China is not the low cost production base it used to be

I had the impression that wage inflation in China, especially in the manufacturing heartland of the south, had pushed up wages relative to other low cost economies. But I hadn’t realised how big the gap had become. A new blog post from the Peterson Institute shows that Chinese companies are now investing heavily in the ASEAN (Association of South East Asian Nations) region. This chart showing comparative manufacturing wages explains why.

I would not have guessed that Chinese wages are now around five times those of Vietnam and Cambodia. Wage costs alone don’t determine competitiveness or industrial location. Productivity, infrastructure, supply chain, transport costs and so on all matter. But it’s clear why basic assembly-style manufacturing is either moving to inland China where pay is lower, or leaving the country altogether.