It’s Chinese-made in America.
Yes, you read that right. Contrary to widespread belief, China isn’t the cheap place to manufacture that it once was, and rising costs have been forcing manufacturers to explore new countries to make their goods.
The U.S. may not be top of mind for all industries, but some manufacturers are taking a second look at the country — and many of them are Chinese. Throw in the possibility of lower corporate taxes under President Donald Trump, and more will likely come looking.
“The reason we want to invest in the U.S. isn’t only because the Trump administration is encouraging it,” Xiao Wunan, deputy chairman of Asia Pacific Exchange and Cooperation Foundation, who takes Chinese business executives to the U.S. on investment tours, told CNBC. “The U.S. has natural advantages for [Chinese] investment.”
Why go to the U.S.?
The cost advantage
John Ling, president of the Council of American States in China, makes a living finding prospective investment locations in the U.S. for Chinese companies.
“In every project I help to land in the U.S., if I cannot present evidence that they can lower their costs, my chance of doing [the deal] in the U.S. is almost zero,” he told CNBC. “Cost is driving this.”
American workers earn a lot of money compared to their counterparts in China, but the U.S. can still come out on top when costs are taken as a whole.
For Hangzhou-based textile manufacturer Keer Group, American workers were paid on average twice as much as workers in China, according to the firm’s president, Zhu Shanqing. In aggregate, however, producing in the America is significantly less compared to China.
“In the U.S., land, electricity and cotton are all much cheaper,” Zhu said. “My production cost per ton of textiles is 25 percent lower [there].”
In addition, he said, wages for him in China have been increasing 30 percent each year for much of the past decade. He has pledged $220 million to build and expand a facility in South Carolina and plans to eventually move the entire business to the U.S. where he plans to employ more than 500 people by the end of the year.
Add in the possibility of a lower corporate tax to as little as 15 percent, as proposed by Trump, and the U.S. becomes a no-brainer for many manufacturers Zhu said.
“If Trump cuts the corporate tax even by 5 percent, companies that left America a few years ago, will be back,” he said.
The stable business environment
Compared to many other countries, especially in the emerging world, China has been a stalwart of stability for manufacturers for decades. However, the U.S. does have some selling points that Chinese companies don’t really like to talk about on record: better air, safer food, straightforward access to funding and a government that doesn’t intervene.
U.S. state politicians will pitch to a foreign company to bring in the jobs, but once they’ve invested, it’s said the American officials leave them alone. Once a company is in the U.S., Chinese or not, it is treated like any other company.
The proximity to the U.S. consumer
Chinese consumers are the spenders of the future, but Americans are the buyers of today. As Chinese companies grow in stature and expand their footprint overseas, many of them see the U.S. market as the holy grail.
Guangzhou-based GAC Motor, which is eyeing the U.S. market, says partnering with a stateside automaker or even building its own American plant one day is in the cards.
“If we can succeed in the U.S. market, we can succeed anywhere in the world,” President Yu Jun told CNBC, adding that having facilities in the U.S. makes a manufacturer more nimble to respond to a customer’s needs.
“No matter if it’s a good economy or a bad economy, the U.S. is still the number one market for any company in the world,” Ling explained. “So certainly, naturally you want to be closer to where your customers are.”
Who’s going, who’s not?
Capital-intensive industries: Definitely.
All sorts of companies are interested in setting up shop in the U.S., according to Ling, but there is an emerging trend.
The most suited, he said, are capital-intensive industries such as textiles, chemicals, paper and packaging and auto parts. Chinese billionaire Cao Dewang, whose company Fuyao Glass makes window shields for cars, recently invested hundreds of millions of dollars to revive a plant in Ohio.
“I don’t believe we have scratched the surface yet,” Ling said.
Labor-intensive industries: No thanks.
Labor-intensive industries such as apparel are not as keen.
China-based Austrian garment manufacturer KTC, which sells sports clothing mainly to Europe and the U.S., says its industry still depends heavily on labor. American workers are still more expensive than Chinese and the other factors wouldn’t bring costs down enough to make it worthwhile for a move, says Managing Director Gerhard Flatz.
Additionally, American workers don’t have the skills right now that have been developed in China over years, he told CNBC.
Ling said some high-labor businesses, though, have been able to make the transition lowering costs since, unlike in China, manufacturers in the U.S. don’t have to worry about building dormitories and canteens or arranging transportation for their workers. “You only have a small canteen with a refrigerator and one or two microwaves,” Ling said about the U.S.
What’s stopping them from coming?
A skills shortage
China’s status as a manufacturing powerhouse means it has gained decades of experienced talent — which has been drained out of the U.S.
“We face pressure in the U.S. because we cannot find skilled workers. Most of the people have not worked in this [field] before in their lives,” Keer’s Zhu said.
KTC’s Flatz sees a strong argument for investment in training and education for more China-based jobs to move to America. “Education—tradesman education,” he said. “You have to make sure that you have enough educational power in the States, more or less, to bring up this entire industry.”
To help train American workers, some manufacturers in China want to bring in their own managers and skilled workforce, but are having trouble obtaining the proper paperwork.
“Our technicians cannot get visas to go to the U.S. We need [our staff], but many of them have been refused,” Zhu said. “We are facing a new challenge.”
In addition to the lack of skilled workers, Flatz said entire supply chains would have to relocate to the U.S. for some industries.
“None of us apparel manufacturers would move to the U.S. without having an ecosystem on site as we have in China,” he said.
The U.S. would have to do what the Chinese did decades ago, the China manufacturing veteran explained: set up economic zones, offer better infrastructure and financial incentives as a package.
“Make it the same as the Chinese,” he said. “And start on-shoring.”
—CNBC’s Daisy Cherry contributed to this report.
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