After 24 years, China is no longer Japanese manufacturers’ favorite destination

A clothing factory in Wuhu, China.
A clothing factory in Wuhu, China.
Image: Reuters/stringer
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For the first time in more than two decades, China is no longer the “most promising” country for Japanese manufacturers to invest in, thanks to concerns about the cost and availability of labor.

China tumbled to fourth place—after Indonesia, India and Thailand—on the Japanese Bank for International Cooperation’s annual survey of 625 retailers (pdf), released Dec. 4. The bank started surveying Japan’s manufacturers in 1989, and China has always topped the survey, it said. Just 38% of companies said they considered China a promising location over the next three years, down from 62% the year before:

Image for article titled After 24 years, China is no longer Japanese manufacturers’ favorite destination
Image: JBIC

Minimum wages in China vary by provinces and sometimes even cities, but in many areas they’ve risen 20% a year or more for the past several years. Private sector wages overall grew by 12% in 2012, driving up costs for manufacturers in the country, which are looking to expand instead to other parts of south east Asia and the Americas. At the same time, China’s rising education levels and shrinking work force mean that factory managers are having a hard time finding employees to work the assembly lines at any price.

Just 30% of the manufacturers surveyed said they had already transferred functions to other countries, or were actively considering transferring business right now. Still, that may be taking a toll—Japan’s total trade with China declined 10.8% in the first half of 2013, the first drop in four years and Japan’s investment in China in the first 9 months of 2013 is down 37% from the year before.