China Manufacturing: A Balanced View

It's not easy to take a calmly analytical view about China. Not if you're in manufacturing. Without question, China (with the help of a few other low-wage countries) has effectively gutted much of America's manufacturing sector. According to figures supplied by the Alliance for American Manufacturing (AAM), the state of Indiana alone lost over forty-five thousand jobs to China from 2001 to 2006 due to the U.S. trade deficit with that country. The AAM summarizes this situation with the slogan, "China Cheats."

I have a lot of problems with the Chinese manufacturing industry, and "China Cheats" may not be an overstatement. Still, I confess, if was refreshing to hear a National Public Radio interview on Chinese manufacturing over the weekend that was purely informational.

According to Joe Nocera of the New York Times, Chinese manufacturers don't exactly  see the playing field as tilted in their favor. Yes, they have a significant advantage when it comes to low-end manufacturing (more about that in a minute). But, they feel the Western countries have an equally important advantage in marketing. Only two or three years ago, according to Nocera, the top brand of running shoes in China was Li Ning. Since then, both Nike and Adidas have grown to the point where Li Ning is now number three. For the Chinese, that's scary.

Nocera reports that even low-end manufacturing, China's obvious strength, is not without its problems. A combination of rising costs, worker demands for more money and new labor laws have combined to lower profits. In fact, profit margins have become so thin that many factories are going out of business, notably in the garment industry.

In a trend that resembles the U.S. in the 1960's, when many jobs migrated from the unionized north eastern region of the U.S. to the South, low-end manufacturing in China is migrating from the east coast to central China, where wages are lower.

Meanwhile, the goal of the businesses located on the east coast is to enter higher niches. But according to Erin Ennis, Vice President of the US-China Business Council (USCBA), these companies are having a lot of problems due to a shortage of skilled labor. (Check out Barb Jorgensen's current blog for more problems with the Chinese manufacturing scene.)