By Namrita Chow, Asia Correspondent
This year has marked a new era for China, with a surge in sales prompting not only a push for increased local production, but also a spreading movement among the nation’s workforce for higher wages. While factory workers have made gains with a series of strikes, particularly in southern China, at the top end of the employee strata experienced engineers and management–already in short supply in the country–have also been fetching higher incomes. The increases raises the question of whether manufacturers will look more to other southeast Asian countries as alternative production and sourcing locations, particularly those countries in ASEAN (Association of South East Asian Nations).
“With the expansion of China's auto industry, the shortage of engineers is critical. In the next few years, the automotive R&D talent gap in China will reach 500,000 [people],” said Bill Russo, founder and president of Beijing-based Synergistics (auto consultancy), and senior advisor with Booz & Company, a management consultancy, and previously vice president of Chrysler Northeast Asia from 2004 to 2008. 
Talented engineers and designers are already in scarce supply, and according to Russo, those with several years experience can actually demand higher wages than in many foreign countries. He said that the minimum wage of an automotive designer in China is about RMB 5,000 ($740).
Simultaneously, many ASEAN countries have opened up their economies with free trade agreements among nations in the region. Taxes have been slashed and import duties dropped, lowering the production and logistics costs in these markets. Labour is for the most part cheaper than in China in many countries here, and these markets are also potentially big automotive markets. So will tier suppliers and OEMs choose to shift some production to ASEAN regions from China?
“Absolutely,” says Russo. “As an example, Honda is actually considering shifting production from China to Vietnam in order to take advantage of cheap labour costs and preferential investment policies in the country. Honda opened its first car plant in Vietnam in 2005 [see picture]. The $60m factory in the northern province of Vinh Phuc has an output of 10,000 units per year,” says Russo. “Also, Toyota Motor Corp., the world’s biggest carmaker, may move production of some cars to Thailand, reducing its reliance on Japanese factories.”
Ammar Master, senior market analyst for JD Power & Associates in Bangkok says: “There will be increased exchange of components among the ASEAN countries thanks to reduced duties under the ASEAN Free Trade Agreement, or AFTA. This could help certain large suppliers to become regional suppliers.”
But China’s vast populous are buying far more cars than any other country in the world. And to win in China, companies need to build, develop and produce in China. Analysts say that for the next five years, at least, investment is unlikely to be deterred from the country, as rising labour costs are in some ways offset by China’s
“The economy of China remains a ‘sweet spot’ and the country will continue to be the most popular hub for foreign manufacturers because of its superior infrastructure and market size,” says Russo. “The doubling of China’s manufacturing wages over the next five years won’t deter foreign investment because Asian rivals such as India and Indonesia lack comparable infrastructure. Demands for higher wages are fast becoming an issue in China and companies need to face this challenge as a natural stage in the development of the economy.
“Strong domestic sales in China will continue to motivate suppliers to set up production there to meet the growing local demand for vehicles in China,” concludes Master.