By John Richardson
THIS fascinating slide from Accenture, in a new study that the consultancy is about to release on the rebound in North American manufacturing competitiveness, quantifies the steep rise in relative labour costs in China between 2001 and 2011.
And this process is likely to accelerate as China attempts to narrow the gap between the very rich and everybody else, and as it also tries to rebalance its economy towards more domestic consumption.
The implications for the petrochemicals business include:
*Declining growth in demand for basic petrochemicals that are shipped to the eastern and southern provinces of China to be processed into low-value manufactured goods for export. Higher wages in these provinces mean that China has to move up the manufacturing value chain, which it is attempting to do. However, as we discuss in chapter 10 of our free e-book, Boom Gloom & The New Normal, success is far from guaranteed.
*The chance to replace these lost petrochemical volumes with greater sales inland, as China moves its basic manufacturing away from the coast to its less-developed regions in order to create jobs. But this assumes that foreign importers can get over logistics barriers and thus compete with rising domestic inland capacities.
The wider debate over the recovery in North American competitiveness will be the subject of later blog posts.
But just to point out here, labour costs are not the only factor in spurring this revival. Intellectual property-right concerns over China, and well-developed “innovation clusters” in North America, are encouraging the rebound in manufacturing investment, according to Accenture.
This underlines the argument in chapter 10 of our book: That China has a long to go before it can become a trusted manufacturer of branded goods. Please click here to download the chapter.