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‘Made in China’ increasingly a domestic strategy

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"Made in China" is still a winning strategy, but the rules are changing. While rising wages have driven some manufacturers away, others are finding that a richer Chinese consumer makes the country a more appealing place than ever to set up factories.

The cost of manufacturing in China has risen along with wages. Factory workers' pay in the densely urbanized Pearl River Delta is likely to rise 9.2 per cent in the year ahead, according to a survey by Standard Chartered, compared with an official inflation target of just 3.5 per cent. The gradual appreciation of the yuan compounds the damage for foreign employers, and makes products made in China less attractive for export.

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It's all too much for some exporters. British snack maker Golden Wonder claims the cost of manufacturing pot noodles in Guangdong is now on a par with costs in the United Kingdom, despite China's undoubtedly superior noodle know-how. Throw in the expense and difficulty of managing a long supply chain and fluctuating demand in Britain, and the maths no longer appeal. Golden Wonder is moving its noodle factories from China to Yorkshire.

Companies targeting domestic consumers may step in. Danish toy maker Lego says the time is ripe to open its first ever China factory, in Zhejiang. The minimum wage in that province rose by 12.2 per cent on Jan. 1, but that's no deterrent. The wealthy Asian consumer, not the lure of cheap labour, encouraged Lego to recalibrate its global strategy. The new factory will not make products for export beyond Asia. Everything will go to local markets.

When revenue is rising rapidly, steeper production costs are worth bearing. Toy sales in China grew 21 per cent annually from 2007 to 2011, according to Euromonitor, while official data shows the country's toy exports grew just 6 per cent a year during that time.

"Made in China" has long been a lucrative label for all kinds of manufacturers. It's not the end of an era just yet, but increasingly the production lines will be kept busy by rich consumers, not cheap workers.

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