China being transformed from world factory to world market
Staff Reporter 2012-10-08 11:42
Heineken glasses made in Hebei. (Photo/Xinhua)
Due to soaring production costs, mainland China is being transformed from the world's factory into a major world market.
Predictions swirling for four years will finally become a reality at the end of October: Adidas will close its only directly owned Chinese factory in Suzhou, in coastal Jiangsu province, and will successively terminate its contracts with 10 local contract production factories.
The decision follows the move of its rival Nike shifting its production from China to sites with lower production costs.
In addition to clothing and footwear, China is also losing its shine for the manufacturing of industrial products, which are being relocated in the US.
In its 2011 annual report, US giant General Electric foreshadowed that it would relocate its home appliance production lines from China and Mexico back to the US. Ford Auto will invest US$16 billion to establish new factories and production lines in the US, while Caterpillar, the world's largest manufacturer of excavators and bulldozers, will construct a factory in Texas at a cost of US$120 million. A recent survey of 108 companies headquartered in the US shows that 14% of them plan to move part of their manufacturing operations back to the US.
One major factor prompting US companies to return home some operations is supply chain logistics, especially in light of risk evaluations and production cost increases. In 2011, a once-in-50-year flood in Thailand cost Intel US$50 billion in lost sales. The devastating 2010 Japanese earthquake inflicted heavy losses on General Motors. An expert says that with transportation accounting for 25% of logistics costs, oil prices doubled from 2009 to 2011.
In addition, labor cost in China advanced 19% during the 2003-2008 period, while labor costs in the U.S. only rose 3%.
The incentives offered by the US federal and state governments, such as reduction of corporate tax and R&D subsidies, have prompted US enterprises to move their operations back to US soil.
An American corporate executive remarked that the withdrawal of manufacturing operation by US enterprises is still not a mainstream movement but the transfer of manufacturing capacities from the US to China over the past 30 years is coming to an end.
Along with the relocation of manufacturing facilities to sites with lower labor costs, growing numbers of foreign enterprises in China are setting their sight on the Chinese market. Ten years ago, for instance, 70% of the American Chamber of Commerce in South China's member firms were export-oriented businesses and only 30% serviced the domestic market. The ratio is reversed now.
