China losing status as 'world's factory'

Companies are increasingly moving their production bases to developing countries, especially Africa, lured by an abundant and cheap workforce

PUBLISHED : Monday, 03 February, 2014, 4:11am
UPDATED : Monday, 03 February, 2014, 6:16am

China's status as the world's factory is facing a spirited challenge by would-be contenders for the crown in low-end production from rivals near and far, especially in fast-growing Africa. Now, even high-end manufacturing is moving out, with the United States added to the list of countries squeezing China's production base.

Hong Kong manufacturers, under margin pressure and mindful of Africa's growing appeal, are thinking about taking a long shot to invest in some countries in the continent, including Rwanda and Ethiopia, lured by an abundant and cheap workforce. Africa has become increasingly popular for a roster of global brands, including H&M, Tesco and Walmart, to source low-end, mostly non-urgent products.

At the other end of the scale, Hon Hai Precision Industry, the flagship unit of Foxconn Technology, drew attention when it announced plans recently to build advanced facilities in the US. The maker of Apple's iPhones and iPads is looking to expand in its largest market.

Analysts said the firm's move was aimed to meet growing demand for US-made products and offset damaging publicity from a series of suicides by workers in some of its mainland factories.

While Hon Hai's US plans have grabbed the headlines, the biggest threat to China's manufacturing sector comes from developing countries keen to tout an edge in cheap labour, against the backdrop of rising wages and worker shortages on the mainland.

Lin Yifu, a former chief economist at the World Bank, has urged mainland manufacturers to move labour-intensive factories to Africa. The young labour force of the continent's one billion population was similar to China's profile in the 1980s, said Li, who is now vice-chairman of the All-China Federation of Industry & Commerce.

Stanley Lau Chin-ho, chairman of the Federation of Hong Kong Industries, looks to Africa's labour advantages. "The salary in Africa is about US$50 per month now, which I expect will continue to be very competitive in the next 10 years," he said.

Shenzhen authorities recently announced yet another rise in the minimum wage, by 13 per cent to 1,808 yuan (HK$2,297) a month. The increase, which came into effect on Saturday, would set the pace for other cities in the Pearl River Delta, Lau said.

Africa's growing attractiveness is also coming at the expense of Vietnam, Cambodia and Bangladesh, which had been viewed as the preferred alternatives to China for production lines.

Average wages in Bangladesh had risen 50 to 70 per cent a year over the past two years, said Co Mei-ling, vice-president of Ying Ming Enterprise, a Hong Kong-based underwear manufacturer that set up production lines in Bangladesh almost 10 years ago.

"I am thinking about moving to African countries as the competitive edge in Bangladesh is also diminishing," Co said.