Costs Driving U.S. Manufacturing Firms Out of China

Competitive labor market forcing low margin manufacturers to look elsewhere

China is losing some of its attractiveness to foreign investors as rising costs are forcing some U.S. manufacturing firms to leave the country, the American Chamber of Commerce (AmCham) said April 28. More than two-thirds of AmCham's member companies surveyed in an annual white paper agreed that China was losing some of its competitive advantage in global markets due to rising costs.

Factors with the biggest financial impact last year included price pressures from competition and major customers, rising salaries and wages, changes in raw material prices, tax expenses and real estate cost inflation, the survey said.

"For manufacturers, the seemingly endless supply of low-cost unskilled labor may be approaching its limits," Norwell Coquillard, chairman of AmCham in Shanghai said."The competitive labor market poses difficulties for export-oriented manufacturers, especially in low-margin sectors such as toys, garments and shoes," and "they are looking to India, Vietnam, and other places," he said.

Human resources constraints, inconsistent regulatory interpretation, unclear regulations, lack of transparency and bureaucracy are picked as the top five business challenges in China, according to the white paper.

But companies still see China as a strategically important manufacturing base because of its domestic market potential, it said.

It added that 74% of companies were either profitable or very profitable in China and 89% of respondents had an optimistic or slightly optimistic outlook for the next five years of doing business in the country.

Copyright Agence France-Presse, 2008

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