He has an interesting article in China Economic Review regarding the current labor situation in China and the trend to value-added manufacturing vs. simple low-cost manufacturing which I tend to agree with:

The crunch is concentrated almost entirely in the market for more skilled, experienced workers – and it is becoming more acute as manufacturers try to move up the value chain. Virtually all of the high-profile cases where Chinese workers have successfully pressed their demands have involved activities – like automotive or electronics manufacturing – whose skill requirements make qualified employees hard to recruit, expensive to train, and difficult to replace.

That sounds like bad news for Chinese manufacturers; it doesn’t have to be. The day after Hon Hai announced its planned wage increase, the company’s stock price dropped by 5% on fears that it wouldn’t be able to pass those higher costs onto customers. But if investors looked closer, they would see that the company’s success is largely based on an ability to deliver quality and reliability, while ensuring protection of its customers’ proprietary designs and technologies.

Even in simple, comparatively lower cost product categories I have seen examples where companies stuck with, or returned, to Chinese manufacturers whose labor and/or other costs had recently risen. Why? Because while those Chinese manufacturers may have raised prices, their quality, consistency, reliability, and ease of doing business added value to the transaction that outweighed the increase in price. Similarly I’ve seen examples where Chinese factories raised prices simply because they thought they could based on the market conditions widely reported – but failed to improve or even maintain current levels of product quality, etc.

While China still has a large basis of low-value manufacturing, they continue to take a climb up the value ladder. Even in lower value manufacturing, those Chinese factories with a long-term view who cultivate strong working relationships with their clients, adding value and consistency to their product, should continue to enjoy success.

According to the article, Hong Kong’s economy plunged at its fastest rate in a decade. The economy shrank 7.8% compared with the same time last year and marked the largest decline since the 1998 Financial crisis. Reasons cited for the decline were a decrease in exports, the swine flu, and weak consumption.

From a 3PL perspective, the news it not all the surprising since exports out of Hong Kong have been down substantially. According to a report from the Hong Kong Port Authority, container throughput for the first 4 months of the year is down roughly 20 percent.

According to “China Container Ports Review 2009,” the excess supply of terminal capacity in China’s container ports is estimated to reach 35million TEU (twenty-equivalent units) by 2010. Of the top 12 container ports, the potential over-capacity is expected to be most severe in Xiamen and Dalian where total capacity in 2010 is 114 percent and 100 percent respectively of the demand in 2008.

“Both the Bohai Rim and the Pearl River Delta/Southeast coastal region could see a significant overcapacity challenge in 2010 as the excess capacity projected is three times more than the actual growth seen in the 2000-2008 period,” said analysts. “With growth slowing considerably for 2009, it is unlikely that demand would grow sufficiently to absorb the excess capacity within the next two years.”

While this is certainly bad news for the short and near-long term, once things pick up again China will be well equipped to deal with the subsequent growth in cargo. One of the advantages China has over some of its lower-cost production rivals (such as Vietnam) is a well developed system of coastal ports and terminal. China has vastly improved their ocean cargo infrastructure at a coastal level that gives them a competitive advantage over others. While they may want to put the breaks on expanding existing port facilities or delaying construction of new ones, they should feel comfortable about their capabilities when the world starts buying again.

China will ban new shipyards for three years and support domestic-vessel purchases as the nation’s shipbuilders struggle with plunging demand amid tighter credit and slowing world trade.

Banks will also be encouraged to increase trade finance to boost ship exports under a plan approved by the State Council, China’s Cabinet, according to a statement posted on the central government’s Website yesterday.

The government will extend financial aid for domestic buyers of long-range ships until 2012, it added.

Hat tip to China Logistics News.

Goodtime Science & Technology Co., LTD manufactures and distributes environmentally-friendly and energy-efficient rubber, plastic, and metal items and molds for major auto makers including GM, Ford, Chrysler, Toyota, and Honda.

The company considered locations in Michigan, Kentucky and Missouri but according to CEO Zhou Bo, ultimately chose Indianapolis because of its superior market reach, ease of doing business and quality of life. “Our U.S. operations will enable us to move up the value chain to be a solution provider rather than a parts supplier,” he said.

Urban unemployment has begun to rise and will increase next year, Yin Weimin, minister of human resources and social security, said on Thursday.

“Stabilising employment is the top priority for us right now,” said Mr Yin, in comments reflecting growing worries about the potential threat to social stability.

“The current situation is grim, and the impact is still unfolding,” he said. “Since October, our country’s employment situation has been affected along with changes in international economic conditions.”

China’s official urban unemployment rate is 4 per cent. But this figure includes only registered urban residents. Tens of millions of rural migrants who have moved to cities to work in factories over the past decade are generally not included in unemployment data if they lose their jobs.

Chinese officials know that rising unemployment means potentially volatile civil unrest in their country, as the slowing economy means there aren’t enough jobs available for those entering the workforce. While 7.5% GDP growth would be means for celebration in most Western industrialized nations, some economists say that China needs to maintain at least 8% growth in order to generate enough jobs to make the labor force happy. I imagine we’ll see more export tax rebate increases to encourage further export growth – or perhaps even the return of low-end, labor intensive manufacturing to the Pearl River Delta.

China’s supply chains stretching into the less developed western regions have often been hampered by less than ideal public infrastructure–such as roads, rail and airports. This physical architecture can greatly enhance performance in existing supply chains and allow entrepreneurs to develop new opportunities where the quality of public infrastructure either makes or breaks a business:

Read the whole thing where he also posts a very useful graph comparing the cost of moving and storing goods as a share of GDP between China and the U.S. While it’s no surprise to see China’s costs so high compared to the U.S., what’s interesting is that they have slowly, but steadily, trended downwards.