With manufacturing costs going up in China, what strategies can China-based manufacturers undertake?

As low-cost production is moving away from China and into other Asian nations that are becoming as efficient as mass manufacturing, healthy economic growth requires that China creates higher-skilled manufacturing jobs, becomes more innovative and develops high-tech production. China’s Twelfth Five-Year Plan has indicated a shift in emphasis towards infrastructure and high tech industries, and policy makers have set a target of nine percent annual growth in the production of more sophisticated goods. In fact, 60 percent of China’s exports are now medium- or high-tech goods, a substantial increase from less than 40 percent not ten years ago, according to Bloomberg Businessweek.

The Central Government expects companies that remain in China to help manage the shift from mere assembling to advanced manufacturing. Some companies, for example, have adjusted their global manufacturing network by shifting more sophisticated production from their home country to China, while moving their original China operations to countries with cheaper labor costs.

China’s domestic consumer market is growing. In addition to making a shift towards more high-tech products, existing China-based manufacturing facilities will need to evolve a different set of skills, most notably in supply chain management, distribution, warehousing and marketing for new regional China markets. With Chinese labor becoming more expensive and the Asian infrastructure gap narrowing, foreign investors wishing to sell product onto the China market must begin comparing the economic costs of manufacturing in China with those of placing that capacity elsewhere in Asia, and using the China-ASEAN Free Trade Agreement to avoid import duties.