China is the world’s most important producer, sometimes referred to as the world’s largest factory. China has become an attractive place to manufacture in recent years because of its low cost of labor, highly skilled workforce and good infrastructure. However, China’s capabilities and model are changing, with more developed regions increasing their value chains and manufacturing that is labour-intensive moving to in the inland. Businesses are increasingly choosing to manufacture in China to serve the expanding Chinese market, instead of make use of it as a low-cost alternative to produce export-oriented items.
Manufacturing’s percentage share in Chinese GDP has decreased over the last few years, yet it’s still a major industry that accounted for 42.6 per cent of total GDP for 2014. It employs around 30 per cent of workers in China and has ensured that China remains the world’s top performer in industrial output. On the more advanced Chinese eastern coast, the emphasis is shifting to more advanced manufacturing, while less expensive and labor-intensive manufacturing has been moving more farther inland.
However, as China’s attention on the service industry expands, a growing number of Chinese are expected to work in the financial service sector instead of manufacturing or agriculture.
Manufacturing advantages and challenges in China
The advantages of manufacturing in China are access to advanced Chinese technology, research and development (R&D) as well as sciences and technologies, in addition to incentives provided by local, provincial as well as central governments. Another advantage that manufacturing is a good thing in China is the gains in efficiency from the increased economies of scale in China. However, the rising cost of labour, skills shortages and intellectual property protection are significant issues to be considered when considering the manufacturing industry in China.
Other concerns and challenges when production in China are the development phase at present and inconsistency with the application of commercial law in China and the variable quality of logistics and infrastructure systems. Subcontractors and manufacturers who are contracted can cause significant problems which have to be strictly managed. This could include the need for rigorous quality control and the possibility of leakage of products to the international and domestic market, production overruns and ethical and corporate socially responsible manufacturing.
What should you think about
There are several ways for foreign companies to make their mark in China. Contract manufacturing is a very popular option for large as well as small-sized businesses in a variety of industries. Australian businesses are also able to invest directly in factories in China by investing in it as a foreign-owned company wholly owned and/or as part joint venture with a Chinese company.
Location is another key consideration when it comes to making within China, with the Chinese Government encouraging investment in different kinds of manufacturing across different regions. On the more developed east coast, where wages are higher and infrastructure is superior, the Government encourages investment.
in the high-end, low-polluting industry. Further inland in China’s western and central provinces where labour is less expensive and infrastructure less developed, the government encourages investment factories that are more labor-intensive. Certain cities and provinces specialize in certain industries and producing specific goods.
Quality control is a crucial consideration when choosing to manufacture manufacturing in China. There have been high- media reports of instances where inadequate quality control of Chinese manufacturers – usually sub-contractors – has caused significant problems for international brands. These range from toys to clothing and food products. You should ensure that you have solid quality control procedures implemented along with perform thorough due diligence.