Asia emerged from the global economic crisis faster than the rest of the world and it is increasingly clear that the world’s centre of gravity is shifting from the Atlantic to the Pacific.
Within the Asian Century debate, there has been a great deal of focus and analysis on the opportunities in “Chindia”. However, another important global macro dynamic is the relocation of low-cost production from southern China to other countries in Asia.
Professor Gus Papanek, President of the Boston Institute for Developing Economies, stated in a seminar in Dhaka in 2010 that:
“Bangladesh has a unique opportunity in the next year and a half or two years because it has the possibility of taking over part of the world market that China is going to abandon“.
He went on to note that it has become increasingly clear that China is no longer competitive in many of the goods that Bangladesh could supply.
China’s labour costs are rising, its pollution costs are increasing, its labour regulations are getting stricter, and it will be forced within the next six to nine months in my guess to revalue the renminbi. Its own currency will make it less competitive for labour- intensive goods.
The social and political pressures to push Chinese wages higher, as evidenced by worker discontent in companies such as Foxconn in 2010, has made it increasingly uneconomic to keep producing the lowest margin products there.
A country such as Bangladesh with one of the youngest (median age 23.1 years) and lowest cost labour forces in the region, is ideally positioned to benefit.
Indeed evidence that Bangaldesh is already benefiting in 2011 from the “China Relocation Trade” is compelling given that Bangladesh’s total exports for FY 2010-11 (ended June 2011) rose to $22.92bn from $16.2bn the previous year, a jump of 41 per cent.
This was a major factor behind the acceleration in overall GDP growth to 6.7 per cent. The biggest export sector remained ready-made garments. Knitwear exports alone were $9.5bn, up 47 per cent on a year-on-year basis.
However, it is worth noting that China exported $185bn of garments and hence if Bangladesh can even capture 10 per cent of this then there is scope for a near further doubling of exports.
Moreover, there is significant opportunity from other export sectors to grow far more rapidly – such as light engineering, shipbuilding, agro-processing, ICT, and pharmaceuticals. Samsung has just set up a Global Research Centre in Dhaka and there has been some speculation the Korean giant comglomerate is considering a $1bn+ manufacturing investment in the country.
To fully take advantage of the China relocation trade Bangladeshi policymakers need to remain focused on solving the energy and infrastructure crisis, as well as provide more well defined industrial production/export zones with effective utility connections and sufficient land to large conglomerates that do indeed choose to relocate production there.
However, in much the same way that the China price had more than a decade of influence on global dinsinflationary pressures, the shift of production away from China, and success in effectively positioning for it, will define who will be the next wave of Asian Tiger economies.
Ifty Islam is managing partner at Asian Tiger Capital Partners in Dhaka.
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