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The problem with Made in China

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1 of 1 DOCUMENT The Economist January 13, 2007 U.S. Edition The problem with Made in China - Manufacturing in Asia; Manufacturing in Asia SECTION: SPECIAL REPORT (2) LENGTH: 2908 words DATELINE: singapore China is choking on its success at attracting the world's factories. That has handed its Asian neighbours a big opportunity AS A vote of confidence in Vietnam, the decision by Intel early in 2006 to spend $350m building a new factory in the emerging South-East Asian economy was hard to beat. And yet, before the year was out, the American chipmaker went further and raised its investment to $1 billion. In eight months Intel had committed as much money to Vietnam as it had to China in the previous ten years. In the Johor region of Malaysia, another global firm, Flextronics, has fired up the production lines of a new $400Mm ($110m) factory to make computer printers for another American firm, Hewlett-Packard. One of the largest contract electronics manufacturers, Flextronics already has vast facilities in China. But it chose Malaysia as the site for its latest investment. Further east, in Indonesia, Yue Yuen, a Hong Kong-based shoemaker, has been ramping up its output of trainers and casual footwear for brands like Nike and Adidas. Production is increasing at the firm's factories in China and Vietnam too, but output in Indonesia is growing the fastest. Although all three companies had different reasons for their decisions, the outcome was the same: they chose to avoid China's thundering economy in order to put their factories elsewhere in Asia. These companies are not alone. In the calculus of costs, risks, customers and logistics that goes into building global operations, an increasing number of firms are coming to the conclusion that China is not necessarily the best place to make things. With its seemingly limitless supply of cheap labour and the rapid acquisition of technological prowess, China appears to be unstoppable. Indeed, the perception is that every factory closing in America or Europe is destined to reopen in China. Many have, helping China's share of the world's exported goods to triple to 7.3% between 1993 and 2005. In comparison, every member of the G8 group of rich nations, with the exception of Russia, saw its share fall. It is a similar story with manufacturing output. Whereas China doubled its share of global production to almost 7% in the decade to 2003, most of the G8 saw their shares fall. Interestingly, only the United States and Canada saw their shares rise--with just over a quarter between them. Most things nowadays might seem to be made in China, but North America remains the true workshop of the world. Page 1
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Yet it is not only China that is booming as a base for low-cost production. Manufacturing and exports are growing rapidly in other parts of Asia (see chart 1 on next page). Taken together, South Korea, Taiwan, India and the Association of South-East Asian Nations (ASEAN) increased their share of global manufacturing from less than 7% to more than 9% in the decade to 2003. Exports also rose across the board. China is the emerging giant, but the
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