Highlights

Chinese production bases remian most competitive in Asia

(Xinhua)
Updated: 2010-06-03 20:21

HONG KONG - Rising production costs on the Chinese mainland are eating into thin profit margins for Hong Kong companies, but manufacturing bases there continue to be ranked as more competitive than other supply regions in Asia, according to two research reports released Thursday by the Hong Kong Trade Development Council (HKTDC).

The two reports examined how production costs are rising on the mainland, and compare the competitiveness of Chinese manufacturers and Asian suppliers.

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The HKTDC survey regarding the mainland's export found that, more than half of the Hong Kong manufacturers operating in the Pearl River Delta (PRD) of the mainland experienced a labor shortage in the first half of 2010. To retain skilled labor, wage levels in the PRD increased by an average of about 17 percent over the last six months, a rise in total production costs of 4 percent to 6 percent.

The survey also found that the local content, or portion of production costs settled in renminbi, has increased from an average of 30 percent a few years ago to 48.9 percent for Hong Kong companies producing on the mainland. A rising Chinese currency poses a major challenge for them.

Despite rising production costs, the mainland's share of manufactured exports in world trade continues to increase. HKTDC Deputy Chief Economist Pansy Yau said that the figure rose from 4.7 percent in 2000 to 12.7 percent in 2008, which emphasizes that the competitiveness of the mainland as a production base is not linked to prices alone.

That competitiveness is also reflected in the second HKTDC survey, which compared suppliers on the mainland and those in the rest of Asia.

The survey found that rising production costs on the mainland have overseas buyers rethinking their sourcing strategy and considering the purchase of more labor-intensive goods from Asian suppliers with lower labor costs such as Vietnam, Cambodia and Bangladesh.

But while exports from some emerging Asian production bases are growing, their relative share in world trade lags far behind that of the mainland.

HKTDC Senior Economist Billy Wong said mainland's competitiveness as a production base remains strong despite the rise in production costs.

"The average output per mainland worker is significantly higher than that of Vietnam, Bangladesh and Cambodia," he said.

"Manufacturers on the mainland also benefit from well-developed industrial clusters, where upstream supplies can easily be sourced and essential services such as freight forwarding and lab testing are available," he added. "This not only boosts efficiency, but also shortens delivery lead time."

The HKTDC survey also asked manufacturers to rate the competitiveness of various production bases, and found that the top five regions were all on the mainland.

Wong said it is obvious that the mainland's well-established industrial clusters, highly efficient labor force and infrastructure systems are able to offset the disadvantage of rising costs.