Tags: Chinese | costs | equal | US

Study: China's Manufacturing Costs Will Equal US's by 2015

Sunday, 21 Apr 2013 10:31 AM

By Dan Weil

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The cost for U.S. companies to manufacture goods in China will rise to equal the cost of producing them in the United States by 2015, according to a study from AlixPartners consulting firm.

"The Chinese manufacturing cost advantage has eroded dramatically in the last few years," said Alix Managing Director Steve Maurer, CNBC reports.

"If you go back to 2005, it was pretty common for landed cost from China to be 25 to 30 percent less than the cost of manufacturing in the United States. Based on our analysis, two-thirds of that gap has closed."

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Key factors behind the shift include higher Chinese wages, appreciation of the yuan and an increase in the cost of shipping goods from China to other countries.

Prince Industries, which supplies parts to major industrial companies like Caterpillar, opened a plant in Shanghai 10 years ago. Since then it has seen the yuan(also called the renminbi) rise by 25 percent and wages soar 12 percent annually, according to CNBC.

But the trend won’t drive U.S. manufacturers out of China, Hal Sirkin of the Boston Consulting Group told the news service. They will simply focus on producing for domestic Chinese consumption.

To be sure, some manufacturers are moving their plants to Mexico to escape China’s rising
costs. Casabella, a Congers, N.Y. producer of cleaning products and kitchen gadgets, shifted its manufacturing operations to China years ago. And now it’s relocating to Mexico.

"When you look at total costs, you're pretty much at parity," company president Robert Moser told USA Today.

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