China's rising wages, higher land costs and real exchange-rate appreciation over the past decade have reflected policy efforts to rebalance the economy and raise living standards, but they have also reduced low-end manufacturing competitiveness. The average Chinese manufacturing wage is now higher than in Asia's other major emerging economies (see chart). Finding cheap labour in China is only likely to become harder, with urbanisation rates already high and the working-age population set to shrink by 0.4% a year on average over 2015-2035.
A significant drop in China's low-end manufacturing over the coming decades would leave a large gap for lower-cost countries to exploit. China's global share of exports of clothing, footwear and furniture is still almost 40%, up from 34% in 2010, and only peaked in 2014, according to UN Comtrade. However, the decline now appears to be gathering momentum - China's exports of these labour-intensive goods fell by 10% in US dollar terms in 2016.
Bangladesh and Vietnam already have strong footholds in these sectors - together they accounted for 8% of global clothing, footwear and furniture exports in 2015, up from 3% in 2010. This established scale could be an advantage. Bangladesh, for example, has a ready-made garments industry that accounts for over 80% of its exports, and has the capacity to meet large orders swiftly. Vietnam looks well-positioned to expand its basic electronics manufacturing further through the relocation of factories from China. In both countries the manufacturing sector is a key driver of the high and stable GDP growth rates that act as a rating strength. It is also an important source of export revenue, which supports external finances.
Powered by Capital Market - Live News