Jun 02, 2011 03:37 PM

Labor Dents Appear in China's Factory Armor


As labor costs rise, China's manufacturers are facing unprecedented challenges. Some are being forced to move to less expensive regions in the nation's interior, others are shifting production to Southeast Asia, and some are shutting down.

Manufacturers may have been especially spooked by a report released May 5 by the U.S.-based Boston Consulting Group, which predicted a narrowing wage gap between the United States and China over the next five years. The report said the change will increase the number of Made in USA products appearing on U.S. store shelves at the expense of Made in China products.

Some wonder whether China's labor-related challenges may threaten the country's status as the world's factory. Increasing numbers of manufacturers may relocate plants from China to India, Vietnam, Myanmar and Cambodia, countries that have been stepping up efforts to attract business and investment.

How much should China worry? Actually, the worrying is already over for some enterprises: They've closed shop.

An executive in the city of Jiaxing at Zhejiang Youbang Integrated Ceiling Co. Ltd., which makes integrated ceiling, said his firm is among the 90 percent of more than 500 local integrated ceiling enterprises that have managed to survive since wages started climbing last year. Others, though, have not.

"Since last year, there have been reports of enterprises collapsing, one after another," the executive said. "About 10 percent went out of business."

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