Auto glass tycoon's U.S. plant natural part of overseas expansion: experts
Recent remarks by glass tycoon Cao Dewang about his U.S. plant have sparked a discussion that China is not only losing its manufacturing sector to Southeast Asian countries, but perhaps also to developed economies, like the U.S.
Cao is the founder and chairman of China's leading auto glass manufacturer Fuyao Group, which has a manufacturing plant in Ohio in the U.S. The plant, with a total investment of $600 million, began operations in October and is reportedly the world's largest auto glass manufacturing plant.
In a video interview with news portal yicai.com, Cao said that operating costs in the U.S., such as land, logistics, energy and tax, are much lower than those in China. For instance, electricity is half that of China and the price for natural gas is only one-fifth of what it is in China. In addition, overall tax cost for manufacturers in China is 35 percent higher than in the U.S.
Furthermore, Cao noted that with government subsidies, land is basically free in the U.S.
However, U.S. labor costs are higher than in China. The wage for a blue-collar worker is eight times of that in China and the wage for a white-collar worker is twice that in China, said Cao.
Despite these higher labor costs, the profit margin for the company's U.S. plant could be 10 percent higher than what it would be in China, he told yicai.com.
Increasing competition
U.S. President Barack Obama has been trying to revive the country's manufacturing sector and President-elect Donald Trump vowed to bring manufacturing jobs back to the country during his election campaign.
"The policy [for the manufacturing sector] has been very favorable in the U.S. in recent years, especially in some central states, thus the investment cost is lower and quite appealing to investors," Wang Danqing, a partner at Beijing-based consultancy ACG, told the Global Times on Monday.
Wang noted that the U.S. has been trying to rejuvenate its auto industry and that Cao seized an opportunity by setting up a plant there.
Chen Yao, an expert at the Institute of Industrial Economics of the Chinese Academy of Social Sciences, said that the Chinese manufacturing sector is indeed facing great competition. Developed economies are experiencing a process of "reindustrialization," while at the same time, lower labor costs in Southeast Asian countries and regions are also eating into China's manufacturing sector.
However, Chen noted that the overall cost in China is still lower than that in the U.S., and that China has created other advantages over years of development, such as innovation capability and an established industrial infrastructure.
Effects of expansion
Wang noted that it is quite natural for Chinese entrepreneurs to seek overseas presence as they further develop. "It will be a foreseeable trend for Chinese entrepreneurs to expand overseas," he said, adding that there will be more Chinese companies moving their manufacturing facilities abroad as China is suffering from severe overcapacity in many sectors.
Experts noted that the case of Fuyao Group is not necessarily a bad thing nor indicates that China is losing out to the U.S. in terms of its manufacturing advantage. In fact, the Fuyao Group is still expanding domestically. In November, the company announced it would build a plant in Benxi, Northeast China's Liaoning Province, with a total investment of 1 billion yuan ($144 million), according to media reports.
China has been calling for an industrial upgrade to its manufacturing sector and has been trying to weed out outdated capacity. "But it doesn't mean the country does not attach importance to the manufacturing sector or that we are witnessing deindustrialization," Chen said.
Chen noted that Chinese manufacturers do face a heavier tax burden, but that the government has stepped up efforts to cut taxes. Also, with supporting policies in terms of industrial upgrading, the manufacturing sector will see an improvement in quality and efficiency, he said.
