Should You Stop Manufacturing in China and Start Selling There?

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Published on Wednesday, 03 December 2014 05:07

Written by Dafydd Williams

As The Wall Street Journal jarringly reported last month, the wages for manufacturing jobs in China and the United States are starting to converge. 

The trend undercuts the outsourcing of manufacturing, at least to China, and we’ve seen something of a revitalization of the U.S. manufacturing sector as a result. The upshot for your business: It may be time to stop looking to China for workers and start looking there for customers.

The new dynamic in China is no accident: After years of export-driven growth, Beijing has decided that heavier reliance on domestic consumption will provide more stable, if less breakneck, GDP growth. The government has allowed the Yuan to appreciate and tweaked labor laws. As a result, real wages have grown by at least 15 percent annually in recent years and are expected to reach 20 percent growth in the near future.

The government is also making more direct efforts at boosting consumption. For example, it’s provided coupons for rural citizens to buy home appliances like washing machines.

It’s also working to change norms about consumption following decades in which China’s development has depended on high rates of saving.

As a result, according to the Wall Street Journal report, an auto factory in China now pays entry-level workers $7-8 an hour, while an auto factory in the U.S. pays $12-14 for the same job. Of course, the same rising wages that are making China less attractive for manufacturing are also creating a massive new domestic market for goods and services.  

Can American business really sell profitably to Chinese consumers? Starbucks plans to open its 1000thlocation in China by the end of the year. Soon after, China will edge out Canada as the coffee giant’s second largest market. Consider that not so long ago Starbucks coffee was considered a luxury product in the United States, and you can begin to get an idea of the spread of consumer culture and the growth of a massive middle class in China.

This month, People’s Daily, a Chinese state publication, proclaimed, “The hidden potential of the 1.3 billion Chinese consumers, once unleashed, will make China the world's largest consumer market and the top export destination for other major economies, especially for the U.S.” The paper cites one Morgan Stanley analyst who estimates that China’s consumer sector will increase by $15 trillion within 15 years.

Depending on the needs of your business, you may still be outsourcing your labor for a long time to come. But instead of locating it in China, you’ll be more likely to look to places like Myanmar (Burma), Bangladesh or Indonesia. And instead of serving Americans, your Asia Pacific operations may be serving a customer base much closer to their home.