The CER reports:
China has been home to the world’s most competitive export industry over the past decade. Its low-cost, low-value exporters have pumped out products ranging from textiles to electronics, in the process ushering cash into the economy and inflating China’s massive currency surplus.
But that competitive advantage has winnowed as the value of the renminbi and local wages increase. Labor prices in southern and eastern China, the traditional base of manufacturing, are growing at double-digit rates. This has prompted some manufacturers to move to China’s interior, where wages remain much lower; however, they often find those savings mitigated by higher transport costs.
As a result, many have speculated that production of these low-value items will trickle to nearby countries like Vietnam, Bangladesh and Indonesia. But in the age of international trade, production could move farther than that. Corporate decision-makers no longer have a clear-cut answer where to place their next factory, said Ivo Naumann, Shanghai-based managing director of consultancy AlixPartners.
“I need an additional plant because I’m running out of capacity. Do I put my next plant into China? Or do I put my next plant into Mexico?”
Overtaken overnight
Of all these possible destinations, Mexico may be the country to benefit most from China’s rising costs. Its products have among the lowest landed costs (meaning the total cost of a product once it arrives at the buyer’s door, including shipping and customs duties) of any manufacturing country, particularly for imports to the US. That’s partially because during the last five years Mexico has experienced very different economic trends than China has: The peso has depreciated against the dollar, and wages have risen roughly in line with the inflation rate.
Read more: http://www.chinaeconomicreview.com/content/heading-south
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