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Chinese jitters as tech firms look to SE Asia expansion

Could the global tech power balance be shifting?

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China could be at risk of losing its position at the centre of the technology manufacturing world as increasing numbers of producers move their operations to other nations in order to combat rising wages and ongoing trade concerns.

Taiwan’s WantChinaTimes, citing a report in China’s influential Economic Information Daily, said that foreign direct investment into south east Asian countries totalled $US117 billion in 2011, up a quarter from the previous year. The growth rate for China during the same period was just eight per cent.

While not all of this investment is tech-related, the technology industry is one of China’s biggest, with the south-east province of Guangdong along the Pearl River Delta apparently accounting for around 60 per cent of the world’s IT production.

Chen Zhihua, president of the Guangdong Computer Chamber of Commerce, told the paper that spiralling wages were forcing manufacturers to locate elsewhere in Asia.

A Frost and Sullivan report from August noted that China became the largest selling and production market in the world for mobile phones, PCs and TVs in 2011.

However, it warned that the growing popularity of other “cost competitive countries” such as Vietnam, Malaysia, India, Indonesia, Singapore, and Mexico have “decreased the attractiveness for contract manufacturing in China”.

“These countries also benefited from a skilled labour pool and the labour wages in these regions are rising slower compared to China,” it added.

Foxconn is one big name ODM/OEM that has already begun to build bases beyond China, recently announcing plans for a huge plant in Indonesia that could see investment of up to $10bn over the next 5-10 years.

Others could follow if rumoured minimum 13 per cent wage hikes in Shenzhen come to pass. Rumours to that effect have already caused some concern in the tech supply chain. HP and Dell have already voiced concerns in the past over rising wages.

However, the wage bill remains a small part of the overall manufacturing cost, and analysts said China would remain the manufacturing destination of choice for most big name producers.

Foxconn, for example, has also committed to build the world’s largest smartphone factory in Henan province, despite its investments outside the PRC.

“When it comes to components, manufacturers want everything centralised in one place,” IDC analyst Melissa Chau told The Reg. “China has everything from A-Z.” ®

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