China’s Impact on Manufacturing Exports of Other Developing Nations
This paper brings to light the waning strength of China’s labor-intensive export manufacturing and its impact on manufacturing activity in other developing economies. Rising wages and labor shortages are prompting factory owners in China to relocate facilities inland or in many cases flee to other developing countries where wages are lower or competitive and supply of unskilled and semi-skilled workers is abundant.
The results suggest that China’s waning strength in labor-intensive exports is benefiting some developing economies more than others, while a few appear to not be benefiting at all.
Stifel Nicolaus Transportation and Logistics Conference was held at The Ritz Carlton in Key Biscayne, Florida, on February 12-13, 2013.
The two-day event featured 30-minute company overviews, topical panel discussions and featured guest speakers with interaction and questions from the audience with over 60 leading public and private companies including the freight forwarding, logistics, trucking , railroad, parcel and intermodal industries.
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The following is one of the best primers on due diligence for exporters to China that I've seen in a long time. Although The Canadian Trade Commissioner Service says the purpose of the report is to "provide guidance to Canadian companies seeking to export products to China" it serves as good advice for exporters of all countries. It has done an excellent job of covering 5 major export issues:
1. Who Are Your Customers?
2. Exporting To China - What Are The Rules?
3. Checking Out Your Business Partner
4. Financing The Deal
5. Visiting Chinese Delegations - Words of Caution
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Labor-intensive industries will be forced to move upscale or automate facilities to sustain operations.
With first-generation migrant laborers nearing retirement age, what propelled China to its status as the primary hub for low-cost production is now pushing the country out of this very position.
Labor-intensive industries such as toys, footwear, caps and textile products are expected to weaken in coming years as the current worker pool matures and labor shortages intensify.
Already, the latter has forced many factories in the southern and eastern provinces to close down in the past 12 months. Some plants have moved to second- or third-tier cities in the inland provinces of Jiangxi, Hubei and Hunan. Costs in these areas are about 20 percent lower than in Guangdong province.
Other companies have transferred overseas, including to Bangladesh and Vietnam, where production remains inexpensive. Labor rates in Bangladesh are just one-fifth of China's.
Relocation, however, is a temporary measure as the economies of these alternative hubs flourish and costs start to rise.
China's graying workforce
China's labor pool is older than those in other low-cost manufacturing centers despite the emergence of a new generation of workers, although even that poses a separate challenge.
According to Ben Simpfendorfer, managing director of Silk Road Associates, LLC, the average worker age in China is 35, whereas it is 21 in Laos. Indonesia and Vietnam laborers are the second-oldest at 28.
China itself is aging. In a report on the Elderly Protection Act, the National People's Congress said that as of November 2010, China had 178 million people more than 60 years old. The elderly demographic will exceed 200 million by 2013 and hit 300 million by 2025. Further, in just 30 years, roughly one-third of China's total population will be over 60.
The working-age population, meanwhile, is expected to peak at 1 billion in 2013 then begin shrinking. Over the next 10 years, the number of people in China between 20 and 24 will drop by more than 20 percent, said the UN Department of Economic and Social Affairs, eventually erasing the country's demographic dividend.
Some industry pundits argue that relaxing or lifting the one-child policy will simply alleviate the worker decline, but not stop it.
XBRL data standards have a wide variety of uses across various industries and can reduce the cost of surveillance, increase efficiency in data reporting and help organizations use this information to clearly analyze the impact of regulations.
By Greg Carter
I am addicted to Sunday morning news programs, and my wife and I spend most Sundays reading various papers and listening to the topics du jour. Regulation, and more important, the cost of regulation, is a frequent topic of discussion. On a recent Sunday, there was an especially interesting discussion centered on advances in process management and technology that could reduce the cost of regulation for businesses and governments. The problem being discussed involved the level of administrative bureaucracy instituted by both regulators and businesses. The cost for businesses and agencies to pull together compliance data and normalize it is significant. However, by using data standards rather than technology standards, these organizations could dramatically reduce costs while increasing efficiencies. Click here for full article in Baseline
[GBP Note: This is a good article illustrating some of the trade-offs governments face when creating an economic community or free trade association. The goal of the ASEAN Economic Community (AEC) is to "transform ASEAN into a region with free movement of goods, services, investment, skilled labour, and freer flow of capital." Governments generally hesitate to give up known tariff revenues for future tax revenues from increased economic activity, but it the best way to support long-term growth.]
Slashed tariffs under the Asean Economic Community (AEC) will cost Thailand Bt7 billion to Bt8 billion a year in lost revenue, but the Customs Department expects this to be compensated by soaring intra-Asean trade.
As import tariffs currently imposed on goods from Laos, Cambodia, Myanmar and other Asean members will be cut to zero in 2015 when the single market starts, it will take a toll on revenue, Somchai Poolsawasdi, director-general of the Customs Department, said yesterday.
However, the anticipated rise of intra-regional trade in Asean may bring greater benefits to the overall economy, he said.
Thailand's border trade was worth Bt899 billion last year, up 15.6 per cent from the year before, and the country enjoyed a trade surplus due to exports of Bt587 billion. But border trade is expected to soar under the AEC.
The department will also step up its scrutiny of whether investors in Asean meet local-content requirements, he said. If they do not, they cannot enjoy tax privileges under the Asean Free Trade Agreement.
The department plans to build a new customs office at Ban Phu Nam Ron in Kanchanaburi province, as two-way trade there is expected to take off when the Dawei deep-sea port and industrial park in Myanmar are constructed, he said. [GBP Note: See this article in the Irrawaddy Dawei in Doubt as Thai Port Talk Grows]
Several new customs checkpoints will be also built at the new border-crossing points, he said, while the old offices would be renovated and expanded.
Asean customs authorities have negotiated the streamlining of border checkpoints to save costs and move transport efficiently, Somchai said. If goods are examined by Thai customs officials when they reach the Laotian border, for example, there should be no need for a second check.
A national single window, which will allow exporters and importers to apply for customs clearance at one point electronically, is expected to be ready by the end of this year, he said.
More intra-Asean trade is expected to provide a cushion for the impact of the European crisis, he added.
Doing Business 2012 is a copublication of The World Bank and the International Finance Corporation. It is the ninth in a series of annual reports investigating the regulations that enhance business activity and those that constrain it. Doing Business presents quantitative indicators on business regulation and the protection of property rights that can be compared across 183 economies—from Afghanistan to Zimbabwe—and over time. Key findings in this year’s report: • In Sub-Saharan Africa 36 of 46 governments improved their economy’s regulatory environment for domestic businesses in 2010/11—a record number since 2005. This is good news for entrepreneurs in the region, where starting and running a business is still costlier and more complex than in any other region of the world. • Worldwide, 125 economies implemented 245 reforms making it easier to do business in 2010/11, 13% more than in the previous year. In low- and lower-middle-income economies a greater share of these changes were aimed at strengthening courts, insolvency regimes and investor protections than in earlier years. The pickup in the pace of regulatory reform is especially welcome for small and medium-size businesses, the main job creators in many parts of the world. • Against the backdrop of the global fi nancial and economic crisis, more economies strengthened their insolvency regime in 2010/11 than in any previous year. Twenty-nine economies implemented insolvency reforms, up from 16 the previous year and 18 the year before. Most were OECD high-income economies or in Eastern Europe and Central Asia. Research has shown that effective insolvency systems can infl uence the cost of debt, access to credit, and both the ability of an economy to recover from a recession and the speed of its recovery. • New data show the importance of access to regulatory information. Fee schedules, documentation requirements and information relating to commercial cases and insolvency proceedings are most easily accessible in OECD high-income economies and least accessible in Sub-Saharan Africa and the Middle East and North Africa. The rise in e-government initiatives around the world provides an opportunity to increase access to information and transparency. • A new measure shows that over the past 6 years, 94% of 174 economies covered by Doing Business have made their regulatory environment more business-friendly. These economies moved closer to the “frontier,” a synthetic measure based on the most business-friendly regulatory practices across 9 areas of business regulation—from starting a business to resolving insolvency. • A broad, sustained approach to managing business regulation is common among the 20 economies that have the most business-friendly regulatory environment today and among those that made the greatest progress toward the “frontier” over the past 6 years. This year’s report highlights the experiences of the Republic of Korea, the former Yugoslav Republic of Macedonia, Mexico and the United Kingdom. Korea just joined the top 10 economies on the ease of doing business after streamlining business entry, tax administration and contract enforcement. FYR Macedonia is among the economies that improved the most in the ease of doing business over the past year. • The economies that improved the most in the ease of doing business in 2010/11—with improvements in 3 or more areas of regulation measured by Doing Business—are Morocco, Moldova, FYR Macedonia, São Tomé and Príncipe, Latvia, Cape Verde, Sierra Leone, Burundi, the Solomon Islands, Korea, Armenia, and Colombia.
Make way for the BRIC countries! With the western economies mired in recession over the past few years, the engine of global growth has been without question Brazil, India, China and Russia. At their fourth annual summit in March, the BRIC countries discussed collaboration and policies that would give these powerhouses a greater voice in the global markets and reduce their reliance on the developed economies. Now that the BRIC countries account for 40 percent of the world's population and a fifth of its economy (WSJ - 4/1/12), we can all agree that the world has indeed shifted.
Expanding From Asia
China has the largest economy of the BRIC countries and much has been made of its astounding growth in the past decade, having risen to the number two global economy behind the U.S. Bay Area venture capital firms began to take notice of the tremendous opportunities in Asia in the early part of the last decade. Many of the Silicon Valley's most visionary venture capitalists were quick to open up offices in Shanghai and Beijing, and at around the same time moved into South Asia to the cities of Bangalore, and Mumbai.
However, with the abundant liquidity available in the China market for venture capital and private equity investors, competition for deals from both local and global funds have driven up valuations. Many institutional investors have begun to question whether China has become too hot. India continues to show promise, but there have not been significant exits to return capital to investors. The discussion in the hallways of the various private equity conferences around the globe have shifted from being centered on Asia, to other developing growth markets.
Enter Brazil
Perhaps the hottest region of opportunity right now is in South America and in particular its largest economy — Brazil. In many ways the rise of Brazil has been stealthy, at least from a venture capital and innovation perspective. The B of the BRIC nations has quietly grown to the number six economy in the world, having recently surpassed the United Kingdom. Its economy is coming on like a freight train, driven by its abundance of natural resources, in particular oil, gas, minerals and agriculture. I suspect it won't be long before Brazil overtakes France as it continues to move up the league table of world economies.
Brazil is a big country, larger in land mass than the continental United States. Its population of nearly 200 million people makes it the most populous country in South America. The booming economy has pulled 30 million people out of poverty into the growing middle class and consumer consumption is on the rise.
