beyondbrics

With spring festival celebrations still in full swing, most Chinese factory workers are now sitting round their dinner tables, exchanging red packets, and catching up with loved ones at home. Some of them won’t go back south after the holidays, as job prospects and wages improve closer to home.

But will manufacturing companies do the same, and reconsider China as a place to sew, weld and assemble?

Certainly there are some who think so. Boston Consulting Group last May released a report predicting that manufacturers would flock back to the US over the rest of this decade as labour cost rises in China “erase the savings of offshoring”.

And there are certainly some example of jobs moving back. Just days after the report, Coach – the posh luggage maker – announced that some of its jobs were moving home. Others have followed.

The view from the ground in southern China isn’t so clear cut. While some low-cost businesses are leaving, they are heading south to Indonesia and Vietnam, and west into India and Bangladesh, not to the US. Others are heading north, or west within China’s borders.

For those hoping that the better paid factory jobs come back to Europe and the US, here are five reasons to be doubtful.

1). Skills. Many of the middle and senior managers in China’s factories have been working in production their whole lives. There is, in southern China, an army of experienced, trained staff who have 20-30 years in industry. Few other places in the world can offer that level of expertise in any manufacturing field.

2). Scale. Wages in some Chinese factories have already reached levels comparable to eastern Europe – in EU member states like Romania and Bulgaria. But none of those countries has the sheer weight of numbers required to build factories employing hundreds, thousands, or even tens of thousands, that southern China can offer.

Plus – even in 2020, China will still have the more than 20 per cent of the global working age population, according to Li Cui of RBS.

3). Infrastructure. China’s ports, freight railways and airports – especially in the south – are as good as anywhere in the world.

4). Supply chains. After 30 years of manufacturing, most businesses have well established chain of supporting manufacturers. Although foreign businesses often have a role to play in these chains – as witnessed by the number of Japanese, German and Korean components in an Apple iPhone, for example – replicating those entire chains elsewhere in the world seems like an unlikely prospect.

5). Future customers. Southern China has traditionally relied on its ports to get goods from factories to shop floors across the world. Now the local government is busy building a new freight rail network to help ferry goods from Guangdong up into central and northern China. As the Chinese consumer spends more, Chinese factories will be much closer the their target audience.

Related reading:
A workshop on the wane, FT
‘Reshoring’ jobs from China won’t happen, FT
Companies face Chinese migrant worker lottery, FT
FT Video: Can Made in China stay competitive?
US manufacturing takes on China, beyondbrics