Costs of Manufacturing in China

Let’s take a look at the cost of manufacturing in China.

The industrialisation has brought about a rise in production costs due to increased productivity and labor shortages. China’s production costs are on a steady upward trajectory, as with the cases of developed economies such as the US and Japan in the 1960’s, and Asian Newly Industrialized Economies (ANIEs) such as Taiwan and South Korea in the 1980’s.

Nonetheless, China’s manufacturing will remain competitive for decades to come for three reasons:

  1. Low manufacturing wage rates by international standards.
    The manufacturing wage rates in China currently average US $104 per month, which is equivalent to about 3% of rates in the US, 25%
    in Mexico, and 10% of ANIEs.
  2. Migration workers from rural districts.
    The migration of around 100 million workers from rural districts in China helps to alleviate upward pressure on wages.
  3. The integrity of China’s supply chains.
    While labor costs in countries such as India, Indonesia, and Vietnam are lower than in coastal China, the quality of a country’s infrastructure and the presence of Suppliers must be taken into account when making business decisions. China will remain a key global sourcing destination for decades to come, based on their constant improvements in transport, infrastructure, and availability of Suppliers, all creating high integrity supply chains.

According to the World Economic Forum’s (WEF) Global Competitiveness Index, among 140 countries China ranked 28th in 2015 and 2016 ahead of other manufacturing-based economies such as India (55th), Mexico (57th), Indonesia (37th), Vietnam(56th), and Philippines (47th).

 

 

Geographical Distribution of Manufacturing in China

Now let’s take a look at the current geographical distribution of manufacturing activity within China.

China’s geographical distribution has been greatly determined by China’s industrial policy. Since the economic reform in 1979, special economic zones in the Pearl River Delta (PRD), Yangtze River Delta (YRD), and in the Fujian Province have been designated as China’s growth engines due to their geographical proximities to neighboring Four Tiger economies (Taiwan, South Korea, Hong Kong, and Singapore), and also Japan.

As a result, most industrial development and a rise in production costs have taken place in these regions.

The Pearl River Delta (PRD) covers nine prefectures of the Guandong Province:
a. Guangzhou
b. Shenzhen
c. Zhuhai
d. Dongguan
e. Zhongshan
f. Foshan
g. Huizhou
h. Jiangmen
i. Zhaoqing

These areas specialize in light manufacturing, e.g. electronic products, toys, garments, plastic products, and textiles, making up about 10% of China’s GDP. Meanwhile, the Yangtze River Delta, which covers Shanghai and cities in the Jiagnsu and Zhejiang provinces, is geared towards high-tech manufacturing and accounts for some 20% of the GDP.

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