Most Americans think U.S. manufacturing is a lost cause. And a lot of the blame for that is put on China. But Pin Li, President of the Wanxiang America Corporation, has other ideas. His Chicago-based subsidiary of the Chinese manufacturing firm is busy snapping up flailing American manufacturers to turn them into profitable ventures that sell their American-made wares back into China. I caught up with Pin in New York to talk about what his business means for U.S. jobs and the U.S. economy.
What misperceptions are there about the strength of U.S. manufacturing?
Manufacturing has been struggling. But the idea that U.S. manufacturing cannot survive is incorrect. Just because you have the flu doesn’t mean you die. You just need medicine. The question is can you generate enough value to compete on a global basis? There are a lot of places in U.S. manufacturing that still have value. The engineering know-how behind the labor is not replaceable in today’s low-cost countries.
What’s an example?
Many years ago we got into a U.S. company that was basically bankrupt and ready to lock the doors. Its products had 70% market share in the U.S. but had been losing money. Why? We found they were making everything from A to Z with no economy of scale. You can’t be a grinding shop, an assembly shop, and an engineering shop. So we moved some jobs to India, China, other parts of the U.S. where these operations were more effective because they added to the existing volume of production. We looked at what could be done on a global platform. We grew the business for more high-paid skilled labor, and caught up unfunded pensions to 100%.
The Chinese government is facing a lot of pressure to increase Chinese wages. What happens when the era of low wage Chinese labor comes to an end?
Labor cost is an issue in China and will be for next 10 to 20 years. That will shrink the gap on cost-benefit of investing there. With currency appreciation, converting Chinese profit to U.S. profit puts your business in the negative right away. But if the benefit of low-cost labor disappears, we can still look to technology and bring technology resources in the U.S. back to China. For our company, the return on investment is better in the U.S. than in China.
Why is that?
When we’re in China we are competing with everybody. In the U.S. we become the only one who can compete. It’s not about labor costs. It’s about the Chinese market. When we take over here and we dial back into the sales system in china, we have American technology and Chinese sales. We have all the good connections, which is the value others don’t have.
Shouldn’t it concern U.S. companies that you’re transferring U.S. innovation to China?
It’s always a partnership, which means give and take. Having the technology is useless if you don’t have the market. The issue for most U.S. companies is if you take my technology and then turn around and compete with me.
Will the increase in Chinese wages send any jobs back to the U.S.?
Some but not a significant amount. The U.S.’s jobs problem structural. It’s not about labor cost. China’s labor costs will have negative impact on the U.S. because of inflation. Instead of paying a dollar for gloves, the U.S. will start paying $2. Certain jobs for high skills will come back. The U.S. can’t buy cheaper than what China makes. We won’t have any other choice but to buy from China at a higher price. And our U.S. operations will have to deal with that.
How important is a faster appreciation of Chinese currency to U.S. job creation?
Currency could help but it also could hurt. Structural issues are more fundamental for the U.S. and China. This is more of a political question than any economist can even measure. Politically we have to pretend it’s an issue. But the reality is that jobs from China won’t come to the U.S. They’ll go to Mexico, Korea, and Indonesia. And that means the imports that came from China will now cost more. And that won’t solve the deficit issue. Getting U.S. access to Chinese markets is way more important.
What advantages does the U.S. manufacturing worker have over the Chinese worker?
Skill set, engineering capability, and quality consciousness. There are a lot of advantages. But it’s not just a nation-to-nation issue. It’s the nature of the economy. Even in China, on the east coast, the labor costs can be three times more than in inland China. But companies operate on the east coast, because you don’t want to make a lot of parts somewhere else and find out they’re not good quality.