Higher Production Costs Shift Chinese Manufacturing

April 20, 2011

Staff members work on the production line at the Foxconn complex in the southern Chinese city of Shenzhen, Southern city in China, May 26, 2010

During her recent visit to Beijing, Brazil’s President Dilma Rousseff said Foxconn International Holdings, the company that manufactures Apple’s popular iPhone, plans to spend $12 billion building factories in her country.

For some time, Foxconn has been expanding outside of its traditional manufacturing base in southern China, shifting north to Hebei province, to cut costs. The company, which employs hundreds of thousands of workers in China, reported a loss for 2010 because of higher production costs.

Companies opt out

Companies increasingly are moving out of southern China’s manufacturing hub in the Pearl River Delta as profits decline.

Stanley Lau is managing director of Renley Watch Manufacturing Company. He also heads the Pearl River Delta Council of the Hong Kong Federation of Industries.

“Wages are going up. The minimum wage has gone up by about 20 percent in 2010. And again this year wages have gone up by 20 percent roughly," said Lau. "When you look at any part of the world, I think you cannot find any other place with such kind of increase in wages.”

What is more, he says, the cost of raw materials such as cotton, plastics and electronic components, is rising. Although the Chinese currency has been rising against the dollar, which could help ease rising costs for imported raw materials, manufacturers say even locally made materials are getting more expensive. China’s inflation rate reached 5.4 percent in March, the highest in nearly three years.