What Are The Advantages Of Made In China When The "Post Labor Era" Comes

After Adidas recently announced the closure of the only factory directly under it in China, Vancl CEO Chen Nian also disclosed that since last year, Vancl has cooperated with the Bangladesh OEM factory to test overseas clothing In the manufacturing market, the cost can be reduced by about 30% compared with that in China at most.

Behind the "exodus" tide of foreign capital and domestic enterprises, it reflects the current situation of China's rising labor costs.

The People's Bank of Nantes recently released a report forecasting that China's labor costs will catch up with those of the United States, Europe and Japan in the next few years. China, which has long held the title of "World Factory", can no longer rely on cheap labor costs to attract investment after the demographic dividend disappears.

What advantages does Made in China, which is entering the "post labor era", have in attracting investment in the future?

The reasons for enterprises' "leaving" are complex

This time, adidas has not only closed its only factory directly under it in China, but also more than 10 of the nearly 300 adidas OEM factories in China have received the notice that adidas has decided to suspend cooperation.

Xue Shengwen, a senior researcher of CIC Consulting, believes that the current rise in labor costs is indeed the main reason why many foreign and domestic enterprises have left.

Xue Shengwen told reporters that for the sake of cost control, it is wise for enterprises to move their factories to India, Cambodia and other Southeast Asian countries. In the case of the gradual decline of enterprise profit rate, this approach is the inevitable choice for its sustainable development.

It is reported that the basic wage of China's labor force has been increasing year by year in the past four years. In the first half of this year, the wage income of urban residents increased by 13% over the same period, and the wage of migrant workers increased by 14.9%.

However, is China's rising labor costs the only reason for enterprises to "leave"? In the eyes of many industry analysts, the answer is no.

Professor Zhang Yabin, Dean of the School of Economics and Trade of Hunan University, said in an interview that the rising labor cost is only one of the factors for foreign or domestic enterprises to leave China.

He pointed out that "the specific impact of rising labor costs should be analyzed by different industries and enterprises, and cannot be generalized." For example, Sany Heavy Industry, a leading manufacturing industry, had invested in the establishment of a factory and a research and development center in North Westphalia, Germany, before acquiring Putzmeister this year.

Zhang Yabin believes that Sany Heavy Industry is in urgent need of opening up the international market under the situation of domestic overcapacity, but the trade barriers of western countries are deepening, so the only way to bypass the barriers is to invest abroad.

{page_break}

"The reasons for enterprises to leave are very complex, some want to acquire technology, and some want to acquire markets and resources. The decision of enterprises to invest is a comprehensive consideration, including raw material costs, market growth space, government environment, business environment, and industrial ecological environment, in addition to labor costs." Zhang Yabin said.

Zhao Qingming, an expert on financial issues, also said that there are many factors for enterprises to decide to leave China. Taking Adidas as an example, it can indeed reduce costs by shifting its factories to places around China, such as Vietnam and Cambodia. However, it cannot be ignored that the "reindustrialization" plan currently being pursued by the United States. The plan is trying to attract enterprises to return to the United States for production. It is reported that adidas has built some new factories in the United States.

Still attractive for investment

Liu Lisheng, general manager of Shanghai Electronics Technology (Beijing) System Engineering Technology Co., Ltd., told the reporter that the monthly salary of undergraduates recruited by the company has risen by 75% since 2008.

Si Haitao, general manager of Zhejiang Junpu Technology Co., Ltd., also told reporters that the average monthly salary of employees has increased by 30% to 50% in the past year.

In this regard, Zhang Yabin pointed out that the current trend of rising labor costs in China is closely related to the gradual disappearance of the demographic dividend and the arrival of the Lewis turning point (that is, the turning point from surplus to shortage of labor). In particular, after a large number of "post-80s" and "post-90s" young people entered the labor market, their cultural quality and ideology were significantly different from those of their parents' workers. Many people would rather lose their jobs than accept low wages, making enterprises must improve their treatment to attract them to enter.

The People's Bank of Nantes of France recently released a report forecasting that China's labor costs will catch up with the United States in four years, catch up with the euro area in five years, and keep level with Japan in seven years. It also pointed out that "given the strong growth of production costs, China will soon no longer be a competitive production place".

However, this report from France has not been recognized by the Chinese industry.

"The nominal wage of Chinese workers is indeed rising, but the real wage increase rate is far lower than the nominal wage increase rate. In recent years, the CPI has been rising. China is a developing country with a large population base, and there is no sufficient basis to infer that wages will catch up with Europe and the United States in recent years." Zhang Yabin said.

Zhao Qingming said, "This report overstates the truth. There is still a certain distance between China's labor costs and those of Europe, the United States and Japan."

Analysts also pointed out that while China's labor costs cannot exceed those of developed countries in the short term, compared with other developing countries with low labor costs, China is still one of the hot areas for foreign and domestic capital investment.

"China still has incomparable advantages in manufacturing technology, equipment and other aspects in Southeast Asian countries," Xue Shengwen said.

Zhao Qingming pointed out that "China has complete industrial supporting measures and a huge market, which is unmatched by Vietnam, Cambodia and other countries. For example, some enterprises transferred to Vietnam a few years ago have already transferred back to China."

Zhang Yabin also said that China still has many factors to attract investment. Some high-tech enterprises can only find skilled professional technology and relatively cheap human capital in China.

{page_break}

"So I don't think we need to be too nervous and panic about the rising labor force," said Zhao Qingming.

Opportunities for industrial upgrading

For China's manufacturing based industries that rely on intensive labor, rising labor costs are an important opportunity for industrial upgrading.

Xue Shengwen said that the rising labor costs will force the transformation and upgrading of China's manufacturing industry and other industries. In order to continue to survive and develop, enterprises will inevitably choose a new development mode.

Zhang Yabin also believes that the rise in labor costs is actually a "double-edged sword". Some industries and enterprises that rely heavily on labor costs, such as Adidas, will actively move out of China, while others can upgrade their industrial structure through this opportunity.

He said: "Many enterprises that used to rely on low labor costs can rely on human capital, technology and financial capital in the future. Some industries with high energy consumption, high pollution and low added value can use this opportunity to force enterprises to transform."

Zhang Yabin told reporters that with the rise of labor costs, some of the southern enterprises he visited have used advanced equipment to replace workers to save costs. "This is an important sign of enterprise transformation".

Zhao Qingming pointed out that since the reform of RMB exchange rate in 2005, some Japanese and Korean funded enterprises have left China's coastal areas to set up factories in other countries and regions.

"Seven years later, although many enterprises have left, China's labor market has become more tense. This proves that the industrial upgrading and structural adjustment of Chinese enterprises are ongoing. Originally only a section of the international division of labor chain, it has now developed into a longer chain, which can grow into a multinational company and achieve optimal allocation worldwide." Zhao Qingming said.

He also said that rising labor costs are a necessary process for China to become a middle-income developed country. In the process of realizing primitive accumulation and industrialization, Chinese enterprises need to rely on external demand, but when they reach a certain stage, they must turn to rely on domestic demand and consumption.

Behind the "exodus" tide of foreign capital and domestic enterprises, it reflects the current situation of China's rising labor costs.

While China's labor cost cannot exceed that of developed countries in the short term, compared with other developing countries with low labor costs, China is still one of the hot areas for foreign and domestic capital investment.