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Published: 03:35 AM, 08 March 2020

Bangladesh - last option of relocation of Chinese factory https://dailyasianage.com/news/221732/bangladesh---last-option-of-relocation-of-chinese-factory

M S Siddiqui

China, the EU, Bangladesh and Vietnam were the world's top four garment exporters in 2017. Together, they accounted for 75.8 percent of the world's market shares - growing from 74.3 percent a year earlier and a substantial increase from 68.3 percent in 2007. Globalization has transformed China into the "world's factory." Eighteen years ago, developed and newly industrialized countries moved their labor-intensive and low-tech industries into China. It is the world's largest exporter of apparel, with shipments of $158.4 billion in 2018, or more than 30% of the global total. China is also moving to higher technology and higher wage for workers, steadily rising labor costs, mounting compliances, social insurance commitments, stringent environmental checks, and other pressures. The recent US-China trade war and sanctions over Chinese goods is another reason of prompt re-location of factories from China to other countries. However, the onset of the Sino-U.S. trade war prompted a growing number of foreign companies to leave China and move to Southeast Asia. China, the "world's factory," is losing its competitive edge. Although, foreign businesses have started to leave China years ago because of soaring costs, but the Sino-U.S. trade war just greatly accelerated this process. Foreign companies and even the Chinese can use industrial automation as a strategy to offset high labor costs for some of the products but the low-tech and labor-intensive industries, such as the clothing industry, rely heavily on skilled labor, which cannot be fully automated. Low-tech and labor intensive industries are not complicated to set-up and its workers are easy to train, making it feasible for a foreign company to move production to another country. These factors have pushed a large number of foreign enterprises to move out of China at an accelerating rate.

The head of global research at Standard Chartered, pointed out that according to a survey by South China Manufacturing Center in 2015, reportedly, 11 percent of factories in southern China planned to move to ASEAN countries, India and Bangladesh to avoid increasing costs.The fact that these countries have a Free trade agreement with China under the fold of the Association of Southeast Asian Nations (ASEAN) is an added advantage. According to the American Chamber of Commerce in China with membership of more than 3,300 individuals from 900 companies operating across China, 35 percent of the companies it surveyed have moved or considered moving their production bases out of China to other countries such as Southeast Asia. Not only garments, to avoid the high tariffs imposed by the United States, Many Chinese factories are transferring their assembly lines abroad. Taiwan factories in China that manufacture shoes for Nike, Adidas, Under Armour and other brands have moved their production lines to Southeast Asia and India, according to a September.16, 2018 report by Japanese financial newspaper Nihon Keizai Shimbun. Chinese manufacturing companies are also moving out of China-their products range from bicycles, tires, plastics to textiles. Kerry Logistics Network Ltd, Asia's largest shipping and Logistics Company based in Hong Kong, is currently moving its production lines from China to Malaysia, Vietnam, Myanmar and even Laos. An increasing number of manufacturing companies have been setting up their production lines in Indonesia, the Philippines and Malaysia. These three Southeast Asian countries have two things in common. First, they are close to Australia. Even then with many competitors in the region -Southeast Asia in particular - to contend with. In addition Bangladesh's economic growth "miracle" and said the country appears to gain from the trade conflict between the US and China. The chief economist of the Asian Development Bank (ADB) Yasuyuki Sawada calculated that the gain could be 0.19 percent of the GDP or $0.4 billion as China's exports will decline following the US tariff measures and there will be relocations of productions. With one of the lowest minimum wages in Asia, Bangladesh is an apparently choice for garment importers looking for lower production costs. Bangladesh is one of those alternatives since labor cost is still cheaper in Bangladesh. Bangladesh is the world's second-largest apparel exporter, with a 6.4% share. Vietnam comes in third at 5.8%. Wages in Vietnam are less than half that in the big Chinese cities like Shanghai and Guangzhou. The expected gain would not be automatic - Bangladesh will "need to compete with others" since other Asian countries may gain out of the trade row with US as Chinese exports will slow down and other countries can replace China's exports by expanding their exports with their better logistic and other service and FTA with China facilitating investment and sourcing raw materials. ASEAN and India have FTA with EU and USA facilitating duty free export to largest buyers of garments. The ASEAN countries are also have limited low cost and un-skilled worker suitable for garment factories but there are still opportunity of availability of low cost workers in Bangladesh. The investors now casually are focusing to shift their factories to Myanmar and Bangladesh. Some Chinese garment makers want to set up factories under joint venture in Bangladesh as

they see the country as a competitive destination to relocate plants amid raging US-China trade war and the rising cost in the world's second largest economy. American apparel buyers are also diversifying suppliers out of China. U.S.-bound apparel exports from Bangladesh grew 14% on the year to $1.48 billion in the July-September period, and rose 3% in the year through June. Vietnam's apparel and textile exports are expected to climb 16% to a record $36 billion in 2018, according to an industry association. Apparel accounts for more than 10% of Vietnam's exports. The reasons for the change in focus include a lack of skilled workforce in Chinese textile and garment industry, rising cost of production, shifting industrial base to industries such as IT and over-investment in Vietnam and Cambodia where labour costs are lower. Chinese textile and garment industry owners have invested heavily in neighboring Vietnam and Cambodia in the last two decades. Despite the fact that Vietnam's monthly minimum wages in 2019 vary by region from $125 to $180, with the highest rates in urban areas like Ho Chi Minh City and Hanoi. These wages are sometimes half of China's which vary by province from $143 to $348. And Vietnam's minimum wage growth is showing signs of stability. Minimum wages increased by an average of 5.3 percent in 2019, a lower increase than in 2018 (6.5 percent) and 2017 (7.3 percent). Labor costs are a major consideration for any labor-intensive product like footwear and garments. The cost to rent industrial land on a long-term lease at one Vietnamese industrial park in 2018 also increased to $90 per square meter (10.76 square feet), up from $60 to $70 in 2017. And the monthly rent for existing factory buildings in industrial parks near Ho Chi Minh City has risen to $4 per square meter, up from $3 last year. The wages of workers in Bangladesh is still below US$100. China is also now trying to shift the low cost and labour intensive sunset industries to Myanmar and Bangladesh. So far, Bangladesh hasn't allowed foreign investment in basic apparels, limiting their presence in high-end and value-added textile and garment items. There are some investments in the garment sector in Cambodia, but there is a lack of mature management there. Chinese are thinking of establishing manufacturing plant in Bangladesh with potential partners although expressed concern about the higher lead time, poor infrastructure, corruption etc in the garment sector in Bangladesh. The Bangladesh wage is half of India's, and less than one-third of China's or Indonesia's. Cambodia, Pakistan, and Vietnam are other apparel exporters taking advantage of extremely low labor costs. The 'low-cost workers' failed to attract reasonable FDI. Myanmar is our new competitor in the garment sector. China and other countries planning to invest in Bangladesh only find no other suitable location. Taken into consideration of the advantages of ASEAN members and India, Bangladesh also must sign FTA with USA and EU to attract FTA from China and other countries to make value addition competitive for the end buyers. The so-called fear of loss of revenue due to FTA is a wrong, obsolete and abandoned theory for present globalized market. The 'low wage worker' publicity strategy failed to attract FDI.

Bangladesh should also reform of rule and policy to reduce bureaucratic obstacle and must reduce corruption to attract overseas investments. The writer is a legal economist Email: mssiddiqui2035@gmail.com