Chinese textile companies expanding their production lines into the US

Chinese companies’ direct investment into the US has gone up by 144 percent in the first five months through May 2014 from a year earlier, hitting $2.03 billion, while the total amount dropped 10.2 percent year-on-year, according to the Ministry of Commerce.

With China’s labor costs spiking by 10 to 15 percent annually, an increasing number of Chinese companies see less financial benefit in staying in their home market. Numbers of Chinese labor-intensive textile companies are expanding their production lines into the US where not only costs are believed to be lower but local governments are issuing policies to restore manufacturing industry.

Also low energy costs as well as the establishment of high-tech plants in the US will help them level the playing field.

Due to these reasons, Zhejiang textile manufacturer Keer Group in last December bought space in South Carolina, planning to build a 150,000-square-meter plant in five years with investment of $218 million.

Keer will also see reduced spending, estimating that its US plant can save 750 million yuan ($120 million) every year due to cheaper cotton in the US.

According to a report issued in April by US-based Boston Consulting Group (BCG) states that many emerging markets that are known for low costs are not cheaper than the US any more. China’s manufacturing-cost advantage over the US has shrunk to less than 5 percent.

The US has lost almost 7.5 million industrial jobs since the employment in the sector reached the highest point in 1979, as the country’s manufacturers moved production out to low-cost countries and regions.

Given rising unemployment rates and a depressed economy, US President Barack Obama emphasized in a State of the Union address in February 2013 that the manufacturing sector is a key solution and announced it would build three manufacturing innovation bases. State governments are devoting full efforts to attracting overseas investment.

Regardless of the costs, Chinese manufacturers also find policies offered by local governments for boosting the manufacturing sector and increasing employment opportunities appealing.

But not all Chinese manufacturers can receive such a warm welcome and favorable policies. State-backed companies or those in sectors like energy resources and telecommunication equipment will face strict scrutiny from the US government.

Even though some Chinese companies have successfully set foot on US land, they still seem to face difficulties in the ensuing integration. In fac, some companies may find it is expensive to produce goods in the US.

Another block is the high barriers to employment visas for Chinese. At an administrative committee meeting of the China Cotton Textile Association held in Qingdao, East China’s Shandong Province, in March, delegates with Keer Group said that it is not easy to send technicians and management staff to the US, as the US government only allows companies to hire Chinese workers for jobs that cannot be completed by US people.

Other items such as lubricant and taxes in the state are either cheaper or nearly the same as in China.