Manufacturing transfer brings challenges, opportunities for China, ASEAN

Experts and scholars attending the ongoing ninth China-ASEAN Expo being held in the city of Nanning in south China's Guangxi Zhuang Autonomous Region said that although China is losing some of its manufacturing business to southeast Asia, the country's manufacturing industry will still see new opportunities that will allow it to develop alongside southeast Asia's industry.

Some southeast Asian countries have started to take China's place as the "world's factory." Vietnam is a good example, usurping China to become the largest producer of Nike shoes in 2010.

In July, sportswear giant Adidas announced that it would close its only affiliated factory in east China's Jiangsu Province, with plans to relocate the factory to Myanmar.

Research by the United Nations Conference on Trade and Development (UNCTAD) indicates that rising labor and production costs in China have made it less competitive than the member states of the Association of Southeast Asian Nations (ASEAN).

Foreign companies are not the only ones looking to capitalize on southeast Asia's cheap labor, with several domestic companies moving their factories there.

Although south China's Guangdong Province still reigns as the world's biggest manufacturer of computer parts, several electronics companies have moved their factories to southeast Asian countries, according to Chen Zhihua, president of the Guangdong Computer Vendors' Chamber of Commerce.

A UNCTAD investment report said foreign direct investment into southeast Asia reached 117 billion U.S. dollars in 2011, increasing 26 percent year on year, while foreign direct investment to China only increased by eight percent.

Chen Jiagui, former associate dean of the Chinese Academy of Social Sciences, said the manufacturing industry transfer is inevitable, as China has entered the intermediary stage of industrialization, which brings with it rising labor and land costs.

SOUTHEAST ASIAN OPPORTUNITIES

Research conducted by UNCTAD this year indicates that transnational corporations believe Indonesia and Thailand have benefited greatly from the relocation of industries there.

"Relocation has directly promoted the development of local economies," Chen Jiagui said.

Vietnam can speak for the benefits of industrial relocation. After Nike transferred more of its orders to Vietnam, the country saw its manufacturing industry output value increase, as well as an overall industry upgrade that has allowed it to produce more high-end goods.

"Southeast Asian countries' lower labor costs and land prices have attracted more overseas and Chinese investors," Chen Jiagui said, adding that the reduction of trade friction and avoidance of trade barriers have also inspired foreign companies to move their factories to southeast Asia.

However, experts at the expo said China's manufacturing industry still has the chance to remain dominant in the future.

"China has a higher-quality labor force due to the popularization of compulsory education, making its labor incomparable to that of southeast Asia," Chen Jiagui said.

Fundamental infrastructure in southeast Asia remains poor and investors will have to spend more capital and time on preliminary construction, said Li Hui, vice president of Guangdong Zhenrong Energy Co., Ltd., adding that these same factors will encourage some enterprises to turn their attention back to China.

In addition, it may be hard for foreign investors to completely cut off relations with China, experts said.

The economies of China and southeast Asia are highly complementary, creating great potential for the manufacturing industries of both sides, said Su Po, vice minister of the Ministry of Industry and Information Technology.

Su said China is a major importer of ASEAN petroleum, natural gas and rubber products.

The two-way flow of technology, human resources and resources between China and ASEAN will act as a new channel for cooperation, said Luo Wen, dean of the China Center for Information Industry Development.

The relocation of Chinese factories to southeast Asia can also act as a method to optimize the layout of China's domestic industry, Chen Jiagui said.

Both sides should make full use of the China-ASEAN leader dialogue mechanism, strengthen relations and speed up research and development of advanced technology in southeast Asia, said Pan Jiluan, an academic from the Chinese Academy of Science.

Wang Yijiang, a professor of economics at Harvard, said China should learn from the free trade zones established in the EU and North America to free up the flow of labor.

China could create a region in Guangxi to encourage the flow of labor, allowing workers from southeast Asia to find jobs in Guangxi or other places in China, Wang said.