Reuters Summit: Manufacturing seen shifting from China
Reuters Posted online: Wednesday, March 02, 2005 at 1514 hours IST
San Francisco, March 2: Electronics production may shift closer to countries that consume such goods as manufacturing costs rise in China, the chief executive of Flextronics International Ltd., the world's largest electronics contract manufacturer, said on Tuesday.
The US government has called for China to reevaluate its yuan, saying that the current peg to the US dollar is artificially low, making US products less competitive.
If China lets the yuan appreciate, manufacturing costs there will increase, hurting companies who are rushing out to build factories there, Flextronics CEO Michael Marks told the Reuters Technology Summit in San Francisco.
"I think China is overdone," said Marks, who employs more than 40,000 workers in the country, making everything from computer discs to mobile phone cameras. "I think some of these guys (rivals) are rushing off to China now and it has peaked."
China has recently surpassed the United States as the world's top destination for investment.
Stephen Delaney, chief executive of Celestica Inc., the world's No. 4 contract electronics maker, is also cautious on China, saying that transportation could be costly under tight deadlines. The company is closing plants in the United States and Canada and exporting those jobs to Western Europe and South America as well as Asia.
Investment in manufacturing will likely be pulled from Asia to Eastern Europe in the next five years if the yuan and other Asian currencies appreciate and transportation costs climb as a result of soaring oil prices, Marks said.
Investment in Mexico has started growing. Eastern European countries such as Hungary, Poland and Romania are expected to see a flush of investment as well, according to Marks.
"Their prices are relatively close to Asia prices, but you're 24 hours by truck to the UK," Marks said.
It takes about a week for goods to travel from China to the United States.
A potential currency shift is not expected to hurt Flextronics, Marks said, partly because the company's business is diversified among other low-cost regions. Flextronics, which has been in China for at least 10 years, uses profits generated out of China to grow its business there so a currency shift will not change its investment costs, Marks said.
