According to a study released by Standard Chartered bank, ASEAN is poised to become Asia’s next low-cost manufacturing powerhouse as wages in China’s Pearl River Delta (PRD) factory belt continue to creep up.
As China sees waning wage competitiveness, ASEAN stands to gain, with its lower costs and abundant supply of labour over the next 20 years. ASEAN’s high rate of GDP growth, and rising household affluence, means companies relocating from the PRD could capture a share of a large and growing consumer market.
Shortage of labour and rising wages
Our latest survey shows that manufacturers in the PRD – spanning nine cities in China’s Guangdong Province and accounting for 27 per cent of Chinese exports – continue to face persistent labour shortages and rising wages.
Rising wages reflect China’s improving productivity and the increasing complexity of the products it makes
At the macro level, this is good news for China, as maintaining a stable labour market and healthy income growth are priorities for Beijing. Rising wages reflect the country’s improving productivity and the increasing complexity of the products it makes. It confirms China’s transition to high-end manufacturing and a more sustainable growth model.
At the company level, however, labour shortages mean more cost for PRD manufacturers.
A potential shift to Vietnam
We spoke to 290 Hong Kong and Taiwan-based manufacturers operating in the PRD, and more that 85 per cent said labour shortages are at least as bad as last year. Migrant worker wages are expected to rise 8.4 per cent on average this year, against 8.1 per cent in 2014, pointing to an overall real wage growth of 6.8 per cent.
Vietnam is poised to be one of the biggest beneficiaries, as low-costs manufacturing shifts away from the Pearl River Delta
As China’s manufacturing sector transforms, ASEAN’s is likely to grow. While wages may still be competitive in some parts of China, particularly the West, the shrinking labour force means that wages are likely to catch up quickly with those in Eastern China.
Vietnam, with its geographical proximity to China, is poised to be one of the biggest beneficiaries, as low-costs manufacturing shifts away from the PRD. The companies in our survey estimate that moving here could give them an average cost reduction of 19 per cent. Cambodia, on the other hand, could yield a 20 per cent saving on wages.
As a whole, ASEAN has strong and varied manufacturing capabilities – from low-cost factories in Cambodia, Laos, Myanmar, Vietnam and Indonesia, to mixed manufacturing and electronics in Thailand, Malaysia and the Philippines, and high value-added production in Singapore.
Source: ASEAN to be Asia’s next Pearl River Delta? – BeyondBorders
About the author
Zhong Li is a tech journalist who covers the latest developments in artificial intelligence, robotics, and biotechnology. Zhong Li is passionate about exploring the ethical and social implications of emerging technologies.
