Countries such as India offer advantages: experts
Domestic manufacturing companies are turning their eyes to overseas destinations to set up plants, showing a growing trend toward expansion abroad and industrial upgrading for China's manufacturing industry, experts said Monday.
China is seeing more and more of its manufacturing companies moving to other countries, such as India and Brazil, the China Business News reported on Monday.
Domestically, China has seen many cases of manufacturing enterprises shutting down since 2014, in places such as Dongguan in South China's Guangdong Province and Suzhou in East China's Jiangsu Province, finance information website finance.qq.com reported on February 9.
This is partly the result of factors such as increasing labor costs and overcapacity in the domestic manufacturing industry, the China Business News report said.
Manufacturing costs in China are close to those in the U.S., according to a 2014 report by global business consulting firm Boston Consulting Group (BCG). In August 2014, China's manufacturing cost index was 96, against the US benchmark manufacturing cost index of 100, the BCG report said.
The index was compiled after BCG analyzed manufacturing costs in the world's 25 leading exporting economies, based on four criteria: wages, labor productivity, energy costs, and exchange rates.
According to the China Business News, Foxconn Technology Group, a leading Taiwan-based manufacturer of electronics components, announced on Saturday that it would spend $5 billion in setting up an electronics equipment manufacturing plant in Maharashtra, a province in central India, in the next five years.
Foxconn could not be reached for comment by press time.
TCL Corporation, a leading global mobile handset and television manufacturer based in Huizhou, South China's Guangdong Province, also plans to build a manufacturing unit in India in 2015, Reuters reported on March 16.
Wang Lei, a researcher at Fudan Development Institute at Fudan University, told the Global Times on Monday that India offers certain advantages for Chinese manufacturers.
"Not only does India have lower labor costs than in China, Chinese companies that set up plants in India also have access to the local market, which is full of potential as India's population is large and Indian people have had greater buying power in recent years," Wang said.
Wang also noted that since India's export tax is lower than that in China, the country can serve as a good "intermediate station" for Chinese companies to explore the markets of South Asia, Africa and Europe.
Other advantages in India include the common use of the English language and encouraging government policies for overseas investment, Wang said.
But Sumeet Chander, general manager of Evalueserve Business Consulting (Shanghai) Corp, who is from India, told the Global Times on Monday that Chinese entrepreneurs also face various problems when setting up plants in India, such as underdeveloped infrastructure conditions and difficulties in adapting to local culture.
However, Chander noted that most Chinese companies know how to manage business in a developing economy, which puts them in a better position than companies from many other countries to succeed in the Indian market.
Countries like the U.S. and Brazil have also become popular destinations for Chinese manufacturers. According to a report on August 4 by news website sohu.com, some of China's fabric enterprises started to open manufacturing units in the U.S. as early as in 2013.
Xu Hongcai, director of the Department of Information under the China Center for International Economic Exchanges (CCIEE), told the Global Times on Monday that the transfer of manufacturing overseas has both pros and cons for the domestic economy.
"On one hand, China's employment rate might be affected as there will be fewer jobs in the manufacturing industry," Xu said. "On the other hand, domestic manufacturers will be under pressure to implement industrial upgrading with greater efficiency."
Wang said that it could pose a challenge for the domestic economy, which still has substantial demand for foreign investment. However, industrial upgrading and globalization are an "inevitable stage" for the domestic manufacturing industry, he noted.
Wang said that Chinese manufacturers who plan to set up units abroad will have to increase the competitiveness of their products in order to cope with the complexities of foreign markets.
