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People's Daily Online>>China Business

'Reshoring' firms head for home

By Ariel Tung (China Daily)

14:15, January 11, 2012

Workers finish a shift at a factory in Ningbo in East China's Zhejiang province. Chinese labor costs, particularly in the eastern coastal regions, are rising. (China Daily/Zhang Heping)

Rising incomes and higher cost of production prompt moves by foreign firms

NEW YORK - Almost three years ago, Peerless Industries Inc, a United States-based maker of audio-visual mounting solutions, made an unusual decision - it pulled its production out of China to build a new plant in the US. The company predicted that its production costs in China would eventually outweigh those in the US.

Peerless did not have to wait long to discover if it had made the right call. The company has confirmed that the decision was correct. Michael A. Campagna, president and chief operating officer of Peerless, said that the company is now more competitive in terms of costs.

"The labor costs in China are rising, even more so now than when we left. We quoted some new projects this year to double-check costing in China and we discovered that they have gone up since we left," said Campagna.

According to a recent study conducted by Boston Consulting Group (BCG), rising wages, shipping costs and land prices in China - combined with a strengthening yuan and a weaker dollar - are narrowing the cost gap between China and the US for many goods produced for US consumers.

As a result, a trend of US companies moving production from China to the US has begun in recent years. Besides Peerless, the BCG study also cites Ford Motor Co, The Coleman Co, NCR Corp and Outdoor Greatroom Co as having moved their production bases. These days, it may be more economical for US manufacturers to stay at home, especially when their products serve the US consumer, said Harold L. Sirkin, one of the authors of the study and a senior partner and managing director at BCG's Chicago office.

"Because Chinese labor costs are rising very rapidly, US companies should examine their options. They understand that a manufacturing plant will last for 20 years, so they should look down the road five years from now," said Sirkin.

China's cost advantage over the US will erode by 2015, according to Sirkin.

"Labor costs in China rise by around 15 to 20 percent a year. If that continues, it may change the equation. Also think about what will happen to the yuan. It appreciates about 4 percent per year. If this continues, it will appreciate 20 percent in five years," he added.

The US manufacturing sector has been on an upswing, according to the Washington-based National Association of Manufacturers (NAM). Chad Moutray, NAM's chief economist, said this trend in "reshoring" - the term used to describe overseas companies moving their production back to their country of origin - has been going on longer than previously noted. Moutray said that it is "very natural" for US manufacturers to now consider production in their home country.

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