The American Interest
Analysis by Walter Russell Mead & Staff
Chinese Trade Official: Say Goodbye to the “Made in China” Era

Could we be witnessing the end of the “Made in China” era? According to an astute trade official in China’s Ministry of Commerce, the answer may well be yes. In an interview with the China Daily, this official explained that cheap goods are increasingly made in Vietnam, Indonesia and Malaysia rather than China, which is beginning to transition toward making higher-end products. China Daily explores this trend, which the official has nicknamed the “great industry transfer”:

The official, who declined to be named, said that “nearly one-third of Chinese manufacturers of textiles, garments, shoes and hats” are now working “under growing pressure” and have moved all, or part, of their production outside China in what he called the great industry transfer.

This process has happened swiftly. Manufacturing wages in Vietnam are now what they were on China’s coast ten years ago. And while much of this relocation is driven by large multinational companies, Chinese companies are also moving their factories abroad:

According to a survey by the Capital Business Credit, a US-based financial consultancy firm, 40 percent of major companies interviewed said they have plans to move factories from China to other locations, including Vietnam, Pakistan, Bangladesh and the Philippines.

The movement toward higher-value exports is in line with China’s economic five-year plan, but China’s leaders would prefer to see low-end manufacturing move to China’s poor interior rather than to foreign countries. This hasn’t been happening, despite incentives for businesses to open factories in the interior. Unfortunately for Beijing, international competition had rendered China’s leadership powerless to redirect trade flows and keep low-end manufacturing within the country.

This is good news for Southeast Asia, and in the long term perhaps for China as well, but it poses a serious short-term problem for Beijing. The wealth gap between China’s coast and interior has long caused serious tension in Chinese society. This problem isn’t going to disappear anytime soon.

Published on October 23, 2012 9:00 am