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Rising Factory Costs Erode China's Edge. Yada, Yada, Yada.

By Dan Harris and Steve Dickinson

New rule on this blog. If I am emailed the same article by three different people, I will write something about it, whether I want to or not. Four people emailed me this article and none said much more about it beyond, "have you seen this?" I am not even sure what the big deal is, but here goes. The article is an AP article, entitled, "Rising Factory Costs Erode China's Edge," and it speaks to how the price of China's exported products are rising due to wage inflation, China's new labor contract law, higher overall costs, and a decrease in export subsidies (like VAT cancellation). Nothing new here. The article goes on to talk about how companies are leaving China:

To adapt, many multinational manufacturers - including Intel Corp., iPod-maker Hon Hai Technology Group and Japanese companies like Canon Inc. and Sony Corp. are expanding operations in Vietnam. Auto parts makers are decamping for the Middle East and Eastern Europe, textile-makers to Bangladesh and India.

And how some companies that might have in the past gone into China are now looking elsewhere:

Despite those strategies, prices for Chinese-made products will probably continue to rise in the next few years, causing some companies to invest elsewhere, says UBS economist Jonathan Anderson. ``Over the medium-term, where are you going to invest if you're building a factory? Maybe not China anymore. Maybe Bangladesh, Vietnam, Indonesia. Maybe India.''

My views on this can be found in my post, "Goodbye China. Good Morning Vietnam. I Don't Think So" in which I analyze why China will remain the OEM king and conclude as follows:

Manufacturing outsourcing to both Vietnam and to China will continue increasing. Obviously, there will be many companies that choose Vietnam for their manufacturing who would have chosen China a few years ago. There will also be many who are in China now who will choose to expand their manufacturing operations in Vietnam instead of China. But China will remain the overwhelming choice for manufacturing and few companies manufacturing in China now will up and leave for Vietnam. Vietnam is not a panacea and it is not a replacement for China. Not even close.

But please do keep the articles coming.

Full post as published by China Law Blog on February 25, 2008 (boomark / email).