We hear frequent reports of a resurgent US manufacturing and increasing reshoring of work previously sent overseas. China has been the most common recipient of outsourcing, but that appears to be changing. Recently we found a fascinating article that details how China actions may result in an ominous future for them—and good news for US manufacturing!
Bringing work back to the US is an exciting prospect for many, including us. Proficient Sourcing helps buyers find outstanding custom manufacturing sources. If you are interested in reshoring work currently done overseas, we can be helpful providing domestic candidates for your work.
The Reshoring Initiative’s website (https://www.reshorenow.org/) contains the Total Cost of Ownership estimator, which is a worksheet for comparing costs and risks of manufacturing in competing countries. Since the cost of labor cost is one of the most significant factors in assessing the cost of operations anywhere, we were particularly interested in an excellent summary of China which we found in Wire Forming Technology International’s summer 2013 publication. Their …”What Reshoring Means for You” article was particularly encouraging for US manufacturing. We obtained reprint permission, and you may download the complete article from our website: https://proficientsourcing.com/.
This article details a history of outsourcing, and also provides a history of Chinese policy decisions which have resulted in increasing labor costs that would seem to be a powerful force for reshoring. Further, there is a forecast for significant political difficulties that should present major challenges for China in the years ahead. All this suggests increased competitiveness for US manufacturing, and for US suppliers, which we find most encouraging.
Here are just a few of the highlights of this article’s summary of factors influencing the Chinese economy, politics, and competitive position. These factors begin in the 1950’s with the ascension of Mao’s rule.
* In the 1958 “Great Leap Forward” private farming was collectivized. As was the case with Stalin’s similar initiative, great famine resulted. This, plus the 1965 Cultural Revolution, contributed to the rise of more moderate leaders like Zhau Enlai and Deng Ziaoping as rural China was devastated economically.
* Under Mao’s hukou system everyone was forced to register at their birthplace for a location certificate, on which were based a variety of social benefits. This policy was loosened in the ‘80’s and a migration into cities brought a surplus of cheap labor at that time. But this system remains in place and is a barrier to the flow of workers into the coastal economic zones where they are needed today.
* The “one child” policy, implemented in 1979, led to an increase in the working population, which is now aging with a relatively weak social safety net. Some 42 million Chinese over 60 live in poverty, which is likely to be a significant problem as the future unfolds. There is also a large number of adult males without female counterparts.
* Under the leadership of Deng Ziaoping in the 1980’s China gradually liberalized its economy, although political power remained a Communist Party monopoly. The party maintains tight political control and ideological purity at a national level while turning a blind eye to the emergence of a quasi-capitalist economy. This dichotomy, maintaining political control in a semi-open market economy, should present the government with a major challenge.
The legacy of these factors is, among other things, slow growth of China’s prime-age labor force and barriers to labor mobility. Labor shortages now exist in some of the costal special economic areas, while other factors contribute to unemployment elsewhere.
It is now forecast that China’s lower labor costs compared to Korea and Malaysia will evaporate by the end of this decade. China’s manufacturers are subject to not only rising labor costs but the rising value of China’s currency. Since so much of Chinese manufacturing is geared to exports, the rising value of the yuan is creating higher unemployment in some parts of China. Eventually this will threaten China’s rising standard of living, which has enabled the Communist Party to maintain political control. This raises the specter of the widespread social unrest so greatly feared by the Chinese government.
The above report on China is a brief summary of yet another excellent article from Wire Forming Technology International, This publication has featured a number of outstanding articles on reshoring and productivity. Four are available for download from our website. We hope you find them useful, and we invite you to give us the opportunity to assist in your reshoring effots.