For foreign investors, a series of strikes in the last two months in mainland China has not been the only factor contributing to China’s manufacturing market losing its appeal.
Low wages and the renminbi (RMB) exchange rate were the main incentives for many foreign investors to originally invest in mainland China, but now those premises are being challenged. Many large corporations are considering withdrawing from China or relocating to other developing countries. Some will even move their production lines back to the West.
According to a report by Japanese newspaper, Yomiuri Shimbun, rising wages, labor shortages and a series of unprecedented worker strikes in mainland China have had a long-term impact on Japanese companies’ strategies, forcing them to reconsider their long-term goal of using China as their low cost export base. Moreover, the anticipated rise of the RMB exchange rate will further erode the profitability factor for exporters.
Japan Turns to Thailand
The annual salary for a Chinese Honda worker currently can run as high as US$4,500 to 5,500: about twice that of Indian workers, and 33 percent higher than Thai workers.
Kyodo News reported that the Thai government has defined small cars that have fuel consumption and carbon dioxide emission levels lower than standard compliance guidelines as “green cars,” and encourages their production through tax reduction and exemption incentives.
Japan’s auto makers are now strengthening their production operations in Thailand. Various companies now consider Thailand to be a production and export base for environmentally-friendly and energy-efficient “global strategic models.” They plan to open new plants or increase production lines in Thailand.
China’s new three-child policy highlights risks of aging across emerging Asia
Thailand’s (Baa1 stable) total dependency ratio is set to jump nine percentage points to 51% by 2030 – a faster increase than China’s – which will pressure public and private savings through higher taxes and social spending, reducing innovation and productivity gains.
Population aging in China (A1 stable) and other emerging markets in Asia will hurt economic growth, competitiveness and fiscal revenue, unless productivity gains accelerate, according to a new report by Moody’s Investors Service.(more…)
Clear skies over Asia’s new foreign investment landscape?
Compounding the fallout of the US–China trade war, the global pandemic and recession have caused considerable speculation on the future of foreign investment and global value chains (GVCs). But though there is likely to be some permanent change, it will probably not be as great as politicians expect.(more…)
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