Source: Securities Times (in Chinese)
“By building facilities in the U.S. or Europe, some Chinese enterprises put markets and consumers as their priority, with cost coming second.” Song Zhanyou, secretary of president of Shandong Weida machinery, told the reporter of Securities Times. Shandong Weida has long been planning to build a U.S.-based facility, for their clients are mostly from the U.S and East Europe.
Haier and Hisense, both Chinese pace setters of home appliance industry, give us their explanation, which agree with Song’s. Haier points out that, with its broad overseas expansion, overseas facilities practically cut supply-chain cost, speed up logistics, and reduce cash conversion cycle, which help it achieve strong global competitiveness.
Mr. Zhao from a U.S. business consultant company tells our reporter that, an increased number of Chinese enterprises turn to him in recent years to consult issues regarding building U.S.-based facilities. He says, “Building facilities in the U.S. is increasingly becoming an option of Chinese enterprises, as costs in the U.S. is not as high as before.”
Apart from raw material, costs span labor, tax, logistics, bank loan, energy, etc., with no hidden costs.
“Tax rate differs from state to state in the U.S. States with high unemployment rates usually impose lower tax. Enterprises with high profit usually face higher tax.” Zhao says that, some states do not levy corporate income tax, such as South Dakota and Nevada. High corporate income taxes come from states such as New York, Louisiana, and the top state rate registers 35%. As to social security tax, enterprises and individuals each contribute 7.7%, which is 15% together.
Logistics do not cost high. “Interstate highways of the U.S. do not charge fees. Only private roads do, at a quite low price.” Zhao points out that, by comparison, transportation cost in China is relatively high, with fees double charged by both mile and load.
And the labor cost stays within expectations of Chinese enterprises. Zhao says that, the labor cost in the U.S. is approximately 4 times to 6 times the cost in China. But in regions with high unemployment rate and low payment, it’s not difficult to recruit workers.
“The labor cost will be about 4 times the cost in China, if Chinese enterprises’ contribution in job creation earns them subsidies from local government.” Zhao says. With such high labor cost, facilities are obliged to go smartization and use robots. This could drive Chinese enterprises to update their manufacturing process.
Building U.S.-based facilities becomes a new trend
More and more Chinese enterprises are underway to build facilities in the U.S. Zhao gave us his analysis on factors behind this trend. He says, a U.S-based facility could act as a high-tech model facility and an employee training base for domestic enterprises, since cutting-edge technologies could be more accessible in the U.S.
Back in 1999, Haier built its first industrial park in the U.S. which put in production in 2000. For Haier, its U.S.-based facilities play a big part in boosting its export. Haier-made wine coolers almost dominate the U.S. market. This achievement could not be made without the great synergy between its U.S. facilities and domestic base.
An interviewee from Hisense tells us that, “We are planning to build a facility in the U.S. mainly to stay close to the market, and in this way, we could further reduce our R&D cycle and supply cycle to maintain our competitiveness.”
Currently, Chinese enterprises with U.S. facilities are mostly auto parts & accessories makers. They intend to meet the market demand of the U.S., the largest auto producer in the world.
Other listed enterprises, such as Lenovo, expand their presence in the U.S. through acquisitions or investments.