Shop Talk

The company which did the research report - Standard Chartered Bank

About the company - Standard Chartered plc is a British multinational banking and financial services company headquartered in London, England. It is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority.

Area of research - China, GBA and the ASEAN connection

Name of the organization which did the survey - Standard Chartered Bank

Participants of the survey - Over 200 manufacturers tell us their views on the wage outlook and other challenges, and where they stand on industrial upgrading

The main points of discussion in the survey :

1. More robust labour market; stronger Capex and economy
2. GBA transformation to bring new opportunities
3. ASEAN, like China, needs to move up the value chain
4. The PRD is being upgraded
5. China’s Greater Bay Area in the future
6. The China-ASEAN connection

Findings of the survey :

1. Wages are expected to rise 7.7% on average in 2018, up from a 6.3% increase in 2017 and a 5.9% trough in 2016. This is the first improvement in wage expectations after three straight years of decline.
2. Over half of our respondents are already involved in robotics, artificial intelligence, big data and cloud computing, or internet-related investment.
3. Almost three-quarters of our respondents (73%) have a long-term target for industrial upgrading, with a majority less than three years away.
4. Almost half (49%) see new business opportunities arising from the GBA (Greater Bay Area) in the next three to five years.
5. Guangdong (a GBA proxy) makes up a fifth of China’s high-tech industry by enterprise number and output.
6. Guangdong province is China’s largest exporter of high-tech products.
7. Guangdong accounts for almost one-third of China’s new high-tech product sales.
8. Guangdong accounts for 52% of all China high-tech patents.
9. Improving wage growth reflects a strong economy.
10. The labour market remains as tight as it was a year earlier.
11. Labour usage rates tend to converge in an economic upturn.
12. Those that said productivity growth exceeded wage growth jumped to over 70% of total respondents, the highest on record, from just under 60% in 2017.
13. Provinces have been catching up on minimum wage hikes since the economy improved. Since 2016, China’s provinces have been allowed to hike minimum wages only once every two to three years (from at least once every two years).
14. The economic recovery in 2017 allowed provinces to catch up on their minimum wage hike obligations – 20 provinces raised minimum wages in 2017, albeit by an even lower average of 9.7%.
15. Over 70% of respondents expect an increase in costs due to tighter regulation of pollution in 2018, which will likely account for 9.4% of total costs on average. Almost 30% of total respondents spend more than 10% of their total costs on tackling pollution.
16. In terms of managing risk on a national level, 23% of respondents reported that it is more difficult to borrow money now than in 2017, while just under 12% said borrowing money has become easier.
17. 34% of respondents expect margins to improve in 2018, versus 27% expecting deterioration.
18. Respondents expect orders to improve by 2.6% on average in the next six months, versus an increase of 1.6% a year ago and a decline of 7.6% over the same period in 2016. Only 22% of respondents see weaker orders in the next six months, while 42% expect an improvement.
19. Among all countries/regions, most respondents have a positive outlook on China (43%), followed by the rest of Asia (40%), Europe (38%), ASEAN (37%) and the US (36%). Europe, however, also has the highest proportion of negative responses (17%), hinting at deep-rooted structural concerns, which are likely justified given the euro area’s recent growth slowdown and the political turmoil in Italy. This likely gave Asia an even stronger lead at the top spot on a net basis. Latam ranked last, but still with a net positive of 7%.
20. 32% of our respondents benefit from a stronger CNY (possibly importers seeing a boost to their purchasing power), while 56% report a negative impact (exporters becoming less competitive).
21. 46% of respondents expect the CNY to appreciate against the USD in 2018, versus 35% expecting the CNY to depreciate.
22. Only 38% of respondents plan to increase hedging to better manage their Renminbi exposure in 2018.
23. A potential US-China trade war ranks a close second to Renminbi volatility on the list of our clients’ concerns for 2018 – rightly so, in our view. 70% expect a high or medium negative impact from this event, up from 60% a year ago.
24. 80% of respondents see themselves exposed to some form of geopolitical risk.
25. For a second straight year, more respondents said they would choose to move factories overseas (10%) rather than relocate inland (8%) to counter rising local wages.
26. Continued improvement in the domestic economy could support those still considering moving inland, judging by preferred destinations. Chongqing and Sichuan are top choices, followed by nearby mid-western provinces such as Henan, Hubei, Hunan and Guangxi.
27. Respondents still see overseas destinations offering an overwhelming advantage in terms of labour cost and supply. The share of respondents opting to move factory production decreased to a five-year low of 10% from 17% earlier.
28. Among those opting to move capacity overseas, Vietnam and Cambodia are the most favoured destinations, as in prior years.
29. In terms of concerns about relocating factories overseas, underdeveloped transport and infrastructure again top the list this year, followed by underdeveloped legal systems, and uncertain political and social outlooks.
30. A majority (68%) of respondents saying they would move remains in the ‘consideration’ stage and another 15% have only just started moving production. A mere 10% have already relocated and started operations, with another 8% more than halfway through their move.
31. Higher than the 12% average savings from automation and streamlining; 14% from investing more on capital, and 13% from moving products up the value chain.
32. Plenty of momentum in the PRD’s pursuit of automation, those who chose ‘producing things higher up the value chain’ made the largest jump, to 18% from 10% last year.
33. 27,000 units were produced by China’s robot suppliers and 60,000 by foreign robot suppliers and achieving a robot density of 150 by 2020.
34. Over half of our respondents (54%) are already involved in robotics, of which 85% are either accelerating their robotics investment plans or maintaining the momentum in 2018. 
35. Respondents are also participating in other key areas of industrial upgrading: 77% in ‘importing high-end capital equipment’, 67% in ‘internet, mobile internet and Internet of Things (IoT), 59% in ‘big data and cloud computing ’, and 52% in ‘artificial intelligence ’.
36. Uncertain economic and business outlooks are the biggest hurdle for industrial upgrading in 2018, according to 26% of respondents.
37. Looking beyond 2018, almost three-quarters of respondents (73%) have a long-term target for industrial upgrading; 10% are actually at or close to such targets; 40% are one to three years away; a combined 23% are three years or more away.
38. 71% of respondents plan to increase actual capital spending this year, largely to boost productivity, with all but one of the rest (29%) expecting similar Capex to 2017 levels.
39. Real manufacturing FAI growth, which accounts for one-third of China’s total FAI, picked up to 3.9% y/y in April from 1.1% in Q1-2018.
40. Almost half of the survey respondents (49%) see new business opportunities arising from the GBA in the next three to five years. Respondents see even more new opportunities from Belt and Road (63%) and Renminbi internationalisation (58%).
41. Being close to the political centre and large companies gives Xiongan a natural advantage – Beijing is home to 104 of the Top 500 companies in China, versus 50 for the second-placed GBA.
42. Already home to almost 20,000 high-tech enterprises (19% of China total), Guangdong province accounts for around one-third of China’s high-tech new product sales and over 50% of patents nationwide in 2016.
43. Both the Guangdong-Shenzhen-Hong Kong Express Rail Link and the Hong Kong-Zhuhai-Macau (HZM) Bridge are expected to be completed this year. The Express Rail Link lowers the Guangdong-Hong Kong commute to 48 minutes ride (from two hours currently) while crossing the HZM Bridge would take as little as 30 minutes (versus one hour by sea and three hours by land).
44. Our propriety measure of Renminbi internationalisation has shown clear signs of stabilisation since mid-2017 after contracting for almost two years. A stronger CNY has helped better anchor sentiment, but the rise in northbound investment flows into China has been a bigger driver.
45. Hong Kong companies have been among the first to re-denominate into Renminbi invoicing, making them most likely to return from the sidelines, especially when they see more genuine CNY usage as the GBA develops.
46. Guangdong province is an ideal counterpart to collaborate with Hong Kong in running experiments in financial liberalisation, as it has its own well-established free trade zone (FTZ), made up of three economic zones in Qianhai, Hengqin, and Nansha, each located in a different city serving a different niche.
47. Only 10% of respondents selected the option of moving out of China, compared to 17% in our 2017 survey. Of this 10%, almost all respondents selected an ASEAN destination as their choice.
48. Vietnam remains a top destination for survey respondents looking to move out of China as labour becomes a constraint. Cambodia was the top choice in 2017 but placed second this year. Myanmar was the third-most favoured destination. South Korean investment has topped Vietnam’s FDI sources in the past three years on average, followed by Japan and Singapore, per Vietnam’s FDI data on a registered capital basis. About 11% of FDI went to the real estate sector over this period, reflecting strong foreign interest in Vietnam’s booming property sector.
49. Labour availability and cost appear to be key factors affecting relocation choices. A majority of respondents cited better labour supply as their main reason to relocate to ASEAN. Investors’ top three concerns in moving production capacity to ASEAN include underdeveloped transport infrastructure, an underdeveloped legal system, and poor labour quality and productivity. According to the survey, a majority of respondents expect cost savings of up to 20% on relocating to ASEAN.
50. A majority of clients who choose to move out of China to address the labour issue are still considering their decision. Only a minority has already moved and started operations.
51. Thailand’s four economic action plans under its 20-year strategy include the Eastern Economic Corridor (EEC) project. 
52. Around 9% choose to move outside China, slightly more than the 7% who prefer moving to other locations within China. Respondents involved in component manufacturing prefer to invest in CAPEX less than others – only 25% prefer that option, versus over 40% among respondents in other industries. Manufacturers in electronics packaging assembly overwhelmingly prefer to relocate, with 25.6% wanting to move either within or outside China, followed by 15.9% of non-electronics manufacturers.

Questions :

1) Wages are expected to rise ____ % on average in 2018.

1. 7.7
2. 8.2
3. 6.3
4. 5.5

2) Manufacturers in electronics packaging assembly overwhelmingly prefer to relocate, with ____ % wanting to move either within or outside China.

1. 32.6
2. 25.6
3. 40.2
4. 52

3) What % of responders sees new business opportunities arising from the GBA (Greater Bay Area) in the next three to five years?

1. 49
2. 25
3. 68
4. 70

4) Guangdong province is ____ largest exporter of high-tech products.

1. Hong Kong’s
2. Taiwan’s
3. China’s
4. Asia’s 

5) Those that said productivity growth exceeded wage growth jumped to over ____% of total respondents.

1. 52
2. 70
3. 48
4. 61

6) _____% of respondents expect an increase in costs due to tighter regulation of pollution in 2018.

1. 70
2. 52
3. 68
4. 43

7) What % of respondents expects margins to improve in 2018?

1. 25
2. 34
3. 62
4. 15

8) What % of our respondents benefit from a stronger CNY?

1. 25
2. 50
3. 32
4. 48

9) What % of respondents see themselves exposed to some form of geopolitical risk?

1. 80
2. 75
3. 92
4. 64

10) For a second straight year, respondents who would like to choose to move factories have ____.

1. Increased
2. Decreased
3. Remained the same
4. None of the above

11) What % of respondents saying they would move remains in the ‘consideration’ stage?

1. 68
2. 52
3. 49
4. 72

12) What % of respondents are already involved in robotics?

1. 32
2. 54
3. 60
4. 18

13) What % of respondents plan to increase actual capital spending this year?

1. 45
2. 62
3. 71
4. 28

14) _____ remains a top destination for survey respondents looking to move out of China as labour becomes a constraint.

1. Cambodia
2. Myanmar
3. South Korea
4. Vietnam

15) The study was done by?

1. Standard chartered
2. Global markets
3. Societe generale
4. Synchrony

16) What is the title of the study report?

1. Achieving financial goals
2. Shop Talk
3. Social mobility
4. Economic growth

17) What kind of services is provided by Standard chartered plc?

1. Auditing
2. Human resource
3. Banking and financial services
4. Investment policies

18) How many respondents were there?

1. 50
2. 320
3. 150
4. 200

19) What % of FDI went to the real estate sector over this period?

1. 11
2. 25
3. 32
4. 40

20) What % of respondents consider uncertain economic and business outlooks are the biggest hurdle for industrial upgrading in 2018? 

1. 32
2. 26
3. 52
4. 48