Looming crisis for theWorld’s Factory

China’s robust manufacturing sector has created many jobs and helped the country rake in mammoth revenues. But clear signs of trouble are emerging

RURAL migrant workers are the key force that has driven China’s rapid economic growth. They even made runner-up in Time magazine’s ‘Person of the Year list in 2009.

The magazine noted that China was able to maintain strong economic growth in that year while the rest of the world was reeling from the shock of the financial tsunami. The mainland’s workers were given credit for making that happen.

But there are signs that the mainland’s status as the world manufacturing giant is deteriorating.

About two or three years ago, factories in the Pearl River Delta area started to close down. Factory failures mean job losses. Paradoxically, there is a labour shortage at the same time. A Dongguan (東莞) manufacturer told the media that it was hard to recruit even at higher salaries.

What are the problems hitting the ‘World’s Factory’?

Dwindling labour force and rising wages
A HUGE supply of cheap labour was the reason China became the world’s leading manufacturer.

China has a big labour force, with 270 million rural migrant workers who had been employed at low wages for a long time. But the situation has changed since 2007, as wages have started to rise steeply ─ at an average annual rate of 14 percent ─ because of the labour shortage.

Under globalisation, China is not the only choice as a manufacturing base for companies. Labour costs in Vietnam (越南) and India (印度), for example, are half of those in China, and many multinational companies have moved production lines to these countries.

The departure of multinational companies is bad news for the ‘World’s Factory’.

But this is inevitable. Companies move their production lines to places with cheaper cost when their profit margins are eroded by fast rising wage levels, caused by a labour shortage.

A lack of quality assurance
CHINA’S products are cheap, but not always good. In fact, poor quality has been a chronic complaint about ‘made-in- China’ goods.

By contrast, people have always associated Japanese (日本的) brands with good quality. Maintaining consumer confidence with high quality products is, in many ways, more important than cutting production costs.

In fact, some consumers were overjoyed when they learned that Panasonic is moving the production of some of its products from the mainland back to Japan.