In this installment, I will examine several long-term trends in China that will offer significant opportunities for U.S. companies. The first two relate to returning production to nearby countries or the United States. The rest relate to opportunities to sell to China.
First, American companies dependent upon China for production should look to near- shoring to keep costs down and to control risks. There are multiple reasons. The Trans Pacific Partnership is dead, at least in present form. The South China Sea is a major flashpoint that could disrupt any supply chain originating in China or Southeast Asia. China is no longer the lowest cost producer for many goods. When all costs, including freight and other non-production factors are priced, Mexico is roughly on parity with China. Goods produced in Mexico are given preferential treatment under NAFTA. Mexico has a well-trained work force of highly skilled to low skilled workers. Mexico is an excellent alternative to China.
Second, re-shoring manufacturing to America is likely to be more workable under the Trump Administration. If the United States commits to infrastructure improvements, reduces the corporate tax rate, and provides other incentives to keep manufacturing in the United States, returning manufacturing may also become cost effective and competitive. A key necessary factor is to assure the necessary workforce by providing a lot more training of to develop more skilled workers and finding and relocating skilled workers who have been unwilling to move. The former requires a new commitment to vocational training in high schools and community colleges and/or new incentives to provide on-the-job training. The latter requires incentives to relocate and elimination of disincentives to moving to where the jobs actually are.
Third, China’s growing middle class has developed an appetite for imported goods and has the capital to acquire high quality and luxury goods. Goods designed and manufactured in the United States appeal to the Chinese middle and upper classes for several reasons: name-brand recognition, status, quality, and value. Chinese e-commerce has exploded, making any U.S. company willing to target Chinese customers directly with well-translated descriptions of products and marketing messages tailored to Chinese perceptions can do exceptionally well with little or no direct presence in China. This is a trend that will run from twenty to thirty years, before the Chinese population falls below levels capable of sustaining a stable middle class.
Fourth, China has serious environmental problems. Pollution is rampant. Water is contaminated. Smog is deadly in Beijing and other major cities. Countless Chinese dump sites make our Super Fund clean up sites look like child’s play in comparison. U.S. companies that can provide state-of-the art, as well as routine remediation services, will be able to find work in China for a long time. Companies that can help treat water and find new water sources can also expect to be very busy.
Fifth, China is investing more than any other country in renewable energy. U.S. companies that have competitive products and services in solar, wind, and geothermal technologies are already in high demand.
Sixth, China has admitted that twenty percent of its arable land is unusable today. The actual number exhausted or contaminated farmland is closer to double the official estimate. China has expressed a commitment to sustainable agriculture. Soil regeneration, which is now a significant opportunity in the United States, is an even greater opportunity in China.
Seventh, China is likely in the short run to need to import food products. Not only will China need to import basic foodstuffs, but also its consumers in the major cities want imported luxury foods, fresh fruits and vegetables, wines, and spirits.
Eight, the United States still leads the world in innovation and information development and management (IT), but China and others are catching up in many areas. So long as U.S. individuals and companies continue the fast-pace of quality innovation, there will always be a market in China for the resulting products and services…
… unless there is a trade war. Then, everybody loses.
If you have found value in this series, you may wish to attend “Whither China 2017, Crisis and Opportunity.” Send me an email to be placed on the list.
John W. Tulac is an international business attorney practicing in Claremont, adjunct professor of law at University of La Verne College of Law, and Lecturer Emeritus (retired) at Cal Poly Pomona. He is peer recognized as preeminent in international business law and holds the highest ratings for competence and ethics from the Martindale Hubbell National Law Directory.