production business to other regions, mainly in the remote areas of Guangdong province (15%), other provinces in the mainland (5.6%) and Southeast Asian countries (5%).

Reduction of price comparative advantage

From the above survey, manufacturers are mainly moving the production base, and the main reason is to seek cheaper production costs.

In contrast, the cost of manufacturing in China, including labor and raw materials, has been rising in recent years, and the shortage of labour is prominent.

First, China

Is rising.

Take Guangdong, a manufacturing province as an example, according to the latest survey conducted by the Chinese manufacturers' Federation in May, more than 90% of the companies interviewed were faced with the problem of labor shortage. Of them, 38.3% of enterprises said that the proportion of workers who were short of labor was 10% or below, and 43.8% of the enterprises were in the labor shortage rate of between 30% and 30%.

If the estimated number of workers and the number of employed workers in the 167 respondents were estimated, the total number of workers responding to the company's total number of workers was 29834, accounting for 14.1% of the total number of employees in the Pearl River Delta, with an average of 179 workers per enterprise; although the two figures were lower than those of 20.8% and 197 persons surveyed in 2010, they were higher than last year's 11.2% and 117 persons, reflecting the problem of labour shortage in the Pearl River Delta.

At the same time, according to the survey, labor and raw materials are the most important components of PRD production costs, accounting for 25.4% and 52.4%. respectively. In this year's survey, 91.7% of enterprises refer to labor costs rising over the same period last year, with an average growth rate of 16.4%.. In terms of raw materials, enterprises accounted for 72.8% of the cost increase, with an average increase of 12.8%.

Obviously, the comparative advantage of China's manufacturing is decreasing, and the mainland producers are under heavy pressure.

At the end of last year, Hongkong's TDC issued a report on the issue of "China's price going"? It pointed out that the RMB appreciated against the US dollar for many years. At the same time, the mainland's wages rose rapidly since 2009, and the increase was about 20% at the end of last year.

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Accelerated upgrading in China

"For producers who fail to absorb all rising costs, higher export prices can cushion them and continue to support them for some time."

However, in a globalized production environment, competition is extremely fierce. Even if the cost condition is slightly shifted, it may lead to a change in China's competitive situation, "said the Hongkong Trade Development Council researcher.

Moreover, developed countries' trade protection against China also prompted manufacturers to move some of their production out.

The Hongkong TDC researcher analyses that China is no longer a beneficiary of the preferential tax system in the United States, and the European Union's universal preferential tax system also keeps a variety of Chinese products out of the door.

Developing countries that still enjoy preferential tax preferences (GSP), such as Bangladesh and Kampuchea, have become more popular.

Purchasing market.

Ma Xiaoli, director of the basic theory research office of the Ministry of labor and wage research of the Ministry of social and economic affairs of China, told reporters in Nandu that "if the simple processing industry has certain advantages, China can concentrate on developing environmentally friendly and efficient enterprises."

This flow is also an adjustment of industrial structure.

From the survey conducted by the Chinese manufacturers' Association of Hongkong, the weighted proportion of OEM (original equipment production), ODM (original design production) and OBM (original brand production) accounted for 53.3%, 19.3% and 27.3%. of the enterprises' turnover respectively, though OEM still dominates, but the importance of OBM has increased significantly since two years ago, reflecting that more and more Pearl River Delta businesses have begun to develop their own brand businesses.

In addition, the proportion of enterprises that intend to adopt defensive strategies such as closing, pferring, reorganizing or merging further fall, indicating that the main theme of upgrading and competitiveness remodeling in the Pearl River Delta industrial restructuring is even more vigorous.

Huang Xingbiao, senior economist at Hongkong's TDC, analyzed that as China turned to produce high value-added products, some of the low value-added production activities were pferred to other Asian emerging suppliers, which could be seen as an extension of the regional production chain.

Huang Xingbiao analysis shows that although China's labor costs are relatively high, its technological level and production capacity are also better.

In addition, unlike Vietnam and other places, depending on imports, China has many developed industrial clusters with abundant supply of upstream and downstream products. For example, the wholesale market with many closely linked PRD can serve as a platform between different producers, retailers and customers to reduce their time and cost.

Hongkong's TDC pointed out that other factors, such as supply chain efficiency and product safety, are also key elements of competitiveness in different countries.

China's export performance reflects that it still has competitive advantages in the labor intensive manufacturing field, and it can also handle higher value-added processes.

Therefore, the ability of the mainland to innovate and upgrade will determine the growth rate of productivity, and it will help to curb the rise in unit labor costs and the impact of RMB appreciation in the long run.