Wu Guangqiang

    jw368@163.com

    MANUFACTURING has been gaining increasing importance around the world. In light of such, Donald Trump’s pledge to bring manufacturing with jobs back to the U.S. was met with eager ears and won hearts during the presidential election.

    Other developed countries including Germany, the U.K. and Japan, also have come up with plans to upgrade their respective manufacturing.

    China unveiled last year its own blueprint for manufacturing development: “China Manufacturing 2025.” The 10-year guideline is designed to transform China from a manufacturing giant into a world manufacturing power.

    China displaced the U.S. as the world’s largest manufacturing nation in 2010 and has widened its lead ever since.

    In 2015, China was the largest producer of more than 220 of the world’s 500 major industrial products.

    China’s rise from an agricultural nation to an industrial giant within a mere three decades has been credited with a host of factors: the reform and opening-up policy, incentive measures to encourage entrepreneurship, Chinese workers’ diligence and intelligence, and competitive costs of labor, land and energy, etc.

    But all the advantages are rapidly diminishing except the reform and opening-up policy, which has triggered growing worries about the prospect of China’s manufacturing.

    The worries reached a climax with Cao Dewang’ comparison of the manufacturing costs in China and the U.S.

    In a recent interview, Cao, chairman of Fujian-based Fuyao Glass, one of the world’s leading car glass makers, reeled off the advantages for production in the U.S. against the disadvantages in China.

    He explained what attracted him to decide to invest US$1 billion to build a car glass factory in Ohio and two supporting factories and a warehouse in two other states.

    He gave a breakdown of costs in the two countries. The electricity cost is about 0.30 yuan (US$0.086) per kwh in the U.S. while it is 0.60 yuan in China. The land lot for building the factory (180,000 square meters) was bought for US$15 million. But with the various subsidies from the Ohio government, the land was virtually free of charge. The cost of natural gas in China is three times more expensive than that in the U.S. As almost all the U.S. expressways are free of tolls, transportation costs are much cheaper than in China, where 0.50 yuan per ton of cargo must be paid as a toll.

    According to Cao, tax burden constitutes the bulk of the cost. China’s comprehensive taxes are 35 percent higher than America’s, because the U.S. imposes 35 percent income tax and doesn’t levy value-added tax on manufacturers while China imposes a value-added tax and other taxes and fees in addition to 25 percent on corporate income.

    The only thing more expensive in the U.S. than in China is the labor cost. All factors added up, according to Cao, he can make 10 percent more profit in the U.S. producing the same products than in China.

    Cao sees the value-added tax as a noose to strangle the vitality of factories, especially small and medium-sized ones.

    Cao is not alone in complaining about the fast-rising manufacturing costs. Many factories are experiencing “four highs” and “four lows” in operation: high costs of labor, financing, tax and institutional trade, and low product quality, technical standards, brand recognition and business credit. Overall manufacturing profit is only paper thin.

    Squeezed by soaring costs and lured by fat profits in speculative sectors such as real estate and stock markets, many factories have closed down their production lines and put their money into non-manufacturing sectors. Some others have moved their factories overseas.

    Fearing that more Cao Dewangs will move overseas, thus hollowing out Chinese manufacturing, some are calling on the authorities to stop manufacturing from moving overseas.

    Some other experts point out that Cao’s case doesn’t necessarily reflect the whole picture of China’s manufacturing, saying that compared to America’s direct tax system designed to encourage consumption, China’s indirect taxes encourage accumulation and growth, so this is in line with China’s pro-growth policy. As a developing nation, China needs more accumulation rather than consumption, they assert. They also mention that China encourages export with many incentive measures including tax rebate.

    Despite the diverging opinions, something is unanimous: Cao’s complaint serves as a timely warning against the trend of deindustrialization and the risk of a financial bubble.

    (The author is an English tutor and a freelance writer.)