CHINA EFFECT LIFTS MALAYSIAN PENANG OUT OF DOLDRUMS

GEORGE TOWN, Penang, Malaysia — Penang has seen a sharp increase in investments as rising wages in China has forced companies to expand their manufacturing base in countries like Malaysia, international news magazine Time reported in its latest issue this week.
Calling it the China Effect, the United States-based weekly wrote that wages were rising in the world’s second-largest economy as it progresses from low-cost manufacturing to services, pushing low-end factory work to neighbours like South and Southeast Asia.

• “The conventional wisdom has always been that China’s rise would be the story of Southeast Asia’s fall. We are now seeing that the Middle Kingdom can help rekindle a boom in a region that it once appeared to doom,” Time said.
• “After ferociously sucking jobs and investment out of Southeast Asia over the past two decades, the China Effect is now lifting once declining industrial hubs like Penang out of their long economic slump,” it added in its report.
• The state recently announced that it attracted RM12.2 billion in capital investment last year, a 465 per cent hike from 2009.
• “We’ve worked our butts off to get investment in,” said Penang chief minister Lim Guan Eng to Time.
• Time said that this was due to both Chinese and Western manufacturers now being wary of rising costs in the world’s most populous country, whose increasing spending power is also growing imports into the country.
• China recorded a RM3.1 billion trade deficit for the first quarter of this year, the first time it has done so in seven years on the back of February’s deficit of RM22.1 billion.

Time also cited a 2010 Citigroup ranking of 12 Asian countries by manufacturing wages in which China was the seventh least expensive and Malaysia, the eighth. The magazine also said future wage hikes in China would significantly outpace those in Southeast Asia.
It reported that copper manufacturer P.I.E. Industrial paid its 1,500 workers in Malaysia and Thailand roughly US$260 (RM786) a month, comparable with the wages it offered in China.

• The subsidiary of Taiwanese electronics giant Foxconn International — one of the largest assemblers of Apple’s iPhone — plans to grow its Malaysian workforce by a third over the next few years.
• National Instruments, Citigroup and health-equipment company St Jude Medical are other companies poised to significantly increase their Penang headcounts over the next few years.
• “What mattered to us was the predictability of future costs. We felt there was more predictability in Penang than in China,” managing director of National Instruments’ Penang operations Rajesh Purushothaman was quoted as saying.
• Time cited a report by Credit Suisse that said “this is the beginning of the end of an era for China as the world’s factory.”
• By 2014, China will cease to produce a surplus labour supply for its low-wage factories, Credit Suisse said.
• It added that not even a repeat of the 30 to 40 per cent average factory salary hikes in experienced last year will be enough to alleviate increasingly acute worker shortages in Chinese manufacturing from 2017 onwards.
• Time also said that Malaysia’s host of competitive advantages such as logistics and geography, kept it competitive despite even lower wage demands in Bangladesh.

It wrote that Penang has wide roads, a steady stream of university science graduates, an efficient power supply, a modern airport and a legal system inherited from Britain whereas there was worry over intellectual property in China.

Source: Agency, TIME