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Chinese light manufacturing and outward investment into Africa and Asia

Working paper

Written by Stephen Gelb, Linda Calabrese

Working paper

Manufacturing in China employs over 100 million people in total, of whom about 25 million are in export-oriented light manufacturing sectors where firms participate in global value chains. As light manufacturing operations relocate in response to rising wages in China, there is an opportunity for developing countries in Africa and Asia to secure some of these 25 million jobs. Even a very small share of these would represent significant employment gains in such countries.

However, with factors such as wage costs varying hugely from region to region, there appears still to be considerable room for Chinese light manufacturing firms to expand and/or relocate within China in reaction to rising wages, with China’s infrastructure and institutional performance stronger on almost all indicators than that in a large group of comparator countries in Africa and other parts of Asia. This summary paper draws on two background papers exploring the trend of relocation of manufacturing firms within China and potential enabling factors in Africa and Asia for Chinese foreign direct investment, and concludes that if other developing countries are to take advantage of the opportunity of rising Chinese wages to attract Chinese light manufacturing firms, they will need to focus actively on their location cost challenges, while also engaging directly with the Chinese firms.

Stephen Gelb and Linda Calabrese