China still dominates in world manufacturing

"When a country is losing billions of dollars on trade . . . trade wars are good, and easy to win." So tweeted former president Trump in 2018, not long before he levied tariffs on over $500 billion worth of Chinese imports ranging from toys and bicycles to steel and electrical components, with the hope of bringing manufacturing jobs back to America.

How have things fared for the US? Not so well.

Not only have manufacturing jobs not returned, but China's dominance as the world's manufacturer actually gained strength during the Trump administration. While the rest of the world was under a COVID-19 lockdown, Chinese factories were pumping out PPE and other vitally needed medical equipment.

So much for easy "trade war" wins.

Sure, Trump's tariffs and tough talk forced some companies to do a reset on their China business, but as I witnessed firsthand, companies remained steadfast in their conviction that China is the greatest place to make stuff. Why? For one, you can't beat China's labor force, efficiencies, logistics, experience and government support. But that's only half the story.

For me, the real advantage is China's multitude of factories and their close proximity to each other and to their customers that puts China head and shoulders above the rest of the world.

Proximity manufacturing

Just about all my consulting clients in China have facilities within a 100-mile radius of their suppliers. This is by design. Like Japan, with their Kanban system of "lean manufacturing" that was developed in the 1940s, China's system of top-down central planning has allowed it to establish concentrated communities of manufacturers.

Take lighting, for instance. Most lighting experts consider the South China city of Zhongshan the lighting capital of world. It is home to thousands of factories that make fixtures, chandeliers, light bulbs, ballasts and the components that go into these products. In the mid-2000s, when I brought some lamp designs to a small, highly recommended lighting manufacturer in Zhongshan, I thought the factory looked run-down, outdated, and undermatched for my lamp. To my surprise, within two days I received finished prototypes complete with lamps, electronics, and even packaging. Amazing, considering American manufacturers quoted me six weeks for samples.

There are dozens of other cities like Zhongshan. Wenzhou, a city along China's eastern coast, supplies the world's cigarette lighters and sunglasses. Every month, hundreds of thousands of foreigners flock to Yiwu in eastern China, where thousands of factories showcase commodity wares like key chains, coffee cups and gift items.

UBCO Ltd, a New Zealand company that exports electric bicycles from its manufacturing partner in Kunshan, faced many hurdles—EU anti-dumping duties, Trump tariffs, COVID-19 shutdowns—and considered moving its operations. They eventually reconsidered.

"We would be too far away from our suppliers and finding new ones would be unrealistic. Just imagine the time required to do all that? Impossible," explained UBCO's former executive vice-president Vanessa Ho.

Kunshan, about an hour's drive east of Shanghai, is considered a major manufacturing hub for the electric bike industry. "I'm pretty sure the electric bicycle industry was born in Kunshan," said Ho. "Anytime I'm introduced to a new supplier, it's in Kunshan. Not a coincidence."

Leon Chiu, president of Pioneer Materials Inc, a supplier of advanced materials used in semiconductor chips and solar cells, chose Chengdu as his company's headquarters mainly for its close proximity to the natural resources it uses in production.

"We're close to the miners and processors who produce the many elements we need like germanium and arsenic. Our whole supply chain lies within a day's drive from us."

Pioneer Materials also hires engineers and consulting professors from two nearby universities that specialize in materials science. On top of that, Chiu adds, "China dominates the solar industry so most of our customers are here, and that's a big advantage for us. We wouldn't have Chinese customers if we weren't in China."

Proximity to customers

As Chiu alluded to, companies are also staying put in China simply because their customers demand it. As the saying goes, "The customer is always right," and when the customer is primarily Chinese, the customer wants their suppliers in China.

I've assisted foreign companies making auto parts, electrical components and shipbuilding equipment to move to China, and their No 1 request was to be stationed next door to their customers. Costs, labor and logistics all took a backseat to having a more personal and direct relationship with their biggest clients.

Kingston Technology, the world's largest computer memory manufacturer, considered locating its new manufacturing facilities in South Korea, Malaysia and India before settling on China. Kingston's CEO, John Tu, estimates that 30 percent to 40 percent of their business comes from the Greater China region.

"And it's growing like gangbusters," says Tu. "Other countries presented better cost benefits, but we had to do what is best for our customers. And our biggest customers, the big computer OEMs [original equipment manufacturers] are all in China. They want us close by."

The World Bank has projected a whopping 7.9 percent growth rate for China this year, taking the country back to pre-pandemic growth scenarios. Much of this growth will be spurred on by Beijing's investment in infrastructure, which means a lot of construction over the next few years. Just take a look at Shanghai's skyline. I've never seen so many cranes. And there's the constant noise of bulldozers and jackhammers pounding the streets day and night.

Those construction sounds are music to Ronald Ball's ears. The just-retired CEO of Ontario-based Escalator Handrail Company, a supplier of subcomponents like handrails and elevator belts to the vertical transportation business, moved the company's manufacturing operations to China at the behest of its customers.

"It would be virtually impossible for us to move back to Canada," explained Ball. "Our whole ecosystem is in China, our many suppliers, customers, market and future. Just look around China at all the new airports, transit systems and skyscrapers."

Too much momentum

My consulting clients in the automotive, high-tech and mining industries share Ball's sentiments. They tell me that there's simply been too much invested in China for too long to pull out now. China's manufacturing ecosystem was established over 30 years ago, and it's not something that can simply be replaced overnight. Nor will a few tariffs or political tough talk change the momentum.

Add together the double-digit GDP growth expected this year, a middle class growing annually by the tens of millions, and the COVID-19-related international travel restrictions compelling companies to stay even closer to their suppliers and customers, and it's pretty clear that China's manufacturing dominance is here to stay for a long time.

Chao is the author of Selling to China: A Guide for Small and Medium-Sized Businesses, and managing director of All In Consulting, which assists companies in their China business.

The opinions expressed here are those of the writer and do not necessarily represent the views of China Daily and China Daily website.