Posts about China

Manufacturing Outlook and History In the USA and Globally

I write primarily about management improvement on this blog – which makes sense given the title. In the very early days I had more on investing, economic data, science, engineering and travel. Then I created three new blogs (Curious Cat Investment and Economics Blog, Curious Cat Science and Engineering Blog, Curious Cat Travel Photos blog) and that made this blog more focused.

Even so the lines of what fits where can be a bit fuzzy and I continue to write about manufacturing, and health care, with a focus on economic data, occasionally. And that is what I am doing today while touching on management related to manufacturing a bit.

As I have written before the story of manufacturing in the USA, and globally, is greatly increased quality of processes and output as well as greatly improved productivity over the last few decades. Manufacturing output also increased, including in the USA, as I have written consistently for a decade now. For example: (Top 10 Countries for Manufacturing Production from 1980 to 2010.

Still many people have the notion that USA manufacturing has been declining, which hasn’t been true, and certainly isn’t true now (the last couple of years have been especially strong and even the general public seems to realize the idea of the USA losing manufacturing is a myth).

Chart of Manufacturing Output fro 1992 to 2012 - USA, China, Japan and Germany

Based on data from the UN. See my blog post on my economics for more details on the data (to be posted next week).

The chart is impressive and illustrates the point I have been hammering home for years. The USA manufacturing base is growing and far from crumbling (job losses are deceiving as they are global and not an indication of a USA manufacturing decline). China’s manufacturing growth is incredible. China and the USA are far away the top 2 manufacturing countries. Japan and Germany make out the top 4 before a large gap which then is followed by a group of countries that are very close (Korea is 5th with less than half the production of Germany).

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Leading Manufacturing Countries from 2000 to 2010: China, USA…

chart showing leading manufacturing countries output from 2000-2010

Chart of manufacturing production by the top 10 manufacturing countries (2000 to 2010). The chart was created by the Curious Cat Economics Blog. You may use the chart with attribution. All data is shown in 2010 USD (United States Dollar).

Over the years I have been posting data on the manufacturing output of leading countries. In 2010 China finally overtook the USA to becoming the leading manufacturer (long after you would have thought listening to many news sources and political leaders). In a previous post on the Curious Cat Economics Blog I looked at the output of the top 10 manufacturing countries with a focus on 1980 to 2010.

In 1995 the USA was actually very close to losing the lead to Japan (though you wouldn’t think it looking at the recent data). I believe China will be different, I believe China is going to build on their lead. There has been some talk for several years of manufacturing moving out of China seeking lower cost countries. The data doesn’t support any decline in Chinese manufacturing (or significant moves away from China toward other South-East Asian countries). Indonesia has grown quickly (and is the largest SE Asian manufacturing country), but their total manufacturing output is less than China grew by per year for the last 5 years.

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Marketplace Looks at the Apple Economy

Marketplace looks at the Apple economy in China. Marketplace is an excellent source of actual journalism; rare in the post Bill Moyers days, sadly.

A look inside a Foxconn factory

The first misconception I had about Foxconn’s Longhua facility in the city of Shenzhen was that I’ve always called it a ‘factory’ — technically, it is. But after you enter the gates and walk around, you quickly realize that it’s also a city — 240,000 people work here. Nearly 50,000 of them live on campus in shared dorm rooms. There’s a main drag lined on both sides with fast-food restaurants, banks, cafes, grocery stores, a wedding photo shop, and an automated library. There are basketball courts, tennis courts, a gym, two enormous swimming pools, and a bright green astroturf soccer stadium smack-dab in the middle of campus. There’s a radio station — Voice of Foxconn — and a television news station. Longhua even has its own fire department, located right on main street. This is not what comes to mind when you think “Chinese factory.”

Yet it is: as you walk beyond the civic center of Longhua, the buildings begin to change.

From a management perspective there is a great deal to be desired in Apple’s manufacturing practices. The economic perspective however, for me, provides a much different picture than those in rich countries (USA, Europe, Singapore, Japan…) often feel.

The jobs provide workers a chance to earn what for them is a great deal of money. Yes the conditions are harsh – I wouldn’t want to have to work there. But I am pretty sure I would not be happier, if I lived in China, and everything else remained the same in China except now all the Apple products were made in Singapore, USA and Spain.

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2010 Deming Prize

image of the Deming Prize medal

The Union Japanese Scientists and Engineers (JUSE) has awarded the Deming Prize to 4 companies in 2010: Corona Corporation (Japan), Meidoh (Japan), GC Dental (China) and National Engineering Industries Limited (India).

Organizations receiving the Deming Prize since 2000 by country (prior to that almost all winners were from Japan):

Country Prizes
India 16
Thailand 9
Japan 7
USA 1
Singapore 1
China 1

This is the first time a Chinese company has won a Deming Prize. The parent company, GC Dental (Japan), was awarded the Deming Prize in 2000 and the Japan Quality Medal in 2004.

The 2010 Deming Prize for Individuals went to Dr. Takao Enkawa, Professor, Department of Industrial Engineering and Management, Tokyo Institute of Technology. Previous recipients include: Kaoru Ishikawa, Genichi Taguchi, Shoichiro Toyoda, Hitoshi Kume and Noriaki Kano.

Related: 2009 Deming Prize2008 Deming Prize: Tata SteelDeming Prize 20072006 Deming Prize
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Manufacturing in the USA, and Why Organizations Often Don’t

Manufacturing in the USA continues to do well. But it could do better. There are reasons manufacturing that could be located in the USA is not. And addressing those can increase USA manufacturing. Some reasons are sensible, based on the existing economics and realities of comparative advantage. Some reasons are just flawed thinking, such as the “spreadsheet management” taught at many business schools that Deming and lean thinkers can understand the flawed thinking that leads to outsourcing.

Typical wall street thinking (also driven by “spreadsheet management think” rather than an actual understanding of value stream of a potential investment) also hampers raising investment capital for USA manufacturing. The broken USA health care system also is a big problem driving up costs of doing business in the USA enormously.

Fighting for ‘made in the USA’

Safer and longer-lasting than conventional lithium-ion car batteries, the 52-year old MIT professor’s invention packs 600 cells into a case the size of an airplane carry-on bag. His technology has transformed the batteries used in many cordless power tools. So why are Chiang and his company, A123 Systems, having trouble moving to full-scale commercial production and creating thousands of new American jobs with his better mousetrap?

Despite the promise of Chiang’s batteries, many on Wall Street and in Silicon Valley were incredulous when he and other leaders at A123 asked for capital to build factories in America — Asia, yes, but Michigan, why would you want to?

Even more daunting, nearly all of the world’s battery manufacturing industry is in Asia, where plants can be built faster and supplies and equipment are much easier to get than in the United States. These days, it’s hard to find Americans who even know how to build a battery factory.

That’s why A123 had to give in and build its first plants in China, where the company could move into production quickly to show auto industry customers that it could deliver on future contracts.

“Without question, we would rather have done it all in the U.S.,” said Chiang, who left Taiwan as a 6-year-old with his family, earned degrees at MIT and has been a materials science professor there since the mid-1980s. “I’m an American citizen. We’re an American company. It’s an American-born technology.”

Despite the obstacles, A123 and a few other advanced battery producers are building plants in Michigan and other states, thanks to massive government support that has offset Wall Street’s skepticism and should help domestic producers narrow cost disadvantages with Asian rivals.

A123 is getting $250 million in aid from the Obama administration’s stimulus program as well as tax incentives from Michigan. Its first U.S. plant opens in June in an abandoned brick building near Detroit that once made VHS tapes for Disney.

A123 has five plants in China, coincidentally located in Chiang’s father’s hometown of Changzhou, about two hours’ drive west of Shanghai. Bart Riley, an A123 co-founder and chief technology officer, figured it took about nine months to get a Chinese factory up and running, one-third the time typical for the U.S.

The quicker launch helped A123 make a name for itself through Black & Decker, which in early 2006 began putting A123 batteries in its DeWalt power tools.

Since then, A123 has been supplying batteries and battery systems for New York City buses built by Daimler, among other customers, and the company has agreements to develop products for Chrysler, Navistar and American green-car maker Fisker Automotive.

By the end of next year, A123 expects to have two plants in Michigan employing 400 people, with plans to go up to 2,000 workers able to produce about 30,000 battery systems a year. The company’s sales reached $91 million last year, and it has about 1,700 employees, two-thirds in Asia.

The success of science and engineering university based research is still a huge advantage to the USA. Though other countries have seen the value in this and have invested in building their own capacity. The economic value of such is increased many fold by manufacturing the innovations created in your country.

Related: Manufacturing and the EconomyEconomic Strength Through Technology LeadershipRhode Island ManufacturingBig Failed Three, Meet the Successful EightToyota in the US Economy

Global Manufacturing Data 2007

The updated data from the United Nations on manufacturing output by country clearly shows the USA remains by far the largest manufacturer in the world. UN Data, in billions of current US dollars:

Country 1990 1995 2000 2005 2006 2007
USA 1,041 1,289 1,543 1,663 1,700 1,831
China 143 299 484 734 891 1,106
Japan 804 1,209 1.034 954 934 926
Germany 438 517 392 566 595 670
Russian Federation 211 104 73 222 281 362
Italy 240 226 206 289 299 345
United Kingdom 207 219 228 269 303 342
France 224 259 190 249 248 296
Korea 65 129 134 200 220 241
Canada 92 100 129 177 195 218

See manufacturing data for more countries.

The USA’s share of the manufacturing output of the countries that manufactured over $200 billion in 2007 (the 12 countries on the top of the chart above) in 1990 was 28%, 1995 28%, 2000 33%, 2005 30%, 2006 28%, 2007 27%. China’s share has grown from 4% in 1990, 1995 7%, 2000 11%, 2005 13%, 2006 15%, 2007 16%.

Total manufacturing output in the USA was up 76% in 2007 from the 1990 level. Japan, the second largest manufacturer in 1990, and third today, has increased output 15% (the lowest of the top 12, France is next lowest at 32%) while China is up an amazing 673% (Korea is next at an increase of 271%).
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California Uses More Gas than China

Amazing Stat: California Uses More Gas than China:

California alone uses more gasoline than any country in the world (except the US as a whole, of course). That means California’s 20 billion gallon gasoline and diesel habit is greater than China’s! (Or Russia’s. Or India’s. Or Brazil’s. Or Germany’s.)

That’s according to the California Energy Commission’s State Alternative Fuels Plan, which was posted online last Christmas Eve (pdf). The whole report makes for some fascinating reading because it’s a blueprint for a low-carbon and renewable transportation fuel future. The dominant takeaway: it ain’t going to be easy.

One more choice statistic: gasoline usage in California has increased 50 percent, that’s 10 6.7 billion gallons, since 1988.

But China’s oil thirst is growing — to almost 20 billion gallons in 2007 — and perhaps as early as this year, China’s 1.3 billion people will overtake California’s 37 million people in total gasoline and diesel usage.

Interesting data. The Curious Cat Economics Blog recently posted on the top oil consuming countries.

Related: Car Powered Using Compressed AirFailure to Increase Gas TaxCurious Cat Science and Engineering Blog – Energy posts

China Outsourcing Manufacturing to USA

Chinese firms bargain hunting in U.S.

Liu is investing $10 million in the Palmetto State, building a printing-plate factory that will open this fall and hire 120 workers. His main aim is to tap the large American market, but when his finance staff penciled out the costs, he was stunned to learn how they compared with those in China.

Liu spent about $500,000 for seven acres in Spartanburg — less than one-fourth what it would cost to buy the same amount of land in Dongguan, a city in southeast China where he runs three plants. U.S. electricity rates are about 75% lower, and in South Carolina, Liu doesn’t have to put up with frequent blackouts.

About the only major thing that’s more expensive in Spartanburg is labor. Liu is looking to offer $12 to $13 an hour there, versus about $2 an hour in Dongguan, not including room and board. But Liu expects to offset some of the higher labor costs with a payroll tax credit of $1,500 per employee from South Carolina.

“I was surprised,” said the 63-year-old president of Shanxi Yuncheng Plate-Making Group. “The gap’s not as large as I thought.” Liu is part of a growing wave of Chinese entrepreneurs expanding into the U.S. From Spartanburg to Los Angeles they are building factories, buying companies and investing in business and real estate.

True this is still a relatively small macro economic factor. However, it is growing. The primary push so far is economic – not a move to lean manufacturing (as far, as I can tell) to put manufacturing close to the customer. What is the biggest factor? The USA is spending more than $400 billion every year more than it produces. The only way to consume more than you produce is to borrow (and take an obligation to pay back those that lend you money) or sell the stuff you own to those that are producing more than they are consuming. China is producing more than $200 billion more than it consumes every year.

For decades foreigners have taken debt from Americans that promise to pay back later (to pay for what they consumed). Now many are deciding that these debts are not attractive investments and are looking to own productive assets in the USA (companies, factories…). Which is smart on there part in my opinion.

Related: The Budget Deficit, the Current Account Deficit and the Saving DeficitMoving Jobs to Silicon Valley from India$2,540,000,000,000 in USA Consumer DebtHow to Keep the USA ManufacturingTop 10 Manufacturing Countries 2006

Warren Buffett’s 2004 Annual Report:
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Manufacturing and the Economy

In Global Market, Iowa Manufacturers Fight for Survival:

The conventional wisdom has been that expanded trade would result in the United States losing low-pay, low-skilled manufacturing jobs, said David Swenson, an economic scientist at Iowa State University. But “a lot of the jobs that we have traditionally thought of as high value, high quality, high benefits are in trouble, too.”

The conventional wisdom was that the rest of the world would not be able to compete with the United States for high wage, high value jobs. It turns out the rest of the world is much more able to compete for that work than was expected.
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Adventure Capitalist and China Wakes

I recently read two books that offered perspectives I found worthwhile and were enjoyable to read.

Adventure Capitalist by Jim Rogers tracked his trip around the world by car. Previously he had documented his around the world motorcycle journey in Investment Biker. His views offer a worthwhile perspective that is often missed, in my opinion. That said I wouldn’t accept his views as the final truth they are valuable as one perspective to shed light on areas that are often overlooked.

China Wakes, by Nicholas Kristof and Sheryl Wudunn documents their time as Journalists in China (1988-1993) and again offers valuable insight into China. Obviously even gaining an incredibly oversimplified view of China would take a great deal more than one, or even ten books. Still the authors provide viewpoints that I found added, in a small way, to a picture of what China, was, is and may become. I plan to read their book: Thunder from the East: Portrait of a Rising Asia.

Economics – America and China

Business Week has several good articles on the topic of China’s Economic impact including: Shaking up Trade Theory and The China Price.

In Shaking up Trade Theory Aaron Bernstein explores: “The fact that programming, engineering, and other high-skilled jobs are jumping to places such as China and India seems to conflict head-on with the 200-year-old doctrine of comparative advantage.” Over the last few years the white collar job losses in tech US have seemed to cause quite a bit more concern than the manufacturing and other job losses of the 1980s and 1990s. His article does a good job of exploring this issue within the limits of a short magazine article.

He captures the surprise economist (in the US) see because “Conversely, India, where just a fraction of its 400 million-plus workers have gone to college, should grab the low-skilled work and leave higher-end products to the U.S.” That conflicts with the data that many high skilled jobs are going to India (and elsewhere). The US Economists don’t seem to realize India is producing as many college educated engineers as the US. So India also has hundreds of millions of low skill workers that doesn’t mean they don’t also have plenty of high skilled worked (that speak English, which is, of course a huge benefit that is less true of Chinese high skilled workers).

Ok, I need to do better research but here is one source: “I know that US production of engineers declined from about 80K (in ’85) to about 65K – but is back up to about 75K in the latest data. For context, however, the production of engineers is over 200,000/yr in each of China and India.” Wm. A. Wulf, President, National Academy of Engineering (United States) in talk entitled: Out-sourcing/Off-shoring of Engineering Jobs.Update: see USA Under-counting Engineering Graduates
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