Turns Out China is NOT Losing Its Competitive Edge in Manufacturing

But the recently released 2008-2009 China Manufacturing Competitiveness Study by Booz Allen Hamilton and AmCham China (that link is just to the order page) as summarized by Knowledge@Wharton finds that manufacturers in China are facing new obstacles to success. It seems like it was just a year ago when the net abounded with cries of the demise of China, and the Pearl River Delta in particular, as a manufacturing hub. Factories were shutting down and moving to Vietnam, India, Thailand, and Malaysia in the face of RMB appreciation, inflation, tougher labor laws, higher wages, and lower government incentives. The details revealed that this was true, but only for low value added manufacturers. A lot has happened in the past year, and this year's edition of the study reveals new challenges faced by manufacturers. What follows is a summary of K@W's summary.

What has changed for the worse from last year:

• Exports are down, sharply.
  
• Domestic sales are down.
• Credit markets are tight. Not as much in China as in the countries abroad that order manufactured goods from China.
• Currency fluctuations, but not the RMB which has remained stable against the dollar, but other currencies. Additionally, there is fear that the RMB will resume appreciation against the dollar because of inflationary pressures in the US.

What has changed for the better, from a China and Pearl River Delta manufacturing standpoint:

• "Fewer companies are planning to move, either within the country or overseeas." Not necessarily a good thing, though. Some respondents said that they're not moving because they can no longer afford to move, while others said that they're not moving because they want to focus on the domestic market.
• Commodity prices are way down.
• Wages are not rising the way they were a year ago. Unfortunately, this is due to increasing unemployment.

Conclusion of the report:

The only companies likely to survive the new conditions are those that are efficient in their manufacturing practices, and that market their goods both inside China and overseas.