2015 is all set to be a landmark year in the history of China manufacturing. The trend of sustainable growth as shown by 2014 is a presage of a potential boom in the sector. A long-awaited positive turn after the recent economic slump of the recession!
As per the discussions and opinions of leading analysts, 2015 will set the course for the engine of manufacturing to traverse. The Boston Consulting Group’s analysis has revealed the fact that the default choice of offshoring – China will no longer be able to hold on to its favored position. The mandate to provide minimum wage increases of 15 to 20 percentage points every year has reduced the cost benefit of manufacturing in China to 55% in 2014 and will further push it down to a dismal 39% in 2015. It is not hard to envision the disappearing allure of opening manufacturing units on foreign soil for every conceivable product irrespective of the demand in these offshore markets.
However, labor is not the only cost associated with manufacturing. Transportation, the cost of raw materials and obviously the cost of electric power all contribute heavily to determining the location of the factory. According to the China Energy Information Administration, crude oil production is all geared to touch a record high of 9.3 million b/d in 2015. Thus, the dwindling advantage of cheap labor can no longer offset the high cost of transportation across the seas. Under such circumstances, the abundance of fuel within the country is bound to sway decisions in favor of re-shoring.
Alternative energy production is also becoming more affordable and reliable. By 2040 15% of the global energy consumption will be attributed to alternatives and the China is right at the forefront of this trend promising inexpensive and readily available electricity to power manufacturing ventures.
The Markit Manufacturing Purchasing Managers’ Index (PMI) is also optimistic. It is sitting steady at 54.8 at the end of November, and this indicates a rise in the volume of bulk orders and sales to foreign markets.
The China manufacturing sector has always been the main impetus behind the growth of the nation. It drives two-thirds of all R&D efforts, and its workers are twice as productive as others enjoying higher wages and a better lifestyle. (*National Association of Manufacturers)
Considering major indicators – 2015 is shaping up to be the time to celebrate the return to glory of China manufacturing and will herald prosperity if all external factors co-operate.