Like many developing countries, China is suffering from increased labour costs driving away manufacturing from the country.
The Philippine government had been hoping to catch the ‘run-off’ of those valuable jobs.
However, recent indicators suggest that most of the companies leaving China are more likely to head for Thailand or Vietnam, not the Philippines.
Natixis, a French corporate and investment bank, says the ease of doing business and the infrastructure make Thailand and Vietnam more promising for long-term investment.
“Facing higher wages, manufacturers have two possible solutions. The first one is to relocate their production sites to Asean. The second solution is to move to the west of China. Because coastal areas (east China) have well established manufacturing sites, they have been regarded as the production base of China,” said Natixis in a recent report entitled “Will the Geese Fly to West China or to Asean?”
The overall study shows that salaries in China have been on the rise for some time – making big business look elsewhere for profitable ventures.
“In addition to low wages, the attractiveness of Asean lies in the free trade agreements that it has developed. Firstly, it has a treaty with China and has already eliminated tariffs on nearly 90 percent of imported goods,” Natixis pointed out.
Natixis also noted that the Trans-Pacific Partnership was making waves in the manufacturing sectors.
“In addition to the elimination of import tariffs, TPP encourages mobility of capital and labor, protects intellectual property and data transmission. In other words, Asean countries’ existing trade agreements open doors to markets in both the US and China. This is, of course, a structural advantage compared to West China.”
The report also noted that the Philippines has one major negative, it’s business environment – noting it as a “Key Issue” when looking at moving a business to another country close to China.
“Philippines, Indonesia, Cambodia and Laos under-perform China, in terms of ease of doing business and control of corruption. In turn, Malaysia, Brunei, Thailand and Vietnam are doing better than China,” the report noted.
“The Philippines fares well on some key indicators but not on the business environment, which is very important. The fact that the Philippines manufacturing sector (mainly semiconductors) has been losing steam during recent years does not bode well for the future,” Natixis added.
Telecommunication, transport, power and water infrastructure in the Philippines also fell short compared with those in Thailand and Vietnam, the report noted.
“The hub of manufacturing is expected to relocate to Vietnam given its enormous market access, very low wages, relatively good infrastructure and business environment. Thailand can be another important destination, once the political situation improves and even more so if the country finally joins TPP,” Natixis concluded.