Archive for August 12th, 2012

Sunday, August 12, 2012

Huanqiu Shibao: is South-East Asia replacing “Made in China”?

The following are loosely translated extracts from an article by Huanqiu Shibao, published on Friday, and authored by several Huanqiu reporters.

It refers to an UNCTAD 2012 Investment Report, apparently this one, officially published on July 5, 2012.

There is a rising trend at Huanqiu Shibao to provide emoticon votes, rather than opening a commenter thread. This article doesn’t appear to allow online readers’ comments either (there is a button, but it leads nowhere, and there are indeed no comments), although it is hard to see how its topic should be particularly sensitive.

Links within the following paragraphs were added during translation — JR

Main Link: Is South-East Asia replacing “Made in China”? (Huanqiu Shibao, August 10, 2012)


From Adidas to Oclaro [currently Shenzhen, scheduled to leave for Malaysia within three years], foreign manufacturing investors announce relocations from China to South-East Asia, write the Huanqiu reporters. And a recent UNCTAD report said that in 2011, foreign direct investment (FDI) to South-East Asian nations had reached 117 billion US dollars, an increase by 26 per cent, far more than a rise by less than eight per cent in FDI to China. And Vietnam’s state news agency excitedly announced that the scale of NIKE trainers made in Vietnam now exceeded that of those made in China, making Vietnam the world’s biggest NIKE trainers producer. Currently, Vietnam’s share in NIKE trainers global production was at 41 per cent, with China’s only at 32 per cent. Previously, Adidas had announced it would move its only wholly-foreign-owned factory in China to [correction – 20130729] Cambodia Laos. This causes worries to people at home that international investors could be moving from China to South-East Asia, in terms of manufacturing, writes Huanqiu.


Souvenir from Turkey, made in China

Souvenir from Turkey, made in China

The article then quotes a Chinese garment manufacturer who is sympathetic towards European and American buyers’ demands that he relocate his production to South-East Asia. “I find that understandable – who wouldn’t want to buy at low prices?” (我很理解,谁不希望以更低价格拿到进货呢?) The European Union had allowed duty-free imports from Cambodia from January 2011.

However, a Standard Chartered Bank analyst is also quoted, with more encouraging news for the readers: It was difficult to determine if this was a real shift from China to South-East Asia, as foreign investment in China was rising, too.
A major reason for the slowdown in foreign investment in China was that the global economy had slowed down, and China’s economy along with it, but that didn’t mean that South-East Asia would replace China. Some international companies were seeking diversification, especially because of rising costs in China, and to avoid risks of protectionism against China in some [importing] countries.


After a discussion of Japanese investment in South-East Asia, the article addresses the challenges it sees for South-East Asia.

Vietnam’s 41 per cent share in Nike’s trainers’ production didn’t spell great practical benefits for the people. A Nike trainer on the Vietnamese market costs about as much as one anywhere else, according to Huanqiu Shibao’s research, and would therefore be out of reach for normal Vietnamese buyers.Besides, Huanqiu’s Hanoi correspondent quotes a 28-year-old worker from the 10th Garment Factory in Hanoi’s suburbs, the monthly income is at 2,500,000 Vietnamese Dongs (1 USD about 21,000 Dongs). That is above the state-defined minimum wage standard, and a free lunch is included as another benefit, but that is mostly spent on her motorcycle rides to and from work (500,000 Dongs monthly spent on gasoline), a monthly flat rental (1,200,000 Dongs), water, energy etc. at 300,000, etc.. Even her and her husband’s incomes combined didn’t pay the bills, when they both worked at the garment factory, and extra jobs needed to make ends meet.


Companies like Nike had moved to South-East Asia mainly for lower labor costs and to achieve a maximum profit, writes Huanqiu. Adidas, one of the biggest London Olympic Games sponsor, was facing investigations by the London Organizing Committee not long ago, for allegations that factory workers only earned ten British Pounds a week, and their factory therefore being called a “sweat shop”.


Dissatisfaction with wages had led to protests among workers in many South-East Asian countries, and after the “Adidas sweat shop” incident, the Cambodian minstry of labor had stipulated that from September 1, factories in the Cambodian textile and shoe industry had to provide an extra amount of five US dollars, a non-leave pay (or attendance bonus) of ten US dollars, seven dollars for transport and living costs etc., which would then amount to 83 US dollars a month as a minimum wage. The Vietnamese government had also adjusted the minimum wages several times in recent years, most recently in October 2011, stipulating that foreign-invested companies needed to pay 2,000,000 Dongs as a monthly minimum, instead of only 1,550,000. But this still didn’t meet the demands of Vietnamese workers. According to statistics by the Vietnamese garment-industry “labor union”, fluctuation within the workforce at state-owned companies was at 15 to 20 per cent, it was at 20 to 30 per cent in some small and medium-sized companies, but at 40 per cent in foreign-invested companies.


Also, Huanqiu quotes Jiang Jianhua, the Cambodia Wenzhou Chamber of Commerce’s deputy managing director, as saying that while labor costs in some South-East Asian countries were relatively low, Vietnam’s garment industry’s management costs were close to those in China, and that they didn’t provide a great advantage. Besides [it isn’t quite clear from the article if the following should still be attributed to Jiang], Vietnam’s legal system was rather backward, its taxation system not transparent, and these, too, were hampering factors. In Thailand, garment manufacturing costs were too high, frequently higher than even in China, and while Cambodia’s political environment was rather stable and labor costs cheap, investors in Cambodia needed to be mindful about backward infrastructure and a usually low quality among the workforce.


It was quite true that the textile industry was gradually shifting to the entire Asia-Pacific region, the article quotes a KPMG report. Rising labor costs in China had compelled multinational companies to look to other parts of Asia, and a number of South-East Asian countries were going to profit from regional integration and preferential terms of trade. But from consumer electronics to furniture and other hardware products, China remained the country of origin. Besides, a Chinese consultant is quoted, most of the South-East Asian countries were rather small, and none of them provided the entire industrial chain. In that regard, there were complementary relations between China and South-East Asia.



Unctad’s latest report also believed that while there was stagnation in foreign direct investment to China in the short term, China remained the place with the highest attractiveness for foreign investment. Some people in the market had also said that the absolute majority of the Made-in-China industry was looking for its own road, i. e. upgrading production or moving to hinterland provinces in China, seeking development there. There were close customer and supplier links between China and other regions, and some manufacturers would continue to rely on China even after relocation, in that they needed to import production equipment from China, or in that they needed China as an export market, for example.


And a Standard Chartered Bank analyst is quoted as saying that if the manufacturing industry was actually moving to South East Asia still remained unclear. China was more competitive than many South-East Asian nations in terms of logistics infrastructure, and Chinese manufacturers no longer produced for export markets only, but for growing domestic demand, too. Rather than reductions in foreign investment in China, there might rather be more rapid investment in other east Asian markets. Some European and American market participants also said that it was too early to talk about a large-scale manufacturing relocation to South East Asia. However, they also suggested that China should address improvement issues among its suppliers, as timely adjustment from passive to active patterns would be helpful for China’s development.


In the words of the report – apparently this one,

FDI flows to China also reached a record level of $124 billion, and flows to the services sector surpassed
those to manufacturing for the first time. China continued to be in the top spot as investors’ preferred
destination for FDI, according to UNCTAD’s WIPS, but the rankings of South-East Asian economies such
as Indonesia and Thailand have risen markedly. Overall, as China continues to experience rising wages and production costs, the relative ompetitiveness of ASEAN countries in manufacturing is increasing.

FDI outflows from East Asia dropped by 9 per cent to $180 billion, while those from South-East Asia rose
36 per cent to $60 billion. Outflows from China dropped by 5 per cent, while those from Hong Kong, China, declined by 15 per cent. By contrast, outflows from Singapore registered a 19 per cent increase and
outflows from Indonesia and Thailand surged. [page xvi – xvii]


FDI inflows to developing Asia continued to grow, while South-East Asia and South Asia
experienced faster FDI growth than East Asia.
The two large emerging economies, China and India, saw inflows rise by nearly 8 per cent and by 31 per cent, respectively. Major recipient
economies in the Association of South-East Asian Nations (ASEAN) subregion, including
Indonesia, Malaysia and Singapore, also experienced a rise in inflows. [pages 3 – 4]

As indirectly quoted by Huanqiu Shibao, the report states that

Among the economies of the Association of Southeast Asian Nations (ASEAN), four – Brunei
Darussalam, Indonesia, Malaysia and Singapore – saw a considerable rise in their FDI inflows. The
performance of the relatively low-income countries, namely Cambodia, the Lao People’s Democratic
Republic and Myanmar was generally good as well, though Viet Nam declined slightly. Although natural
disaster in Thailand disrupted production by foreign affiliates in the country, particularly in the automobile
and electronic industries, and exposed a weakness of the current supply-chain management systems,
FDI inflows to the country remained at a high level of nearly $10 billion, only marginally lower than that of
2010. Overall, as East Asian countries, particularly China, have continued to experience rising wages
and production costs, the relative competitiveness of ASEAN in manufacturing has been enhanced.
Accordingly, some foreign affiliates in China’s coastal regions are relocating to South-East Asia,2
while others are moving their production facilities to inland China. [page 43]

Addressing FDI into Chinese manufacturing in particular, the report states slowing growth as a short-term prospect:

FDI growth in the region has slowed since late 2011 because of growing uncertainties in the global economy. FDI to manufacturing stagnated in China, but the country is increasingly attracting market-seeking FDI, especially in services. According to the annual World Investment Prospects Survey (WIPS) undertaken by UNCTAD this year, China continues to be the most favoured destination of FDI inflows. FDI prospects in South-East Asia remain promising,
as the rankings of ASEAN economies, such as Indonesia and Thailand, have risen markedly in the survey. [page 44]

The report doesn’t only discuss China’s (and other developing countries) as recipients, but also as sources of foreign direct investment.

All in all, the Huanqiu Shibao article appears to be basically assuasive, but still somewhat more “alarming” than the UNCTAD report would seem to warrant. It’s conventional wisdom that China is moving up the value-adding chain, and rising wages are a logical phenomenon in this process. The main goal in terms of propaganda appears to be that the laobaixing, the common people, should continue to push ahead in terms of personal education and qualification, in a competitive global economy. In this context, it also makes sense that websites like “Utopia” remain closed down – a measure which was reportedly criticized, among others, by some 1,600 cadres and scholars who accused chief state councillor Wen Jiabao in particular for closing these sources down, and of subverting the socialist market economy. That Huanqiu Shibao may distrust the outside world appears to be an intended goal (no cohesion within China, without such distrust) – but another intended goal is that the readers accept the challenges posed by global competition, rather than rejecting them in favor of, for example, Maoism.

I hadn’t been a regular reader of Utopia, one of the websites that have been closed since spring this year, but came across an article there some six months before the closures. The article’s author was Gu Genliang, a People’s University (aka Renmin University) professor, and it wasn’t exactly globalization-friendly:

We are mired in heavy dependence on foreign resources and on on our own cheap exports. Large-scale low-end exports consume a lot of energy and natural resources, which led to our country’s dependence on foreign energy and resources which not only made the prices for these sources explode, which transferred the fruits of our people’s hard work into the hands of energy-exporting countries, but also has the potential of making us suffer from foreign countries’ embargos, thus carrying a huge security risk. At the same time, while our country is so reliant on foreign resources, it is ridiculous that we are exporting large quantities of rare earths and minerals coal, etc. at low prices.

The topic of Huanqiu Shibao’s article on ASEAN as a competitor for efficiency-seeking FDI doesn’t look exactly sensitive, but a current anti-“Maoist”, anti-“utopian”, or simply anti-“nostalgia” struggle might help to explain why there is no room for readers’ comments underneath. Such comments could spoil the article’s intended pro-competition message.



» UNCTAD World Investment Report 2012


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