A Blog by Jonathan Low


Mar 26, 2017

China Sees A Bright Manufacturing Future - In the US

Yep, the US is increasingly looking like a pretty attractive low-cost manufacturing platform to a lot of enterprises, especially those in China.

Which says a lot about the declining state of wages, workplace protections, regulation and intellectual property - in the US. JL

Andrew Browne reports in the Wall Street Journal:

In China, wages are shooting up 15% each year. Taxes are high. Shipping is exorbitant, and slow. Although U.S. wages are still higher than those in China, the gap is narrowing. Industrial land in the U.S. is cheaper than in Chinese coastal cities. The shale-gas revolution has dramatically lowered U.S. energy costs. (And) technology is leveling the field. (US) job creating investment from China is booming . Last year, it tripled to $45.6 billion. 
Glen Lin is struggling to keep his shoe company competitive on the world’s factory floor in southern China. Wages are shooting up 15% each year. Taxes are high. Shipping is exorbitant, and slow.
So, as fast as he can he’s automating production, while planning an escape to his largest market—the U.S.
The vice general manager of Dongguan Winwin Industrial, a Taiwan-owned company, is scouting for a location in America to move his newest machinery that turns out high-quality sneakers and casual shoes. Most likely, he’ll end up near one of his main customers: Skechers, based in California, Crocs in Colorado, or Nike in Portland, Ore.

In global manufacturing, fortunes are starting to shift in America’s favor.
That’s despite Donald Trump’s angry election rhetoric about China “raping” the U.S., and his threats to forcibly bring home manufacturing jobs by slapping across-the-board tariffs of 45% on Chinese imports.
The trends were clear well before Mr. Trump started rallying his blue-collar base with alarmist messages of protectionism. In fact, China’s trade challenge peaked years ago: Exports to the U.S. surged in the immediate aftermath of the country joining the World Trade Organization in 2001, throwing several million U.S. assembly workers out of a job, but they have since flattened out.
Nowadays, the exit of U.S. factory jobs from the country is roughly matched by posts coming in, according to the nonprofit Reshoring Initiative, which encourages companies to bring production back to the U.S.Job-creating investment from China is booming in particular. Last year, it tripled to $45.6 billion from a year earlier, according to the Rhodium Group.
Chinese social-media sites were abuzz last year when the auto-glass tycoon Cao Dewang announced he was moving part of his production empire to Ohio. Some commentators denounced him for “running away.” He insisted he could make more money producing for the U.S. market from Ohio than China.
Although U.S. wages are still higher than those in China, the gap is rapidly narrowing. Andy Gu, vice president of international business for Midea, a massive home-appliance maker also based in southern China, says a competent engineer now demands up to $50,000 a year. Ordinary workers get about $600 a month, with food and lodging on top.
Moreover, industrial land in the U.S. is often cheaper than in Chinese coastal cities. The shale-gas revolution has dramatically lowered U.S. energy costs.
But the real key is technology: Advanced manufacturing is leveling the playing field.
Shoe and clothing makers were the first to flee the U.S. after China’s accession to the WTO, prompting a wave of outsourcing. Furniture and electrical-goods manufacturers soon followed. Today, some are heading back to a country in the throes of a manufacturing renaissance, one that goes largely unacknowledged by a Trump White House obsessively focused on the trade deficit.
Dongguan Winwin illustrates the long-term trajectories. Several years ago, the company moved part of its production to Indonesia, joining a mass exodus of shoemakers out of China to Southeast Asia where workers are still paid a pittance to stitch and glue cheap sneakers together. Mr. Lin stayed behind to develop a high-tech manufacturing process that squirts warm plastic onto a mesh sock to form the rubberlike soles and uppers of a sneaker in just a few minutes.
One injection-mold machine with two operators has replaced 50 assembly-line workers. He now has 60 machines.
“My goal,” says Mr. Lin “is to eliminate the two workers.”
Once that is accomplished—with robot arms—the benefits of operating in the U.S. will be even more obvious. For a start, the two-month shipping time will vanish. And, according to Mr. Lin, it will take just three months, rather than a year now, from conceptualizing a new shoe to putting it on shop shelves.
The calculations, of course, differ across industries. Given the complexities of electronics manufacturing, where dexterous fingers and sharp eyes do work that robots still can’t, it would be much harder for Apple to shift iPhone production to the U.S.
Mr. Gu says Midea has no plans to relocate. It’s impossible to beat China’s massive economies of scale in manufacturing, he says.
Besides, for many consumer products, like the iPhone, China is the indispensable market. Within a few years, China will have 300 million or so urban-middle-class consumers, equal to the entire population of the U.S.
Yet for an expanding number of companies the math behind relocating production to the U.S. is starting to add up.
They won’t be returning large numbers of assembly jobs to shattered rust-belt communities: That idea, which played so well for Mr. Trump on the campaign trail, is pure fantasy.
Instead, investors will be recruiting skilled technicians—if they can find them. A recent Deloitte study predicted that the U.S. will need to fill 3.5 million manufacturing jobs over the next decade, but faces a shortfall of two million skilled workers.
To fix that debilitating problem, Mr. Trump’s trade czars might look to China as a model. As for Mr. Lin, if he can’t find the talent he needs in America, he says he’ll bring the best in the business—from Dongguan.


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