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World no longer sees China as a cheap outsourcing destination: Survey

The long-established perception of China as the world's factory may no longer be relevant, according to an annual IHS Markit survey of global procurement and purchasing executives.

A worker paints a mask of Donald Trump at the Shenzhen Lanbingcai Latex Crafts Factory on October 18, 2016 in Shenzhen, China.
Anthony Kwan | Getty Images News | Getty Images
A worker paints a mask of Donald Trump at the Shenzhen Lanbingcai Latex Crafts Factory on October 18, 2016 in Shenzhen, China.

"The share of respondents who agree that China is a low-cost sourcing destination dipped below 50 percent for the first time in 2016," said Paul Robinson, economist at IHS Markit in a release on Tuesday. "This was down markedly from 70 percent in the 2012 survey."

For years, global companies have sent manufacturing operations to the mainlandto benefit from competitive labor costs, but Chinese private sector salaries have been ticking higher in recent years, thus diminishing the nation's appeal for cost-conscious firms.

Since 2006, average wages have more than doubled in China, according to the International Labor Organization (ILO). By 2014, the mainland's average nominal monthly wage was $685, versus $212 in Vietnam, $216 in the Philippines and $408 in Thailand, the ILO said in a 2016 report.

But instead of avoiding rising costs in Shanghai and surrounding provinces by moving to inexpensive regions, professionals are instead choosing to double down on familiar areas, the IHS survey found.

"The survey results signal the arrival of China as a hub, or even the hub, of global supply chains, rather than a mere cheap outsourcing destination," said Robinson.

Overall, China, India and Mexico were found to be the most popular regions for sourcing, while the U.S. and Europe registered their lowest ever results in the survey's five year history.