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Asia—‘Factory Asia’ will continue to dominate despite rising Chinese wages

Average wages in China’s manufacturing sector trebled over the decade to 2016—at US$3.60 per hour Chinese factory workers are now much more expensive than their Asian neighbours, according to Euromonitor data (Chart 2).


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But compensation is provided via China’s superior efficiency, infrastructure and market potential. Chinese labour productivity increased 40% over 2011 to 2016, compared with 25% in the Philippines, 23% in India, and 21% in Indonesia (Chart 3). Automation provides scope for further gains. China counts amongst the world’s largest producer and consumer of robots, but it still had just 49 robots per 10,000 manufacturing employees in 2015, compared with 531 in Korea. China also outperforms in the Global Competitiveness Index with good transport links and ports; and it is home to almost 20% of the global consumer market, making it strategic for companies to retain a manufacturing presence there. China’s dominance will therefore continue.

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Relatively underdeveloped inland provinces—offering tax breaks, cheaper labour, excellent transport links and a reliable supply of inputs—will become more attractive and the rise of low income South East Asian economies—which offer a relatively young and nearby workforce—will ensure Asia remains a manufacturing powerhouse.