Where is the real cost gap between Chinese and American manufacturing?

August 29, 2020

Abstract Over the weekend, private entrepreneur and chairman of Fuyao Glass, Cao Dewang, announced in an interview that he plans to invest $1 billion in the US to build a factory. The reason is that in addition to the existing cost of labor in the domestic manufacturing industry, other companies set up factories in the United States. The advantage is no longer obvious. At the same time, Chinese companies...
Last weekend, private entrepreneur and chairman of Fuyao Glass, Cao Dewang, announced in an interview that he plans to invest $1 billion in the US to build a factory. The reason is that in addition to the labor cost advantages of domestic manufacturing, other companies set up factories in the United States. The advantage is no longer obvious. At the same time, Chinese entrepreneurs investing in the United States to set up factories also coincided with the policies of the previous US government's "return of manufacturing industry."
In fact, Chinese entrepreneurs have long been the trend to set up factories in the United States. Many entrepreneurs said that the cost issue is an important factor in their choice to invest overseas, but it is not the only factor. Other important factors are: First, in order to reduce supply chain costs. For example, Haier said that going abroad to set up a factory can improve the logistics speed of Haier products in the world, which can effectively shorten the capital turnover cycle and improve Haier's manufacturing competitiveness in the world.
Second, in order to better close to the US market. For example, Hisense said: To build a factory in the United States, mainly to stay close to the market, this can shorten the development cycle, supply cycle, and ensure the competitiveness of products in the market. Third, if an enterprise goes to the United States to set up a factory, it can use the advanced technology of others to use it for me. We can use the world's most advanced science and technology to build a high-tech model factory for domestic manufacturing, and also an internship base for Chinese employees in the United States.
Of course, there are listed companies that arrange the United States through the acquisition of US companies or assets, such as Lenovo, Jerry shares, Oriental Ocean, New Wave Energy and so on. There are even media reports that Chinese entrepreneurs have established fish processing plants along the Mississippi River in the United States to take local materials and do deep processing of freshwater fish to solve the problem of Chinese squid flooding.
Although the reasons for Chinese entrepreneurs to go out to set up factories are varied, this has solved the local employment problem to a certain extent, promoted the prosperity and development of the local economy, and received positive response and recognition from overseas governments. So now the question is coming, why is the traditional advantage of China's manufacturing industry gradually lost? Is the cost advantage of manufacturing in China and manufacturing in the US really left out? The author believes that the advantages of China's manufacturing industry are no longer obvious, but the disadvantages are gradually emerging.
First, there is no hidden cost in the US factory, but there are various hidden costs in setting up factories in China. It is necessary not only to have good relations with relevant local industry associations, but also to obtain support from local governments. The hidden costs are not mentioned. Yu. In the United States, in addition to raw materials, the cost mainly includes: labor, taxation, logistics, bank loans, energy, etc., without hidden costs. According to experts from the US Business Consulting Corporation, the above information is public and can be found on the Internet because the United States wants to attract the return of manufacturing.
Second, in terms of taxation, the local government of the United States has a relatively large power. The tax rate policy varies from place to place. Where the unemployment rate is high, the tax rate is low, and the US tax rate is based on the profitability of the company. The higher the profit, The higher the tax rate. There are even states that do not have corporate income taxes, such as South Dakota and Nevada, and even in states with higher corporate income taxes, such as New York and Louisiana, the tax rate is 35%. Generally speaking, entrepreneurs can choose to have a lighter tax to set up a factory.
So, is there a multiplicity of taxation in China's manufacturing industry? The 2015 Social Responsibility Report released by Gree Electric shows that in 2015, the company paid a total of 14.816 billion yuan of taxes, the total revenue of the year was 100.564 billion yuan, the net profit was 12.532 billion yuan, and the tax accounted for 14.7% of Gree's operating income. This is equivalent to 1.18 times the net profit.
Li Dongsheng, chairman of TCL, said at the two national conferences this year that under the background of the global economic slowdown and insufficient market growth, the average profit rate of China's manufacturing industry has been less than 2%. Industrial construction, education surcharges and other manufacturing surcharges account for nearly 0.5% of sales revenue, accounting for about a quarter of the average profit. This puts pressure on manufacturing companies with lower profits.
Third, in terms of labor, the gap between China and the United States is gradually narrowing. The labor costs in the United States are generally about 4-6 times that of China. In some parts of the United States, the unemployment rate is very high. In areas with high unemployment rates, wages are not high, and it is easier to recruit workers. The average monthly salary in many areas of the United States is about $2,000-3,000, which is 5-6 times that of China.
Located in El Centro, southern California, this is the highest unemployment rate in the United States, close to 20% unemployment. It is very easy to recruit workers in this place. The middle income is 3,000 dollars per month, and the low income is about 2,000 dollars per month. In order to attract foreign entrepreneurs to build factories to promote employment in the region, the local government will also have a large number of tax subsidies, so the cheapest place in the US manufacturing industry is about four times that of China's manufacturing industry.
Fourth, the logistics costs of China and the United States vary greatly. Since the expressway network is built by various levels of government in the United States, there is almost no charge for US highways, and only some private roads are charged, but they are also very cheap. The cost of China's expressways is staggering. China's transportation costs are relatively high, and tolls are doubled for mileage and load.
Fifth, the energy price gap between China and the United States is also large. US natural gas is equivalent to 7 cents per cubic meter, and China sells 2 blocks 2, which is still under the premise of government preferential treatment. Electricity price, the United States about 3 cents, China more than 6 hair. US crude oil prices are about 30% lower than Chinese crude oil.
It now appears that the biggest advantage of China's manufacturing costs is labor costs, but this gap is gradually narrowing. It is precisely because China’s proud population, resources and other dividends have gradually faded away, while the disadvantages in other fields (such as taxation, logistics, energy, hidden costs, etc.) have gradually become prominent, which has led to the attraction of setting up factories in the Mainland. It is not as good as it used to be. Therefore, we must start from improving the ecological environment of manufacturing, reduce the operating costs of manufacturing, and let entrepreneurs see the inherent potential of China to set up factories, and China's manufacturing industry can gradually emerge.

Ultrasound (US) and chlorine dioxide (ClO(2)) were combined sequentially in an aim to improve Wastewater Disinfection. Results demonstrated that the combined effect of US and ClO(2) on Escherichia coli (E. coli) and total coliform (TC) inactivation in raw wastewater was synergistic involving high removal of bacteria from the solution. A sequential combination of US (150 or 300 W/L) and ClO(2) (2 mg/L) provided about 3.2-3.5 log reduction in the number E. coli and TC in raw wastewater, while the sum of log reductions by the individual treatments were 1.4-1.9. However, the measured inactivation rate with the combination of ultrasound and ClO(2) in synthetic wastewater or secondary effluent was the same as the sum of the log inactivations with individual treatments. The enhancement attained by combined US and ClO(2) disinfection methods was attributed to the presence of high concentration of particles in raw wastewater and their break up under shock sound waves.

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