For many years, North American manufacturers have seen China as their foremost cost-saving solution, but the tides are turning away from producing goods in the country. Rising wages, product oversupply and increasing raw material prices are hurting China's manufacturing sector. Foreign investors are once again choosing to offshore manufacturing to Mexico, where businesses are able to reduce manufacturing costs without sacrificing product quality, which has largely been the case when expanding to China.
According to the Financial Times, manufacturing in China is reaching a point where there aren't enough product orders coming in to compensate for higher labor costs. Wages in certain areas of the country are rising at record rates. The Financial Times reported China's tight labor market and fluctuating currency are contributing to the substantial increases in wages. While rising paychecks benefit Chinese workers, weak global demand and additional competition is making investing in manufacturing in China increasingly risky.
Companies in the country have even been ordered by government officials to reduce their production, as oversupply is a growing issue within the country's manufacturing sector, according to The Associated Press. Industrial overcapacity is causing many Chinese manufacturers to default on their debts, with some even going to bankruptcy court. According to the AP, manufacturers in cement, steel and glass sold less than 75 percent of their supplies by the end of 2012.
Rapid overexpansion in the country is one of the factors, according to AP, that is causing the discrepancy between supply and demand in the country. With long, inflexible supply chains, shipping goods to North America from China can be expensive, as consumers may no longer be demanding a certain product by the time it reaches the U.S. and Canada. This leads to oversupply in industries where manufacturers must be sensitive to demand.