When inflation, a strong RMB, and new labor laws were in-vogue complaints for the bitching foreign businessman, many China business pundits said stay the course. Remain faithful to China. Tier 3 is open for business. And logistics are better here than elsewhere.

Now that the global financial crisis has hit China, mainland business once again is looking elsewhere, and with good reason.

China Economic Review (CER) explains:

Not eight months ago, a Guangdong-based garment maker with 10 factories and contracts to supply the likes of Tommy Hilfiger and Polo told CHINA ECONOMIC REVIEW that his firm was offsetting higher labor costs by investing in automation. He was bullish about China’s prospects in the face of competition from Vietnam and Bangladesh. Now this garment maker is not returning phone calls and the company is said to be struggling financially.

“Everybody is ordering less and they are ordering less from China,” said Dan Entac, CEO of Tradelink Technologies, which provides supply chain tracking software to the company in question.

“We are staffing up in India and next year we will go to Vietnam and Bangladesh - this is where our customers are going to place orders. We have got to that tipping point where they have to go and look for cheaper products because they are not into big orders any more. It was okay when you had high volume and high demand.”

Adidas, for instance, has shifted production to Indonesia and Vietnam. CER suggests that low-end labor-intensive exports are most likely the sacrificial lambs that will go to countries down the export chain.

Meanwhile, CER does a bang-up job of noting the China GDP growth projection for next year: “from below 6% to 8%-plus.” In other words, no one friggin knows.

Things are looking a little more certain in Vietnam. Growth there may slow to 5 to 6 percent, which is a conservative estimate.

It’s also a surer growth range because Vietnam’s financial sector isn’t as exposed to the world’s financial markets.

Vietnam has plenty of weak spots. Its US$6 billion domestic stimulus package has been heavily criticized in contrast to China’s US$586 billion plan – not because of the relative smallness of the figure, but because state-owned enterprises are likely to get big handouts and tighten their stranglehold on the economy.

But let’s face it, the global financial crisis has changed China’s problem dynamic drastically. More stringent labor laws pale in comparison to sinking global demand, and while looking to China’s neighbors for business solutions may not be the answer, they’re worth yet another look.

    Channel: Vital News     |