Zhang Ping: Can Southeast Asia Succeed Instead Of "Made In China"?

A few days ago, manufacturers who invested in Southeast Asian countries such as Vietnam and Cambodia were quoted to express such feelings. In recent years, in order to save costs, many multinational enterprises have turned their attention to low wage Southeast Asia. However, the manufacturing industry in the region also has a worrying side: the frequent occurrence of safety accidents in Bangladeshi factories, the increasingly fierce demonstrations brought about by Cambodian workers' demands for higher wages, and the new wave of instability in Thailand's political situation have all made international investors face major challenges.

In recent years, with the acceleration of RMB appreciation and the rapid rise of domestic labor costs, many well-known multinational enterprises have moved their manufacturing enterprises in China to Southeast Asian countries for their own interests, hoping to replace them with cheaper production costs“ made in China ”。 But the actual experience made them complain incessantly. The author believes that although Cambodia, Vietnam, Myanmar and other countries do have a great competitive advantage in labor prices compared with China, it is not easy for Southeast Asia to replace "Made in China" as the world's processing plant. Low wages of workers in Southeast Asia do not mean low manufacturing costs.

First of all, workers in Southeast Asian countries are also demanding higher wages. In the words of Kayan, senior economic adviser of the Cambodian Prime Minister's Office, with the economic development of Southeast Asia, it is a natural process for wages to rise accordingly. In addition, many countries in Southeast Asia legally recognize the independence of trade unions and allow workers to negotiate with the management through strikes. With the promotion of reform and political liberalization in some countries in Southeast Asia, workers' demands for wage increases will become higher and higher.

In addition, some governments, out of consideration of political stability, require employers to raise wages for workers. Vietnam's Labor Law stipulates that foreign-funded enterprises should increase their wages by 30% every year. The Thai government started to promote the "300 Taizhou beads (about 60 yuan)" nationwide since January 1, 2013. If labor insurance premiums and overtime pay are added, after the wage standard is raised, the monthly wages paid by enterprises for each worker will generally reach 8000 to 10000 Taizhou beads, which makes many labor-intensive enterprises complain incessantly.

Moreover, social and political turbulence interferes with the normal production order of enterprises. Compared with China's stable social and political environment, Southeast Asian countries are in turmoil, and the infrastructure such as electricity is not complete. In this case, few foreign-funded enterprises dare to invest in these countries, so it is a myth that Southeast Asia wants to really replace "Made in China".

In recent years, due to the loose policy of the United States monetary policy (QE) policy, flooding the flow of liquidity to emerging economies, which has led to hyperinflation in Southeast Asian countries. Since 2013, the inflation rate in Indonesia has risen, which is expected to exceed 10%. The government has also raised the fuel price by 44%. Subsequently, the prices of land, electricity, etc. have also increased significantly. In this case, it will inevitably lead to strong dissatisfaction of the middle and low class people, which will continue to ignite demonstrations and general strikes demanding a rise in the minimum wage. In the end, strikes will turn into violent events and emerge in endlessly. The unstable political situation and social unrest will directly lead to heavy losses of foreign investment enterprises.

Finally, the productivity of workers in Southeast Asian countries is low, and cheap labor is not enough to replace Made in China. The author believes that whether the cost of manufacturing in Southeast Asia will exceed that of China depends on the level of productivity. At present, China's productivity level and economies of scale are generally better than those of Southeast Asian countries. During the period from 2000 to 2013, Indonesian wages increased by 5.5% on average, while productivity increased by only 3.4%. In the same period, the average wage of China increased by 7.2%, but the productivity increased by 10.1%. Obviously, the wage growth space of Chinese workers is more sustainable than that of Indonesian workers. So relying on cheap labor alone is not enough to replace China.

In addition, many enterprises will production line Vietnam, Indonesia and other countries transferred to Southeast Asia, but in fact, after investing in Southeast Asian countries, it was discovered that low wages of workers did not mean low manufacturing costs. Take the textile industry as an example. At present, the monthly salary of skilled workers on the assembly line of textile factories in the first tier cities in China is 2800-3000 yuan. In Haiphong, Vietnam, the average monthly salary is 2000 yuan, but the work efficiency of employees is about 20% lower than that in China. It can be seen that the labor skills and quality of workers in Southeast Asian countries have yet to be improved compared with those made in China.

Newspapers and periodicals in western countries once asked: Is it feasible to replace "Made in China" in Southeast Asia? In fact, although "Made in China" is currently at the critical moment of industrial structure transformation and upgrading, it has incomparable advantages compared with Southeast Asian countries. In addition to social and political stability and complete urban supporting infrastructure, the quality of Chinese workers and the level of labor productivity are also far higher than those of emerging economies in Southeast Asia, so in the long future, China's position as the "world factory" is unshakable. But at present, "Made in China" is still in the middle and low end, and there is still a long way to go to catch up with the western high-end manufacturing industry.