Business / Economy

US investors choosing to stay in China

By Wei Tian (China Daily) Updated: 2012-12-03 10:28

There is no indication of reshoring — manufacturers returning to the United States — said a senior executive with international consultancy company Ernst & Young.

"Foreign investment in China shows no sign of retreating," said Albert Ng, chairman of the company's China operations.

With the re-election of US President Barack Obama and signs, fiscal cliff notwithstanding, of economic recovery, there had been concerns that many manufacturers might return to the US.

But China-based manufacturers still have advantages over the US, and the country has trained a large number of skilled workers since opening-up three decades ago, Ng told China Daily.

Although China has vowed to raise its national income, "the increase in the minimum wage is a gateway to higher productivity. Made in China products will still be competitive on the global market," he said.

A company report in September showed that average labor costs in China have nearly doubled in the past five years and will continue to rise, but Ng said this would not be the determining factor for investors.

In the past, foreign companies invested in China mainly to produce at lower cost and supply global demand and while this is still true many companies now eye China as the prime market rather than the factory, he said.

According to the Ministry of Commerce, China approved about 20,000 new foreign-funded companies in the first 10 months of this year, 10.5 percent less than the same period last year.

Foreign direct investment was also down 3.45 percent year-on-year to $91.7 billion.

Global FDI declined 8.1 percent year-on-year to $668 billion in the first half of this year, according to the United Nations Conference on Trade and Development.

However, US company investment in China went up 5.3 percent to $2.7 billion in the first 10 months.

Shen Danyang, ministry spokesman, said investment growth from the US has been evident for several months, and China's FDI will continue to rise.

Ng said although the Obama administration has suggested that the US will target manufacturing, he wasn't optimistic about the outcome of such campaign slogans.

One of the reasons was the medical reform bill that is going to be effective in Jan 2014, which, according to Ng, will push up the average labor cost in the US by 3 to 4 percent and further damage competitiveness.

A survey by management consultants Accenture showed about 60 percent of managers have considered moving factories back to the US, while another report by Boston Consulting Group showed that such a relocation will help create two to three million jobs over the next 5 years.

"A lot of countries would like to create more jobs, but it's not the government's choice whether companies would like to move home or go anywhere else," Ng said.

"US companies will only go home when the cost is lower ... but if something that cost $100 to make in the US can be made for $60 in China, you are left with no choice."

In addition, he said, the US government, which currently faces a "fiscal cliff", is not likely to come up with too many incentives to lure investors.

China still lags behind the premier markets and high-end services, such as IT and financial analysis, where the US and Europe has a larger talent base, Ng said.

Although Ng admitted that there might be some industrial transfers to Southeast Asian countries, where labor costs are even lower, he said there is no need to worry about the trend because it is in line with China moving up the global value chain.

China should welcome development of its neighbors, because it also helps China lower its production costs.

"Lower costs are not the only reason for companies to move their factory to another country, other factors such as political stability, infrastructure and transportation will also be considered," he said.

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