FRIDAY, March 29, 2024
nationthailand

China’s rising labour costs spur investments in Southeast Asia

China’s rising labour costs spur investments in Southeast Asia

More manufacturers have been relocating from China to Southeast Asia over the past few years, largely because China’s labour costs have become increasingly less competitive. 


This trend has been reinforced by the China-US trade war that began in 2018. A new research report by property consultancy JLL indicates that Vietnam, Thailand and Malaysia are the primary benefactors of manufacturers moving out of China.
Foreign direct investments in Southeast Asia’s manufacturing sector have seen a strong rise over the past three years to US$46 billion (Bt1.4 trillion). The relocation of manufacturing facilities from China to take advantage of lower labour costs in the sub-region has contributed to this FDI growth.
Able to offer a high-quality workforce and competitive wages, Vietnam, Thailand and Malaysia are winning more manufacturers as they expand or relocate from Korea and Japan, as well as from China, according to JLL’s report. For example, Thailand and Malaysia have a mid-tech workforce now costing 60 per cent lower than in China, compared to 33 per cent in 2010.
JLL anticipates the trend to accelerate as the China-US tariff war causes more companies in China to relocate their operations to other countries in order to avoid US tariffs and maintain their competitiveness.
“The ongoing China-US tension has reinforced the trend of more manufacturers relocating from China to Southeast Asia in an effort to minimise the business impact of the China-US trade war,” said Subyagorn Sansugtaweesub, the head of industrial at JLL.
So far, the US has slapped tariffs on $200 billion worth of Chinese products and China has set tariffs on $60 billion worth of US goods. The latest meeting between the Chinese and US leaders on June 29 at the G20 conference in Japan ended without a clear path to ending the trade war.
“Thailand launched its Eastern Economic Corridor (EEC) at the right time,” said Subyagorn. “It has drawn strong interest from foreign companies, including those looking to relocate from China.
“We have already seen many of these companies looking for opportunities to acquire land in the promotional zones to develop their manufacturing and logistics facilities. Some are looking to acquire built-to-suit facilities. Others are looking for existing facilities that are put up for sale in the EEC, with specifications that suit or could be easily adjusted to suit their operational requirements,” he added.
Spanning three provinces – Chachoengsao, Chonburi and Rayong – the EEC has become Thailand’s most attractive industrial destination for key industries that have been identified as high-potential future new-growth engines for the country. They include automotive, intelligent electronics, robotics and aviation sectors. The Thai government has implemented a number of incentive policies and programmes to facilitate future industrial growth in the EEC, such as substantial tax breaks, permission for foreign ownership of land for projects promoted by the Board of Investment, and the right to lease state land for a 50-year term with an option, upon approval, to renew for another 49 years.
“Even if the China-US tariff war is put to an end, we believe that Thailand, particularly the EEC, will continue to retain its position as one of the most attractive industrial and logistics destinations in Southeast Asia, due to appealing incentive offers, availability of skilled labour, continued improvement in infrastructure, and the country’s advantageous location in the centre of the sub-region,” Subyagorn said.

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