Rising labour costs are not the end of the world for China
11/04/2011
The logic behind this is that if manufacturers have to pay more to attract workers to their plants in China, the goods they make, including leather, leathergoods and shoes, for export to European Union countries, will increase in price.
This phenomenon has also increased the number of factories in India, Bangladesh, Sri Lanka, Vietnam, Indonesia, Malaysia and Pakistan that are fulfilling contracts for global brands that Chinese factories used to fulfil, but a number of commentators have said it would be a mistake to think China’s days as the factory of the world are coming to an end.
In a recent article on this subject in the Financial Times, Michael Enright of the University of Hong Kong said he had been asked by client companies to draw up a comparison in costs between manufacturing plants in China and India. He drew the conclusion that the only way India could win would be if the company there were able to pay “negative wages”, in other words, if the workers paid the company instead of the other way round.
Among the reasons why he and other commentators, including Eswar Prasad, a professor of economics at Cornell University, believe China still has plenty to offer is an impressive increase in productivity that they say Chinese manufacturers have achieved in recent years, and immense improvements in infrastructure, enabling companies to move west in search of space and cheaper labour and still ship finished products to overseas customers on time.
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