Has Europe taken over China’s role as the “new sweat shop”?
Writes Spiegel Online, (bold original)
It used to be that European carmakers opened plants to assemble their cars in China. Now the Chinese have turned the tables with the opening of their first factory in Bulgaria, an EU country with low labor costs and taxes. Increasingly, Chinese carmakers are setting their sights on the European and American automobile markets.
Great Wall this week became the first Chinese automobile manufacturer to open an automobile assembly plant inside the European Union in the latest move suggesting the country's carmakers are seeking to establish a beachhead into the European market.
Bulgarian Prime Minister Boyko Borisov on Tuesday attended the opening of Great Wall's new factory in the northern Bulgarian village of Bahovitsa. The plant is to be operated jointly by Great Wall and the Bulgarian firm Litex Motors.
For years, European carmakers like Volkswagen have established large joint ventures in order to gain footholds in the Chinese market, but now the tables appear to be turning.
"Stepping on the European market is our strategy," Great Wall CEO Wang Fengying said at the opening festivities.
Within three to five years, the company plans to produce an entire line of models in Bahovitsa to be sold in Europe, she said. Test assembly of the Voleex C10 and the Steed 5 pick-up truck, which sell for 16,000 to 25,000 leva (€8,200 to €12,800), began already in November.
In the midterm, Great Wall plans to assemble around 50,000 automobiles per year at the 500,000 square meter plant. The number of workers is expected to grow from the current total of 120 to 2,000. Initially, the company plans to sell its vehicles primarily in Bulgaria and neighboring Eastern European countries like Serbia and Macedonia, but it later plans to expand into other EU countries.
Attractive Labor Market
Bulgaria, the EU's poorest country, is attractive as a labor market because it is an oasis of cheap wages and low taxes. Workers are considered well educated and the country is ideal as the site for a company like Great Wall to launch. Given that wages for factory workers have risen considerably in China in recent years, assembly sites abroad have become increasingly attractive for some manufacturers.
While it may be true that China’s wages have risen over the past years, it is important to put into perspective that there has been an enormous chasm between European wages (yes despite Bulgaria's position as having one of the lowest wage in Europe) and China’s wages.
From Urbanomics
Europe hourly compensation in manufacturing is more than 30 times China!
From Ebandit
Chinese workers would take more than 8 years and 10 months to catch up with the annual European minimum wage earnings.
Even if the wage convergence trend does deepen overtime, where China’s wages continues to increase as Europe’s wages decline, it would take substantial changes, and possibly many many many years, if not decades, for this wage based differential to close.
And while the mainstream loves to tunnel on “wages” or “compensation” as the key reason for any shifts in investments [mainly to justify government’s actions for currency interventions or the imposition of mercantilist-protectionist policies], the reality is that wages are just part of the many factors driving the entrepreneur’s economic and financial calculations or business decision processes, such as access to markets, finance, infrastructure et al…, regulatory costs, tax regime, legal environment, political institutions and etc…
Perhaps too, some Chinese investors may just be courageous and far-sighted enough to use the recent crisis as an opportunity to position or that the same investors appreciates Europe's competitive and comparative advantages and acted to capitalize on these
Besides, one investment shift does not a trend make.
The last point is that this serves an example of how conditions are not fixed (past performance does not guarantee future outcomes) and that the world is highly complex.
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