Foreign Firms Say China Losing Competitive Edge

Manufacturers believe China is losing to Vietnam or India

More than half of foreign manufacturers in China believe the Asian giant is losing its competitive edge to other low-cost countries like Vietnam or India, a survey said March 4. Fifty-four percent of respondents in 66 companies -- most of them foreign-owned firms in east China's Yangtze River delta area, thought China's competitiveness is waning, the joint survey said.

The survey by the American Chamber of Commerce in Shanghai and consulting firm Booz Allen Hamilton said seven out of 10 respondents cited appreciation in the Chinese yuan as a key reason for lost competitiveness. A stronger local currency makes exports become more expensive.

Meanwhile, 52% of respondents also attributed China's decline to rising wage costs with average annual compensation for white-collar managers and blue-collar workers growing 9.1% and 7.6% respectively.

"The manufacturing philosophy employed by many foreign multinationals in China in recent decades is in need of an overhaul," said Ronald Haddock, vice president of Booz Allen. "If they don't do anything differently and the yuan goes up, they are in trouble," said Haddock, adding that foreign producers need to optimize their operational and marketing strategy in China to offset the impact.

However, only 17% of the companies surveyed have concrete plans to relocate at least part of their Chinese operations or expand manufacturing capacity out of the country in the next five years. The survey said 63% of the firms planning to capture lower labor costs by shifting to other countries selected Vietnam as the top alternative while the remaining 37% said India was their first choice.

Copyright Agence France-Presse, 2008

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