China is relocating its factories to produce cheaper. But not in India or Vietnam: in China

China is facing one of the most significant economic challenges of the last 20 years, with a growth model disrupted by the blockade of US semiconductors and a post-pandemic economy that does not respond to stimuli and shows serious signs of exhaustion. Shows.

This economic scenario also includes a production and social crisis, with workers demanding better working conditions in their factories and brands moving their production lines out of China to avoid being caught in the blockade. Faced with such a complex labor, demographic, and economic situation, Chinese officials have made a Solomonic decision: If workers do not come to the factories, the factories will go to the workers.

China’s key: cheap laborOne of the pillars on which Chinese growth has been based over the past two decades is the country being the most populous in the world and lacking labor rights, so cheap labor was guaranteed to achieve profitable production for low costs.

These workers have been displaced from interior provinces for decades due to poor and lack of communication infrastructure. Their goal was to prosper by working in factories in rich coastal provinces such as Guangzhou or Shenzhen, from where merchant ships filled with the products they manufactured would sail from international commercial ports.

factories need workersThe Chinese development model remained dominant until its own prosperity allowed the children of workers who had begun working in semi-slavery conditions to graduate from university. Now, the majority of the population in most industrial sectors has a minimum level of education and there are an average of 11 million new graduate graduates year after year who demand higher wages and better working conditions.

These claims undermine one of the advantages of manufacturing in China and increase costs, which is why many companies have moved their factories to China in search of cheap labor in countries such as India, Vietnam, Thailand, Indonesia or Cambodia. Have closed it.

Solution: Move factories to China’s interiorIf one of the main problems for factories is finding workers, they will go find them wherever they are. So, instead of moving production to other countries, the Chinese government has managed to move them to less industrialized provinces like Sichuan or Henan, where labor costs are still cheaper and wages are up to 30% lower than in surrounding countries. . Serving as a refuge against the United States blockade of China.

Foxconn, a main assembler and supplier to Apple, Dell and Asus, has already taken this step by relocating one of its factories from Shenzhen to Chengdu, the capital of Sichuan, and opening another production line in Henan province with employment potential. For 300,000 employees. Foxconn’s expansion in mainland China rapidly gained momentum, expanding new production centers to other areas away from the coast, such as Hubei or Chongqing.

Minimum wage is set by provinces or citiesUnlike other states, the minimum wage in China is not set at the national level, but rather at the provincial level and even by city when it comes to large cities like Beijing. In this case, the difference between wages in factories in big cities like Shanghai or Beijing and in inland provinces is significant.

According to the National Bureau of Statistics, the average salary in Shanghai is 132,802 yuan per year (about 17,160 euros), while in the inland provinces it barely reaches the average salary of 89,941 yuan per year (about 11,621 euros at the exchange rate).

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Image | Pexels (James Wheeler, Barry Tan)

*An earlier version of this article was published in October 2023