Editor’s note: This article, translated from ifeng.com, discusses the recent trend of foreign companies withdrawing from China and the potential impact on China’s economy.

2015 will usher in difficult times for China's manufacturing industry. Well-known companies including Panasonic, Daikin, Sharp and TDK, are planning on moving back to Japan to further promote their domestic manufacturing base. Companies such as Uniqlo, Nike, Foxconn, Funai, Clairon and Samsung plan to set up new factories in Southeast Asia and India. These companies are withdrawing from China at an accelerated pace. This year will be a real test of China's manufacturing industry.

On the eve of Spring Festival, Citizen- a leading watch company from Japan- announced that it planned to liquidate its Chinese assets. This means that more than a thousand employees will be fired from Citizen's Chinese factories in Guangzhou. At the same time, Microsoft plans to shut down its Nokia factories in Dongguan and Beijing and switch production to a factory in Vietnam. Microsoft's factory closings in Dongguan and Beijing mean a total of 9,000 layoffs for Chinese factory workers.

Photo: Mohri UN-CECAR

China was once the center for the world's manufacturing needs. Why have so many foreign companies left in recent years? The financial crisis of 2008 proved difficult for many foreign companies and hindered their growth and development. However, foreign companies are withdrawing from China mainly because of more practical reasons. The withdrawal of foreign manufacturing companies from the Chinese market is also worrisome when it comes to the stability of the Chinese economy in 2015.

Since the 2008 financial crisis, China has had steady economic growth, especially in terms of investment. However, China's recent economic growth has been less than ideal. In the second half of last year the economy took a slight downturn. The economy has serious problems, especially in the manufacturing sector. The manufacturing sector cannot provide enough support for continued steady growth and has therefore become a hitch in China's economic growth.

Manufacturing was once an important pillar of China's economy. Now, it has become more of a weak point. In the past ten years, a series of economic issues related in the real-estate sector has led to a serious imbalance in the Chinese economy. China's economy became the world's second largest economy in 30 years of development; therefore the foundations of the economy are very weak. After the Asian financial crisis of 1997, China's economy became export-oriented. China promoted economic growth at the expense of the environment and by undervaluing labor. However, an export-oriented economy did not seem viable for China in the long term.

Real estate and urban construction helped China's economy grow through investment. However, this kind of economic growth only has a short term effect; it cannot sustain long-term stable economic development. China has relied on the real estate bubble rather than the “real” economy of the manufacturing sector to promote economic development for over ten years. The manufacturing sector, the mainstay of the real economy, was neglected and upgrades were delayed. This means that the Chinese economy is more “hollow,” than it seems.

Then, the exodus of foreign companies from China began, bringing a sharp decline in profits. The manufacturing sector suddenly became relevant again. If Chinese domestic capital is currently reluctant to continue to invest in manufacturing, why would foreign investors want to stay? Moreover, the cost of labor in Southeast Asian countries and India is much lower than it is in China.

However, foreign companies leaving China is not the end of the world for the Chinese economy. It gives China another chance to transform its economy further. Microsoft, Nokia, Panasonic and other well-known international companies have set up production capacities for low-end manufacturing in China. After these companies pull out, the next step is to adjust China's industry. Luckily, Chinese companies have already made considerable progress in adjusting to meet the gaps left by evacuating foreign companies. Local companies are fully capable of competing with foreign giants who produce low-end manufactured goods. We do not have to exaggerate the negative consequences of the loss of this kind of foreign investment in China. However, if foreign companies from the United States, Japan, Germany and other countries that produce high-end products decide to withdraw from China, the consequences will be more serious.

The evacuation of foreign companies that deal with low-end manufacturing from China will have little effect on the Chinese economy in the long run. However the impact the withdrawal will have on the Chinese economy in 2015 cannot be ignored. China's economy is in a delicate state. If there is a large exodus of foreign companies, it will be hard on the economy for a brief period of time. Therefore, the investment environment in China must be improved, especially when it comes to the manufacturing sector.

2015 will prove to be a real test of China's manufacturing industry. Key areas to watch include Guangdong, Jiangsu and Zhejiang. There must be a new strategy to revitalize the manufacturing sector and the model of urban development and debt must be avoided in order to re-strengthen the economy.

Source: news.ifeng.com

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Keywords: China economic trends 2015 Manufacturing in China