Workers assemble a chassis along a production line at a truck factory in Hefei, Anhui Province, May 5, 2014. (Photo : REUTERS)
China’s homegrown manufacturing companies are now eyeing other countries to set up new plants, setting a growing trend toward expansion to foreign markets and industrial upgrading for China’s manufacturing industry.
India and Brazil, in particular, are seeing more and more Chinese manufacturers on their shores, the China Business News said in a report on Monday.
According to data from QQ.com, China has seen many of its manufacturing companies shutting down since 2014, including those in highly industrialized cities, such as Dongguan in southern China's Guangdong Province and Suzhou in eastern Jiangsu.
The exodus is partly due to various factors, such as increasing labor costs and overcapacity in the domestic manufacturing sector, the report said.
Manufacturing costs in China are nearly similar to those in the U.S., according to a 2014 report by business consulting firm Boston Consulting Group (BCG). In August of that year, China's manufacturing cost index was 96 compared to the U.S. benchmark index of 100, the BCG report said.
The index was compiled after BCG analyzed manufacturing costs in the world's top 25 exporting economies, based on four criteria: wages, labor productivity, energy costs and exchange rates.
Foxconn Technology, a major electronic components manufacturer based in Taiwan, announced on Saturday that it would spend $5 billion in building a manufacturing plant in Maharashtra province in central India in the next five years.
TCL Corporation, a multinational mobile handset and TV maker based in Huizhou, Guangdong Province, also revealed plans to set up a manufacturing unit in India in 2015, Reuters reported in March earlier this year.
India offers certain advantages for certain manufacturers, Wang Leo, a researcher at Fudan Development Institute in Fudan University, told the Global Times on Monday.
"Not only does India have lower labor costs than in China, Chinese companies that set up plants in India also have access to the local market, which is full of potential as India's population is large and Indian people have had greater buying power in recent years," he said.
Wang also noted that India's export tax is lower than China's, making the country an ideal "intermediate station" for Chinese firms to explore markets in South Asia, Africa and Europe.
Other advantages in India include the common use of the English language and government policies that encourage overseas investment, he added.
But it is not all roses for Chinese manufacturers in India. Sumeet Chander, general manager of Evalueserve Business Consulting (Shanghai) Corp., also told the Global Times that Chinese businesses also face various hurdles when setting up plants in India, including subpar infrastructure conditions and difficulties in adapting to local culture.
However, Chander noted that most Chinese companies today are knowledgeable enough to manage businesses in a developing economy, which puts them in a better position than companies from other countries to succeed in the Indian market.
Countries like the U.S. and Brazil have also become go-to destinations for Chinese manufacturers. According to Sohu.com, several of China's fabric companies have started to open manufacturing units in the U.S. as early as 2013.
Xu Hongcai, director of the information department under the China Center for International Economic Exchanges (CCIEE), said that transferring manufacturers overseas has both pros and cons for the Chinese economy.
"On one hand, China's employment rate might be affected as there will be fewer jobs in the manufacturing industry," Xu said. "On the other hand, domestic manufacturers will be under pressure to implement industrial upgrading with greater efficiency."
Wang said that the migration of manufacturers overseas might pose a challenge for the domestic economy, which still has a significant demand for foreign investment.
Chinese manufacturers who plan to set up units abroad will have to increase the competitiveness of their products in order to cope with the complexities of foreign markets, he added.
