Manufacturing gains policy support; quality and quantity both emphasized as new future directions
Statistics show that the average wage of employees in urban units in China, both in and outside of the manufacturing sector, maintained a high double-digit growth rate from 2003 to 2013. In view of rising income levels in China, developed countries have continued to lower the level of tariff preferential treatment to China while Vietnam and other Southeast Asian countries have been able to maintain the advantage of a relatively low cost of labor. In addition, some Southeast Asian countries with low labor costs are either still eligible to receive GSP treatment or are newly eligible for GSP treatment.According to CBRE’s latest report titled A New Normal for China Industrial Real Estate, many foreign-funded enterprises have, since 2014, decided to relocate their low-end manufacturing factories from China to countries in Southeast Asia, and the trend has been accelerating in recent years. Domestically, many low-end manufacturing enterprises in highly developed coastal cities are moving inland to the country’s western and central regions where supporting facilities are of relatively higher quality. This has become increasingly prevalent as the government continues to marginalize industrial plans in coastal areas and enhance policies to favor less developed regions or relocate businesses via the “vacant the cage to attract new birds” initiative.
Although relocation of low-end manufacturing becomes a new norm in recent years due to the rising labor costs, a report released by International Labor Organization points out that China's competitive advantage in manufacturing has switched from low wages to high productivity. CBRE believes that China’s manufacturing industry still provides a strong appeal as the industry is able to leverage the comprehensive industrial chains, well-developed infrastructure and the sheer size of the domestic market.
According to CBRE’s report, the Chinese government has demonstrated great willingness and support for upgrading the industrial infrastructure toward relocation of low-end manufacturing offshore. The recent policy reveals that the government is shifting its manufacturing focus from solely quantity-based to a more balanced approach of both quantity and quality. “Made in China 2025”, a report issued by the State Council in mid May 2015, clearly states growing trends towards higher level infrastructure development while setting new goals to boost development of business parks and industrial properties.
Louisa Luo, Senior Director and Head of Industrial & Logistics Services, CBRE China, commented: “This round of upgrades for manufacturing industry is expected to create profound impact on the landscape of China's industrial real estate market, in four aspects.
First of all, even though the relocation of low-end manufacturing will result in high levels of vacancy of the original plants, these premium-location properties will positively increase supply for industrial land which is currently in severe shortage, besides making room available for upgraded industries.
Secondly, the upgrading of manufacturing industry will help drive higher benchmarking and diversification of demand for industrial real estate.
Thirdly, we expect to see new science and technology parks with a full range of infrastructure services that support business, education, research and development activities. The focus then for the future will be around comprehensive pre-development planning and project management rather than space leasing schemes alongside other insufficient operational campaigns.
Finally, China’s role at the center of ’Factory Asia’ will allow it to promote closer trade ties with Southeast Asian countries, creating a significant impact on the future market dynamics of the logistics industry in East Asia.”
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2014 revenue). The Company has more than 70,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.
