Since the reforms of the late Chinese Premier Deng Xiaopeng, China has been the world’s factory.  Of particular significance is the electronics industry which, in 2013, was responsible for US$560 billion in exports. One of the world’s largest contract electronics manufacturers, Foxconn, has its largest industrial base inside mainland China with 13 locations and more than a million employees (making it the largest private employer in China.) It has been predicted that roughly 60 per cent of the world’s electronics are manufactured in the Pearl River Delta area alone, but will this dominance last forever?

 

An electronics factory in Shenzhen, China By Steve Jurvetson

An electronics factory in Shenzhen, China By Steve Jurvetson

Rising wages and a shrinking workforce

One of the major attractions of China as a manufacturing hub for many years was the size of its labour force combined with low wages. However with success comes consequences, one which has been the emergence of a middle class, and an increasing demand for higher wages. Real wages increased 10.7 per cent in 2013 and are expected to increase again by 11-15 per cent by the end of this year. The wage issue is a delicate balancing act for the authorities in China, between keeping their workers happy and retaining enough business to maintain difficult growth targets, something that’s been proving difficult of late. Another troubling trend is China’s shrinking workforce due to an ageing population, China’s working age population peaked in 2012 and has been falling ever since. In contrast, South East Asia’s working population continues to expand at an impressively healthy rate and isn’t expected to peak until 2042.

Tigers on the prowl

Overseas businesses looking to keep manufacturing costs down have therefore been increasingly turning their attention to the developing economies to China’s south: Vietnam, Indonesia, Cambodia, Laos, Thailand, Myanmar (Burma) and Malaysia. Leading the charge is Vietnam, with the recent announcement of Samsung launching a second production facility in the country being the most recent in a string of large scale investments in Vietnam’s burgeoning electronics industry. Intel is another key example, not only has it pumped $1 billion US into building manufacturing infrastructure, it has also spent $7 million on a study abroad scholarship programme, sending 73 students to study at Portland State University since the programme’s inception in 2009.

While it is only a fraction of China’s output, Vietnam’s electronics exports for 2013 totalled an impressive 38.4 billion US Dollars. This figure only looks set to grow as Vietnam’s IT economy continues to develop in the coming years.

A night view of Ho Chi Minh city from Bitexo Financial Tower By Diego Delso [CC-BY-SA-3.0], via Wikimedia Commons

A night view of Ho Chi Minh city from Bitexo Financial Tower By Diego Delso

ASEAN: a union in waiting

Even more tantalising to investors is the prospect of an Association of Southeast Asian Nations (ASEAN) economic union taking shape in 2015. This will provide tariff free access to all of the ASEAN economies. While this is undoubtedly good news for the advancing economies of Vietnam, Malaysia, Indonesia and Thailand, it isn’t all days of wine and roses for ASEAN. Economic expectations for the poorer countries of Cambodia, Laos and Myanmar remain disappointingly low, with Cambodia in particular still feeling the effects of the horrendous crimes perpetrated by the Khmer Rouge regime in the 1970s.

With a combined population of 610 million, the ASEAN nations even combined cannot hope to completely challenge the sheer overwhelming size of the Chinese market given its population of 1.3 billion, aging or not, that is an indisputably massive number. However what the ASEAN nations do offer is a healthy alternative to Chinese labour, with lower wages and less political entanglement, given China’s increasingly regulatory environment as well as its continued diplomatic disputes with various neighbours.

If current trends continue, “Made in China” may not be as ubiquitous as it once was, but it certainly won’t vanish entirely.

Featured image: A sunrise over Shenzhen (public domain) all other images utilised under Creative Commons 2.0 and 3.0 licensing