Asian countries, which are highly populated and offer abundant, cheap labor, have specialized in labor-intensive goods in recent years. Thus, almost all major brands are utilizing Asian labor in order to minimize their production costs. In fact, by 2050, Asian countries may take up about 55% of global economic production.
However, in recent years, there has been a significant increase in labor costs, especially in China and Hong Kong. China has been able to produce a highly-skilled workforce, accelerating wage growth. In fact, in 2019, GEP released a report stating that the average wage in some Chinese cities has exceeded those in parts of eastern Europe.
Wage growth has been proven by other comparative data as well. In 2017, the China Economic Review reported that the average salary in China had tripled between 2005 and 2016, reaching a level higher than that of many emerging economies such as Argentina, Brazil, and Mexico. This increase has been justified by the level of qualification acquired over the years by the Chinese workforce and by the increase in demand for labor from Western countries as well. Thus, this has left many people wondering if European and American businesses are making the right choice by producing in China rather than their own or neighboring countries.
To put it simply, the answer is yes, it is worth it. Even though the average wage of workers has risen sharply over the last ten years, the labor force in Asia is still considerably cheaper than in European countries. Moreover, port and airport infrastructures in these countries make rapid transportation of goods possible. The corporate tax rate in China is also 25%, which is cheaper than countries like India and Brazil that exceed over 30%. Its lower energy costs are highly attractive to companies trying to save money as well.
Thus, it looks like China will remain as “the world’s factory” for the time being. However, this may change once China’s production costs balance with Europe’s.
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