1. Many U.S. companies that outsource manufacturing to China have feared that China’s ongoing move from a “developing”
to a “developed” country would result in a less favorable manufacturing environment. This spurns the question, “Is it time
to move manufacturing out of China?”
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Why Manufacturing in China May Still be Your Best Outsourcing Option
Keith Giddens, Partner | DHG China Resources
China’s economic rise has been one of the great dramas
over the last few decades. Since Deng Xiaoping inaugurated
a series of sweeping reforms in 1979, China’s share of
global GDP has risen from two percent to more than 16
percent.1
This incredible rise was largely built on the backs of
foreign inbound investment into China – much of it from the
United States. Ask any U.S. company that outsourced their
manufacturing operations to China in the early years and you
will undoubtedly hear enough horror stories to fill a novel.
Most of them stayed in China, however, and over time the
majority of U.S. Fortune 2000 companies followed suit.
In this article, we will examine three key reasons why China
remains a viable option for U.S. investment over other Asian
countries:
Cost
We’ve all heard about the increased cost of doing business
in China, particularly in regards to labor, as the average
manufacturing wages have more than tripled since 2006.2
However, minimum wages are now stabilizing, fuel costs
have decreased, and other price hikes are being offset by
the devaluation of China’s currency, the RMB. Additionally,
commodities have fallen significantly within the last 12
months—some by more than 40 percent.3
Lastly, automation
and increased technology are now being used to offset the
labor component of manufactured goods. A culmination of
these factors is showcased in the “Producer Price Index”
(PPI), a broad indicator of the cost of producing goods before
any profit is attached. Based on a report released by China’s
National Bureau of Statistics, the country’s PPI fell in January
for the 46th consecutive month.4
As a result, manufacturing
in China is actually getting cheaper for U.S. companies by as
much as 20 percent year-over-year in certain industries.
April 2016
Improved Professional
& Ethical Practices
Evolution of
Quality & Perception
Cost

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2Assurance | Tax | Advisory | dhgllp.com
Improved Professional and Ethical Practices
While western businessmen may continue to get frustrated
when dealing with their Chinese counterparts, we should
consider the strides that have been made. First of all, the
number of English speakers in China has increased drastically
in recent years. This will be compounded in the near future
as the number of Chinese students in U.S. universities has
increased fivefold since the 2004-2005 academic year.5
Second, China’s anti-corruption campaign, launched by
current President Xi Jinping in 2012, resulted in more than
43,000 government officials being investigated in 2015
alone.6
While the results of the anti-corruption campaign
have been alarming, they are driving a level playing field for
foreign and domestic businesses.
Thirdly, China’s legal system has evolved significantly over the
past 20 years. Admittedly, the country still operates in a “form
over substance” world with mounds of paper and “chops,”
the Chinese equivalent of an “original signature.” However,
processes such as company registration, prosecution
and trademark infringement have become more efficient,
formalized and transparent. China’s professional progression
is resulting in a more favorable business environment for U.S.
companies.
Evolution of Quality and Perception
It wasn’t that long ago that it seemed everything was “made
in Korea” or “made in Taiwan.” Initially, it was China’s cost
that began the gradual change to products being “made in
China.” However, the evolution of skilled labor, infrastructure
and the domestic market have catapulted the tangible
product industry to nearly exclusively using China.
Over the last few decades, China has built the largest
vocational education system in the world with more than
15,000 vocational institutes.7
This new generation of skilled
labor will be a welcomed relief to the thousands of U.S.
businesses that outsource their manufacturing. Additionally,
China now has some of the world’s most modern infrastructure
and the central government has committed to continued
heavy spending by recently approving more than 1,000 new
projects totaling $300 billion+8
in value.
Finally, and perhaps one of the most significant elements
of encouraging U.S. operations in China, is the growth of
the local market. With affluence comes disposable wealth,
which has spurned demand for foreign products among
China’s middle class. Although on opposite spectrums, the
improved U.S. perception of “made in China” goods, the fact
that China’s middle class is now larger than America’s,9
plus
the reliable infrastructure for timely deliveries puts China in a
class by itself compared with other Asian countries.
Chinese Students
studying in the U.S.5
Anti-corruption
campaign led to a
level playing field
Improved legal environment
62,523
2004-05
304,040
2014-15

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3Assurance | Tax | Advisory | dhgllp.com
Not much, if anything, can occur on a global stage without
significant involvement from either the U.S. or China. Despite
the political animosity that exists between the U.S. and
China, the two countries are economical juggernauts that
have become nearly co-dependent. The history that yielded
this co-dependency has enabled China to become the de
facto manufacturing workshop of the world. Let me be clear:
China is far from perfect. However, when considering all
areas, China will likely remain a global manufacturing hub
for years to come. Costs are not what they once were, but
increased quality and professionalism make China a worthy
investment venture.
Learn more about DHG China Resources. Or, for more
information, contact your trusted DHG advisor or Keith
Giddens.
Keith Giddens
Partner, DHG China Resources
704.452.8026
keith.giddens@dhgllp.com
1. http://foreignpolicy.com/2014/05/16/is-china-the-fastest-rising-power-in-history/?wp_login_redirect=0 http://www.tradingeconomics.com/china/gdp
2. http://www.cnbc.com/2015/09/21/why-us-manufacturers-are-nixing-the-us-for-china.html
3. http://www.indexmundi.com/commodities/
4. http://www.ibtimes.com/china-economy-consumer-inflation-edges-factory-prices-continue-fall-2257800
5. http://foreignpolicy.com/2015/11/16/china-us-colleges-education-chinese-students-university/
6. http://www.ibtimes.com/chinas-anti-graft-watchdog-says-anti-corruption-campaign-being-undermined-local-level-2247449
7. Page 17 of http://www.ncee.org/wp-content/uploads/2015/03/CHINAVETFINAL1.pdf
8. https://www.washingtonpost.com/news/innovations/wp/2015/05/28/chinas-big-bet-on-infrastructure-shows-a-commitment-to-innovation/
9. http://money.cnn.com/2015/10/14/news/economy/china-middle-class-growing/