It's actually the opposite: We're great at speciality, high-tech stuff, but we don't do commodity contract manufacturing as well as China. The good part of this is that the former has far better margins than the latter.
For now, but the trend in the article is related to mass manufacturing. Fracking (lower electricity prices, cheaper oil) helps large steel and aluminum manufacturers. Cheaper raw materials leads to cheaper widgets.
It's not that simple. I was just happening to look at a plastic bucket I was using yesterday and it was manufactured the next town over in Massachusetts, It's probably true that the US tends not to be competitive for cheap goods that don't have a large individual labor component. But it's more than high-margin items.
Injection molded plastic seems to be one industry that is still viable in the USA (just my observation, it seems common to see plastics factories here). Not sure why this is.
Assuming it is in fact the case (and it probably is for larger items at least), it's probably as part of the US-based hydrocarbon refining ecosystem in some way. (The city in question in my comment was also one of the first places to do industrial plastics manufacturing as a way to replace tortoise shell for combs etc.)
Doing tooling in China and then shipping the molds to NA is the common way to do injection moulding in NA. After that injection moulding is so automated that the labour cost to run a machine isn't that high. That said, I've yet to have a NA injection molder beat out the ones we use in Asia.
Someone explained the attraction of China with the complete supply chain. If you need 1k speciality screws now, you can order them from the screw factory next door and have them ready in no time.
This is definitely true, but with better information on suppliers + air freight, we're able to ship from China to the US very quickly and most components are tiny, so shipping costs are de minimis.
The problem is more that the Chinese market is still highly fragmented and not easily searched without insiders on the ground. Alibaba is just scratching the surface on transparency in global supply chain, but once the market becomes legible, the local supply chain thing won't matter as much.
Speaking from a Chinese perspective, $3/hr in China today is still very low. That's like 3000 RMB for a 9-5 blue collar (which doesn't really happen as many workers work between 12-16 hours a day). But there are just so many expenses you cannot avoid while living in China as a Chinese... $3000 - $5000 is barely enough.
Wait, what. I've lived in Beijing in 2013. You can live off 3000RMB/month = 500USD/month. That's far from being rich, but also not barely survivable. Everything was cheap for me, and I'm from Poland.
I specifically said living in China as a Chinese, so to be exact here Chinese means the Chinese local with family. I don't know much the life of foreigners / immigrants and how well they integrate into the society, but usually there are
* wedding gift
* "business" expense that you did out of your pocket (take your co-workers to lunch, buying gift for your clients)
* gifts (giving red envelopes during Chinese New Year, friend / elder birthday)
* rent
* personal saving
* family support (especially supporting your parents)
* medical expense (for a lot of people they have to pay before they can see a doctor)
Here is an article http://business.sohu.com/20131210/n391561808.shtml. Many people can only afford a tiny room today in the city and this depressing phenomenon is coined "蝸居" (snail house, about 10 square feet, and sometimes less, or sharing that tiny space with two or more people), and has been televised and documented multiple times (e.g. a TV drama called 蝸居 was made a couple years ago).
If you are a blue collar working at a city far away from your hometown, you have to go back to your hometown at least once a year (during new year break), and usually it is expected that you have to get a lot of gifts from the city for your family and your neighbors (to thank your neighbors for helping your family / keeping an eye on your family in your absence).
You can almost say the Chinese culture is all about showing gratitude with gifts, this is why e-commerce is such a big deal in China (also why foreign brands like Apple can make so much money in China ;-))
Interesting. So what is, in your opinion, the percentage of earnings an average Chinese spends on maintaining/extending his "Guanxi" and on supporting his parents/presents for relatives?
I am asking about these two specifically because they make the biggest difference between the "western" culture and the Chinese culture. The other items on your list also appear in the lives of the citizens of many European/European based countries.
I'm sure you can live in many places with even less than that, but claiming that you were not merely surviving with 3,000 RMB/month is delusional.
Costs in the large Chinese cities (which includes Beijing, Shanghai and Shenzhen) has been steadily increasing over the past couple decades. It can still be seen as cheaper to live depending on what you compare it to (e.g. SF) but to give a point of reference, Shenzhen is on par with Berlin in terms of cost of living (http://www.expatistan.com/cost-of-living/comparison/shenzhen...). Shanghai is actually more expensive than Berlin too, Beijing is slightly cheaper.
I couldn't have comfortably lived in Shanghai back in 2005 with 3,000 RMB, and I'm extremely frugal (I don't drink, don't smoke, don't go out and my main hobbies include working out and reading).
What are you exactly suggesting everyone do? He could pay them $0/hr by not giving them the jobs.
You're not offering any constructive feedback while criticizing from your pedestal of inaction. I assume you used a throwaway because you didn't want to attribute that to your personal identity.
Billions of Chinese were lifted from poverty by American globalization, granted at the detriment of American jobs. However it forced American jobs to be more information focused. And if you're Chinese you should understand that. If you're American you can be proud you helped lift a country from the third world into the second.
> China is technically communist right? Shouldn't they be being taken care of by the state anyways?
They are not actually communist; they are an authoritarian state controlling a capitalist economy. They started down that path in the late 1970s under Deng Xiaopeng.
Before that, the state did a very poor job caring for its citizens. Millions died of starvation, persecution, and other ills. Look up the Great Leap Forward and Cultural Revolution, two government programs, as examples.
After that, probably never in the history of humanity have so many in a time and place escaped poverty as those who have in China. However, the country is so large that there are still many that are very poor.
No, it's not simple at all. You might not wish that anyone make $3 an hour, but neither do you have the ability to provide everyone in the world with jobs that pay more than $3 an hour. The argument from classical economics is not that low wages are good in themselves, but that the best system is where wages are set by the market, and wealth redistribution is done by the government and private charity.
Hey, while we're wishing, for my part I wish that everyone made $1B/hr! (After accounting for inflationary effects, of course.) Private jets for everyone!
But back in real life, while $3/hr may not be a lot compared to what some folks make, it's $3/hr more than someone making $0/hr makes, and it's triple what someone making $1/hr makes, and indeed a full 50% raise for anyone making $2/hr.
If I could wave a wand and give everyone who currently makes 0, 1 or 2/hr the skill set and the opportunity to suddenly make $3/hr, I'd be happy to do it. And the billions of people (hundreds of millions maybe?) who suddenly got (in their terms) a huge raise would be pretty happy about it too.
I'm not sure you would be as quick to sarcasm if you spent some time in Chinese factories. It's a though life, even in the good ones. As the purchaser you have a lot of power over the process, not just at one factory, but in which factory you choose. To me that also means you have a responsibility. The least anyone working with Chinese companies should do, is to go and look at the factories.
Yes, it's a tough life, but people actually pick that life because other options are tougher (for example being a rural farmer somewhere).
It is true that we should care about conditions in factories such as these and work to improve them. It's also true that if you insisted that Chinese workers get paid what American workers would, there would have been almost no factories and the entire country would still be in desolate poverty. Yes if there were no factories then probably the environment would be in a better condition.
It's a very complex situation. Just picking one angle to it and insisting that angle holds the whole truth does not help anyone.
Unfortunately that wasn't represented in the rest of your comment.
That people have much of a choice in what is essentially an industrial revolution is quite far fetched, so is the notion that factory work is easier than farming. I'm also not sure what American salaries has do to with my comment at all. I'm purely stating that people should have some respect for what many Chinese are going through without all or nothing BS arguments.
China is much more dynamic than people are used to in the west. The have a much wider range of offerings. If you don't demand anything you're going to get the lowest one. To the disadvantage of yourself and the people doing the job.
I think a lot of western consumers would be more than happy to pay just a little bit more if the $ was going into those workers pockets. But how do you make sure it gets there rather than into the pockets of the factory owner / local politician, where you will already find many, many hundreds of millions of dollars (that "could" have been paid to the poor Chinese factory line worker, rather than to such things as buying some 18 year old son studying in Vancouver a new Ferrari).
Do leaders (political & economic) in non-western countries ever deserve any responsibility for their countries overall well-being?
This isn't a "well suck it up because at least you're getting paid /something/" issue. Chinese workers can still be beneficial to their country and the world while making a decent wage and without being abused.
American entrepreneurs are the best thing that has happened to China in centuries.
If it weren't for American capital, and the American consumer, China would have developed drastically slower (if at all). China's GDP per capita in 1994 was ~$480. That's ~45 years after the Mao revolution.
There was no alternative than to pay them cheap wages to start. If you paid them 'first world' wages, nobody would have set up manufacturing in China to begin with; those manufacturers would have kept that manufacturing domestically or sought out another cheaper source. The sole reason China boomed the last 20 years is that they had 250 million low-wage workers available and willing to do low-cost manufacturing.
If we're talking exploitation, the primary exploiters of cheap Chinese labor, are the 200 Chinese billionaires that have gotten rich off of leveraging their own impoverished workers - they own all the factories, the real estate, et al. China's wealth inequality puts every other country to shame.
I just don't understand how anyone could be OK with /anyone/ that takes part in this process. It's not okay for the "200 Chinese billionaires" to be profiting off of abusing others, just as it is not okay for Americans to be giving money to these people.
There is a difference between being successful financially and being able to sleep well at night.
Experience suggests that most people rising to riches don't have any troubles sleeping at night regardless of what they've done. Just world fallacy and all that.
It's like you didn't read his comment, there was no alternative. There would not be a factory, period, if they couldn't pay their workers at lower rates than Americans. It would not be financially feasible. It would lose money and not be able to buy raw materials and then close down and everyone would get paid $0. So when people say they are actually helping them by paying them more than $0 they are telling the truth. And by saying that you could never be part of that process, you are basically saying that you would be one to pay them $0, which is more harmful than the people that build factories.
So you would rather the billions of Chinese regress just so you can sleep well at night?
What is actually happening is good for them, and the majority of them will not side with you or even care how you sleep at night. There will always be casualties and exploitation of workers in China, but that's more due to corruption than it is to systematic underpayment of Chinese workers.
I tend to agree with you, but note that the opposing arguments aren't entirely invalid. Think of how many Africans were better off as slaves in the antebellum South than living as free men and women back home. Did that justify slavery?
There's a fundamental difference since the slaves didn't choose to be slaves, even if better off.
The Chinese factory workers are choosing from the options provided. From their perspective they've been given a better option. From a western first world perspective, people here can't seem to relate to how $3/hr could possibly be a better option, but it is. Over here we have the benefit of minimum wage, welfare, higher standard of living, etc. Unfortunately it is a very egocentric viewpoint to not think of this from the perspective of an actual factory worker.
> American entrepreneurs are the best thing that has happened to China in centuries.
American business is a significant reason China was so poor to start with. To understand China, I recommend reading what is meant by the 'century of humiliation'.
> There was no alternative than to pay them cheap wages to start.
They can pay less than American-level wages, and yet still pay a living wage and provide safe, reasonable working conditions.
> the primary exploiters of cheap Chinese labor, are the 200 Chinese billionaires
That someone else does wrong doesn't justify doing it yourself. Otherwise, everyone's standard is whatever the worst do.
"He could pay them $0/hr by not giving them the jobs."
I've always found that to be the absolute shittiest of rebuttals, given by those who have absolutely no point whatsoever. This person is not "giving" anyone a job; they are not being seeing a group of people and saying, "Hmmm, they look like they could use some work. I will create some and give it to them." No. This person needed some work done, and they were offering work. That's it. The person is not a "job creator"; those things don't exist.
"If you're American you can be proud you helped lift a country from the third world into the second."
And do we get to be proud of the complete and utter skull fucking the Chinese environment has taken as a result of that?
If you ever run a company you'll know that job creators exist.
I had a bunch of money. I could have kept it locked in a box somewhere. Instead I decided to pay a bunch of people to help make something cool. Yes, that's a transaction, but for my part, I didn't have to engage in it. (In fact some days I kind of regret it, given all the garbage one has to put up with when running a company.) I could have kept the money locked in a box and felt happy that I feel rich. Or something.
Or, to spin it just as hard the other way: a bunch of people gave up half of their waking hours for years in order to help make your something-cool business successful, and accepted your money in exchange for that assistance. They could have stayed home or done something else.
"If you ever run a company you'll know that job creators exist."
No they don't. There are people who want work done, and people who provide that work. That's it. You're not "creating jobs" simply because you feel like you want to create jobs. You have decided that getting the work done will benefit you more than not having it done. That's it.
A person who runs a company is no more a job creator than a consumer who pays for services is a job creator.
If "I have money, and I have a thing I am willing to exchange it for that requires someone else to do work" makes you a job creator, everyone who purchases anything in the economy is a job creator.
Environmental problems and abusive labor practices are problems and should not be tolerated. But they're nowhere close to accounting for the full discount in labor costs in China v.s. elsewhere.
Business owners factor costs into their strategies. They/we don't just have a bunch of jobs, and then go looking for people to fill them. China's cheap labor force has made possible products that wouldn't exist otherwise.
I would very much like to hear a somewhat detailed overview of how you think the "right" way to go about this is - and please don't use meaningless terms like "fair" instead of numbers, otherwise it's a total waste of your time.
The situation is much much simpler than you're making it. And as someone said, if you were part of a company that provided these jobs in a direct or indirect way, you'd see it much more clearly.
Basically there are people there that need to make a living wage to pay for food, medicine, education, etc. The reality is without the $X/hr jobs they have no other options or worse options.
An external actor like you, me, or a business can sit around talking about how shit it is, or go in and offer something at least slightly better. You're basically trashing the people who decide to take any action at all (giving them a low paying job). If the action isn't taken, they go back to their worse option. From your perspective you are failing to empathize with the Chinese because you don't see their other crappier options or can't imagine that they could possibly have crappier options.
Labor is only 5% of the total manufacturing cost. Even if you pay $0/hr in china, the (lack of) cost of transportation + low price of oil/gas due to fracking makes the total cost lower. Though it seems to be true for energy intensive heavy industries ("energy intensive industries such as steel, aluminum, paper and petrochemicals"), not sure it works for low skilled commodity or labor intensive industries.
Looks like they're talking about more energy costs & also productivity advances relative to other countries.
This means more that cost of inputs (materials, transport of them, etc.) for hardware will go down in the US, while at the same time companies are getting more efficient per worker - reducing our exposure to foreign cheap labor.
Re: Welding - We're actually seeing a lot of advances in automated welding setup, etc. that will allow robots in the US to compete with Chinese welders.
I have a Panasonic Ya 102 welding cell that will do it for much cheaper. I have one part we make with it that has 12 cents of human labor per part, based on a $30 per hour operator cost.
For some industries the USA is and has for some time been a bit lower cost for manufacturing than China. Labor costs are only part of the equation- you also have to take into account transportation costs, energy costs, costs of obtaining capital, etc. all weighed against political, scheduling, and quality risks. For my own industry (specialty machine vision systems) outsourcing to China is almost not worth the trouble.
Likely, as in many industries, there is still a lower cost in total with manufacturing in China, so many companies still will. But there is more risk in terms of product quality, safety, delivery, etc due to the whole supply chain, sub-contracting, etc.
You left out the biggest cost of all: technology theft. The Chinese government wants its manufacturers to watch for technologies that could be of economic or military value and to pass them on to relevant Chinese organizations for use. When the local Party leader's son starts producing your "specialty machine vision systems" in his factory down the road, are you going to go to the Party-controlled court and sue him?
If I had a "technology" that was immediately discernible by any buyer (a plastic cup, a game board with an image printed on paper and glued to cardboard), I might make it in China, but for any non-obvious technology, I would assume that any money I saved on COST by making it in China, I would lose on PRICE when my manufacturer's brother-in-law started competing with me.
You are correct, IP is a bit of a joke in China (oh, the stories I wish I could tell...). You can't rely on the Chinese legal system to protect your IP so you have to take a number of technical precautions to ensure that it is extremely difficult to knock off your product even with inside the factory knowledge. My company has gotten burned about this in the past. Needless to say, this all adds cost to your product.
Brother-in-law? Sometimes the link isn't so indirect. For example, GM has a partnership (since foreign manufacturers aren't permitted to have majority ownership (last I checked)) with Chery Motors. Chery has access to everything produced in that plant, including tooling, tech, designs, etc. Chery takes this and uses it in their own plants to produce cars that compete directly with GM (and they export these cars too).
This is why many manufacturers use last-gen tech in their products within China.
> You left out the biggest cost of all: technology theft.
Or plain old fashioned outright theft. I did business for a few years with a Chinese supplier, the contact was made from a (local Chinese) reliable friend of many years who did international business so had contacts. After two years of a pretty seamless business relationship, one day the supplier decided to simply disappear with the $45k deposit on an order.
We are pretty sure that a previous supplier of ours was running their machines on a competitor's (of mine) dime and billing them for materials/goods and burying it in the sales sheets, while shipping us the product that was near-identical to theirs but with our logos and branding on it.
I understand this is fairly common when making knockoff goods, too.
>You left out the biggest cost of all: technology theft.
Absolutely. The factories I deal with OPENLY DISCLOSE what contracts they have (not price, but brands) with other companies in my line of business. This is unbelievable. I didn't even ask for this information - and never would want it, given the implications - but they VOLUNTEERED it as part of their sales pitch.
And what are those companies - many of them multimillion dollar entities - going to do about it? Switch factories? Certainly not file a lawsuit. It's crazy.
You left out what (I would think) is the biggest thing! (For your industry especially). That is IP!
It is worth noting specifically, because the costs of China not being on board with protecting innovation means 1) they create a lot less of it (which is both their loss and ours) 2) the stuff you manufacture there has to be protected by the laws of physics, the software, and access etc, rather than a simple code of laws.
This cost is clearly not insurmountable - everyone manufactures in China. But they have to take precautions as they do so, instead of just relying on local law.
By the way I don't think this is in their interests, and I think they will move away from this model with time. There are no doubt great Chinese inventors and creators who need very little by way of protection before creating amazing things that are temporarily protected all over the world. It is almost just an ancillary benefit that they will also start to respect what others (i.e. the rest of the world) manufacture there.
There are always two camps of people in this debate. One camp says the medical expense and overhead dealing with regulations and union are too costly to operate manufacturing entirely in the US. There is another camp that says the cost operating oversea (training staff, relocating senior staff oversea, legal and book keeping management) is close to operating in the US.
Fact is many companies are now moving away from China, and are signing up new manufacturing sites in other Southern Asian countries such as Thailand and Vietnam for lower operational cost (note a lot of the U.S. companies give contract to oversea manufacturer, so it is these manufactures moving away from their own domestic sites - for example, Foxconn being a largely a Taiwanese company Foxconn manufactures outside of Taiwan).
I don't know how close operating in the US vs operating half of the business offshore is. This is like hiring consultant oversea for software development. The first burden is operational efficiency; it is painful to manage oversea when you want your "brain power" to be in the US. For example, project manager might have to get up early say 6-7 AM to do a stand up and then follow up at 9/10AM (because your business owner / product owner don't get up at 6 to talk about progress). If there are bugs that need to be resolved during US hour, you still have to pay the extra hours. You are wasting time going-back-and-forth because your offshore team will get off work when you want to fit a meeting in the afternoon.
While most Chinese workers do not form union (fear of repucation), workers do come out and protest from time to time (see Foxcoon strikes). Local laws also do not often favor US companies, and local laws can be a pain in the ass.
The only thing I can think of that will keep some companies manufacturing outside of the U.S. is that these companies simply do not have cash in the US. Imagine a company like Apple (Apple has like 90% of its cash outside of US) the only way they can spend that money is do stuff outside of US.
This is just my uneducated opinion, having little idea how business and economy works. I am all for moving closer to proximity. If you are selling in the U.S. it makes sense to manufacture her. This is why many manufacture sites are now built in Mexico (looking at car makers). Shipping cost have been reduced in the last two decades because now we have bigger ships, but still, there is a schedule that you need to maintain.
Another classic example where some part of "making" are likely done domestic (or a place where known for using advanced technology) is the classic X ThinkPad series. The agreement Lenovo have with IBM is that the main design is to remain in a Japanese lab AFAIK. I am sure Lenovo has way to do stuff in China and do stuff in Japan, and still claim stuff are done in Japan. But branding is a good motivation for keeping certain things local.
Unions have been in a 40 year decline in the US. You can easily avoid union labor, if that's your preference, by selectively choosing what state you set up manufacturing in.
'The whole landscape has changed. They kept telling us we were wasting our time, and now it has really caught fire all over the world' — George Mitchell, father of fracking
As oil and gas prices in the US reach parity with China, China remains relevant only where labor costs are a factor. As manufacturing becomes increasingly automated, Chinese factory workers (and indeed most of the world's unskilled workers) will become unemployed. That is a double edged sword....it will be great for businesses until enough people are unemployed that only a small percentage of the population can afford to buy the goods they are producing.
A counter to your counter ;) would be that now you have a larger population of young adults going head first into debt for degrees that will have an equally expanisve labor pool. So now you graduate with a higher education degree but so did everyone else and there may not be enough human job growth to sustain it.
I'm not sure there is a simple answer to any of these problems.
Sadly this doesn't address the reason I import from China and not from the USA - where the product is likely to be of better quality - the cost of shipping.
I just recently had to cancel a large order from our first USA wholesaler when we discovered that the cost to ship via DHL or FedEx would cost 500% more than the value of the items themselves.
This maybe a New Zealand problem but often shipping from China is free despite the distances being the same
Mostly by the postal services in the recipient country actually:
"If you buy the cheap goods from abroad today, you can often get them shipped "free" around half the planet and to your home. It may be cheaper to order a remote control with batteries from China and throw the remote away, rather than going to the store and buying a pack of batteries.
That this may be a problem for local businesses is obvious, but the reason you can order extremely cheap goods from China is far more complicated than you think. Most countries in the world have actually joined forces in an international collaboration to allocate freight costs between themselves a partnership, where the importing countries eventually ended up holding the bag.
This agreement is called Universal Postal Convention, and it's important for many of us in everyday life. It is quite simple to regulate mail traffic between all the countries that have joined, not to mention how much it will cost to ship the item. The intention behind the agreement was good when it was introduced, but over a hundred years later, the social conditions changed and it helps to create distortion of competition across the world.
Universal Postal Convention was created in a completely different era than the one we are in now, namely around 1870 - at the time it was snail mail which reigned, e-mail was by no means invented and not even the largest visionary had thought of the idea of sending the mail electronically.
If we go back to the time of the Convention's birth it was not so easy to send a letter abroad. Each country had to enter into their own individual agreements with every country they wanted to send mail to. If you wanted to send mail to a country who didn't have a mail agreement with your own country, you would have a problem.
The solution could then be to send the letter via a third country, which had agreements in good standing with both the country you were sending from and the country you would send to.
To calculate the postage was no trivial matter either. Here you risked the postage getting split up in multiple parts, so that the first part covered the mail crossing the border. Then the poor postal workers had to sit with price lists from other countries to calculate the rest of the postage, after which they also had to stick on a stamp for the recipient country. Should the letter go through several countries on its journey, one can only imagine how cumbersome the system was.
One particularly cumbersome system, without a doubt, and so thought the those who lived at that time too. Thus, the Universal Postal Union, UPU, established in 1874. The main pillar of this association is what we call the Universal Postal Convention.
The Universal Postal Union was a set of rules that regulated postage prices, and one of the most important rules was the various national postal service does not distinguish between mail from inland and mail from abroad. As a final pillar was the rule that the postal service in each Member State would gain the postage that was paid to ship the overseas mail.
It was the end of letters filled with stamps from many countries. The stamp of the sending country was enough to get all the way to the recipient's mailbox.
In 1947 UPU became a specialized agency within the UN, and it's currently the second oldest organization within the United Nations, surpassed only by the International Telecommunication Union - ITU. To become a member here it is a requirement that the Universal Postal Convention is enacted.
In 1969 a central and important change was enacted, it introduced a so-called terminal fee, to be paid if one country mails more to a country other than what it self got in return.
This system makes it fairer for those countries that receive a lot of mail. Here in Norway we get considerably more more mail into the country, than what we send out, so this is an important factor we should return to later in this comment.
You can still send letters and mail in an easy way, anywhere in the world....
This subject is very interesting to me. If I understand correctly, if I mail you more than you send me (us being countries), I thus collect more money on stamping. We balance it by me paying you terminal dues (rated against my local costs). By lowering my shipping costs internally, I can also lower my terminal dues -- if it is within my control -- to you and thus also improve my exports.
This is potentially a double negative for you, 1. if you labor or other costs are higher, you lose more, 2. your carriers try to make up for it by increasing your outbound shipping costs, affecting your exports
Instead of doing real-cost rebalancing, the "fairness" balancing, is susceptible to be pulled down to zero and runs the risk of a disconnection with labor, energy and environnement costs. Further, this type of market mechanism favors a runaway dynamic ie. if a country ships a lot, it gets even better and better for them, as they develop economies of scale.
Sounds like whatever made the multi-stamp system too complicated before 1969 might now be feasible with technology, as it may have been the more market-true, and thus future-proof approach.
As you alluded, postal systems have a funny way of recovering the costs of these "free-shipping" packages from China/HK: by raising domestic rates, particularly on parcels.
Which only further incentivizes people to buy the item from China instead of domestically.
Thank you so much for that. I guess this is basically why I am able to order LED bulbs from China on eBay which are better quality and about 1/2 to 1/4th the cost of a locally purchased bulb, plus they come with free shipping.
I had no idea how they could possibly have shipped them to me, in just about 10 days time, when the cost of the bulb seemed lower than the cost of the shipping. So I guess this is another reason why USPS is bankrupt, because they are legally obligated to deliver the parcel, basically for free, after a few cents were paid in China to put a stamp on it. Amazing!
Well maybe for energy-intensive industries like aluminium. It's never going to be cheaper for things like electronics though - all the components are manufactured in China so why ship components to America and assemble them there when you can assemble in China for less and ship finished products?
I work in the consumer device space and from what I've seen, the flexibility of in-region supply chain for components and sub-assemblies would be very difficult to match outside of China. It allows for JIT manufacturing and incredibly quick divergences from POR during development when issues occur.
However for more durable goods I could definitely see a resurgence in US manufacturing with the right investments were made in extensive semi to full automation on the design/factory side. China factories are in a tough spot in the regard since employing more people is encouraged by the government, but automation eats away at the low end positions. See Foxconn's 1 Million+ employee count [1] and recently announced slowdown of automation take over [2].
There are health and environmental costs to fracking which are not being adequately addressed, and which are unsurprisingly ignored by this article. China was able to get a leg up through dirty coal and oil operations, but there are consequences to this. Some of their cities are today near uninhabitable, some are just unbearably smoggy. We definitely do not want to pat ourselves on the back for an economic boom that scars our country's land and water resources and affects the air water of countless individuals (citizens!). If we're going to build our economy on fracking, it should be heavily regulated. No entity should have the right to pump unknown chemicals into the ground with impunity and without oversight. And even with oversight--BP Horizon and every other avoidable oil disaster of the last 10 years.
I am honestly curious. I know for example that the US was very dirty in the early 1900s, but we had 100 million people. If China was dirty in the 2000s with 1.3 billion people, it stands to reason that China was more dirty, no?
Technology has helped curb the absurd pollution that was the product of older processes. We don't have data from industrialization in the US, because we didn't have the tools to measure precisely the pollution at that time. But based on verbal descriptions of the pollution, China today might be similar to the US when it was industrializing. Specifically, historians note the frequency of days where pollution is so bad you can't see across the street, which used to happen in the US regularly yet infrequently, which is the same narrative description you'd see in China today.
Your talking about the rape story? I have a weird feeling they are making sure this will never happen again? At this point, I'm not willing to write off the publication, but I do look at who's authoring the article--more than before.
> China was able to get a leg up through dirty coal and oil operations, but there are consequences to this. Some of their cities are today near uninhabitable, some are just unbearably smoggy.
There is some interesting reading regarding China's "green GDP" accounting project. Here is one recent account:
1. pick a relatively simple yet crude (or perhaps misguided) metric of progress - GDP
2. reward / punish regional leaders for their ability to maximise this metric
3. spend effort creating a more accurate metric of progress - "green GDP" - that accounts for the costs of pollution
4. trial the new metric and observe that the more accurate indication of progress reveals much less progress than the original metric - perhaps negative progress in some cases!
5. regional leaders are deeply resistant to introduction of the this new, more accurate metric, as it shows they have not actually being doing a great job
6. adoption of the new accurate metric fails for political reasons, as it is very unpopular!
You have to laugh, otherwise you might cry. The article above ends with a few positive notes, so there may be some positive change looming in future!
I personally think there is more potential for China to make dramatic, sweeping positive changes than certain other countries (e.g. Australia, where I live).
The shares of labor cost, energy cost and transportation cost are differing very much from industry to industry. Also, automate of the production of different products is differing very much. You can not compare for example car factoring with software development or food production.
Of course, you can argue that cheap energy gives an industry an advantage. But what happens here are things that are independent of each other. For example, labor costs in China have risen and it gets more difficult to find cheap and adequate workers.
Also you always should consider the consequences: Will the short-terim-advantage for some (!) industries really outweigh the long-term consequences?
The costs are definitely rising in China for English speaking technical labor such as the engineers we need. We compete with companies like Apple and all the other foreign companies rushing to China these days to keep them employed. But we are still talking much lower salaries overall, for example, $30,000 USD/year for a degreed Sr. Electrical design engineer with 20 years experience.
Regarding rents, the Shenzhen central business section rents are expensive now and cost/sqft comparable to anywhere else. However, good industrial space is still far cheaper, for example, I just leased an additional 12,000 sqft high quality assembly space with low ESD floors in a technical park along with 8 dorm rooms to sleep up to 32 people (4 per room - last owner had 8 per room). Lease on this new space cost me $3500 per month. There is also a kitchen ran by the tech park where they serve 3 hot buffet style meals per day for $2/day/worker. I'm not aware of anyplace in USA where you can lease a space like this for $0.29 per square foot nor get a buffet meal for $0.66 cents nor have door rooms for workers. Now, it is competitive to find this space and you need to lease when you find it not wait 1 day, it took us 4 months searching and we lost several spaces waiting 1-2 days, but it exists.
But ultimately what is far cheaper here in China and the main reason I must remain here to make money is for the lower cost of the materials required to actually build the products.
There is a critical mass of suppliers here where you can find half dozen capable suppliers for nearly anything you'd need to buy. For example we do a lot of custom molded plastic parts and many times I can make multiple cavity hard (300K shot life) injection mold tools for plastics for $3K-$5K USD and it would cost 5x or even 10x as much to buy them in USA. No less, bolts, nuts, screws, electronics all vastly cheaper here.
Lastly, as someone else noted, the cost of shipping is much cheaper when you originate your shipping quotes from a Chinese account, especially for air shipping to USA, rates originating from my China company's Fedex account is routinely 50% cheaper than what Fedex quotes in the USA. This really adds up when you need to ship stuff around the world quickly.
Certainly one thing the article failed to mention is the critical mass of suppliers in China that makes manufacturing much more efficient in China than in the USA. Not sure how the USA is going to address that, but I honk the first step is to bring at least some of the manufacturing back to the USA and lower energy cost certainly helps start that.
Parts maker. It's something people forget about. Britain for a time was the premier plane/jet developer and manufacturing center after WW2. Like the Comet. And that helped a lot of parts makers (like Rolls-Royce jet engine) for planes grow in UK. Even when UK lost the crown of biggest jet maker to Boeing, those parts makers in Britain are still around and thriving.
So it's more disturbing to me that you can't find such competitive/numerous parts makers in US.
Americans are more aggressive in strategy - which includes outsourcing. It also makes them more prone to being aggressively stupid and aggressively short-sighted.
The U.S. has a pretty big parts industry, but it varies a lot by sector. It's quite strong in heavy machinery, for example, where domestic suppliers have a majority marketshare in both the market for the machinery itself, and the parts used for building and maintaining said machinery (and the tooling for the machines that build those machines... etc.).
There are various ways to slice it, but if you take the broad sector of "machinery and equipment" as defined by the U.S. Department of Commerce, domestic suppliers have about a 60% share of the U.S. market overall: http://selectusa.commerce.gov/industry-snapshots/machinery-a...
Generally, most favorable terms my company gives are 30% down and balance before shipment from China. Of course everything is negotiable and if I really want to do a job then we'll accept more risk.
U.S. Manufactures have access to capital such that they extend net 30 terms. That impact on our working capital is tremendous and outweighs the percentage cost savings.
It's also much less risky to extend such terms to a customer in the same nation. It's harder for a Chinese factory to sue a recalcitrant customer in the US.
My Chinese supplier extends net 90. But only because I've paid upfront so many times. It's not different over there, but you're not getting net 30 if you're an unknown person.
Welcome to check up for a blog post in coming weeks at blog.asianops.com. We're also redoing the websites listed in my bio that will have tons more pics (live 4-6 weeks from now).
That was really cool, thanks for sharing that (also the music was awesome). Crazy how much custom machinery is there, like the circular railing for the Lego-like arms.
Really impressed with that factory! I am a part-time Horologist, and the gears in a mechanical watch always amazed me. I wondered how they were made in large quantities. I now know.
For years, I wanted to do business(small quantities at first) in China, but always chicken out when I start to think about the risk of fraud.
Do you know of any service that vets these factories, and is not subject to payoffs? I guess you need to travel there if a big order is on the table.
That site (pavlok) asks for my email and doesn't even say what the price of the product is supposed to be, nor any other details. They really expect people to donate their email address to don't-know-who for don't-know-what? I wonder how well that works.
I wondered the same thing. His linkedin page (in his profile) is pretty interesting. I'd like to hear his thoughts on some of the IP-theft topics being brought up elsewhere in the thread...
It sounds like this is how its supposed to happen. Now if the leftists would get this fixed pie ideology out of their ass we could move on to greater things like we've already done in the last 20 years.
> $30,000 USD/year for a degreed Sr. Electrical design engineer with 20 years experience.
Just to add a little context: in some EU countries (even EU-15, such as Portugal), people with similar qualifications are actually paid less than that.
It's already hard to compare salary/cost-of-life across cities, and definitely impossible between countries like China, US and EU (in the extended meaning of "country").
As a rule of thumb, when comparing a US salary with an European, I divide by 2 the number and I roughly get the equivalent in EUR and after taxes* (and considering cultural differences like the healthcare is already included in taxes, etc.)
So 30,000 USD/year would be something like 15000 EUR/year, which is extremely low even for a engineering graduate working in academia.
* With "after taxes" I mean the part of the salary that you don't even receive, not the income tax that you pay (or receive back) once a year.
in Poland, 30k USD would be considered extremely good salary for engineer (35k for software devs). With 30k USD gross income, you receive 22k net compensation (health care, retirement plan, included in tax ).
Thanks for the costs breakdown, I found it interesting. I'm in software, and in the North; there are definite similarities and differences.
For those reading this that are interested in software costs, here's a similar breakdown:
A Senior Developer (Java, C# being predominant technologies), with around 7-10 years' experience, or similar QA, good English language, makes around USD 25,000 per year. The market gets very thin at 10+ years, especially for English speakers in management, and ceilings at around USD 45,000 per year unless the person has had international placements. [At more junior levels, income is less, with starting salaries at around USD 6 - 8k per year.]
For those reading, this is gross salary (individual income tax at 15-30% for these salaries), but the company contributes around 40% in addition to this gross salary as social security benefit.
For a bigger city like Shanghai, add 30-40% to the above.
A software worker probably won't live in a dormitory. They'll have an apartment and mortgage, often close to their office complex (software parks are constructed as mixed commercial-residential developments over 20-30 square kilometers, with residential areas on the peripheral and offices / shopping mall in the center).
I'm surprised your rent is so low. Modern, international grade office buildings go for around USD 150 per square meter per year (or, around 2.5 Yuan per day). Bigger cities are a little more. On the outside of Shanghai it is around 3 Yuan per day for an office in a technology park in the outskirts of the city.
Local software parks also do food, but prices are more like $2.5 (15 Yuan) for a meal.
The next manufacturing frontier to cross is sub-Saharan Africa. We are starting to see signs of it happening. For example, I just bought myself some great shoes ( https://www.oliberte.com/men/ ).
Since it is the last large severely underdeveloped place with cheap, young capable labor and lots of natural resources, this might actually be manufacturing's final frontier.
Is there enough political stability though? Outsider investors want some degree of stability to invest in large manufacturing plants. I am not a scholar in sub-saharan Africa, but I am not yet of the opinion that it is a stable place to set up shop.
Ok, most or all that may be true, but it's quite immediately unrelated to the discussion, which is about the cost competitiveness of China compared to US manufacturing. And quite unrelated to the points of the person you're responding to.
please show me where US
* is ruled by a secretive group of old men
* produces pollution that threatens the entire world
* uses the great firewall to attack tech companies in other countries like github
* creates artificial military island near neighboring countries.
And every since Obama took over, our policies with human rights and dictators is much better
The US could fit most of your points, probably even better. The world is not "doomed". What does that even mean? China certainly has its issues, but this sort of irrational fear speaks to me of a subtle form of racism.
I agree with you that the world is nowhere near "doomed" or even heading in that direction. It's not fair to claim racism here, however. The poster did not mention anything about race.
the subject of race has to somehow be implied or involved for the comment/person to be racist. No one is claiming racists will just tell you its a race issue.
This has been predicted for a while. This has been said as early as 2010 and possibly even before that by about 2015 costs would equalize. In 2013 there was an article in The Economist on this:
"BCG used to argue that companies unwilling to send their manufacturing to lower-cost countries were putting their very future in jeopardy. Now it says that companies will bring manufacturing back to America from China. As soon as 2015, says Hal Sirkin, a consultant at the firm, it will cost about the same to manufacture goods for the American market in certain parts of America as in China in many industries, including computers and electronics, machinery, appliances, electrical equipment and furniture. That calculation takes into account a wide variety of direct costs, including labour, property and transport, as well as indirect ones such as supply-chain risk."
Also worth noting is that the US is often a bigger market for some goods.
But it's also worth noting that German and Japanese manufacturing has been more expensive that US manufacturing for decades and still in some areas Germany and Japan do very well.
It's interesting to see an article that puts fracking up as the key reason. Energy costs are not irrelevant but are also often not a big part of the cost.
I was going to mention this as well, thanks for finding the economist article. Manufacturing costs are more than just the price of parts, sending people to and from the factory several times, communicating requirements, Dealing with tariffs and customs. For smaller runs it is definitely getting competitive in the US, but so far the parts suppliers haven't yet picked up on this. I'm expecting a midwest town or two with good air/rail transport to figure this out and start a mini-manufacturing boomlet. Will be interesting to see.
Also quality issues. If you want the absolute best industrial part/tool/whatever on the market, often you go to a mid sized German company no one has heard of and get it there.
Strong apprenticeships and unions (meaning very high quality, loyal workers therefore low turnover) and an obsession with quality can all be important advantages in the competition with China:
My view is naturally biased (since I live in the area), but Reno/Sparks might very well be a potential site for such a mini-manufacturing boomlet. We've already got Tesla's Gigafactory coming in (albeit on the outskirts), and it sits on some pretty major rail and road routes (including I-80, which hits quite a few cities across the U.S.). Plus, taxes are low, which is generally a plus for a business.
This was discussed at the turn of the century when outsourcing was the wave of the future. Economists and manufacturing experts knew that in-house stuff would have a large place regardless of what occurred with massive offshore work.
We've seen it at my business. Chinese suppliers crush American ones on low-skilled goods but we pay top dollar for intermediaries and local stuff when we can. Scaling is the real key of Chinese manufacturing, though. Cost we can negotiate on and play around with, but speed and scaling? Chinese factories crush the Americans in my line of work.
But the US labor force is increasingly composed of African Americans (average IQ of 86) and Hispanics (90) [1], versus Chinese labor force consisting of Han Chinese (average IQ 106). Thus it still has no competitive advantage.
Edited to add one source, but there's a lot of literature on the subject, from Prof. Lynn to James Watson (Double helix discoverer), and William Shockley (transistor con-inventor): just look up the Wikipedia articles in them before these posts get whited out by the PC police here
Higher productivity equals lower wages. The busting of Unions, among a lot of other things, has kept wages stagnant at best over the past decade or so.
Unions are somewhat dependent on their members having skills, and cornering the market on that set of skills. If you can't keep the people that have the set of skills that you are unionizing around inside the union, then you can't expect much success.
The supply chain is the principle advantage. Go to Hauquiangbei and show me the equivalent in the US. Then try and get tools made. It will be half or a third of the cost. Get something laser cut/SLAd/vacuum molded etc and it just doesn't compare. There is a larger supply of suppliers hence more competitive prices. Just go on alibaba and order a sheet of aluminum and do the same from virtually anyone in the US. Energy is important but many of these materials and parts aren't originating from the US hence you are paying to ship all the parts, then assemble in the US and then ship to the customer. Instead the factories in China buy in mass from local suppliers and ship the end product once. The cost structure just ends up being superior. There are a lot of scraps also. Not shipping those as a result of shipping final products is huge as well.
As the tables in the article show, but the text does not, energy cost is a small fraction of manufacturing cost. It's only significant for certain kinds of heavy manufacturing; if you run a steel mill or aluminum smelter, it matters a lot. If you make smart watches, it's insignificant. Also, oil prices are worldwide, not local. (Natural gas is more local.)
Labor costs matter far more. As a rule of thumb, it takes a 4x labor cost advantage to justify outsourcing to China by a US company. (For a China company to sell into the US requires less of a labor cost differential.)
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[ 4.8 ms ] story [ 204 ms ] threadThe problem is more that the Chinese market is still highly fragmented and not easily searched without insiders on the ground. Alibaba is just scratching the surface on transparency in global supply chain, but once the market becomes legible, the local supply chain thing won't matter as much.
But I could assume that the welding is done in Shenzhen (maybe GP chips in where he sources welding at 3$/h?).
http://www.numbeo.com/cost-of-living/city_result.jsp?country...
That hourly rate wouldn't even covering rent of an 1-bedroom apt outside of centre.
* wedding gift
* "business" expense that you did out of your pocket (take your co-workers to lunch, buying gift for your clients)
* gifts (giving red envelopes during Chinese New Year, friend / elder birthday)
* rent
* personal saving
* family support (especially supporting your parents)
* medical expense (for a lot of people they have to pay before they can see a doctor)
Here is an article http://business.sohu.com/20131210/n391561808.shtml. Many people can only afford a tiny room today in the city and this depressing phenomenon is coined "蝸居" (snail house, about 10 square feet, and sometimes less, or sharing that tiny space with two or more people), and has been televised and documented multiple times (e.g. a TV drama called 蝸居 was made a couple years ago).
If you are a blue collar working at a city far away from your hometown, you have to go back to your hometown at least once a year (during new year break), and usually it is expected that you have to get a lot of gifts from the city for your family and your neighbors (to thank your neighbors for helping your family / keeping an eye on your family in your absence).
You can almost say the Chinese culture is all about showing gratitude with gifts, this is why e-commerce is such a big deal in China (also why foreign brands like Apple can make so much money in China ;-))
I am asking about these two specifically because they make the biggest difference between the "western" culture and the Chinese culture. The other items on your list also appear in the lives of the citizens of many European/European based countries.
Costs in the large Chinese cities (which includes Beijing, Shanghai and Shenzhen) has been steadily increasing over the past couple decades. It can still be seen as cheaper to live depending on what you compare it to (e.g. SF) but to give a point of reference, Shenzhen is on par with Berlin in terms of cost of living (http://www.expatistan.com/cost-of-living/comparison/shenzhen...). Shanghai is actually more expensive than Berlin too, Beijing is slightly cheaper.
I couldn't have comfortably lived in Shanghai back in 2005 with 3,000 RMB, and I'm extremely frugal (I don't drink, don't smoke, don't go out and my main hobbies include working out and reading).
You're not offering any constructive feedback while criticizing from your pedestal of inaction. I assume you used a throwaway because you didn't want to attribute that to your personal identity.
Billions of Chinese were lifted from poverty by American globalization, granted at the detriment of American jobs. However it forced American jobs to be more information focused. And if you're Chinese you should understand that. If you're American you can be proud you helped lift a country from the third world into the second.
edit: This is an honest question.
They are not actually communist; they are an authoritarian state controlling a capitalist economy. They started down that path in the late 1970s under Deng Xiaopeng.
Before that, the state did a very poor job caring for its citizens. Millions died of starvation, persecution, and other ills. Look up the Great Leap Forward and Cultural Revolution, two government programs, as examples.
After that, probably never in the history of humanity have so many in a time and place escaped poverty as those who have in China. However, the country is so large that there are still many that are very poor.
But back in real life, while $3/hr may not be a lot compared to what some folks make, it's $3/hr more than someone making $0/hr makes, and it's triple what someone making $1/hr makes, and indeed a full 50% raise for anyone making $2/hr.
If I could wave a wand and give everyone who currently makes 0, 1 or 2/hr the skill set and the opportunity to suddenly make $3/hr, I'd be happy to do it. And the billions of people (hundreds of millions maybe?) who suddenly got (in their terms) a huge raise would be pretty happy about it too.
It is true that we should care about conditions in factories such as these and work to improve them. It's also true that if you insisted that Chinese workers get paid what American workers would, there would have been almost no factories and the entire country would still be in desolate poverty. Yes if there were no factories then probably the environment would be in a better condition.
It's a very complex situation. Just picking one angle to it and insisting that angle holds the whole truth does not help anyone.
Unfortunately that wasn't represented in the rest of your comment.
That people have much of a choice in what is essentially an industrial revolution is quite far fetched, so is the notion that factory work is easier than farming. I'm also not sure what American salaries has do to with my comment at all. I'm purely stating that people should have some respect for what many Chinese are going through without all or nothing BS arguments.
China is much more dynamic than people are used to in the west. The have a much wider range of offerings. If you don't demand anything you're going to get the lowest one. To the disadvantage of yourself and the people doing the job.
Do leaders (political & economic) in non-western countries ever deserve any responsibility for their countries overall well-being?
It's an issue that China has been criticized for a very long time over.
http://www.nytimes.com/2013/06/12/world/asia/man-details-ris...
or even
http://www.wsj.com/articles/chinas-tech-factories-turn-to-st...
This isn't a "well suck it up because at least you're getting paid /something/" issue. Chinese workers can still be beneficial to their country and the world while making a decent wage and without being abused.
If it weren't for American capital, and the American consumer, China would have developed drastically slower (if at all). China's GDP per capita in 1994 was ~$480. That's ~45 years after the Mao revolution.
There was no alternative than to pay them cheap wages to start. If you paid them 'first world' wages, nobody would have set up manufacturing in China to begin with; those manufacturers would have kept that manufacturing domestically or sought out another cheaper source. The sole reason China boomed the last 20 years is that they had 250 million low-wage workers available and willing to do low-cost manufacturing.
If we're talking exploitation, the primary exploiters of cheap Chinese labor, are the 200 Chinese billionaires that have gotten rich off of leveraging their own impoverished workers - they own all the factories, the real estate, et al. China's wealth inequality puts every other country to shame.
There is a difference between being successful financially and being able to sleep well at night.
http://www.slate.com/articles/business/the_dismal_science/19...
(Yes, I'm Hellbanned.)
What is actually happening is good for them, and the majority of them will not side with you or even care how you sleep at night. There will always be casualties and exploitation of workers in China, but that's more due to corruption than it is to systematic underpayment of Chinese workers.
The Chinese factory workers are choosing from the options provided. From their perspective they've been given a better option. From a western first world perspective, people here can't seem to relate to how $3/hr could possibly be a better option, but it is. Over here we have the benefit of minimum wage, welfare, higher standard of living, etc. Unfortunately it is a very egocentric viewpoint to not think of this from the perspective of an actual factory worker.
American business is a significant reason China was so poor to start with. To understand China, I recommend reading what is meant by the 'century of humiliation'.
> There was no alternative than to pay them cheap wages to start.
They can pay less than American-level wages, and yet still pay a living wage and provide safe, reasonable working conditions.
> the primary exploiters of cheap Chinese labor, are the 200 Chinese billionaires
That someone else does wrong doesn't justify doing it yourself. Otherwise, everyone's standard is whatever the worst do.
I've always found that to be the absolute shittiest of rebuttals, given by those who have absolutely no point whatsoever. This person is not "giving" anyone a job; they are not being seeing a group of people and saying, "Hmmm, they look like they could use some work. I will create some and give it to them." No. This person needed some work done, and they were offering work. That's it. The person is not a "job creator"; those things don't exist.
"If you're American you can be proud you helped lift a country from the third world into the second."
And do we get to be proud of the complete and utter skull fucking the Chinese environment has taken as a result of that?
I had a bunch of money. I could have kept it locked in a box somewhere. Instead I decided to pay a bunch of people to help make something cool. Yes, that's a transaction, but for my part, I didn't have to engage in it. (In fact some days I kind of regret it, given all the garbage one has to put up with when running a company.) I could have kept the money locked in a box and felt happy that I feel rich. Or something.
No they don't. There are people who want work done, and people who provide that work. That's it. You're not "creating jobs" simply because you feel like you want to create jobs. You have decided that getting the work done will benefit you more than not having it done. That's it.
If "I have money, and I have a thing I am willing to exchange it for that requires someone else to do work" makes you a job creator, everyone who purchases anything in the economy is a job creator.
Business owners factor costs into their strategies. They/we don't just have a bunch of jobs, and then go looking for people to fill them. China's cheap labor force has made possible products that wouldn't exist otherwise.
Basically there are people there that need to make a living wage to pay for food, medicine, education, etc. The reality is without the $X/hr jobs they have no other options or worse options.
An external actor like you, me, or a business can sit around talking about how shit it is, or go in and offer something at least slightly better. You're basically trashing the people who decide to take any action at all (giving them a low paying job). If the action isn't taken, they go back to their worse option. From your perspective you are failing to empathize with the Chinese because you don't see their other crappier options or can't imagine that they could possibly have crappier options.
No, they were lifted from poverty by their own hard work.
This means more that cost of inputs (materials, transport of them, etc.) for hardware will go down in the US, while at the same time companies are getting more efficient per worker - reducing our exposure to foreign cheap labor.
Re: Welding - We're actually seeing a lot of advances in automated welding setup, etc. that will allow robots in the US to compete with Chinese welders.
Automation keeps getting cheaper and better, too.
Almost?
If I had a "technology" that was immediately discernible by any buyer (a plastic cup, a game board with an image printed on paper and glued to cardboard), I might make it in China, but for any non-obvious technology, I would assume that any money I saved on COST by making it in China, I would lose on PRICE when my manufacturer's brother-in-law started competing with me.
This is why many manufacturers use last-gen tech in their products within China.
Or plain old fashioned outright theft. I did business for a few years with a Chinese supplier, the contact was made from a (local Chinese) reliable friend of many years who did international business so had contacts. After two years of a pretty seamless business relationship, one day the supplier decided to simply disappear with the $45k deposit on an order.
I understand this is fairly common when making knockoff goods, too.
Absolutely. The factories I deal with OPENLY DISCLOSE what contracts they have (not price, but brands) with other companies in my line of business. This is unbelievable. I didn't even ask for this information - and never would want it, given the implications - but they VOLUNTEERED it as part of their sales pitch.
And what are those companies - many of them multimillion dollar entities - going to do about it? Switch factories? Certainly not file a lawsuit. It's crazy.
It is worth noting specifically, because the costs of China not being on board with protecting innovation means 1) they create a lot less of it (which is both their loss and ours) 2) the stuff you manufacture there has to be protected by the laws of physics, the software, and access etc, rather than a simple code of laws.
This cost is clearly not insurmountable - everyone manufactures in China. But they have to take precautions as they do so, instead of just relying on local law.
By the way I don't think this is in their interests, and I think they will move away from this model with time. There are no doubt great Chinese inventors and creators who need very little by way of protection before creating amazing things that are temporarily protected all over the world. It is almost just an ancillary benefit that they will also start to respect what others (i.e. the rest of the world) manufacture there.
Fact is many companies are now moving away from China, and are signing up new manufacturing sites in other Southern Asian countries such as Thailand and Vietnam for lower operational cost (note a lot of the U.S. companies give contract to oversea manufacturer, so it is these manufactures moving away from their own domestic sites - for example, Foxconn being a largely a Taiwanese company Foxconn manufactures outside of Taiwan).
I don't know how close operating in the US vs operating half of the business offshore is. This is like hiring consultant oversea for software development. The first burden is operational efficiency; it is painful to manage oversea when you want your "brain power" to be in the US. For example, project manager might have to get up early say 6-7 AM to do a stand up and then follow up at 9/10AM (because your business owner / product owner don't get up at 6 to talk about progress). If there are bugs that need to be resolved during US hour, you still have to pay the extra hours. You are wasting time going-back-and-forth because your offshore team will get off work when you want to fit a meeting in the afternoon.
While most Chinese workers do not form union (fear of repucation), workers do come out and protest from time to time (see Foxcoon strikes). Local laws also do not often favor US companies, and local laws can be a pain in the ass.
The only thing I can think of that will keep some companies manufacturing outside of the U.S. is that these companies simply do not have cash in the US. Imagine a company like Apple (Apple has like 90% of its cash outside of US) the only way they can spend that money is do stuff outside of US.
This is just my uneducated opinion, having little idea how business and economy works. I am all for moving closer to proximity. If you are selling in the U.S. it makes sense to manufacture her. This is why many manufacture sites are now built in Mexico (looking at car makers). Shipping cost have been reduced in the last two decades because now we have bigger ships, but still, there is a schedule that you need to maintain.
Another classic example where some part of "making" are likely done domestic (or a place where known for using advanced technology) is the classic X ThinkPad series. The agreement Lenovo have with IBM is that the main design is to remain in a Japanese lab AFAIK. I am sure Lenovo has way to do stuff in China and do stuff in Japan, and still claim stuff are done in Japan. But branding is a good motivation for keeping certain things local.
https://en.wikipedia.org/wiki/George_P._Mitchell
Having an educated labor force would keep US be competitive. Unfortunately that means getting higher and higher degree.
I'm not sure there is a simple answer to any of these problems.
"If you buy the cheap goods from abroad today, you can often get them shipped "free" around half the planet and to your home. It may be cheaper to order a remote control with batteries from China and throw the remote away, rather than going to the store and buying a pack of batteries.
That this may be a problem for local businesses is obvious, but the reason you can order extremely cheap goods from China is far more complicated than you think. Most countries in the world have actually joined forces in an international collaboration to allocate freight costs between themselves a partnership, where the importing countries eventually ended up holding the bag.
This agreement is called Universal Postal Convention, and it's important for many of us in everyday life. It is quite simple to regulate mail traffic between all the countries that have joined, not to mention how much it will cost to ship the item. The intention behind the agreement was good when it was introduced, but over a hundred years later, the social conditions changed and it helps to create distortion of competition across the world.
Universal Postal Convention was created in a completely different era than the one we are in now, namely around 1870 - at the time it was snail mail which reigned, e-mail was by no means invented and not even the largest visionary had thought of the idea of sending the mail electronically.
If we go back to the time of the Convention's birth it was not so easy to send a letter abroad. Each country had to enter into their own individual agreements with every country they wanted to send mail to. If you wanted to send mail to a country who didn't have a mail agreement with your own country, you would have a problem.
The solution could then be to send the letter via a third country, which had agreements in good standing with both the country you were sending from and the country you would send to.
To calculate the postage was no trivial matter either. Here you risked the postage getting split up in multiple parts, so that the first part covered the mail crossing the border. Then the poor postal workers had to sit with price lists from other countries to calculate the rest of the postage, after which they also had to stick on a stamp for the recipient country. Should the letter go through several countries on its journey, one can only imagine how cumbersome the system was.
One particularly cumbersome system, without a doubt, and so thought the those who lived at that time too. Thus, the Universal Postal Union, UPU, established in 1874. The main pillar of this association is what we call the Universal Postal Convention.
The Universal Postal Union was a set of rules that regulated postage prices, and one of the most important rules was the various national postal service does not distinguish between mail from inland and mail from abroad. As a final pillar was the rule that the postal service in each Member State would gain the postage that was paid to ship the overseas mail.
It was the end of letters filled with stamps from many countries. The stamp of the sending country was enough to get all the way to the recipient's mailbox.
In 1947 UPU became a specialized agency within the UN, and it's currently the second oldest organization within the United Nations, surpassed only by the International Telecommunication Union - ITU. To become a member here it is a requirement that the Universal Postal Convention is enacted. In 1969 a central and important change was enacted, it introduced a so-called terminal fee, to be paid if one country mails more to a country other than what it self got in return.
This system makes it fairer for those countries that receive a lot of mail. Here in Norway we get considerably more more mail into the country, than what we send out, so this is an important factor we should return to later in this comment.
You can still send letters and mail in an easy way, anywhere in the world....
This is potentially a double negative for you, 1. if you labor or other costs are higher, you lose more, 2. your carriers try to make up for it by increasing your outbound shipping costs, affecting your exports
Instead of doing real-cost rebalancing, the "fairness" balancing, is susceptible to be pulled down to zero and runs the risk of a disconnection with labor, energy and environnement costs. Further, this type of market mechanism favors a runaway dynamic ie. if a country ships a lot, it gets even better and better for them, as they develop economies of scale.
Sounds like whatever made the multi-stamp system too complicated before 1969 might now be feasible with technology, as it may have been the more market-true, and thus future-proof approach.
Which only further incentivizes people to buy the item from China instead of domestically.
I had no idea how they could possibly have shipped them to me, in just about 10 days time, when the cost of the bulb seemed lower than the cost of the shipping. So I guess this is another reason why USPS is bankrupt, because they are legally obligated to deliver the parcel, basically for free, after a few cents were paid in China to put a stamp on it. Amazing!
However for more durable goods I could definitely see a resurgence in US manufacturing with the right investments were made in extensive semi to full automation on the design/factory side. China factories are in a tough spot in the regard since employing more people is encouraged by the government, but automation eats away at the low end positions. See Foxconn's 1 Million+ employee count [1] and recently announced slowdown of automation take over [2].
[1] http://www.foxconn.com/Files/annual_rpt_e/2014_annual_rpt_e....
[2]http://www.computerworld.com/article/2941272/emerging-techno...
No different to anywhere else in the world, just that it happened more recently.
I am honestly curious. I know for example that the US was very dirty in the early 1900s, but we had 100 million people. If China was dirty in the 2000s with 1.3 billion people, it stands to reason that China was more dirty, no?
Postulating that this was a necessary step to industrialization might require some strong evidence.
I remember hearing about an 8-year old girl suffering from lung cancer. This is very sad
http://www.theguardian.com/environment/chinas-choice/2013/no...
Recently read a story in Rolling Stone on pollution in Vernal Utah from fracking.
http://www.rollingstone.com/culture/features/fracking-whats-...
Many high risk wells in the US are not being inspected. And the fracking industry doesn't want anyone to.
http://thinkprogress.org/climate/2014/06/23/3451919/high-ris...
There is some interesting reading regarding China's "green GDP" accounting project. Here is one recent account:
http://www.businessspectator.com.au/article/2015/4/9/china/c...
Here is my brief summary:
1. pick a relatively simple yet crude (or perhaps misguided) metric of progress - GDP
2. reward / punish regional leaders for their ability to maximise this metric
3. spend effort creating a more accurate metric of progress - "green GDP" - that accounts for the costs of pollution
4. trial the new metric and observe that the more accurate indication of progress reveals much less progress than the original metric - perhaps negative progress in some cases!
5. regional leaders are deeply resistant to introduction of the this new, more accurate metric, as it shows they have not actually being doing a great job
6. adoption of the new accurate metric fails for political reasons, as it is very unpopular!
You have to laugh, otherwise you might cry. The article above ends with a few positive notes, so there may be some positive change looming in future!
I personally think there is more potential for China to make dramatic, sweeping positive changes than certain other countries (e.g. Australia, where I live).
The shares of labor cost, energy cost and transportation cost are differing very much from industry to industry. Also, automate of the production of different products is differing very much. You can not compare for example car factoring with software development or food production.
Of course, you can argue that cheap energy gives an industry an advantage. But what happens here are things that are independent of each other. For example, labor costs in China have risen and it gets more difficult to find cheap and adequate workers.
Also you always should consider the consequences: Will the short-terim-advantage for some (!) industries really outweigh the long-term consequences?
The costs are definitely rising in China for English speaking technical labor such as the engineers we need. We compete with companies like Apple and all the other foreign companies rushing to China these days to keep them employed. But we are still talking much lower salaries overall, for example, $30,000 USD/year for a degreed Sr. Electrical design engineer with 20 years experience.
Regarding rents, the Shenzhen central business section rents are expensive now and cost/sqft comparable to anywhere else. However, good industrial space is still far cheaper, for example, I just leased an additional 12,000 sqft high quality assembly space with low ESD floors in a technical park along with 8 dorm rooms to sleep up to 32 people (4 per room - last owner had 8 per room). Lease on this new space cost me $3500 per month. There is also a kitchen ran by the tech park where they serve 3 hot buffet style meals per day for $2/day/worker. I'm not aware of anyplace in USA where you can lease a space like this for $0.29 per square foot nor get a buffet meal for $0.66 cents nor have door rooms for workers. Now, it is competitive to find this space and you need to lease when you find it not wait 1 day, it took us 4 months searching and we lost several spaces waiting 1-2 days, but it exists.
But ultimately what is far cheaper here in China and the main reason I must remain here to make money is for the lower cost of the materials required to actually build the products.
There is a critical mass of suppliers here where you can find half dozen capable suppliers for nearly anything you'd need to buy. For example we do a lot of custom molded plastic parts and many times I can make multiple cavity hard (300K shot life) injection mold tools for plastics for $3K-$5K USD and it would cost 5x or even 10x as much to buy them in USA. No less, bolts, nuts, screws, electronics all vastly cheaper here.
Lastly, as someone else noted, the cost of shipping is much cheaper when you originate your shipping quotes from a Chinese account, especially for air shipping to USA, rates originating from my China company's Fedex account is routinely 50% cheaper than what Fedex quotes in the USA. This really adds up when you need to ship stuff around the world quickly.
http://gizmodo.com/5878209/why-apple-doesnt-make-the-iphone-...
So it's more disturbing to me that you can't find such competitive/numerous parts makers in US.
But hey, profits.
There are various ways to slice it, but if you take the broad sector of "machinery and equipment" as defined by the U.S. Department of Commerce, domestic suppliers have about a 60% share of the U.S. market overall: http://selectusa.commerce.gov/industry-snapshots/machinery-a...
http://www.youtube.com/watch?v=S0_blmix2IU
Edit: Guess I got banned, stay ignorant HN.
For years, I wanted to do business(small quantities at first) in China, but always chicken out when I start to think about the risk of fraud.
Do you know of any service that vets these factories, and is not subject to payoffs? I guess you need to travel there if a big order is on the table.
That said, we are currently A/B testing the buy button on the front page, so 50% of people see the buy button right now.
Also, you can see the full shopping cart page at http://buy.pavlok.com
https://en.wikipedia.org/wiki/Quitters,_Inc.
- https://www.linkedin.com/in/bjordan1
- http://www.bomquote.com
Just to add a little context: in some EU countries (even EU-15, such as Portugal), people with similar qualifications are actually paid less than that.
As a rule of thumb, when comparing a US salary with an European, I divide by 2 the number and I roughly get the equivalent in EUR and after taxes* (and considering cultural differences like the healthcare is already included in taxes, etc.) So 30,000 USD/year would be something like 15000 EUR/year, which is extremely low even for a engineering graduate working in academia.
* With "after taxes" I mean the part of the salary that you don't even receive, not the income tax that you pay (or receive back) once a year.
For those reading this that are interested in software costs, here's a similar breakdown:
A Senior Developer (Java, C# being predominant technologies), with around 7-10 years' experience, or similar QA, good English language, makes around USD 25,000 per year. The market gets very thin at 10+ years, especially for English speakers in management, and ceilings at around USD 45,000 per year unless the person has had international placements. [At more junior levels, income is less, with starting salaries at around USD 6 - 8k per year.]
For those reading, this is gross salary (individual income tax at 15-30% for these salaries), but the company contributes around 40% in addition to this gross salary as social security benefit.
For a bigger city like Shanghai, add 30-40% to the above.
A software worker probably won't live in a dormitory. They'll have an apartment and mortgage, often close to their office complex (software parks are constructed as mixed commercial-residential developments over 20-30 square kilometers, with residential areas on the peripheral and offices / shopping mall in the center).
I'm surprised your rent is so low. Modern, international grade office buildings go for around USD 150 per square meter per year (or, around 2.5 Yuan per day). Bigger cities are a little more. On the outside of Shanghai it is around 3 Yuan per day for an office in a technology park in the outskirts of the city.
Local software parks also do food, but prices are more like $2.5 (15 Yuan) for a meal.
Since it is the last large severely underdeveloped place with cheap, young capable labor and lots of natural resources, this might actually be manufacturing's final frontier.
* is ruled by a secretive group of old men [1]
* produces pollution that threatens the entire world [2]
* uses the great firewall to attack tech companies in other countries like github [3]
* ignores human rights and free speech [4]
* creates artificial military island near neighboring countries [5]
* supports dictators in Russia and Africa [6]
* and prints up to 282% of GDP [7] in order to buy their way into other countries real estate and companies.
If China gets anymore powerful, the world is doomed. We need to curb commerce with China.
[1] http://www.bbc.co.uk/news/world-asia-pacific-13904443
[2] http://www.japantimes.co.jp/news/2013/02/08/reference/chines...
[3] https://citizenlab.org/2015/04/chinas-great-cannon/
[4] http://www.theguardian.com/news/2014/dec/04/-sp-case-against...
[5] http://www.usnews.com/news/world/articles/2015/06/26/philipp...
[6] http://thediplomat.com/2014/03/china-backs-russia-on-ukraine...
[7] http://www.washingtonpost.com/blogs/wonkblog/wp/2015/02/11/c...
Besides, it's the only country that has ever used nuclear weapons on civilians.
All super powers are threatening.
And every since Obama took over, our policies with human rights and dictators is much better
* The US didn't sign the Kyoto Protocol
* Three letters: NSA
* OK, you win on this one
If you're an American, let me ask you this, how are you making this country better?
If you're not an American, let me ask you this, would you prefer a representative democratic superpower or a communist/oligarch superpower?
Also Looking at your comment history...it seems like you hate China a lot
* produces pollution that threatens the entire world
http://www.economist.com/news/special-report/21569570-growin...
Here is a key quote from the article:
"BCG used to argue that companies unwilling to send their manufacturing to lower-cost countries were putting their very future in jeopardy. Now it says that companies will bring manufacturing back to America from China. As soon as 2015, says Hal Sirkin, a consultant at the firm, it will cost about the same to manufacture goods for the American market in certain parts of America as in China in many industries, including computers and electronics, machinery, appliances, electrical equipment and furniture. That calculation takes into account a wide variety of direct costs, including labour, property and transport, as well as indirect ones such as supply-chain risk."
Also worth noting is that the US is often a bigger market for some goods.
But it's also worth noting that German and Japanese manufacturing has been more expensive that US manufacturing for decades and still in some areas Germany and Japan do very well.
It's interesting to see an article that puts fracking up as the key reason. Energy costs are not irrelevant but are also often not a big part of the cost.
Strong apprenticeships and unions (meaning very high quality, loyal workers therefore low turnover) and an obsession with quality can all be important advantages in the competition with China:
http://www.economist.com/news/business/21606834-many-countri...
We've seen it at my business. Chinese suppliers crush American ones on low-skilled goods but we pay top dollar for intermediaries and local stuff when we can. Scaling is the real key of Chinese manufacturing, though. Cost we can negotiate on and play around with, but speed and scaling? Chinese factories crush the Americans in my line of work.
1.http://www.rlynn.co.uk/
Because I'm calling bullshit on those figures, IQ tests are notoriously unreliable across cultural and societal boundaries.
Hell even across economic boundaries within the same society.
That's irrelevant. What matters is what they _are_ reliable for.
Labor costs matter far more. As a rule of thumb, it takes a 4x labor cost advantage to justify outsourcing to China by a US company. (For a China company to sell into the US requires less of a labor cost differential.)