Rising labor costs steer manufacturers offshore

Driven by rising labor costs in China, textile and garment manufacturer Youngor Group, Hong Kong Union Times Group Limited and an industrial park operator in Guangdong province are reported to be co-investing in an industrial park worth some 1 billion yuan ($165 million) in Vietnam, Beijing Business Today reported on Tuesday.

Youngor will transfer its material manufacturing capacity to the industrial park, in a move that does not surprise industry experts. A few domestic garment manufacturers have moved to countries such as Vietnam due to rising labor costs in China.

Youngor attempted to transfer its production base three years ago. It acquired a shirt manufacturing factory in Hanoi, Vietnam, for more than $4 million in 2011. Li Rucheng, chairman of Youngor Group, said in a previous news report that the investment environment is getting better in Vietnam and labor costs are lower than in Ningbo. He said the factory will become a major processing base for Youngor.

Multinational companies started such moves long ago. In 2001, China produced about 40 percent of Nike shoes while Vietnam contributed only 13 percent. But in 2010, Vietnam overtook China by producing the majority of 37 percent of Nike shoes while China's contribution dropped to 34 percent.

A report released by the China Filament Weaving Association last year shows that the average growth rate of a filament weaving workers' average salary rose 7 percent in 2013, following steady growth in the previous three years. The average monthly salary of a filament weaving worker in Shengze county, Jiangsu province, was as high as 4,000 yuan based on an eight-hour-a-day system, while that of a worker in Cambodia was only 600 yuan for working 12 hours every day.

The appreciation of the yuan will also impact on manufacturing industries. When the yuan appreciated in 2013, the currencies of most emerging markets depreciated, thus making China's manufacturing industry less attractive to foreign investors.