ASEAN seen as future labour powerhouse, succeeding China

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Indonesia factory workersThe structural change in the East Asian labour market and rising wages in China – which used to be the cheap manufacturing hub of the world – will shift a lot of labour towards Southeast Asian countries, especially the ones which still have low labour costs and/or minimum wages, experts say.

With wages in China increasing by 6.9 per cent per annum according to a Standard Chartered Bank study recently released at a banking seminar in Bangkok, the country sees its labour cost competitiveness waning and prepares for an unavoidable shift from labour-intensive to high-value-added production – which is another factor driving costs for foreign companies up. Benefitting from this development are mainly Southeast Asian nations, according to Usara Wilaipich, senior economist at Standard Chartered’s Thailand branch.

Southeast Asia will eventually displace China for the title of “world’s factory”, another study released in April by Australia and New Zealand Banking Group, or ANZ, said. This would happen over the next 10 to 15 years, “as companies move to take advantage of cheap and abundant labour in areas such as the Mekong [delta],” ANZ said in the report.

Countries which will mainly provide low-cost labour are Myanmar, Cambodia and Laos, while manufacturing in Thailand, Indonesia and the Philippines will remain “cost-effective”, the bank says. Vietnam will provide both, low-cost labour and to some extent higher-value production, while sophisticated producers will look into Singapore and Malaysia. Helpful for the ten members of the Association of Southeast Asian Nations, or ASEAN, is the planned establishment of the ASEAN Economic Community by the end of 2015, which will partly enable the free movement of goods, services, capital and labour (in certain skilled professions) between the 10 member states.

This stands in stark contrast to the former low-cost manufacturing powerhouse, the Pearl River Delta in China with its immense factory belt spanning over nine mega-cities in Guangdong province and accounting for 27 per cent of Chinese exports. The region is suffering from labour shortages and wages that are constantly creeping up. Adding to that, the slowdown in China’s economy is putting the brakes on private consumption and foreign investment, whereby ASEAN’s high GDP growth rates and its rising middle-class affluence causes companies relocating their production away from the Pearl River Delta to ASEAN to capture a share of a the growing consumer market there. Standard Chartered says that “ASEAN stands to gain, with its lower costs and abundant supply of labour over the next 20 years.”

Looking at the minimum wages in ASEAN countries, Standard Chartered says companies estimate that moving to Vietnam could give them an average cost reduction of 19 per cent. Cambodia, on the other hand, could yield a 20 per cent saving on wages. Currently, the majority of ASEAN countries have imposed legal minimum wages but they are still moderate. Thailand has set the minimum daily salary to 300 baht (approximately $9, but there are discussions ongoing about an increase), Malaysia to between 800 and 900 ringgit per month ($211 to $237), Vietnam to between $90 and $128 per month, varying by regions, Laos to $80 monthly and Cambodia to $128 monthly (but only for garment and shoe workers).

The Philippines has minimum wages only for non-agricultural workers that vary between $4.5 and $10 a day, depending on whether the works is done in rural or urban provinces, as it is the case in Indonesia where minimum wages span from $68 to $183 per month. In Myanmar, a minimum wage regulation should come into effect this July, with proposals suggesting 3,600 kyat ($3.24) for an eight-hour day. It is not clear yet whether this will affect just garment workers or all economic sectors. Singapore just recently introduced minimum salaries for two professions only, cleaners ($740) and security guards ($815), while Brunei imposes no minimum wages at all.

Asian labor costs

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Reading Time: 3 minutes

The structural change in the East Asian labour market and rising wages in China – which used to be the cheap manufacturing hub of the world – will shift a lot of labour towards Southeast Asian countries, especially the ones which still have low labour costs and/or minimum wages, experts say.

Reading Time: 3 minutes

Indonesia factory workersThe structural change in the East Asian labour market and rising wages in China – which used to be the cheap manufacturing hub of the world – will shift a lot of labour towards Southeast Asian countries, especially the ones which still have low labour costs and/or minimum wages, experts say.

With wages in China increasing by 6.9 per cent per annum according to a Standard Chartered Bank study recently released at a banking seminar in Bangkok, the country sees its labour cost competitiveness waning and prepares for an unavoidable shift from labour-intensive to high-value-added production – which is another factor driving costs for foreign companies up. Benefitting from this development are mainly Southeast Asian nations, according to Usara Wilaipich, senior economist at Standard Chartered’s Thailand branch.

Southeast Asia will eventually displace China for the title of “world’s factory”, another study released in April by Australia and New Zealand Banking Group, or ANZ, said. This would happen over the next 10 to 15 years, “as companies move to take advantage of cheap and abundant labour in areas such as the Mekong [delta],” ANZ said in the report.

Countries which will mainly provide low-cost labour are Myanmar, Cambodia and Laos, while manufacturing in Thailand, Indonesia and the Philippines will remain “cost-effective”, the bank says. Vietnam will provide both, low-cost labour and to some extent higher-value production, while sophisticated producers will look into Singapore and Malaysia. Helpful for the ten members of the Association of Southeast Asian Nations, or ASEAN, is the planned establishment of the ASEAN Economic Community by the end of 2015, which will partly enable the free movement of goods, services, capital and labour (in certain skilled professions) between the 10 member states.

This stands in stark contrast to the former low-cost manufacturing powerhouse, the Pearl River Delta in China with its immense factory belt spanning over nine mega-cities in Guangdong province and accounting for 27 per cent of Chinese exports. The region is suffering from labour shortages and wages that are constantly creeping up. Adding to that, the slowdown in China’s economy is putting the brakes on private consumption and foreign investment, whereby ASEAN’s high GDP growth rates and its rising middle-class affluence causes companies relocating their production away from the Pearl River Delta to ASEAN to capture a share of a the growing consumer market there. Standard Chartered says that “ASEAN stands to gain, with its lower costs and abundant supply of labour over the next 20 years.”

Looking at the minimum wages in ASEAN countries, Standard Chartered says companies estimate that moving to Vietnam could give them an average cost reduction of 19 per cent. Cambodia, on the other hand, could yield a 20 per cent saving on wages. Currently, the majority of ASEAN countries have imposed legal minimum wages but they are still moderate. Thailand has set the minimum daily salary to 300 baht (approximately $9, but there are discussions ongoing about an increase), Malaysia to between 800 and 900 ringgit per month ($211 to $237), Vietnam to between $90 and $128 per month, varying by regions, Laos to $80 monthly and Cambodia to $128 monthly (but only for garment and shoe workers).

The Philippines has minimum wages only for non-agricultural workers that vary between $4.5 and $10 a day, depending on whether the works is done in rural or urban provinces, as it is the case in Indonesia where minimum wages span from $68 to $183 per month. In Myanmar, a minimum wage regulation should come into effect this July, with proposals suggesting 3,600 kyat ($3.24) for an eight-hour day. It is not clear yet whether this will affect just garment workers or all economic sectors. Singapore just recently introduced minimum salaries for two professions only, cleaners ($740) and security guards ($815), while Brunei imposes no minimum wages at all.

Asian labor costs

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