Beijing                               Hebei                       Henan                                       Anhui       ...
China has for decades been among the world’s leadingmanufacturers and exporters, due mainly to its low laborand land costs...
ALTERNATIVE LOCATIONS OF PRODUCTIONThere are several alternatives that have frequently been short listed asattractive alte...
INLAND CHINASo looking at the next 10 years or so, who will be the next China?Some suppliers have indeed run off to Cambod...
INLAND CHINA’S COST ADVANTAGEHigh land and labor costs have been the story throughout China overthe last few years. Land p...
INLAND CHINA’S STRATEGIC ADVANTAGEAllowing some minimum wage discrepancies to exist is a key signalthat China is trying to...
THE INVISIBLE HANDThe Chinese Government has stated they will plan a 4th ‘EconomicHub’ in Central China, including Hubei, ...
INLAND CHINA’S COST DISADVANTAGEOf course, certain increased costs for suppliers cannot be avoided when amove is made inla...
INLAND CHINA’S FUTUREOver the last century we have witnessed low-cost, labor-intensiveindustry move from Japan, to Hong Ko...
CHINA – THE WORLD’S WORKSHOPManufacturers will have to work through this transition. It will not beeasy. However, the tran...
CONTACT USFor more information on successful sourcing from China and for help                with China supply chain solut...
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The Next China: China Inland

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China has for decades been among the world’s leading manufacturers and exporters, due mainly to its low labor and land costs. However, over the last few years, the rate at which China labor costs have been growing, and the ever-increasing cost of land, has left many people to wonder if the reign of China as the world’s most cost-effective workshop might be coming to an end.
Rental and purchase prices for factory land in China have been going up for over a decade. Average factory salaries went up over 30% in 2011, and the increase in 2012 is expected to exceed 11%. In Guangdong, for example, minimum wage is set to increase by at least 15% through 2015. Industrial land costs in China also have been on the rise. The natural result of this is that suppliers (and customers) are looking for cheaper markets to outsource their lower-value manufacturing.
Can China continue to survive as the world’s workplace?

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The Next China: China Inland

  1. 1. Beijing Hebei Henan Anhui HubeiSichuan Jiangxi Hunanwww.asiatradepro.com in t f
  2. 2. China has for decades been among the world’s leadingmanufacturers and exporters, due mainly to its low laborand land costs. However, over the last few years, therate at which China labor costs have been growing, andthe ever-increasing cost of land, has left many people towonder if the reign of China as the world’s mostcost-effective workshop might be coming to an end.Rental and purchase prices for factory land in China havebeen going up for over a decade. Average factory salarieswent up over 30% in 2011, and the increase in 2012 isexpected to exceed 11%. In Guangdong, for example,minimum wage is set to increase by at least 15% through2015. Industrial land costs in China also have been on therise. The natural result of this is that suppliers (andcustomers) are looking for cheaper markets to outsourcetheir lower-value manufacturing.Can China continue to survive as the world’s workplace? PAGE 2
  3. 3. ALTERNATIVE LOCATIONS OF PRODUCTIONThere are several alternatives that have frequently been short listed asattractive alternatives to China as a location of production. However,while each country does have some persuasive arguments that wouldencourage manufacturers to consider them as a viable alternative, thereare still some overriding deterrents.Vietnam is cheap, but its pool of resources does not run nearly as deep asChina’s. New labor laws and increased labor costs are being discussed;strikes are all the more frequent. As a result, Vietnamese factories arebecoming increasingly difficult, and expensive, to staff. Logistics in Vietnamare poor compared to China and hence Vietnam might not be the best answerfor China Coastal factories trying to run away from increasing costs.Myanmar has the potential to become one of the next big manufacturing hubs,but US sanctions will not be dropped overnight. With only 60 million people,the population of Myanmar has about half the population of Henan, anaverage-sized Chinese Province. Logistics and an under-developed supplychain also make Myanmar a far less than attractive option for most factoryowners at this time.Cambodia is still a ways away from developing the logistics and skilledworkforce required to become an immediate replacement option for Chinamanufacturing.India has always been plagued by low worker productivity, poor infrastructure,and has suffered from a lack of a clear and united Government vision to help it take the next step. Labor issues are abundant these days in India, and roads and ports are in poor conditions compared to those in China. In general, labor and land costs in many of these countries are rising as fast, or faster, than in China. PAGE 3
  4. 4. INLAND CHINASo looking at the next 10 years or so, who will be the next China?Some suppliers have indeed run off to Cambodia, or Bangladesh, butmore and more Chinese suppliers are looking much closer to home.The next China might actually be Inland China.In reviewing China’s 12th 5-Year Plan (December, 2010), it becomes clearthat one of the Government’s main goals is to balance the economy and tospread economic wealth to a greater proportion of Chinese citizens. It isbecoming more and more apparent that the China Government does notwant to provide any more jobs for migrant workers in the Pearl River Deltaregion, but instead wants these migrant workers to return home andprovide their labor to the Central, inland Provinces. PAGE 4
  5. 5. INLAND CHINA’S COST ADVANTAGEHigh land and labor costs have been the story throughout China overthe last few years. Land prices all over China have until recently beenon the rise, but land costs are still substantially lower Inland, than onthe Coast. Salary figures show the same. Inland China has had itsshare of increases, in some cases rising faster on a percentage basisthan the costs on the coasts, but the average salary still remainssubstantially lower as you move inland.The minimum salary, in 2011, in Guangzhou, for example, was RMB1300 permonth. In Shanghai, that number was around RMB1120, Hangzhou,RMB960, and Ningbo, RMB1200. Inland, however, the highest minimumwage would be Wuhan, at RMB900/month, and from there it drops evenfurther. Minimum wages in Chengdu (Sichuan) are around RMB850/month,in Zhengzhou (Henan) they are RMB800/month, Hefei (Anhui) they areRMB720/month, and Nanchang (Jiangxi) about RMB720/month. Thenumbers seem to indicate that, as far as labor costs go, Inland China looks tobe as competitive as the Coastal Cities were at the height of the Chinamanufacturing boom. $ Gua ngzh ou Han gzho u Jian gxi PAGE 5
  6. 6. INLAND CHINA’S STRATEGIC ADVANTAGEAllowing some minimum wage discrepancies to exist is a key signalthat China is trying to lead the manufacturers inland. Of equalimpact and importance, however, is that China has beenintentionally providing competitive advantages for the poorer InlandProvinces, and this has led many manufacturers to shift theirproduction to these less-developed regions. Massive Chinagovernment investments in airports, high-speed railways, andhighways in the inland provinces of China (Henan, Anhui, Hubei,Jiangxi, Shanxi, Sichuan etc.), are examples of this type of stimulus.On top of transportation improvements and preferential minimum wages,the last few years have seen the Chinese Government provide InlandChina with tax benefits, rent subsidies, and other preferential policies, allset up to lure investors to inland China. Seeing their own costs soar,Coastal factories are reacting to this stimulus. This is changing themanufacturing landscape in China. PAGE 6
  7. 7. THE INVISIBLE HANDThe Chinese Government has stated they will plan a 4th ‘EconomicHub’ in Central China, including Hubei, Hunan and Jiangxi provinces.The plan is for these three provinces to outgrow the rest of Chinasubstantially in the next 10 years. Li Hongzhong, Hubeis Party chief,has said that the provinces gross domestic product could double to 3trillion Yuan by 2016, from 1.5 trillion Yuan last year, as more factoriesare relocated to the province. We can expect to see similar growthnumbers in other Chinese Provinces over the next few years, even asChina’s share of world manufacturing drops.Big-name firms have already started taking advantage of incentives to moveto the Inland of China including Foxconn ( Henan) Unilver (Anhui) Midea(Anhui) , Konka (Anhui) , Chrysler (Sichuan), Hewlett-Packard (Sichuan) ,Intel (Sichuan), Quanta (Sichuan) L’Oreal (Hubei) and others that previouslyhad their factories based in Coastal Cities in China.A knock on consequence is that lower value-added, sub-suppliers of theselarger manufacturers are also moving inland, taking advantage of savings,while at the same time wanting to be close to their customers. This factorymigration is not only a case of large multi-nationals moving inland, theaverage smaller supplier is also investigating, and reacting to, the impactsof moving inland. PAGE 7
  8. 8. INLAND CHINA’S COST DISADVANTAGEOf course, certain increased costs for suppliers cannot be avoided when amove is made inland. Their supply chain becomes more geographicallyspread out. Inland shipping costs increase. Factory owners have to dealwith a different culture of workers, and different culture of localGovernment, language barriers, higher levels of corruption, etc. All ofthese factors do indeed provide sometimes costly barriers to entry.These barriers, along with incentives from abroad, inevitably lead to there beingindustries that start to shift production away from China (Bangladesh, forexample, has taken much low-end textile work from China, and now owns a 6%share in the global garment and textile industry). This has been happening andwill continue to happen. But data coming out of China’s inland provinces seemto indicate that despite these barriers, the largest representation ofmanufacturers that are arriving in Inland China have been from the CoastalCities of the Pearl River Delta.In Henan, for example, the number of workers migrating to other provinces wasroughly 17 million in 2006. In 2011, that number was closer to 12 million.Similar numbers are being found in other inland provinces. Workers are going(or staying) where they can find work. Increasingly, this work is being found inInland China. PAGE 8
  9. 9. INLAND CHINA’S FUTUREOver the last century we have witnessed low-cost, labor-intensiveindustry move from Japan, to Hong Kong, to Taiwan, and then to China.In each case, a Country will gradually build up skills and capital, leavingthe lowest rung of manufacturing to the poorer country. This currentlyseems to be happening in China, but now the relocation is happeningwithin a single country. Many suppliers will relocate to other countries– this is inevitable. But it does not look like the next 10 years or so willsee China lose as large a share of their world exports to its Asianneighbors as many people are expecting.The reasons to suspect that China is still the best place to be for the majorityof Chinese manufacturers are numerous. Efficient supply chains, afully-developed infrastructure, relatively low wages, a consistent and stablegovernment, and an increasingly productive and skilled workforce, areamong these reasons. Also, for many manufacturers, China is where theirsales are growing fastest. Add to this the fact that the Chinese Government(and its’ fat wallet) is ‘pushing’ suppliers towards Inland China, throughvarious incentives, bodes well for the future of Inland China’s manufacturingbase. PAGE 9
  10. 10. CHINA – THE WORLD’S WORKSHOPManufacturers will have to work through this transition. It will not beeasy. However, the transition from Coastal China to Inland Chinawould intuitively seem to be a much more fluid and seamless transitionthan would that to an entirely different country.China, to be sure, is looking forward to the day when all the low-value addedmanufacturing is conducted outside of its borders. They have seen thequality of life go up for Chinese citizens, in all Coastal Cities, as a result ofbeing the ‘World’s Workshop.’ The next phase for China is to see InlandChina go through the same transitions that we saw on the Coast. The firstpart of that phase is an influx of low value-added manufacturing. Perhaps inanother 10 years or so, we will see Inland China become as prosperous asCoastal China. At that time, China will be more than happy to see thismanufacturing go elsewhere. Until then, it looks like Inland China is going tobe one of the top choices for suppliers looking for alternatives to theexpensive Coast. PAGE 10
  11. 11. CONTACT USFor more information on successful sourcing from China and for help with China supply chain solutions, contact us at info@sertusllc.com or visit us online at www.thechinasourcingexperts.com. Sertus LLC. 2040 Sherman St., Hollywood, FL33020 Tel: 1-877-6-SERTUS Email: info@sertusllc.com China Office Rm.409, No.1, Middle Jian Guo Road, Shanghai, China, 200025 Tel: 86-21-64735325 Email: info@sertusllc.com PAGE 11

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