The China Manufacturing Syndrome

By : Jim Pinto,
San Diego, CA.

Manufacturing is tending to migrate away from the U.S. for a variety of factors. In the meantime China is attaining pre-eminence in global manufacturing. America needs to have its entrepreneurs and home businesses succeed. Perhaps that is America's best response to the China manufacturing syndrome.

A version of this article was published by:
Automation World, January 2005

It seems clear that manufacturing is tending to migrate away from the U.S. for a variety of factors, not the least being the development of a negative image.

PLC inventor, author and technology guru Dick Morley suggests that the idea that manufacturing is somehow bad has caused jobs to be driven out of the U.S. . While high-tech and financial jobs are desirable, no community in N. America really seems to want a new cement plant, a printed-circuit board facility or an old-fashioned factory with 3-shift production lines. NIMBY (Not In My Backyard) attitudes are driving manufacturing offshore.

In the U.S., manufacturing companies are penalized with high taxes, strict zoning regulations and excruciating bureaucracy. By contrast, countries like Ireland, China, Korea and Hong Kong invite manufacturing plants to locate there with open arms and deferred taxes.

Some interesting statistics

According to a recent U.S. Bureau of Labor survey, manufacturing's share of the U.S. economy as measured by real GDP has been stable since the 1940s. During this entire time, the ratio of manufacturing output to GDP has ranged from 16 to 19%. As of 2002, it was 16%. During this same 60-year time span, with alternating booms and recessions, the number of manufacturing employees has remained fairly constant, oscillating at around 16.5 million. In the recent downturn, manufacturing employment fell to 14.8 million.

Manufacturing has sustained its share of a growing economy with the same number of workers, mainly due to faster productivity growth through automation. As the economy has grown, manufacturing's share of non-farm employment has decreased from 32% in 1947 to 11.5 % in 2002.

China rising

In the meantime, China is attaining pre-eminence in global manufacturing. The country already produces 50% of the world’s cameras, 30% of air conditioners and televisions, 25% of washing machines, and 20% of refrigerators. One private Chinese company manufactures 40% of all microwave ovens sold in Europe. The city of Wenzhou in Eastern China produces 70% of the world's metal cigarette lighters.

The assumption has always been that the U.S. and other industrialized nations will keep leading in knowledge-intensive industries while developing countries like China focus on lower skills and lower labor costs. That's now changed. The country with the world’s largest population now competes both with very low wages and high tech.

While America's industrial base continues to erode, China is adding state-of-the-art production capacity in cars, specialty steel, petrochemicals, and microchips. These plants are initially aimed at meeting seemingly insatiable Chinese domestic demand. But inevitably, when growth stalls the resulting glut will turn into an export wave. Prices for Chinese manufactured goods are typically half of comparable U.S. products. This will cause serious disruption of U.S. domestic markets.

U.S. companies are no longer investing in new capacity and the ranks of U.S. engineers are thinning. By contrast, the number of Chinese engineers is growing by 350,000 annually. Young workers and managers are willing to put in 12-hour days and work weekends, with an entrepreneurial zeal to do whatever it takes to please their customers. And China has direct sales channels into U.S. commercial markets through large retailers. Wal-Mart alone sells about $12 billion of Chinese products per year.

Chinese producers continue to move forward, investing strongly in new plant and equipment. 91% of U.S. manufacturing plants are more than a decade old, vs. 54% in China. In a recent survey of Chinese and U.S. manufacturers by Industry Week, 54% of Chinese companies cited innovation as one of their top objectives, compared with only 26% of U.S. respondents. Chinese companies spend more on worker training and enterprise-management software.

USA Solutions

Dick Morley proposes solutions for the China manufacturing syndrome:
  • The prevailing wisdom of lower-cost, higher-volume manufacturing is clearly wrong. The U.S. should stick to high-value non-commodity items.
  • The thinking that innovation is high-risk and high-cost should stop. The U.S. has a significant level of entrepreneurship and talent which should be encouraged and stimulated.
  • Mini-enterprise zones should be developed – micro-China locations supported on a national basis. The U.S. should own them and they should be leased to meet the needs of engineering and manufacturing talent. Much like national parks, manufacturing and innovation needs care and protection.
America needs to have its entrepreneurs and home businesses succeed. Which brings us to the good side of the statistics I mentioned: according to another Bureau of Labor survey, the household survey, during the same period as some 2 million manufacturing jobs were lost, 3.25 million new jobs have been created. In other words, millions of people are simply not reporting to work. They're starting new businesses. Perhaps that is America's best response to the China manufacturing syndrome.

Return to Index of all JimPinto Writings Return to Index of all JimPinto Writings
Return to Homepage Return to HomePage

If you have ideas or suggestions to improve this site, contact:
Copyright 2003 : Jim Pinto, San Diego, CA, USA