Recently some foreign media have reported that a large number of American companies, which have ever set up factories in Mainland China, are planning to disinvest in China and insource manufacturing back to the United States, mainly because labor costs in China are rising, energy costs in the U.S. are dropping, and logistics costs in China are extortionate, etc. This report has quoted statistics from The Boston Consulting Group (BCG) and estimated that now the average costs for manufacturing goods in the U.S. are higher than the costs in China by merely 5% and such costs will decrease and be lower than the costs in China by 2%-3% in 2018.

European Countries and the United States Are Revitalizing their Manufacturing

Concerning this foreign report, the author has no way to testify to the authenticity of the estimation mentioned in it. However, from the reshoring plans of some American companies mentioned in the report, we can come to know some background on this situation, that is, the world economy is undergoing the complex structural adjustment and facing changes that occur in the division of labor.

The global financial crisis in 2008 has made the developed countries in the West realize the danger of relying too heavily on fictitious economy. The economies of those countries are financialized and hollowed out, which greatly deteriorates their economic base and financial stability. Therefore, many of them are now pursuing the strategy of reindustrialization, paying more attention to the transition and upgrading of manufacturing industry. They also make the revitalization of manufacturing industry as the major policy for economic recovery and take measures in rapid succession to promote the development in the manufacturing sector, with the aim of reinforcing the real economy and regaining the competitiveness in this sector.

Under the circumstances, the United States has advocated “reindustrialization” and issued some attractive preferential policies to encourage investments in manufacturing sector and promote the reshoring of high-end manufacturing. Besides, the U.S. has also pursued major policies to back up and promote the development of advanced manufacturing.

Meanwhile, taking its current state into account, Germany has pursued the strategy called “Industry 4.0”, the focus of which is on intelligent manufacturing, and this concept and term has already become the theory that leads the future development of manufacturing in the world.

Cost Advantages Can Still Be Found in China

Firstly, we should view the tendency mentioned above in a more objective way. Some European countries and the United States have issued many preferential policies to attract and induce the reshoring of manufacturing. In this situation, if there is only slight difference in terms of comparative cost, some companies in those countries will probably insource manufacturing (part of their industry chain) back to their own countries. This phenomenon is inevitable in the period when countries around the world are endeavoring to improve their own competitiveness once again and it is bound to happen in the process of manufacturing restructuring.

Secondly, we should also admit that, indeed, manufacturing costs in China have increased in recent years, since the Chinese government has been making more efforts to protect the environment and to continuously promote the welfare for Chinese citizens. Such an increase in manufacturing costs is inevitable too in the period when the Chinese economy is developing and the Chinese society is progressing. China cannot always rely on low labor costs to gain the advantage in the manufacturing sector, and we cannot try to maintain this advantage at the cost of the environment and laborers’ welfare and health either.

Thirdly, cost advantages of manufacturing can still be found in China. Despite the rapid increase in people’s salaries, workers in the manufacturing sector in China still get much lower pay and have less welfare benefits than workers in the United States and other European countries. Furthermore, labor force in China is being transformed, from unskilled to skilled, and the labor quality is therefore gradually improved.

New Reforms Are Desperately Needed for Manufacturing Development

Manufacturing in China is facing depletion in comparative advantage. There are both difficulties and challenges for manufacturing development in China. Exteriorly, China is faced with the challenges caused by the manufacturing reshoring of western developed countries like the U.S. and Japan. Interiorly, China is under various forms of pressure such as the rapid increase in labor costs and foreign companies’ offshoring of manufacturing to Southeast Asia. Therefore, China is now in a fix, unable to attract high-end manufacturing or to retain low-end manufacturing.

Meanwhile, along with the rapid development and continual application of the new technology, new materials, and new energy such as information and communication technology, bioelectronics, nanotechnology, various kinds of modern manufacturing technology such as artificial intelligence, digital manufacturing, industrial robots, 3D printers are springing up. A new round of technological innovation and industrial revolution characterized by information network, intelligent manufacturing, new energy and new materials occurs around the whole world.

There are great changes of the development pattern of manufacturing in the world. It is both a challenge and a chance for manufacturing in China, as to whether China can still prevail in this new round of technological innovation, industrial revolution, and economic transition.

Note:
This article originally appeared in Takungpao on the following website: https://news.takungpao.com/paper/q/2016/0419/3307516.html