Work boots aren’t required at this factory. Shoe coverings are.
Before entering Celestica Inc.’s electronics manufacturing facility in Suzhou, about 110 kilometres west of Shanghai, visitors must step onto a machine that encases their feet in plastic.
The light blue booties keep street dirt and dust from contaminating the sophisticated telecommunications and medical equipment the Canadian company produces here.
Nearly all the electronics products that Toronto-headquartered Celestica manufactures in Suzhou are high-end. Workers here make things like X-ray printers and routers and switches, the critical hardware for telecommunications networks.
The plant shatters the stereotype that China is merely the sweatshop of the world, where cheap labour churns out inexpensive trinkets, toys and second-rate fare. What’s manufactured here must meet the standards of the world’s top medical facilities and the demands of the most heavily trafficked corporate communications systems.
One-third of the Chinese workers at Celestica’s Suzhou plant are engineers, and the Canadian company has a research and design facility in Shanghai.
“I don’t think there is anything we can’t build in China today,” says Brian Lau, vice-president and general manager of Celestica’s Asia sales group. “The products we are building here are all value-added products,” Mr. Lau says.
China’s manufacturing sector is quickly moving up the value chain. Where once it produced poorly made clothes and plastic playthings, Chinese factories are now capable of making sophisticated electronics or pieces of machinery each worth hundreds of thousands of dollars.
Despite the increasingly complicated production methods, China’s advantage over other manufacturers remains cost. In Suzhou, a 45-minute train ride from Shanghai, a typical assembly line worker in the city is paid between $400 and $600 a month, while an engineer can earn between $1,000 and $2,000 a month.
China’s move to producing higher-end products is driven by necessity. Labour costs, while far cheaper than in North America, are rising fast and value-added products are a key way to offset inflation and keep the country’s massive manufacturing sector competitive. Producing more sophisticated products is also boosting income for both workers and companies, helping China toward its long-term goal of shaping an economy driven primarily by domestic consumption rather than overseas export demand.
The Asian economic powerhouse’s ascent up the manufacturing value chain portends not only an evolutionary shift for the Chinese economy, but also serves as a massive threat to an already battered manufacturing sector in the West. High-end production remained the last bastion of manufacturing prowess for Europe and North America while Asia dominated as a low-cost producer. Now, factories in China like Celestica’s Suzhou facility are proving that China is ready to close the technology gap and produce sophisticated goods at a lower cost.
But China’s cost advantage is under threat. According to Asia-focused investment and advisory firm Intercedent, rising wages and an expected increase in the value of China’s currency means that mid-tier manufacturing wages in China will reach parity with minimum wage levels in the United States by 2017.
“If this occurs, then there will likely be acceleration in the repatriation of low-end manufacturing jobs from China to North America or they will move to lower-wage countries,” Intercedent said in a recent report.
With the knowledge that their advantage in producing low-end goods will soon be tapped out, Chinese manufacturers are moving to more-sophisticated products. Even with a shrinking wage gap with the West, China’s massive work force, production methods and well-established shipping infrastructure will help it maintain an advantage over rivals in Europe and North America.
Minimum wage costs have risen an average of 23 per cent in China over the past year. While surging wages are a relatively recent phenomenon for the world’s largest exporter, the shift toward higher-end, value-added production in China has been under way for some time.
The country has exported more capital goods than consumer goods since 2003, according to data compiled by the United Nations. While consumer electronics such as computers and mobile devices account comprise a large share of these capital goods, exports of capital equipment and machinery (like what is produced at the Celestica plant in Suzhou) are also on the rise, Will Freeman of GaveKal Research in Beijing, said in a recent report.