China,the world’s biggest manufacturer

China is the world’s biggest manufacturer, sometimes referred to as ‘the factory of the world’. It has been an attractive location for manufacturing over the last years because of its low cost of labour, highly skilled workforce and good infrastructure. However, China’s competitiveness and manufacturing profile are changing, with more developed regions increasing their value chains and the manufacturing sector that requires labour moving inland. Many companies are opting to produce in China to serve the expanding Chinese market, instead of use it as low-cost option for manufacturing export products.

Manufacturing’s portion in Chinese GDP has been decreasing in recent years, however it remains a major sector that accounted for 42.6 percent of the GDP in 2014. It employs around 30% of the workforce in China and has helped ensure that China remains the world leader in industrial output. On the more developed Chinese eastern coast, the emphasis has increasingly moved to advanced manufacturing, while less expensive and more labour intensive manufacturing has been moving more inland.

However, as China’s attention on the service sector increases, more Chinese will be employed in the financial sector and not farming or manufacturing.

Pros and cons of manufacturing in China

Benefits of manufacturing in China include access to advanced Chinese technology, research and development (R&D) as well as sciences and technologies, along with incentives offered by local, provincial or central agencies. Another benefit of manufacturing in China is the improvements in efficiency thanks to larger economic scales in China. However, rising labour costs, shortages of skills as well as intellectual property rights protections are major concerns to take into account when analyzing the manufacturing industry in China.

Other concerns and challenges with production within China are the development phase at present and inconsistency with application of commercial law in China and the inconsistent quality of infrastructure and logistics systems. Contracting with subcontractors or manufacturers could also result in serious issues which have to be strictly managed. They include the need to ensure that quality is controlled with rigor as well as the risk of leakage of the product to the international and domestic market production overruns, ethical and corporate socially responsible manufacturing.

What are the things to think about

There are a number of ways that foreign companies can create manufacturing facilities in China. Contract manufacturing is an increasingly popular option for both large and small companies across different sectors. Australian businesses can also choose to invest directly in factories in China or independently as a wholly foreign-owned business or in joint venture with a Chinese company.

Location is an additional consideration for making located in China, with the Chinese Government encouraging investment in various types of manufacturing in various regions. On the more developed eastern seaboard, where wages are higher and infrastructure is better The Government encourages investments.

in the high-end, low-polluting industry. Further inland in the western and central provinces of China in areas where labour costs are less and infrastructure is less well-developed, the government encourages investment factories that are more labor-intensive. Some provinces and cities are specialized in certain areas and are producing specific products.

Quality control is a key factor to take into account when making a purchase the products in China. There have been many high publicized instances in which poor quality control by Chinese producers – often sub-contractors – has caused significant problems for international brands. This ranges from toys to clothing and food products. Be sure to have strong quality control processes put in place, and perform your due diligence.