China to relocate industries

LAHORE: Increased Chinese interest in relocating their industries in neighboring countries, including Pakistan is because of labour shortages that the Chinese are experiencing after decades of rapid industrialisation; reaching the “Lewis turning point” that depicts acute shortage of labour, experts said.


Development experts point out that when a society moves from an agricultural to an industrial economy, the balance of labour demand and supply shifts, as well. In the initial stage of development, they said, most people remain in rural areas, engaged in agricultural production. When this concentration of workers leads to underemployment in the rural areas, the industrial sector can expand and increase its labour force with no pressure to raise wages, they added.


Thus, there may follow a period of industrial growth with no rise in real wages. However, as the industrial sector develops to the point where the supply of labour from the agricultural sector becomes limited, industrial wages begin to rise quickly. Based on the historical experience of developed countries, Lewis in 1954 first conceptualised this process of economic transformation.


In the literature, the structural change from an excess supply of labour to one of labour shortage is often called the Lewis turning point.


The experts said that reforms started in China in late seventies and continued successfully and since then have greatly improved agricultural productivity and released a tremendous amount of surplus labour from the land. As a result, a large number of labourers moved from the agricultural to the industrial and services sectors.


For more than two decades since the economic reform, the supply of labour seemed to be unlimited, enabling China’s manufacturing sector to maintain a comparative advantage in labour-intensive products. Fuelled by cheap labour, many of China’s manufactured goods became so competitive in the international market that it earned the name “The world’s factory”.


Now there is no more surplus labour available in rural China and the ever-expanding factories, they said, are short of labour. “Wages are rising rapidly, making many low value products unviable.”


China has relocated many of its low-cost garmenting units in Bangladesh, Vietnam and Cambodia during the last few years; as high wages made it unviable for them to produce low-cost garments in China.


The Chinese, however, were unable to relocate their basic textile industries in these non-cotton producing countries. Pakistan and India having a strong cotton base were the alternatives.


India is not selected for being direct competitor of Chinese in the textile sector, while Pakistan faces governance issues.


“A number of Chinese delegations have visited Pakistan in the last three years to strike a deal for establishing industries at Special Economic Zones,” SM Tanveer, chairman of the Punjab Industrial Estates Development Company(PIEDMC), said.


They want some changes in SEZs laws to make them in line with the laws prevailing in other countries, he said, adding that these changes have been made after which some investors have shown interest to establish dedicated industries in the estates spreading over 10,000 to 20,000 acres of land. “Currently, there is no industrial estate in Pakistan that is spread over 10,000 acres,” he added.


These investors have shown their seriousness and are regularly contacting numerous trade associations, including the All Pakistan Textile Mills Association (Aptma), Tanveer said, adding that this is understandable as it is no more viable for the Chinese to produce yarn and low-cost fabric at the wages they are forced to pay to their workers.


“This is the reason that yarn exports from Pakistan to China have picked up sharply,” he said, adding: “With our present capacities we cannot cope with the Chinese demand.”


Mansoor Ahmad
Friday, August 23, 2013 

From Print Edition

Source: THE NEWS