Article – Asia’s rich to offset ‘reshoring’:The rising wealth will withstand the US's edge in energy prices25 July 2013
July 25, 2013
THE continued growth of Asia’s middle class will help insulate the region’s economy from the impact of “reshoring”, the phenomenon that could see cheap US energy prices and rising Chinese labour costs drive manufacturing back to North America.
But Australia’s manufacturing faces an ongoing challenge to compete, with new research into reshoring by investment bank CLSA underscoring the vast productivity gap between Australia and the rest of Asia.
CLSA’s probe confirmed that China was quickly losing the long-held manufacturing advantage that stemmed from its large supply of cheap labour.
Wages in China have surged by 165 per cent since 2005, CLSA head of Asian research Amar Gill said, with productivity improvements failing to keep pace. China’s labour costs per unit of productivity were about 30 per cent of those in the US in 2000 but have now risen to 94 per cent. Mr Gill’s projections indicated China’s unit labour costs exceeding those in the US by 2015, with the gap widening in the years ahead to be almost double the US by 2020.
At the same time, low gas prices in the US stemming from the country’s immense and growing shale gas reserves could enhance the case for relocating manufacturing from China to the US.