Business / Solar firms warned on delisting

Firms find greener land in US

By Lian Mo, Ariel Tung and Zhang Yuwei (China Daily) Updated: 2011-03-11 11:30

 Firms find greener land in US
Suntech, China's largest producer of solar photovoltaic panels, and Zachry Holdings, will be designing and constructing a massive solar panel plant for San Diego-based Sempra Generation in Goodyear, Arizona. [Provided to China Daily]

BEIJING / NEW YORK - Just 30 miles (48 km) from Suntech Power Holdings' production facility in Goodyear, Arizona, China's largest producer of solar photovoltaic panels is being asked to build a massive solar panel plant in a few months.

Admired for its efficient factory that covers 36,500 square meters of floor space, Suntech - as well as Zachry Holdings - will be designing and constructing the factory for San Diego-based Sempra Generation. More than 800,000 Suntech multicrystalline solar panels will be installed at the new site.

The site is projected to generate more than 350,000 megawatt-hours of electricity annually, Suntech said, enough to power roughly 50,000 homes for decades.

For Suntech and for other Chinese manufacturers, the project is proof that a Chinese company can effectively set up its manufacturing branch to the United States and thrive. For Suntech, it moved their manufacturing branch in Arizona because of the larger market in the US and to save on transportation costs of shipping solar panels.

In fact, as the difference in manufacturing costs between the US and China levels off, more and more Chinese manufacturers have set up factories in the US over the past few years. From the production of automobile parts to furniture processing, hundreds of Chinese entrepreneurs from many industries are starting to realize that building a manufacturing facility in the US is more worthwhile than in China.

"About 10 years ago, our work focused on how to attract foreign investors to set up manufacturing (factories) in China. But presently we are helping many Chinese move their production lines to the US," said Jia Huai, a director in the economic information department of the China Council for the Promotion of International Trade (CCPIT).

Chinese companies through September of last year invested $2.81 billion in US projects or acquisitions, up from $1.73 billion in 2009, according to the Rhodium Group, a US economic research firm.

"Manufacturing is one of the top investment areas and has much more room to grow," Jia said.

According to CCPIT research last year, Chinese companies viewed manufacturing as the most viable prospect for investments in North America. The research said that about 78 percent of Chinese firms invested in manufacturing when they invested in developed countries.

"The US regional governments show great support, which is very helpful for Chinese firms on cost control when they want to build manufacturing facilities in the US," Jia said.

On the US' east coast, South Carolina is fast becoming a state that many Chinese manufacturers are familiar with. Simplified Chinese is one of four languages that South Carolina's department of commerce website uses.

John Ling, head of the South Carolina department of commerce's business recruitment office in Shanghai, said South Carolina is one of the states providing prime conditions for investors, including tax deductions, free staff training and cash returns.

Until the end of last year, nine Chinese firms have set up factories in South Carolina with more than $300 million. All told, they have employed about 2,000 locals.

Ling said: "I have experienced an increase in investments from Chinese manufacturers in the last few years and I believe it is just the start of a surge. Currently I have seven projects being negotiated with the total investment figure up to $600 million."

Land prices in South Carolina are one attraction to Chinese companies. Costs are generally 60,000 yuan ($9,139) to 70,000 yuan per acre. But that same area of land in Dongguan, Guangdong province, one of China's manufacturing centers, could be priced at about four times that.

Shanxi Yuncheng Plate Making Group Co, which makes cylinder plates used to print plastic labels on soft drink bottles, bought 6.5 acres at $350,000 in upstate Spartanburg. Its factory began operations last July and produces 1,000 plates per day. Company representatives said they have seen more reliable and cheaper electricity in South Carolina.

But it is the cost of labor that illuminates the greatest disparity in production costs between the US and China.

State-owned Tianjin Pipe Group Corp, which is planning to build a $1 billion steel pipe mill this year in Corpus Christi, Texas, is slated to employ 500 to 600 at the mill by 2012.

According to the US Bureau of Labor statistics, the salary of a steel worker is about 22,400 yuan a month, 10 times what a Chinese steel worker would earn.

But companies in China, suffering from a labor shortage, have been increasing salaries recently. Beijing's municipal government raised minimum wages by 21 percent in January - Shanghai as well as Guangdong province are considering a hike in wages. According to Chinese media reports, many manufacturers in South China have already hiked wages by 20 percent to retain their production line workers. If the yuan's exchange rate continues to appreciate to the US dollar, the gap in labor costs will grow smaller.

"I anticipate that the exchange rate does have an impact on investment decisions. It is foreseeable that the yuan will appreciate against the US dollar. Over time, China might produce those goods in the US instead of exporting them to the US," said Joshua Meltzer, fellow at the Brookings Institution.

Another reason Chinese companies are beginning to manufacture in the US are the numerous trade barriers between both countries.

Earlier last month, the US International Trade Commission agreed that the inexpensive Chinese imports of drill pipes used in oil production may harm US producers. Chinese exporters of drill pipes face tariffs as high as 430 percent.

Tianjin Pipe had said if tariffs were more than 20 percent, it would be hard for them to continue to export pipes to the US.

J.J. Johnston, executive vice-president and chief business development officer of the Corpus Christi Regional Economic Development Corp, recently told Fortune magazine: "It's just another reason that (Chinese companies) have to have a US-based production facility."

For many Chinese firms, the current opportunities in manufacturing in the US have never been better. But Jia Huai said that there are many Chinese investors who have withdrawn their investments in the US.

"In most cases, it was because they did not understand and respect local laws, culture and market rules," he said.

Julian Chang, executive director of Asia programs of the Ash Center at the Harvard Kennedy School, said: "Cross-cultural subtleties have set back many manufacturers in the past from all countries and without proper safeguards and processes, I am sure (Chinese companies) will do so in the future, too."

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