China’s manufacturing advantage over the USA disappearing

China’s labour costs per unit are tipped to overtake the United States in 2015 and Australia’s productivity decline in manufacturing is even more pronounced, according to research by Hong Kong-based investment group CLSA.

The Australian reports that labour costs per unit in China were 30 per cent of what they were in the US in 2000. The time since has seen this advantage whittle away, with cheap shale gas also encouraging US manufacturers to “reshore”.

However, CLSA said the rising Asian middle class was not all bad news, and the predicted increase in its size from 600 million in 2010 to a billion in 2015 would mean increased consumption and a need for manufacturers to be close to this market.

Amar Gill, CLSA’s head of Asian research, said that there were countries in Asia that have the cost advantages that China used to have, such as Thailand and the Philippines, which have unit costs about a third of the United States.

"As China has gotten more expensive, and as average unit costs in China have closed the gap with the US, more of the lower-end manufacturing will go to the ASEAN countries and some of it will also go to South Asia: India, Bangladesh, for all its recent troubles, and possibly Pakistan as well," Gill told The Australian

The news for Australian manufacturers was also bad, and comes in the middle of a debate on national productivity, with the Business Council of Australia on Thursday telling the federal government that more stakeholders – businesses as well as unions – should be able to contribute to the debate.

CLSA’s report shows Australia’s costs for labour were 85 per cent of the US’s in 2000, but were now 241 per cent.

"Manufacturing costs in Australia have to halve for overall manufacturing to be competitive," said Gill.


Image: Bloomberg