According to a 2013 research report by the Boston Consulting Group, the average cost of manufacturing goods in the United States was only 5% higher than in China. In 2015, manufacturing in low-cost regions in the United States has become as cost-effective as manufacturing in China. Even more shocking is that by 2018, the cost of manufacturing in the United States will be 2-3% cheaper than in China.
A real case - cost comparison between Chinese and American manufacturing industries
The following is a cost comparison analysis given by a Zhejiang boss who is familiar with Chinese and American manufacturing industries.
Cixi Jiangnan Chemical Fiber Co., Ltd., Zhejiang Province was established in 2000. It was the first enterprise among its peers to explore overseas markets and has always ranked among the top two exporters among its domestic peers. Currently, the company covers an area of 79,000 square meters, has 500 employees, 5 automated production lines, and an annual output of 100,000 tons.
Last year, "Jiangnan Chemical Fiber" invested and set up a factory in South Carolina, becoming the first Chinese company to establish a recycled polyester short fiber manufacturing plant in the United States. It planned to invest US$25 million in the first phase and US$20 million in the second phase. "Jiangnan Chemical Fiber" reported that the main reason for investing and setting up factories in the United States is that domestic comprehensive costs have been rising year after year, which makes it quite difficult. "Jiangnan Chemical Fiber" calculated and compared the costs of starting a company of the same scale in China and the United States, and provided a comparison table of some cost components.
Why have China’s manufacturing costs become so high?
Land cost: China is 9 times that of the United States
Domestic land prices are 9 times that of the United States, and the United States has permanent property rights, while ours has 50-year property rights. For example, in 2000, the price of industrial land in Cixi City, Zhejiang Province was 180,000 yuan/acre. The current land price in the United States is only 20,000 U.S. dollars/acre, equivalent to 20,000 yuan/acre. If the current industrial land price in many counties is 1 million yuan/acre, it is 50 times that in the United States.
Logistics costs: China is twice as high as the United States
Domestic logistics costs are twice as high as those in the United States. Take oil prices as an example. Oil prices in China are twice as high as in the United States. High oil prices mean high logistics costs. What's more, China also has tolls and bridge tolls that are rare in the world. Can logistics costs not be high?
The logistics cost in the United States mainly consists of three parts, one is inventory cost, the other is transportation cost, and the third is management cost. Comparing the changes in the past 20 years, we can see that the proportion of transportation costs in GDP has remained roughly unchanged, and the main reason for the decline in the proportion of total logistics costs in the United States is the reduction in inventory costs.
Bank borrowing costs: China is 2.4 times that of the United States
The cheapest domestic borrowing cost has an annual interest rate of 6%, which is 2.4 times that of the United States, which is 2.5%. Calculate the financial cost of the company's working capital based on RMB 7,000 per ton or US$1,100 per ton, 4-month turnover, domestic borrowing cost annual interest rate of 6% and US cost annual interest rate of 2.5%: domestically it is 7,000 yuan * 4 * 0.06/12 = 140 yuan, equivalent to 22.58 US dollars. In the United States, it is US$1,100*4*0.025/12=9 US dollars, which is 1.5 times higher in China than in the United States.
This is still a normal bank loan. If the funds come from bank financial products with an annual interest rate of more than 10%, private equity funds with an annual interest rate of 15%, or even private loan sharks with an annual interest rate of 20%, the enterprise will be overwhelmed.
Electricity and natural gas costs: China is more than twice that of the United States
Domestic energy costs are more than twice that of the United States. In the United States, except for Hawaii, where electricity prices are extremely expensive (which cannot be helped in island areas), electricity prices in other states are not expensive. Taking Texas as an example, the electricity price is only 2 cents equivalent to RMB.
Due to my country’s direct pricing of electricity and natural gas, the prices of electricity, gas and oil for enterprises remain high. Based on the domestic electricity consumption of 450 kilowatt hours per ton and the electricity price of 0.76 yuan/kilowatt hour, the unit production cost is 342 yuan, equivalent to 55.16 US dollars. The degree of automation of equipment in the United States is relatively high, and the unit electricity consumption increases by 10%, to 500 kilowatt hours per ton. Calculated based on the electricity price of 0.05 US dollars per kilowatt hour, the unit production cost is 25 US dollars, which is 1.2 times higher in China than in the United States.
Steam cost: China is 1.1 times that of the United States
There is also the steam part. Domestic steam from thermal power plants consumes 1.6 tons of steam per ton and the unit price is 190 yuan/ton. The unit production cost is 304 yuan, equivalent to 49.0 US dollars. The United States uses natural gas boilers to make steam. Calculated based on the natural gas price of 0.48 US dollars/therm and the unit price of 14.52 US dollars/ton, the unit production cost is 23.23 US dollars, which is 1.1 times higher in China than in the United States.
The cost of accessories: China is 3.2 times that of the United States
The cost of domestic accessories is 3.2 times that of the United States. Domestic equipment performance is slightly worse and workers have poor operating habits. The cost of unit parts per ton is about 100 yuan, equivalent to $16.13. However, the American production line equipment has better performance and workers have good operating habits. The cost of unit parts per ton is $5, which is 3.2 times higher in China than in the United States.
Tax costs: The United States has strong tax incentives
In China, various taxes continue to weigh on companies. A logistics company in Guangzhou transported a batch of goods to Hainan. The total income was 19,000 yuan, but the profit was only 216 yuan, of which 1,260 yuan was needed to pay taxes.
The most important thing for state governments in the United States is employment, and they often provide preferential tax policies to companies. For example, real estate tax incentives are valid for 30 years. If the company reaches production, it will grant a tax exemption of US$30 million within 30 years.
Customs clearance costs: The United States does not need to pay import and export customs clearance costs
There is no need to pay import and export customs clearance costs when investing in and setting up factories in the United States. Domestic enterprises all import raw materials. Assuming that the cost of the imported products does not include inland freight, tariffs, value-added tax, and only various handling costs, it is about 3,500 yuan/container. If each container is loaded with 20 tons, it will be 175 yuan/ton, equivalent to US$22.58/ton.
For the export of finished products by domestic enterprises, assuming that the export cost does not include land freight, only the cost of various procedures is about 1,600 yuan/container, and each container is packed with 20 tons, which is 80 yuan/ton, equivalent to 12.9 US dollars/ton. If freight, etc. are added, the cost will increase significantly.
Labor costs: China’s cost advantage is weakening
Although the labor cost in the United States is 2.57 times that of the domestic labor cost, the United States has a high degree of automation and uses less labor. Two domestic production lines with a total monthly output of 4,500 tons employ 250 people. With improved equipment in the United States, the two production lines with the same production capacity only employ 180 people.
According to the current rising trend of domestic workers’ wages, if we consider that domestic wages will double again in 5 years and quadruple in 10 years, China will not have any advantage in labor costs.
Depreciation cost in the United States: 1.7 times that in China
Depreciation cost in the United States is 1.7 times that in China. With the same production capacity, equipment and land factory buildings, the domestic production line investment is 90 million yuan, the US production line investment is 25 million US dollars, and the depreciation cost per ton is calculated based on 15 years of depreciation and an annual output of 50,000 tons: domestic 90 million/15 years/50,000 tons/year=120 yuan/ton, equivalent to 19.35 US dollars/ton. In the United States, the price is US$25 million/15 years/50,000 tons/year=33 US dollars/ton, which is 1.7 times higher than that in China.
Factory construction cost: The United States is 4 times that of China
The construction cost of factory buildings in the United States is four times that of domestic ones, but the price of second-hand factories that are more than ten years old is 1/8-1/2 of new factories based on their age, and their performance is generally good.
This is the situation facing the manufacturing industry. I think the core of the economy is the manufacturing industry, which is an important production sector. The service industry is all based on the manufacturing industry. If there is a problem in the manufacturing industry, the entire economy will fall into a huge whirlpool. If the engine breaks down, whether it is an 8-speed gearbox or an air suspension chassis, everything will become a decoration. The so-called game of assets and capital has become water without a source and castles in the air. If you lie to yourself, you won't be able to lie for a few days. Therefore, no matter what, Chinese manufacturing companies must think about transformation.
ANNA