Manufacturing in China is not what it used to be. Struggling to break even in the face of rising wages, companies are eyeing up China’s neighbours for a better alternative, and Wednesday’s official manufacturing figures show the sector struggling to maintain even modest levels of growth.
The official Purchasing Managers’ Index fell to 50.6 in April, down from 50.9 the month before. Any number under 50 indicates the industry is contracting. The figures are better than last year, but confirmed what HSBC’s preliminary release indicated last week: the recovery is flagging. China is also not alone. New data from South Korea showed a big drop in production yesterday, particularly among vehicle manufacturers like Hyundai, which have suffered from Japan’s monetary easing policies.
Tepid global demand for exports is not the only difficulty facing Chinese companies. The Wall Street Journal reports that after a decade of nearly 20% annual wage increases, Chinese companies are struggling to balance costs. Some are even moving operations to cheaper countries like Vietnam and India. “Operating in Southern China is a break-even proposition at best,” Stanley Szeto, boss of clothing maker Lever Style, told the paper. But with a heated debate about working conditions going on in Bangladesh, manufacturers should know that seeking ever-lower labor costs carries its own dangers.