Credit crunch will hit cost of manufacturing in ChinaTuesday 23 September 2008 Behind the turmoil in the world's financial markets potentially far-reaching changes to the cost of manufacturing in China have gone virtually unnoticed. Undoubtedly the world's lowest cost area for manufacturing, China has become the production powerhouse of the world especially in electronic products. The belief was that this imbalance in the cost of production east-to-west would continue, if not for ever, but for many years ahead. But changes to the Chinese and world economies in the last few months have dented that belief and there is a real likelihood that China may become a more expensive place to makes things in the future. The process has already begun. The rising cost of fuel has pushed up transportation costs for companies shipping finishing product halfway around the world from factories in China to markets in Europe and the US. In recent years the cost of sending container ships around the world has more than doubled. While the UK grapples with the possibility of recession, we must not forget that China has economic worries of its own. And as is the way with China they are on a whole different scale. Inflation is China is running at over 5% this is putting pressure on wages in a way that is typical here in Europe, but which is a new phenomenon in China. The Chinese Government has steadily throughout the summer been putting in place laws which increase workers rights particularly in respect to a minimum wage. The implications for electronics companies are clear. As the cost of manufacturing in China continues to rise, the argument for moving more production offshore, particularly the higher value manufacturing which still resides in Europe, weakens. Much production has already gone and it will take big changes in the Chinese cost model to bring it back. But the process may already have started with some companies putting the break on plans to move any more production to China. I believe there are signs that the economic changes of the last few months have made some companies re-visit the benefits of having a European production base. |
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