Foreign capital in manufacturing shifts to ASEAN, challenging "Made in China"

In recent years, the shift of manufacturing to Southeast Asia has become a focal point of attention. This phenomenon is closely related to the rising production costs in China and the need to circumvent trade barriers. However, some experts believe that due to improvements in labor quality and investment environment, China's position as the "world factory" will remain unchanged for some time, and "Made in China" will still dominate.

　　Two Major Trends in Manufacturing's Shift to Southeast Asia

　　Experts attending the 9th China-ASEAN Expo in Nanning, Guangxi recently, believe that the current trend of manufacturing shifting to Southeast Asia shows two aspects:

　　Firstly, foreign investment originally directed towards China is now shifting to ASEAN countries. The relocation of Nike's shoe factories from China to Vietnam vividly illustrates this point. In 2000, China produced 40% of the world's Nike shoes, ranking first globally, while Vietnam's share was only 13%. Subsequently, China's production gradually declined, while Vietnam's production increased year by year. In 2009, China and Vietnam's Nike shoe production was the same, both accounting for 36% of the world's total. In 2010, the situation reversed, with Vietnam surpassing China to become the world's largest Nike shoe producer.

　　According to a 2012 annual survey report by the United Nations Conference on Trade and Development (UNCTAD), Indonesia and Thailand saw significant improvements in rankings of the most popular host countries selected by multinational corporations. The report suggests that due to the continued rise in labor and production costs in East Asian countries, particularly China, ASEAN countries' relative competitiveness in manufacturing continues to strengthen.

　　Secondly, there is a trend of manufacturing shifting from eastern China to ASEAN countries. Guangdong is the "world factory" for electronics and IT industries, accounting for 60% of the world's computer component production and over 90% of the world's electronic supporting capabilities. However, Chen Zhihua, president of the Guangdong Computer Chamber of Commerce, said that in recent years, many Guangdong electronics companies have moved their production workshops to ASEAN countries instead of western China.

　　The shift of manufacturing to ASEAN countries has directly promoted the development of local economies. The decade in which Nike gradually transferred orders from China to Vietnam was also a decade of rapid development for Vietnam's manufacturing industry. Statistics show that since 2000, Vietnam's manufacturing output has grown at an annual rate of 11%. At the same time, Vietnam's manufacturing industry has begun to upgrade, transitioning from producing primary products to mechanical manufacturing. It can now produce complete sets of mechanical equipment and has made progress in the automotive and shipbuilding industries.

　　However, China's unique position as the "world factory" has faced challenges. According to the UNCTAD's "World Investment Report 2012" released on July 5, foreign direct investment flowing into Southeast Asia in 2011 reached US$117 billion, a 26% increase year-on-year, while China's growth rate was less than 8% during the same period. Some grassroots officials in western regions also stated that in recent years, due to competition from Southeast Asian countries, it has become more challenging for western regions to undertake the transfer of industries from developed and eastern regions.

　　Seeking Lower Costs is the Primary Reason for Manufacturing's Shift to Southeast Asia

　　Investigations have revealed that in addition to tapping into the broader markets of ASEAN countries, seeking lower costs and circumventing trade barriers are two major reasons for the shift of manufacturing to ASEAN.

　　Seeking lower costs is the primary reason for companies to relocate to Southeast Asian countries.

　　Chen Jiagui, former vice president of the Chinese Academy of Social Sciences, said that China has entered the mid-stage of industrialization, while the eastern region has entered the late stage, particularly cities like Beijing and Shanghai, which have already achieved industrialization. As the economy develops to the later stage of industrialization, land prices and labor costs inevitably rise, and environmental burdens increase, making industrial relocation inevitable. Currently, Southeast Asian countries have a per capita GDP of only US$3,000, still in the early stages of industrialization, with relatively low costs in all aspects, providing opportunities for industrial transfer.

　　Chen Zhihua, president of the Guangdong Computer Chamber of Commerce, said that compared to China, ASEAN countries have cheaper labor and land prices. He gave an example that in Cambodia, the labor cost of a production line worker is around 400 yuan, excluding food and accommodation, and land prices are only US$1 per square meter, which is very attractive to labor-intensive enterprises.

　　Circumventing trade barriers is also an important reason for industrial relocation.

　　Chen Jiagui said that as a major trading nation, China has maintained a trade surplus with many European and American countries for a long time. Considering trade balance, forcing RMB appreciation, and winning elections, European and American countries tend to create trade frictions targeting China and increase trade barriers against "Made in China." However, even if European and American countries do not import from China, they still need to import from other regions. Shifting manufacturing to ASEAN countries can effectively circumvent these trade barriers.

　　At the same time, the shift of manufacturing to ASEAN helps to circumvent trade barriers between China and ASEAN countries. Liuzhou is one of the top five automobile manufacturing cities in China, accounting for over 8% of the country's total automobile production and sales in 2011. Liuzhou also intends to build an automobile production base in ASEAN. Gu Zhangwei, director of the Liuzhou Municipal Commerce Commission, said that currently, China faces many trade barriers in exporting complete vehicles to ASEAN countries. However, if Liuzhou's automobile industry shifts its manufacturing base to ASEAN, it can leverage Liuzhou's technological and financial advantages to expand exports.

　　China's Dominant Position in Manufacturing Difficult to Shake in the Short Term

　　Although "Made in China" has faced challenges from "Made in ASEAN," experts generally believe that China's manufacturing industry will still have strong advantages for some time to come. The manufacturing industry chain and labor quality accumulated during China's 30 years of reform and opening up are still leading the world.

　　Chen Jiagui predicts that although some companies will "move out" in the future, the volume will not be large. He believes that although ASEAN countries have lower labor costs, their labor quality is inferior to that of mainland China. Currently, China has basically achieved universal nine-year compulsory education, resulting in higher labor quality, which is unmatched by most ASEAN countries.

　　At the same time, compared to China, ASEAN countries have relatively lagging infrastructure construction. Li Hui, deputy general manager of Guangdong Zhenrong Energy Co., Ltd., said that the infrastructure in some ASEAN countries is not ideal, increasing investment pressure and extending construction periods.

　　Experts believe that even if some foreign-funded enterprises move to Southeast Asian countries, they will inevitably encounter pressure to reconstruct the industrial chain. In fact, these foreign-funded enterprises that have already or are moving to Southeast Asia have formed a relationship with China, the "world factory," that is difficult to completely sever. Although these companies have left China, from the perspective of future upstream and downstream relationships, they are largely inseparable from the large system of China's manufacturing industry. Chen Zhihua said that currently, ASEAN's electronic industry supporting facilities are incomplete, and many components must be transported from the Pearl River Delta, increasing logistics and time costs.

　　Experts believe that China still has sufficient attractiveness for foreign investment. According to a follow-up survey of 30 well-known multinational corporations conducted by the Beijing New Century Multinational Corporation Research Institute, since the international financial crisis, many multinational corporations have remained actively involved in China, and China's market has significantly improved its position in the global strategies of multinational corporations. Most large multinational corporations have increased their investment in China and further strengthened their strategic layout in China.

　　Expert assessment indicates that "Made in China" will continue to lead the manufacturing industry and maintain a dominant position for some time to come.