Sourcing report reveals scale of China’s rising labor costs

Sourcing report reveals scale of China’s rising labor costs

HONG KONG — The rising cost of China labor is the most common reason producers of lower value goods give for shifting part of their production from the mainland to Southeast Asian countries, and a look at wage trends in the mainland reveals the extent to which the payroll has risen.

Since 2011 when the current Five-Year Plan came into effect, wages have risen in 16 of 31 provinces in China, according to data in CBX Software’s Q2 Retail Sourcing Report. Average wages are expected to increase by around 10 percent this year.

Minimum wages in China are set by local governments and vary widely by region and how wages are calculated, with benefits including housing, food or overtime. Official figures reported by Trading Economics show wages in some areas of the northern Hebei Province grew by 22 percent last year, while the southern Guangdong city of Guangzhou recorded 2014 wage rises of 5-17 percent.

Minimum monthly wages in Asian countries, as at Apr. 5 and taken from various sources, are: China $137-$639; Vietnam $101-$142; Indonesia $71-230; Malaysia $254; India $40-130; Philippines $110-$220, Thailand $381, Sri Lanka $49-$72, Bangladesh $68, and Laos $110.

But even though a sharp slowdown in Chinese manufacturing has raised questions about the sustainability of a steadily increasing payroll, CBX Software said policy makers were expected to intervene to support continued wage growth.

Faced with these rising costs, high volume manufacturers are looking for alternative sourcing destinations. The producers of U.S. footwear are a case in point. According to Global Trade Information Services, a sister company of JOC.com within IHS Maritime & Trade, China last year accounted for 65.6 percent of all U.S. footwear imports by dollar value, down from 71.8 percent in 2012.

In the same period, Vietnam increased its share of U.S. footwear imports to 13.9 percent from 10 percent in 2012, according to the data.

Many factory owners are moving production away from the coast to the west of China looking for low-skilled labor and lower production costs, while others have migrated from China to Vietnam as production costs in that nation are estimated to be half of that of China's, JOC Economist Mario Moreno said.

This trend is supported by data from AsiaInspection. In terms of global inspections performed, from first quarter 2014 through the first quarter of this year, China’s share fell by 12 percent. Although China remains the dominant sourcing region by sheer volume, the AsiaInspection data further shows that brands and retailers are sourcing more from neighboring countries.

According to the latest Purchasing Managers’ Index that records manufacturing activity in a country, Vietnam rose in both output and new orders. While U.S. imports from China in January were down for the first time since 2008, Vietnam became the biggest ASEAN exporter to the U.S.

Myanmar is the newest kid on the alternative sourcing block, and CBX Software said the country’s garment industry has doubled in less than three years, expanding by $300 million last year.

AsiaInspection figures confirm both trends with a year-over-year increase of 190 percent in Vietnam and 113 percent in Myanmar for performed inspections.

Contact Greg Knowler at gknowler@joc.com and follow him on Twitter: @greg_knowler.