Shanghai: 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, according to a survey carried out by the American Chamber of Commerce in Shanghai and consulting firm Booz Allen Hamilton.
54% respondents in 66 companies, most of them foreign-owned firms in east China’s Yangtze River delta area, thought China’s competitiveness is waning.
Seven out of 10 respondents cited appreciation in the Chinese yuan as a key reason for lost competitiveness.They felt that a stronger local currency make exports more expensive.
Meanwhile, 52% respondents attributed China’s decline to rising wage costs with an 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 to least part of their Chinese operations or expand manufacturing capacity out of the country in the next five years.
63% firms planning to capture lower labour costs by shifting to other countries selected Vietnam as the top alternative while the remaining 37% said India was their first choice.