Cao Dewang’s recent decision to move part of his operations to the United States has some asking whether the days of China as a manufacturing haven are over even as he became a billionaire by making glass for the world’s top carmakers.
The U.S. was a cheaper and better place to make glass because taxes were much lower than in China, Fuyao Glass chairman Cao, 70, was quoted as saying in The Beijing News on Monday. And as U.S. president-elect Donald Trump is trying to lure firms back to the U.S. under his “Make America Great Again” slogan, his comments come as some companies are reconsidering their presence in China.
Meanwhile, running a factory has been made harder in China as the Chinese government is levying higher taxes and increasing social welfare payment obligations on companies.
“I just told the truth and spoke out about the problems,” Cao said, explaining his decision to invest US$1 billion in the U.S., including taking over a former General Motors plant in Dayton, Ohio.
In China, value-added tax had become the biggest burden for companies and compared to their counterparts in the U.S., manufacturing businesses in the mainland paid about 35 per cent more in taxes, he said.
Ironically, saying it translated into a 500 billion yuan (HK$558 billion) reduction in burdens on businesses, the central government has tried to portray its VAT reform as a tax-cutting move.
But according to Cao, profits in manufacturing have been made “very thin” by the high taxation rates.
Cao said that the U.S. remained an attractive place to invest even though wages for a factory employee in the U.S. were about eight times higher than for those in China.
“I just want to remind the government and businessmen and let everybody be aware of the risks, telling them to be careful” of the country’s weakening cost advantages, he said.
He said that while small and medium-sized enterprises had moved plants to countries such as Vietnam and Cambodia, where materials and labor were cheaper, many good firms had relocated to Europe and the U.S.
There are signs of manufacturing losing momentum already. Compared to an investment growth rate of 20 per cent by the state sector, capital spending from the private sector rose just 3.1 per cent in the first 11 months from a year earlier.
Observers have said that many private businesses have been forced to move abroad by as the nation’s US$10 trillion economy is becoming increasingly subject to the whims of state enterprises and state intervention.
Chinese companies had to face rising costs in labor, environmental protection and even costs in dealing with bureaucracy, said Niu Li, a researcher at the State Information Centre, a think tank affiliated with the National Development and Reform Commission.
“It is fair to say, apart from the direct labor cost advantages, Chinese enterprises have heavier operational costs than their peers in the U.S.,” Niu said.
Competitiveness had become a greater concern than tax rates and rising land prices had also pushed up manufacturing costs in China, said Zhao Yang, chief China economist at Nomura.
“Advances in technology and market competition are needed to move China up the industrial chain and improve its manufacturing advantages,” he said.
(Adapted from CNBC)