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Higher costs push Chinese firms to produce in US
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BURDENED with Alabama’s highest unemployment rate, long abandoned by textile mills and furniture plants, Wilcox County desperately needs jobs.
They’re coming, and from a most unlikely place: Henan Province in China, 12,234 kilometers away.
Henan’s Golden Dragon Precise Copper Tube Group opened a plant in Pine Hill, a town in Wilcox, last month. It will employ more than 300 in a county known less for job opportunities than for lakes filled with bass, pine forests rich with wild turkey and boar and muddy roads best negotiated in four-wheel-drive trucks.
“Jobs that pay US$15 an hour are few and far between,” says Dottie Gaston, an official in nearby Thomasville.
What’s happening in Pine Hill is starting to happen across America.
After decades of siphoning jobs from the United States, China is creating some. Chinese companies invested a record US$14 billion in the US last year, according to the Rhodium Group research firm. Collectively, they employ more than 70,000 Americans, up from virtually none a decade ago.
Powerful forces — narrowing wage gaps, tumbling US energy prices, the vagaries of currency markets — are pulling Chinese companies across the Pacific. Mayors and economic development officials have lined up to welcome Chinese investors. Southern states, touting low labor and land costs, have been especially aggressive.
In the case of the Pine Hill plant, tax breaks, some Southern hospitality and a tray of homemade banana pudding helped, too.
“Get off the plane and the mayor is waiting for you,” says Hong Kong billionaire Ronnie Chan.
In March, Dothan, Alabama, held a two-day China-US manufacturing symposium, drawing dozens of potential Chinese investors. On sale were T-shirts reading: “Ni hao, y’all” — combining the Chinese version of “hello” with a colloquial Southernism.
Chinese executives wandered around during a street festival, experiencing Americana by snapping photos of vintage ‘60s muscle cars. A Chinese company, in a deal negotiated before the symposium, said it would bring a 3D printing operation to Dothan.
Other Chinese projects in the US that are creating jobs:
— In Moraine, Ohio, Chinese glassmaker Fuyao Glass Industry Group Co is taking over a plant General Motors gave up in 2008 and creating at least 800 jobs. The site puts Fuyao within four hours’ drive of auto plants in Ohio, Kentucky and Indiana.
— In Lancaster County, South Carolina, Chinese textile manufacturer Keer Group is investing US$218 million in a plant to make industrial yarn and will employ 500. South Carolina nudged the deal along with a US$4 million grant.
— In Gregory, Texas, Tianjin Pipe is investing over US$1 billion in a factory that makes pipes for oil and gas drillers. The company expects to begin production late this year or early in 2015. It will have 50 to 70 employees by the end of this year and 400 to 500 by the end of 2017.
The US and China have long kept a lop-sided relationship: China makes things. America buys them. The US trade deficit in goods with China last year hit a record US$318 billion. And for three decades, many US manufacturers have moved operations to China.
The flow is at least starting to move the other way. One reason is that in the past decade, the cost of labor, adjusted for productivity gains, has surged 187 percent at Chinese factories, and just 27 percent in the US, Boston Consulting Group said.
In addition, Chinese electricity costs rose 66 percent, more than twice the US’ increase. The start of large-scale US shale gas production has helped contain US electricity costs.
And the value of China’s currency has risen more than 30 percent against the US dollar over the past decade. The higher yuan has raised the cost of Chinese goods sold abroad and, conversely, made US goods more affordable in China.
Those rising costs have cut China’s competitive edge. In 2004, manufacturing cost 14 percent less in China than in the US; that advantage has narrowed to 5 percent. If the trend for higher wages, energy costs and a higher currency continues, Boston Consulting predicts, US production will be less costly than China’s by 2018.
Cost isn’t the only allure. As Chinese firms build more sophisticated products, they want to work directly with US customers.
“Being close to the marketplace is good for everybody,” says Loretta Lee, a Hong Kong entrepreneur who just opened a shoe factory in Tennessee.
Alabama and other Southern states have followed the example of South Carolina, which nabbed the first Chinese plant in America 14 years ago when Haier built a refrigerator plant in Camden.
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