As China’s Economy Matures, Neighbors Are Poised to Grow Low-End Manufacturing

As China’s economy rises and matures, the manufacturing juggernaut will continue to cede low-end manufacturing opportunities to Asia’s emerging markets best poised to take advantage of the situation.

“The countries best-placed to take advantage over the next few decades will be those offering workable business environments and relative macroeconomic and political stability to complement low wages, strong demographics and geographical advantages,” according to a new report by Fitch Ratings.

In China, a variety of factors over the past decade, including higher wages and land costs, as well as real exchange-rate appreciation, have made other nations like Bangladesh, Indonesia and Vietnam more competitive for cheaper manufacturing. The average Chinese manufacturing wage is now higher than other Asian neighbors, and finding inexpensive labor going forward will be a challenge amidst the nation’s high urbanization rates and a working age population set to shrink by 0.4% each year on average through 2035, Fitch said.

China’s global share of exports of clothing, footwear and furniture is still nearly 40%, up from 34% in 2010, but probably peaked in 2014 and appears to be on the decline, with Chinese exports of these types of goods decreasing 10% in 2016, Fitch analysts said.

Meanwhile, Bangladesh and Vietnam’s global portion of these types of manufactured goods rose to 8% in 2015 from 3% in 2010, Fitch said. Bangladesh has a firmly ensconced ready-made garments sector, while Vietnam is well-positioned to grow its basic electronics manufacturing sector, analysts said.

Still, political instability and business-environment deficiencies already prevent some of China’s neighbors, such as Pakistan and Myanmar, from taking full advantage of manufacturing opportunities in the region, Fitch said.

– Nicholas Stern, managing editor

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