U.S.-India bilateral trade now same level as U.S.-China trade in 1997 and increasing
Op-Ed Commentary: Chris Devonshire-Ellis
Jun. 1 – India is beginning to look increasingly attractive as a destination for foreign investors as concerns over a lack of reform direction in China, coupled with increasing labor costs and a strengthening RMB position are placing some China based businesses under financial pressures. This was a point made earlier this week by Davide Cucino, president of the European Union Chamber of Commerce in China in its annual report – citing that 20 percent of its member companies surveyed said they were considering exiting the China market.
The issue with China is that the business model it offered foreign investors 10-20 years ago has now changed. China’s population is aging, its workforce is shrinking, and it needs more money to sustain its citizens. Even up to a decade ago, a Chinese worker could be hired for a little over US$100 a month, and he’d be happy with that, a couple of beers and some cigarettes. But as the demographics of age have kicked in, the average Chinese worker is now both older, and as a result, has more responsibilities; he’s now married, has a child, dependents in the shape of two sets of parents to look after, as well as needing money for future education and a mortgage for his family to live in a house. It is this simple reason why China has gotten more pricey, and those labor costs have risen to keep pace with his needs.
The implications of this are two fold; firstly, Chinese labor is becoming increasingly expensive, as is mandatory welfare and associated employment costs. When compared to the rest of Asia, China has the third highest labor costs throughout the emerging Asia region.
This means that if your business model requires cheap labor, and is not especially concerned about selling to the China market, then China is going to become increasingly unviable as a location to have your manufacturing or production facility. This would apparently account for the 20 percent of EU companies suggesting they wanted to exit China. However, the flip side to the increasing age and wealth of the Chinese population is that as a nation of consumers, the Chinese market is growing and has increasing amounts of disposable income to spend. If your business model supports selling to the Chinese consumer, then you would be part of the 63 percent of EU companies in the same report that indicated they would be expanding operations in China.
But for that 20 percent, what are the options?
