China’s white-collar blues
LOWER labour costs in Thailand and emerging Southeast Asian economies have eroded China’s competitiveness, prompting a growing number of businesses to relocate their production from the mainland to ASEAN.
The trend has been clear for a few years but what is less well-known is that managerial and professional salaries in China have also been climbing, and this has become a factor in some investors’ decisions about where to set up production.
According to recent research by the global advisory and broking company Willis Towers Watson, base salaries in Thailand and emerging economies in ASEAN are now substantially lower than those in mainland China.
Thailand and Malaysia are the lowest payers at the top management and senior management levels, respectively. Also, Thailand offers more attractive average pay rates across the professional, middle and senior management levels.
“Labour cost is no longer a strong selling point for China, while it continues to encourage foreign investment,” said Pichpajee Saichuae, managing director of Willis Towers Watson Thailand. “Nowadays, all ASEAN countries are cheaper than China in terms of salaries and overall labour cost, making these countries more attractive to foreign investors.
“This research tells us that among ASEAN countries, Thailand provides significant advantages in terms of human resources costs compared to its Asian peers. This is an important element that might push a number of international companies to reconsider where to relocate their operations in Asia.”
Rolf-Dieter Daniel, president of the European Association for Business and Commerce (EABC), said manufacturing costs in China have been on the increase for many years, especially in the coastal cities where most industrial estates are situated.
“With slowing economies and reduced export volumes, international companies reviewed their operations and some decided to relocate to other locations, in particular to Vietnam. In some circumstances even a relocation to their home countries occurred due to digitisation in some industries,” he said.
As China is losing its cost advantage, foreign firms are starting to look at ASEAN as a more attractive destination. “That is certainly the case and we see more investments are going to ASEAN,” said Mr Daniel, who is also managing director of the German stationery manufacturer Staedtler (Thailand) Ltd.
According to Mr Daniel, Panasonic announced in January that it would relocate most of its home appliance manufacturing out of China and back to Japan. US-based General Electric (GE) has moved manufacturing of washing machines, refrigerators and heaters back from China to a factory in the US state of Kentucky which not long ago had been expected to close.
For labour-intensive industries, coastal Chinese cities have been trying to position themselves by upgrading their technology to reduce costs and improve quality.
Many Chinese firms, for instance, are acquiring German high-tech companies for these purposes, he added.
In management and professional fields, meanwhile, base salaries across all job grades in China are now between 47 percent and 65pc higher than in Thailand and up to 44pc higher than in Indonesia, according to the 2015-16 Global 50 Remuneration Planning Report by Willis Towers Watson.
The report showed that entry-level white-collar professionals in China earned, on average, an annual base salary of US$20,680, 47pc higher than their peers in Thailand who earned US$14,087. The largest differential is at the top management level, with China paying 65pc more than Thailand, a gap that narrows to 54pc for senior management and 50pc for middle management.
The Willis Towers Watson report shows that average base salaries at the professional and management levels in Vietnam and the Philippines are the lowest in ASEAN. Indonesia stands out among the 10-country group’s emerging economies for having the highest base salaries.
On the other hand, base salaries in Singapore, a developed economy, are far more than in greater China and emerging ASEAN. Compared to Thailand, base salaries across all job levels in Singapore are higher than those in Thailand in a range of 97pc to 228pc.
Across the job grade from professional level to top management, Singapore’s base salaries are 3-10pc higher than those of Hong Kong, which is the highest-paying economy in greater China.
Singapore pays 28-52pc more than China in the middle, senior and top management levels. The largest gap is at the professional level where Singapore salaries are more than twice those of China.
“Singapore has always been a leading economy in the region. As it continues to enhance its competitiveness in the international arena, it wants to bring in top talents with knowledge of best practices from all over the world, so offering globally competitive salaries in an important part of that process,” said Sambhav Rakyan, data services practice leader for Asia Pacific at Willis Towers Watson.
In greater China, Hong Kong has long been the hub for international talent. Its gap with Singapore narrows once Hong Kong’s more favourable tax rates are taken into account.
China’s base salaries are likely to stay high to attract talent given that the country is putting greater emphasis on quality and sustainability in its products and services.
Moreover, the integration of its financial markets with the rest of the world means that salaries in that sector will need to be globally competitive to attract and retain the best talent.
“China is focusing more on R&D and higher-end, value-added production, which requires a higher skill-set,” said Mr Rakyan. EABC
For that reason, along with proximity to other parts of the supply chain, its more mature infrastructure and skilled workforce will likely continue to attract companies, particularly when compared with emerging economies, even though China is more expensive, he said.
Stanley Kang, CEO of Taiwan-based Tuntex Textile (Thailand), said that as living costs have climbed sharply in China’s big cities, wages have to be increased to catch up, for both bluecollar and white-collar workers.
Land prices have also risen, resulting in higher costs for factory operators. Many Chinese people do not want to live in big cities any more because they cannot cope with higher living costs and thus move back to their hometowns, he added.
Tuntex operates three factories in China and one in Thailand. The Chinese factories, which are located in major cities, supply the domestic market only. Exports of textiles from China are no longer competitive, said Mr Kang, who is also the chair of the Joint Foreign Chambers of Commerce in Thailand (JFCCT).
“The production shift from China has started to be seen in the past decade and has become more prevalent in the last five years. Industries such as electronics, textiles and footwear no longer find China attractive for their investments,” he said.
China, at the same time, has been cracking down hard on air pollution and that has forced some manufacturers to close factories. Tough environmental rules combined with reduced investment incentives for heavily polluting industries are forcing a further shift abroad.
Indonesia and Vietnam offer an abundant supply of labour with a competitive cost, said Mr Kang. Companies in Vietnam also can still enjoy preferential tariffs including the Generalised System of Preferences (GSP) for exporting to the European Union (EU).
The Trans-Pacific Partnership (TPP), if fully ratified, will pave the way for more exports from Vietnam to other member countries, especially the United States. That will give Vietnam a further competitive advantage.
Vietnam’s population of 90 million, with a higher proportion of young working-age people than almost anywhere else in Asia, is another advantage. Cambodia, which has become a major player in the garment industry over the past decade, has seen its attractiveness wane because of labour supply constraints, and some foreign investors are looking at alternatives, said Mr Kang. –
‘We see more investments are going to ASEAN.’