North American Manufacturing Industry Returns To China, Which Needs To Be Vigilant

At the "press conference on the economic operation situation of the machinery industry in the first half of 2012" held by the China Machinery Industry Federation on July 23, Cai Weici, the executive vice president, pointed out that "the phenomenon of backflow exists to a certain extent, but in the machinery industry, there is no terrible trend, just need to arouse our vigilance."

Recently, the topic of manufacturing industry return in North America has received more and more attention.

After rethinking the lessons of the financial crisis, the Obama administration of the United States proposed the "reindustrialization" strategy and took a series of measures, including giving preferential tax incentives to companies whose overseas production has moved back to the country, and imposing punitive taxes on companies who have not moved back to the country, hoping to boost the local manufacturing industry. In this context, international manufacturing giants such as General Electric and Caterpillar have expanded their existing factories in the United States, and some manufacturing enterprises in China have evacuated their production lines from China. For example, the international sporting goods giant Adidas announced on July 18 that it would close its last factory in China before the end of this year.

For this phenomenon, Chinese people are obviously most concerned about the impact of backflow on China's manufacturing industry. At the "press conference on the economic operation situation of the machinery industry in the first half of 2012" held by the China Machinery Industry Federation on July 23, Cai Weici, the executive vice president, answered the reporter's questions and said: "The phenomenon of backflow exists to a certain extent, but in the machinery industry, there is no terrible trend, just need to arouse our vigilance."

Reflow is not terrible

Cai Weici believed that even if the manufacturing industry in North America returned to the mainland, it would be difficult to find advantages in low-end industries, and it is unlikely to have a major impact on China's related industries, because the high cost of labor in the United States is a very realistic problem. Previously, some experts learned that although China's "demographic dividend" has gradually disappeared over the years, the gap between China's and the United States' labor costs is still large. The U.S. labor costs are about six times that of China, which is a huge gap.

Therefore, the "reindustrialization" of the United States is definitely not a repeat of the original structural industrialization, and it will certainly take high-end equipment manufacturing or advanced manufacturing as its goal. In this sense, backflow is probably not good news for China to undertake international industrial transfer and develop high-end equipment manufacturing industry. Cai Weici said: "China has taken the development of high-end equipment manufacturing industry as a strategic direction during the 12th Five Year Plan period, and the United States has also taken similar actions, which can be described as' heroes have similar views'. This shows that our choice is right and conforms to the international trend of industrial development; however, it seems that we need to estimate more fully the difficulties we will face in the future than before."

Nevertheless, Cai Weici still firmly believes that "no one can stop the progress of China's machinery manufacturing industry". In his view, as a big country like China, as long as it recognizes the direction of developing high-end equipment manufacturing industry and advanced manufacturing industry, solves the sustainable problem of China's economic development, and starts with industrial transformation and upgrading, structural adjustment and improvement of innovation ability, no force can hinder its development and growth. Cai Weici said: "China's machinery industry should not only pay attention to the challenges brought by the're industrialization 'of developed countries such as the United States and the re establishment of the monopoly position of advanced manufacturing industry, but also pay more attention to the improvement of enterprises' innovation ability and unswervingly implement the strategy of structural adjustment, transformation and upgrading."

More attention should be paid to the challenges at home

Cai Weici said when answering questions from reporters: "Compared with what you said about return, I think what deserves more attention is the impact of foreign capital's production capacity in China on China's development of independent high-end equipment manufacturing industry. This challenge is more realistic than return."

In recent years, compared with the European and American economies devastated by the financial crisis and debt crisis, China's economic growth has been significantly more stable, and many foreign-funded enterprises have attached great importance to the Chinese market. For example, Caterpillar not only expanded its American factories this year, but also expanded its production capacity in China one after another. Moreover, this situation exists not only in the construction machinery industry, but also in other sub industries of the machinery industry. In the automobile industry this year, many international brand automobile enterprises have raised their sales targets in China. Therefore, in the first half of the year, news of price cuts and promotions of various high-end cars often came out, which has formed greater market pressure on China's independent automobile industry.

Cai Weici called on relevant units and departments to pay close attention to the two trends of foreign investment in China. One trend is that we have made a breakthrough in independent innovation in a certain area, in which foreign capital has changed from "extortion" to price diving and order grabbing. Another trend is that when foreign investors see where our high-end equipment is in great demand, they will set up corresponding wholly-owned or holding enterprises in China to quickly occupy the market.

From the perspective of market and commerce, these practices of foreign-funded enterprises are justifiable, and our government also promises to give all foreign-funded enterprises in China equal corporate citizenship treatment. However, as far as China's strategic intention to develop high-end equipment manufacturing industry is concerned, under the reality of low starting point and weak foundation, there are many difficulties. At the same time, some places in China are blind in attracting foreign capital to a certain extent, and some places have offered rather tempting and unfair conditions to attract foreign capital, It adds resistance to the development of independent high-end equipment manufacturing industry. Cai Weici said: "I hope to draw the attention of relevant departments, strengthen coordination on the local government's behavior of attracting foreign capital, and not undermine the overall upgrading of our machinery industry to the high-end because of some local interests."

Avoid flowing to other developing countries

At the meeting, Dong Yang, the executive vice president and secretary-general of the China Association of Automobile Manufacturers, added, "We are not afraid to return to the United States and Europe, but to Southeast Asia and other developing countries."

In fact, in recent years, many domestic and foreign manufacturing enterprises have shifted their production bases from coastal areas to the west, even to Southeast Asia. Vietnam and Bangladesh, in particular, are increasingly favored by European and American businessmen. The biggest reason is that the wages paid to workers in these countries are far lower than those in China. Herbert Hainer, the global CEO of Adidas, once said in an interview with the German media that because the wage standard set by the Chinese government has gradually become too high, Adidas hopes to partially withdraw from China and move to areas where labor is cheaper, while countries such as Laos, Cambodia and Vietnam are considered by Adidas as better markets.

Similarly, in textile clothing , shoes and other traditional manufacturing industries may be more obvious, but there is also such a trend in the machinery industry, such as some common mechanical parts, castings, etc. Not long ago, a senior expert in the foundry industry told the reporter that the competitiveness of domestic enterprises in gray cast iron is no longer comparable to that of India.

China is now the second largest export country, and may become the first largest export country in a few years. Among them, machinery industry products can be said to be the "top priority", but most of the export products are at the middle and low end level. If more and more machinery enterprises flow to other developing countries, it will have a greater impact on China's machinery industry exports and the overall long-term development.

For this situation, domestic machinery enterprises should pay more attention to strengthening independent innovation, entering high-end industries, adjusting and optimizing the industrial structure, so as to continuously improve the comprehensive competitiveness of enterprises and even the entire Chinese machinery industry.