Barrie Maguire

China, Inc. Goes Global

China’s economy is now taking its next great leap forward: with labor costs rising and the renminbi appreciating, parts of its manufacturing sector are now moving up the value-added chain and out of the country. The China challenge is now a global one.

NEW YORK – China’s economy is now taking its next great leap forward: parts of its manufacturing sector are now moving up the value-added chain and out of the country.  The China challenge is now a global one.

The reasons are not difficult to fathom. Production costs (wages, office rents, land, capital, etc.) in China’s coastal provinces – where most of the country’s manufacturing and service production, as well as foreign direct investment, are located – have been rising fast. Since last year alone, minimum wages in nine of twelve coastal provinces (including Beijing) rose by an average of more than 21%.

At the same time, the renminbi is appreciating, making domestic production of export-oriented goods and services even more expensive. This matters, especially for labor-intensive activities (ranging from toy manufacturing to data-entry services), whether by affiliates of foreign multinational enterprises (which account for more than half of China’s exports) or by local firms, which are losing competitiveness in international markets.

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