By Hank Sheller

While organizing some old files recently, I came across notes I took in August 2007 during a visit with 韩工, an old mentor of mine, in Shanghai. 韩工 taught me much of what I know about sourcing suppliers in China. The topic of our discussion was how manufacturing costs in the Shanghai area (aka the East China Region or Yangtze River Delta) have come down to the point that they are now close to or the same as costs in Guangdong, Fujian and southern Zhejiang province. 韩工 offered the following explanations for this phenomenon:

1. Smuggling of raw materials has been curbed and brought under control in southern China.

2. Tax regulations are being more strictly enforced in southern China. For example, it used to be common for suppliers not to issue 增值税发票, but this practice has been stopped.

3. Factory workers prefer the East China Region because salaries are higher, living conditions are better and factory owners there treat their workers better. For example, factories in the Shanghai area pay their workers more and are more likely to provide them room and board. As a result, workers stay at their jobs longer—a competitive advantage for the factories that employ them.

4. Costs are rising in southern China faster than they are in the East China Region.

5. The Pearl River Delta region opened up earlier and got a head start in manufacturing, but by now the East China Region has caught up and the south’s first-mover advantages have been exhausted.

I’m curious to know whether the sourcing and manufacturing professionals here at China Success Stories agree with 韩工’s assessment. Of course, more than a year has passed since 韩工 shared his insights, and in China everything can change in a year. What have your experiences been?

Hank Sheller, China sourcing professional and China business consultant