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Rising labor costs dragging down foreign investments in China: analysts

2013/02/12 19:06:45

Taipei, Feb. 12 (CNA) Foreign investments in China fell in 2012 for the first time since 2008 in reflection of rising labor costs, although the world's second largest economy grew by 7.8 percent, market analysts said Tuesday.

Higher operating costs are driving foreign investors to other developing countries in Southeast Asia, which have an abundant supply of labor and lower wages than in China, analysts said.

Foreign direct investments (FDI) in China dropped by an annual 3.7 percent in 2012 to US$111.72 billion (NT$3.31 trillion), according to China's Ministry of Commerce.

An increase in minimum wages in several major Chinese cities, including Shenzhen and Beijing, has affected the bottom lines of many Taiwanese investors operating there, Taiwan's media has reported.

The reports mentioned in particular the coastal city of Shenzhen, where the minimum wage has risen from 1,500 Chinese yuan (US$240) to 1,600 yuan per month, the highest level among all Chinese cities.

With its rising labor costs, China seems to be losing ground to its rivals in Southeast Asia in terms of foreign investments, although it still has a massive labor force, analysts said.

They pointed to the example of Coronet, a synthetic leather manufacturer from Italy, which is aiming to move its production lines from Guangdong to Vietnam because of the wage hikes in China.

Coronet CEO Jarno Tagliarini said many of his company's clients, such as shoe and bag manufacturers, have been moving some of their operations from China to other developing Asian countries.

After careful evaluation, Tagliarini said, Vietnam could be an ideal destination for Coronet, not only in consideration of lower labor costs, but also because of proximity to the company's clients.

Among the Southeast Asian countries that have been attracting higher foreign investments, Thailand registered a stunning annual increase of 63 percent in FDI in 2012.

In Indonesia, FDI for the first nine months of last year rose 27 percent from a year earlier.

Nonetheless, Guangdong Polytechnic Normal University Professor Zhang Rui said he remains upbeat about China's economic future.

Zhang said it is mostly labor intensive industries that are moving out of China, a development that he forecast could speed up the pace of China's industrial upgrade to an economy focused on research and development as well as on service and financial businesses.

(By Chiu Kuo-chiang and Frances Huang)
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