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    Trump’s tax cuts may help lure manufacturers to move from ‘world’s workshop’ to the US

    Trump’s tax cuts may help lure manufacturers

    However, many hi-tech manufacturers, supported by China’s well-established electronics supply chain, are unlikely to be tempted

    Donald Trump’s plan to slash corporate taxes may be a magnet for many Chinese manufacturers, who have been labouring under a combination of rising tax and wage burdens at home, according to a recruiter who helped bring thousands of jobs from China to the United States.

    “If Trump lowers the business tax rate from 35 to 15 per cent as he promised, it’s almost beyond question that more Chinese manufacturers will consider coming to America,” John Ling, the man responsible for attracting hundreds of millions of dollars of Chinese manufacturing investments into South Carolina over the past decade, told the South China Morning Post.

    The 47-year-old Chongqing native, who previously ran South Carolina’s representative office in Shanghai, has persuaded leading Chinese manufacturers like Haier to build factories in the southern industrial heartland, thousands of miles away on the East Coast.

    That has translated into nearly US$800 million of planned investments and created more than 2,200 jobs — roughly 1 per cent of the total manufacturing labour force across the entire state.

    Among the biggest Chinese investors in South Carolina are Geely-owned Volvo Car Group, which aims to pour US$500 million into a new vehicle plant, and Jushi, the world’s largest fibre glass manufacturer, which has started construction of a US$300 million factory.

    Although such Chinese greenfield investments are still at modest levels across the US, Ling believes it will build up at a faster pace with the help of a smaller tax burden and other business-friendly policies of the Trump administration.

    “Trump’s tax cut will definitely attract a lot of global capital, not only from developed countries but also from emerging economies, even like China,” Xu Shanda, the former deputy director of the State Administration of Taxation, said at a forum last year.

    Back in the early 2000s, it was almost impossible to convince Chinese businesses to relocate their manufacturing operations in what was perceived as an expensive US manufacturing market, Ling said.

    [mk_blockquote style=”quote-style” font_family=”none” text_size=”12″ align=”left”]

    It’s a stretch [for Foxconn]. There is no supply chain [there], from glass and semiconductors to equipment and manufacturing technology
    Alberto Moel, senior analyst, Bernstein Research


    “They would then ask: are you kidding me?” he said.

    Things changed dramatically with China’s rise as an economic superpower, which saw wages, land prices and corporate taxes soaring in “The World’s Workshop”.

    Ling said the turning point came in 2009 and 2010, when Beijing’s US$587 billion economic stimulus programme ignited an investment boom, and encouraged more companies to set up overseas ventures to bolster their exports.

    In 2009, the head of yarn-making giant Keer told Ling: “Our company will be doomed if we don’t make a move to go elsewhere.”

    Located in Hangzhou, Keer had to more than quadruple its monthly wages over seven years to 5,000 yuan (HK$5,636) in 2015, up from 1,200 yuan in 2009.

    Keer opened its first US manufacturing facility on 165 acres of land in South Carolina in 2015. The firm plans to have a workforce of 500 over time as part of its US$218 million investment, with new production lines set to begin operations in the coming years.

    “For chemical, plastic and yarn companies that consume a lot of energy but hire relatively a smaller number of people, it makes sense for them to move to the US to save costs,”Ling said.

    It is a different scenario, however, for hi-tech manufacturing concerns in the information and communications technology industry.

    For decades, those manufacturers have become highly dependent on the vast pool of components suppliers and specialised workers available in and around specific cities along China’s coastal provinces.

    It’s a stretch [for Foxconn]. There is no supply chain [there], from glass and semiconductors to equipment and manufacturing technology
    Alberto Moel, senior analyst, Bernstein Research

    Shenzhen, for example, has developed a cluster of about 2,000 electronics components and device manufacturers, more than 1,000 makers of electrical parts and equipment and a labour force of around 9 million, according to a report by McKinsey Global Institute, the business and economics research arm of management consulting firm McKinsey and Company.

    Alberto Moel, a senior analyst at Bernstein Research, said there would be plenty of hurdles for hi-tech manufacturers from the mainland, such as Taiwan’s Hon Hai Precision Industry, to shift their production to the US.

    Hon Hai, the world’s largest contract electronics manufacturer that is widely known by its Foxconn trade name, has considered building a display fabrication plant in the US.

    “It’s a stretch [for Foxconn],” Moel said. “There is no supply chain [there], from glass and semiconductors to equipment and manufacturing technology.

    “Labour costs are higher and there is a more stringent regulatory environment.”

    Foxconn group founder and chairman Terry Gou Tai-ming has estimated an investment of more than US$7 billion would be needed to build a US display plant that could create up to 50,000 jobs.

    Moel pointed out that “the economics [for such a plant] doesn’t work, unless somebody in the US like the federal government, which ultimately means the taxpayers, ends up footing enough of the bill”.

    “To make the economics work in the US, the plant would likely require high levels of automation and not require 50,000 workers. It would also take years for this initiative to make a difference since construction of such a greenfield factory is a multi-year process.”

    With a strengthening yuan, China’s labour costs are only four per cent cheaper than those in the US when America’s escalating productivity is factored in, according to Oxford Economics.

    Trump has pledged to get US factories humming again with favourable policies, a promise represented by the slogan “buy American and hire American”.

    The current US federal corporate tax rate is 35 per cent, rising to about 40 per cent when state taxes and other fees are included.