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ASEAN – The future labour powerhouse

03 July 2015

The structural change in the East Asian labour market and rising wages in China will shift a lot of labour towards Southeast Asian countries, especially the ones that still have low labour costs, experts say, reports menafn.com.

With wages in China increasing by 6.9% per annum, according to a Standard Chartered Bank study, the country sees its labour cost competitiveness waning and is preparing for an unavoidable shift from labour-intensive to high-value-added production. This is one of the factors driving costs for foreign companies up. Benefiting from this development are mainly Southeast Asian nations, according to Usara Wilaipich, senior economist at Standard Chartered's Thailand branch.

Southeast Asia will eventually displace China for the title of "world's factory", according to a study Australia and New Zealand Banking Group (ANZ). This is expected to happen over the next 10 to 15 years, "as companies move to take advantage of cheap and abundant labour in areas such as the Mekong [delta]”.

Countries such as Myanmar, Cambodia, and Laos will mainly provide low-cost labour, while manufacturing in Thailand, Indonesia, and the Philippines will remain "cost-effective", the ANZ report stated.

Vietnam will provide both, low-cost labour and to some extent higher-value production, while sophisticated producers will look into Singapore and Malaysia.

The formation of the ASEAN Economic Community (AEC) by the end of 2015 by the 10 members of the Association of Southeast Asian Nations (ASEAN) will support the transition of the region to labour powerhouse status.

The AEC will partly enable the free movement of goods, services, capital and labour (in certain skilled professions) between the 10 member states.

This stands in stark contrast to the former low-cost manufacturing powerhouse, the Pearl River Delta in China with its immense factory belt spanning over nine mega-cities in Guangdong province and accounting for 27% of Chinese exports.

The region is suffering from labour shortages and wages that are constantly creeping up. Adding to that, the slowdown in China's economy is putting the brakes on private consumption and foreign investment, whereby ASEAN’s high GDP growth rates and its rising middle-class affluence causes companies relocating their production away from the China to ASEAN to capture a share of the growing consumer market there.

Standard Chartered advised that "ASEAN stands to gain, with its lower costs and abundant supply of labour over the next 20 years".