Sentiment about manufacturing in China has plummeted to a new low. “Confidence has been shaken,” according to a study conducted by the American Chamber of Commerce in Shanghai (AmCham). Almost twice as many U.S. companies cut their investment in China in 2022 (19 percent) vs. 2021 (10 percent).
The report concluded that the impact of China Covid-related shutdowns, travel restrictions and supply chain disruptions, amid strained U.S./China relations and macroeconomic pressures, eroded business certitude, leading to lower investment. As investment drops further, Chinese growth will slow, making it a less attractive market.
A 2022 U.S.-China Business Council (USCBC) poll of member companies found that 21 percent of respondents said they were “pessimistic or somewhat pessimistic about their five-year business outlook” in China compared with 9 percent in 2021. Respondents of another AmCham study said that their headquarters’ confidence in China’s economic management worsened over the last year (52 percent). Only 18 percent of companies ranked China as their top choice for global investment plans, down from 27 percent in 2021. And, 56 percent reported that China’s government policy shows favoritism to local companies, up 5 percent vs. 2021 and the highest level since 2017.
Rethinking supply chains
Tech behemoth Apple Inc., is pushing contractors to manufacture elsewhere, citing factory violence and turmoil from Covid lockdowns and increased monetary, social, political, duty/tariff and reputation risk. Bloomberg reports Apple is expected to buy U.S.-made microchips, reshoring about one-third of its future processors, according to a Computerworld article.
Misha Govshteyn, CEO of Houston-based contract manufacturer MacroFab, told Chief Executive, “Things have changed pretty dramatically post-pandemic. China used to be the default for manufacturing electronics, but the answer now is, anywhere but China.”
France-based Schneider Electric, a manufacturer of energy management and automation equipment, has chosen El Paso, Texas, for a new manufacturing plant to boost domestic manufacturing capacity. “The supply chain challenges of the past year have demonstrated the importance of increasing our domestic manufacturing capacity as quickly as possible,” said Annette Clayton, CEO and president, Schneider Electric North America.
Wauconda, Ill.-based Domeny Tool & Stamping is doubling production of a specialty steel stamping used in auto brake cylinders. Domeny’s Tier one auto supplier customer is reshoring some of its worldwide sourcing due to supply chain snarls. “For the first time in 25 years, we’re in a period of growth,” Steve Smith, executive vice president, told Crain’s Chicago Business.
China is the source of 44 percent of reshoring, cumulative 2010 to 2021. In 2021, the private and federal push for domestic supply of essential goods propelled reshoring and foreign direct investment (FDI) job announcements to a record 261,000, bringing the total jobs announced since 2010 to more than 1.3 million.
To date, more than 40 new semiconductor ecosystem projects and $200 billion in private investment have been spurred on by the CHIPS and Science Act of 2022, reducing dependence on critical technologies from China.
“Made in America” policies have spurred investment in the domestic manufacture of electric vehicles (EVs), batteries and EV chargers. As of this writing, companies have invested nearly $85 billion.
Manufacturing in the United States makes good business sense. Scott Keogh, former president of Volkswagen of America told NPR, “It’ll be a dramatic, dramatic, dramatic help having the supply chain localized, having the car here and, frankly, just having enough production slots.”
Support for reshoring is driven by an increased recognition of the total cost of offshoring and rising concern over U.S. dependency on China. The savings on non-manufacturing costs as a result of producing in the market in which the products will be sold can often overcome a 15 to 20 percent manufacturing cost gap caused by a 70 percent wage gap.
Using the Total Cost of Ownership Estimator instead of manufacturing cost or free on board (FOB) price when companies make siting and sourcing decisions is the best way to recognize these savings. For help, contact Harry Moser at harry.moser@reshorenow.org.
