Chinese manufacturing will not lose edge soon

China will not lose its competitiveness in the manufacturing sector any time soon despite the rising labor cost, said Zheng Yongnian, director of East Asian Institute, National University of Singapore Tuesday.

Speaking in Singapore on Tuesday on the investment opportunities in China's inland west, Zheng said that, while some companies relying on cheap labor are indeed moving out of China, most manufacturing firms leaving the coastal east are actually moving within China to the central provinces and the inland west.

There are even some companies moving "from the Pearl River Delta to other poorer areas" within the province of Guangdong, Zheng said.

The companies chose to stay in China because the labor cost advantage is still there in the provinces in the central and western parts of China. They are "not prepared" to move to other places where the infrastructure was not comparable to those in China, he said.

It is also important for the companies to be able to source components from nearly places, as has been the case in some parts of China, Zheng added.

A report jointly released by the East Asian Institute, led by Zheng, and the West China Development Research Center, Sichuan Academy of Social Sciences, China, said that the investment opportunities inland west is attracting more and more international companies, including the Singapore firms which have been expanding fast to China's inland west.

Singapore and China's western province of Sichuan jointly broke the ground on a commercially-driven flagship cooperation project named Singapore-Sichuan High-Tech Innovation Park in May 2012.

China, who shall be able to survive the middle income trap even if it achieves only sustained middle growth over the coming decade, is expected to look to the vast inland west for potential growth, Zheng said.

"Faster economic development will also help reduce problems such as the social and ethnic issues," he said, highlighting the growth potentials of cities such as Chengdu, Chongqing, Xi'an and Urumqi.

Liu Shiqing, director-general of West China Development Research Center, said that the gaps across the different geographical locations in China can also be drivers of further growth.

"The inland provinces have been leading the growth in China over the five years since 2008. I think the inland west will gradually move closer to the coastal east, even though the numerical differences may even widen due to the effect of a larger base," she said.

While the inland west is growing faster, the coastal areas, like the city of Shenzhen, are already at a stage where further reforms are pondered upon for the society to be sustainable, she added.

Second-tier cities like Chengdu are also attracting young talents with its career opportunities, good weather and lifestyle, Liu said.

China's inland west nowadays have certain advantages compared with the coastal areas in the past as they don't have to worry so much about the funds for infrastructure and the mentality of the government officials are also more up-to-date, Zheng said.