Study Finds Risks to China Competitiveness

[March 04, 2008]  SHANGHAI, China (AP) -- China is fast losing its manufacturing competitiveness in some industries, and companies need to upgrade their operations there to stay profitable, according to a survey released Tuesday.

The study comes amid reports that thousands of manufacturers, both Chinese and foreign, are shifting operations away from coastal regions, where labor and other costs are eroding their profitability, to inland areas or other countries.

The "China Manufacturing Competitiveness" survey by the Shanghai Chamber of Commerce found that more than half of the 66 foreign-invested companies responding believe China is losing its competitive advantage over other "low cost" countries, such as Vietnam and India.

"The days of easy China manufacturing are at an end," said Ted Hornbein, chairman of the American Chamber of Commerce in Shanghai's Manufacturers Business Council. "You can't just view it as a workshop anymore."

The companies surveyed, most of which were based in eastern China near Shanghai, said wages are rising an average 9 percent to 10 percent a year, with costs for raw materials up more than 7 percent, the report said.

But corporations can do more to improve their own operations to counter those trends, said Ronald Haddock, vice president of consulting firm Booz Allen Hamilton, which conducted the study.

"China's competitiveness is at risk," Haddock said. "The question is there something we can do about it?"

While many low-cost makers of cheaper products such as shoes, clothing and toys are shifting production to inland regions of China where wages and other costs can be lower, or to other developing countries, Haddock said the survey results showed that many manufacturers could boost profitability by improving how they operate.

If companies don't improve their management approach, "we think it is going to get pretty ugly for some of them," he said.

A crucial strategy used by the most profitable companies surveyed was to ensure China operations fit into their global supply chains -- how the companies source, make and distribute products.

"Starting with the right mind-set is the beginning," Haddock said.

[Associated Press; By ELAINE KURTENBACH]

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