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

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Sign Up for Our Newsletter

Get notified of our weekly selection of news

You May Also Like

China’s challenges amid COVID-19 and great power competition

China has adopted key steps to continue integration with the regional and global economy, sending a strong political signal to the outside world on reform. China signed the trade liberalising Regional Comprehensive Economic Partnership (RCEP), which will be implemented at the beginning of 2022.

Why China cares about the label of democracy

The most important problem facing China is a lack of alternative concepts to legitimise the state. Although contemporary China is the heir to a socialist revolution, beyond nostalgic leftist circles, orthodox Marxism cannot capture the public imagination as an alternative to liberal democracy.

Middle power conundrum amid US–China rivalry

The United States and other developed countries are abandoning offshoring to China to cut costs and instead are reshoring, nearshoring or ally-shoring them. The trend of shifting value chains away from China is based on the judgement that leadership in advanced technology is the only means to maintain strategic hegemony.