In a recent interview with the media, Cao Dewang, chairman of Fuyao Group, the largest automotive glass supplier in China, said he is setting up a factory in the United States with a total investment of $1 billion, citing concerns over high taxes and rising costs back in China.
Cao’s plan has caused heated debate over whether China still enjoys manufacturing cost advantages over the US.
A 2015 report published by the Boston Consulting Group comparing manufacturing costs between China and the US found that China’s advantage over the US declined from 14 percent in 2004 to 4 percent in 2014. It also cited increased salaries, the yuan’s upward exchange rate against the US dollar and rising energy prices as three major factors putting increasing cost pressures on China’s manufacturing sector.
Undoubtedly, as the head of a leading manufacturing company, Cao’s complaints about the rising costs such enterprises now face in China should attract attention from decision-makers. In the context of China’s demographic dividend gradually fading, ever-growing manufacturing costs have become a major concern amid the country’s economic transformation and upgrading.
The measures drummed up by US president-elect Donald Trump to prompt US manufacturing operations to return to the US territory and the rise of manufacturing in Asian countries such as Vietnam, Indonesia and India have further exacerbated concerns over the prospects for China’s manufacturing sector, which is facing fiercer international competition with the tangible disappearance of its demographic dividend.
The rise in China’s labor costs, a reflection of Chinese people sharing the fruits of their country’s fast-growing economy, should be encouraged. In the meantime, the authorities should address the high energy costs and heavy tax burden that seriously hinder the global competitiveness of the Chinese manufacturing sector.