Foreign firms still looking to the east(2)

Industrial transfer

Not every company is responding to the changing business environment in the same way. Ni Zugen, chairman of Lexy Electric Appliances Co Ltd, said the company may shift production facilities to Eastern Europe, rather than move to China's inland regions.

"The monthly salary of a worker in Suzhou is about $600, while in central and western regions, it is about 500 yuan ($82) lower.

"But it's not just labor. Transportation costs are also rising. As the renminbi keeps appreciating, we may shift plants to parts of Europe. For example, Turkey has an abundant and stable labor supply. Monthly salaries in Eastern Europe are about $500, lower than in China's coastal area," Ni said.

Zhu Yongquan, general manager of AU Optronics (Suzhou) Co Ltd, said that the panel maker won't relocate its plants into inland areas or Southeast Asia, at least in the short term.

AU is a Taiwan-based manufacturer of liquid crystal displays and other items.

"The advantage of inland regions is in question, as the wage gap [compared with the east] has significantly narrowed from two or three years ago. And it's much easier to get skilled workers in the eastern regions.

"What's more important is industrial facilities. East China has developed complete industrial chains in recent decades, which cannot be duplicated elsewhere. The problem is the same in Southeast Asia, because it does not have sufficient qualified workers," Zhu said.

Jarry Ma, plant manager of Fu Gang Electronic (Kunshan) Co Ltd, added that China's "demographic dividend", or labor advantage, has declined in recent years. Fu Gang Electronic is short-handed when big overseas orders arrive, which has driven the chip producer to automate.

Xu Cheng, administrative vice-director of Bosideng International Holdings Ltd and Shanghai Bosideng International Fashion Co Ltd, said: "We have moved some of our production to Vietnam, because the labor cost is much lower. But the fundamental market is still in China, which deserves to be better cultivated."

Zhang from Schaeffler said the company is concerned about China's overall economic performance and excess industrial capacity, as changes in the Chinese market are playing a bigger role in the group's business performance.

"A couple of challenges are related to environment issues. China does not have advanced technology, and high-end talent isn't available," said Johansson from UPM. "Local resource companies cannot meet our safety standards. You have to watch over them," he added.

China has pledged to make its investment environment better and improve the use of foreign investment, with the new leadership focused on economic upgrading, including the transformation of manufacturing.

"Even without the government's encouragement for industrial transformation, we'd make the move anyway and use China as a strategic base. It may be better for the government to introduce support policies, such as including foreign enterprises in its talent incentive policies.

"What's more, the government should maintain a level playing field when introducing new policies," said Li from Samsung.