Adjusting to rising costs in Chinese light manufacturing: what opportunities for developing countries?

Research reports and studies
December 2017
Jiajun Xu, Stephen Gelb, Jiewei Li and Zuoxiang Zhao

Chinese light manufacturing has undergone a significant transformation in recent decades. As China progresses towards high-income status, real wage growth in the sector has accelerated by 11% per year (2014-2016). While this has made a welcome contribution to poverty reduction, it has also put pressure on firms as they struggle with rising costs. One potential strategy for tackling this problem has been the partial or full relocation of production to lower-cost locations abroad. 

Optimists maintain that wage growth in China presents an opportunity for low-income countries (LICs) in Africa and elsewhere in Asia to help drive growth and structural transformation by attracting foreign direct investment and jobs from China. But the positive outcomes for LICs are uncertain. Country-level constraints such as poor infrastructure tend to turn-off foreign investors, Chinese manufacturing firms have developed alternative strategies for coping with rising wage costs, and other low-cost location options within China remain due to significant regional differences in wages.  

This research report, which was undertaken in partnership with the Center for New Structural Economics (CNSE) at Peking University, presents the findings of a large-scale survey of 640 Chinese light manufacturing firms in the regions of the Yangztse River Delta and Pearl River Deltain across four sub-sectors (garments, footwear, household appliances and toys).