Tuesday, February 6, 2018

Will Chinese Light Manufacturing Move to Africa?

Peking University's Center for New Structural Economics and the UK-based Overseas Development Institute published in December 2017 a landmark study titled "Adjusting to Rising Costs in Chinese Light Manufacturing: What Opportunities for Developing Countries?" by Jiajun Xu, Stephen Gelb, Jiewei Li and Zuoxiang Zhao.

Accelerating real wage growth in China from the mid-2000s has raised the possibility of relocation of jobs from export-oriented labor-intensive light manufacturing industries on China's east coast to low-income countries in Africa, other parts of Asia, and even within China. The study surveyed 640 privately-owned Chinese firms in four sectors--home appliances, garments, footwear, and toys--that collectively employ about 16 million workers in China. Only 10 percent of the firms had invested abroad in the past or intended to do so in the next three years. Southeast Asia (Vietnam and Cambodia) was the most frequent destination. So far, only three firms had invested in Africa, all in footwear in Ethiopia. Only two firms indicated Africa was a preferred destination for planned foreign direct investment.

While the sample surveyed in China is relatively small, this report suggests that all of the recent hype concerning the potential movement of Chinese light industry to Africa should be treated with a great deal of caution. The study concluded that Southeast Asia remains a much more likely destination for China's outward investment in light industry than does Africa.

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