China to double electronic manufacturing share-IFC

Reuters, 06.03.03, 1:52 PM ET By Anna Willard WASHINGTON (Reuters) - China's share of world electronics manufacturing will nearly double by 2005, overtaking Western Europe and becoming a new hub for the industry, a new World Bank study said Tuesday. Companies are increasingly moving to emerging markets for cost savings in production, and China offers the added attraction of a market for selling the final product. Electronics production in emerging markets should reach $125 billion by 2005, up from just $65 billion in 2001, the report said. More than three-quarters of that should be in China. "A main driver of this trend is the rising importance of economies such as China as end-user markets for these products, which increases their competitive advantage in the manufacturing process," said Dick Ranken, director of the global manufacturing and services department at the International Finance Corp., the World Bank's private sector arm. The IFC and management consulting firm Booz Allen Hamilton surveyed companies of varying sizes for the study and found that China's share of global electronics production should rise from 8.1 percent currently to 14.3 percent by 2005. China's growing dominance has a cost for other emerging markets. Mexico may face some loss of investment, particularly from car manufacturers as they move closer to the Chinese market. China is by far the most important market for them, the survey participants said, and although they see risks from financial instability and from lack of transparency in government decision making, none of them is "considering serious alternatives to China."

SARS TO HAVE LITTLE IMPACT Severe Acute Respiratory Syndrome (SARS) is unlikely to have much of an impact on the shift toward China. China has over 60 percent of the world's SARS cases, with more than 5,300 people having been infected and 334 deaths. One unnamed major U.S. telecom provider said the SARS outbreak has had "absolutely no impact whatsoever" on investment plans with regard to the country. A major Chinese semiconductor company said so far it has had "no impact" on operations or customer orders. But one Chinese electronics group said if the SARS epidemic lasted for another six months or longer, investors might start to consider alternatives.

ARGENTINA POTENTIALLY INTERESTING Other Asian countries with growth prospects are Malaysia and Thailand and, over the medium term, Vietnam and India. The report identifies Argentina as a potentially interesting producer over the medium term. Venezuela and El Salvador are other growth markets in Latin America, it said. In Europe, companies are expected to take their production further east to lower-cost countries, as moves to join the European Union push up costs. Hungary is currently the regional center for electronics manufacturing in Eastern Europe; but with the country planning EU membership, cheap labor costs are expected to disappear. Romania, Bulgaria and Ukraine should show the highest European growth in electronics manufacturing, with Russia a good bet in the medium to long term, the report said.