Moving Factories

Rising labor and other costs may force manufacturers to move production of some consumer goods to lower-cost regions including western China, Vietnam, Bangladesh and Indonesia to keep prices down.

“I don’t believe consumers in the United States or Europe are prepared to pay more,” Bruce Rockowitz, the chief executive officer of Hong Kong-based Li & Fung, the world’s biggest supplier of toys to retailers, said in May.

Cai Fang, a member of the Standing Committee of the National People’s Congress, said China’s leaders have not yet fully accepted that the so-called demographic dividend is declining. The economic benefit arises after a country’s birth- rate falls -- creating a few decades when there are a higher proportion of working-age citizens and less need to spend on children and education.

Xi’s Task

Cai, a director of the Institute of Population and Labor Economics at the Chinese Academy of Social Sciences who helped draft the nation’s five-year plan through 2016, said advisers are “comforting” China’s policy makers with arguments that the dividend can last another 20 years or more.

The task of managing the transition in China’s economy may fall to Vice President Xi Jinping, who is expected to assume leadership of the Communist Party next year and succeed Hu Jintao as president in 2013. The new leaders will oversee a five-year plan that aims to boost consumer spending and “strategic emerging industries” such as biotechnology, new energy and advanced equipment manufacturing.

In the Pearl River Delta next to Hong Kong, the cradle of China’s industrial transformation, the government said this month it will set up a zone covering nine cities in Guangdong province to help companies upgrade. The statement, posted on the commerce ministry’s website on Aug. 22, proposes tax breaks and other incentives to help boost technology and research and development within three years.

In Ningbo, Dejin Textile’s Lin is preparing for his own upgrade: a new line of women’s clothes to be sold online and in two local stores, a “huge risk” that he says keeps him awake at night.

“In five years we may have a very big retail business,” he says. “Or we may be closed.”

Kevin Hamlin. With assistance from Lifei Zheng, Victoria Ruan Sophie Leung, Li Yanping and Penny Peng. Editors: Paul Panckhurst, Adam Majendie.