In early March, during the annual sessions of the National People's Congress and the Chinese People's Political Consultative Conference, a joint study titled *China Manufacturing Competitiveness Research 2007–2008*, conducted by Booz Allen Hamilton and the American Chamber of Commerce in Shanghai, highlighted a growing concern: China’s traditional role as a low-cost, export-driven manufacturing hub is beginning to wane. Among the 66 foreign-invested companies surveyed, over half believed that China is gradually losing its competitive edge compared to other low-cost countries like Vietnam and India. Hornbey, chairman of the Shanghai Manufacturing Industry Committee at the American Chamber of Commerce, remarked, “The era of Chinese manufacturing is coming to an end. You can’t just think of it as a manufacturing workshop anymore.â€
The research aimed to understand how U.S. manufacturers could maintain their competitiveness amid rising costs and increasing competition in China. Dr. Xie Zuyi, President of Booz Allen Greater China, explained that the study sought to examine the perspectives of these companies on China as both a sales market and an export platform, while also analyzing their operational structures and management strategies within the country. The goal was to provide actionable insights and recommendations.
According to the survey, 54% of respondents felt that China is losing its competitive advantage against other low-cost nations. The primary reasons cited were rising labor costs and RMB appreciation. Specifically, 70% of companies attributed the decline to the renminbi’s appreciation, while 52% pointed to higher wage costs. Salaries for white-collar managers and blue-collar workers increased by 9.1% and 7.6%, respectively. Additionally, 33% of companies mentioned employee turnover as another factor contributing to the loss of competitiveness.
Dr. Xie also noted that the implementation of the Labor Contract Law in January 2008 would further raise labor costs, a trend widely recognized in the industry. As a result, many companies expect that manufacturing labor costs will not ease in 2008.
Approximately 20% of the surveyed companies reported having a clear plan to shift some operations out of China. Of those planning to relocate, 88% stated they initially chose China due to its low labor costs. However, today’s lower wages and tax incentives in other countries are making China less attractive. Vietnam emerged as the top alternative, with 63% of relocation-intending companies considering it the best option, followed by India at 37%.
Operational inefficiencies also pose a challenge. The study found that China still lags behind global standards in several key areas, including logistics infrastructure, trade environment, technology access, management capabilities, and intellectual property protection. Many multinational companies fail to optimize their operations in China or fully leverage the country as a strategic hub for manufacturing and procurement.
Furthermore, three-quarters of the surveyed companies lacked best practices in their operations. Only 11% had implemented integrated systems like ERP or MRP, while just 7% used advanced inventory analysis tools, and a mere 4% applied best practices in supply chain risk management. These gaps suggest that while China remains a significant player, its ability to sustain long-term competitiveness depends on addressing these operational shortcomings.
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