Recently, some media reported that a large number of US companies are quietly retreating from China including the Pearl River Delta. More and more "Made in China" is now being transformed into "Made in the United States," including consumer goods giant Garton, and construction machinery manufacturing. Caterpillar, car giant Ford, etc. The New York Times also reported the same phenomenon. Some US companies have taken some small measures to transfer manufacturing jobs back to the United States, such as Starbucks and GE.

China's proud "world factory" status is facing unprecedented challenges. The rise in domestic labor and raw material costs, the overcapacity of the overall manufacturing industry, the deterioration of the financing environment, and the sluggish global economy have caused Chinese manufacturing companies to face dilemmas. The "Made in China", once known to the world, is still able to continue yesterday's glory under the influence of many domestic and foreign factors? With the rise of Southeast Asia and the return of US manufacturing, how can China adjust its position? These are questions that need to be answered.

Why did Nie Riming return to U.S. production? The New York Times believes that they did so because of the decline in labor costs in the United States, and in some cases because of dissatisfaction with the quality of imported Chinese products. From a more macro perspective, this move is a "reactionary" to the globalization process. In recent decades, globalization has grown by leaps and bounds. The microeconomic entities represented by multinational corporations have optimized the allocation of production factors globally, creating a complex global industrial chain. The global allocation of capital and the global flow of commodities have made the division of labor between countries increasingly evident. China is a typical representative. China before the reform and opening up lacked the advantages of capital, technology, and management. However, a large number of surplus rural people and rapid urbanization have made China rich in labor resources. With abundant labor force, the price is cheap. After joining the WTO, with this major advantage, China has rapidly occupied the position of “world factory” in the division of global industrial chain.

China is still the preferred choice for global production bases

Then, does the withdrawal of US companies from the Pearl River Delta and other places mean that China has reached the point where the comparative advantages of the labor force have disappeared? In recent years, the Pearl River Delta and other places have repeatedly reported news of shortages of workers and wages, and academics have frequently warned that the “Lewis Turning Point” is about to come. All of these seem to imply that the era of cheap laborers will end. However, this kind of judgment is worthy of scrutiny. From the perspective of the minimum wage, in July 2009, the United States raised the federal minimum wage to 7.25 U.S. dollars per hour, which is calculated on the basis of 21.75 working days per month, 8 hours of working days per day, and a total of 1,260 U.S. dollars per month; and the lowest monthly salary in Beijing in 2012. Only 1,260 yuan, Shenzhen is a little higher, only 1,500 yuan, which is 1/6 of the national level in the United States. From the perspective of average wages, according to the statistics of the Bureau of Labor Statistics of the United States in 2009, the average annual salary of working Americans was 43460 U.S. dollars. In the same year, the average annual wage of employees in Shenzhen was 46,723 yuan, which is also 1/6 of that of the United States. Considering the statistical difference in the average salary of the society, the actual average wage of employees in enterprises is far lower than this figure.

To take a step back, even if China's labor force is too expensive, the direction of the US industry shift should also be Southeast Asia, Honduras and other countries and regions. In the past few years, the trend of foreign companies flying “southeast flight” has been blowing, and some textile factories have shifted to Vietnam, Bangladesh and other places, but the scale is not large and it is not a climate. The reason why China can become a factory in the world is that there are many in-depth factors besides the cost advantage of the labor force. Since the expansion of enrollment in universities, the quality of China’s population has been generally improved, and the quality and cheapness of labor is a foreseeable event for a long period of time. China's industrial supporting capabilities are well-established. In IT and heavy industry, a series of related industrial chains such as logistics and production are unmatched by other labor-abundant countries. The background of land ownership, political governance structure, and so on, made it possible for China to tailor its development environment for foreign companies “according to local conditions”. This is a rare treatment for foreign companies on a global scale. Therefore, if only considering economic efficiency, China will be the first choice for a global production base for a long period of time.

US companies "backflow" is more influenced by politics

Since these American companies withdraw their production from China and return to the United States are not economic considerations, it is obviously due to political factors. The result of a substantial increase in China’s exports is “Chinese production, US consumption,” which is blamed by some U.S. remarks. China has exported jobs to the U.S. to unemployed and seized the U.S. labor force, especially in the manufacturing industry. Observing the Sino-U.S. economic dialogue in recent years, the issues can not go round how to reduce China's trade surplus, and how to make China more consumption and less exports. What these issues imply is that China's production capacity is self-produced and sold to protect US and European jobs.

The U.S. accusations have also shown exceptional geography in the context of the current high unemployment rate and sluggish economic growth in the United States. At the time of the new presidential election in the United States, due to public opinion in the United States, it is understandable that American companies can meet the expectations of the public and politicians. This is the real reason why American companies withdraw from the Pearl River Delta and return to the United States.

The momentary political show does not matter. The question is: Will the return of U.S. enterprises to the United States become a trend? When American companies return to the United States, they can immediately increase employment in the United States. They look beautiful, but are they what the United States wants? The result of globalization did indeed allow China to export more, but the United States also enjoyed low-cost goods and maintained a low inflation and high-growth economic cycle for more than a decade. Although its manufacturing employment was hit, intellectual property and capital Profits and other aspects are profitable. Without China's production, for most people in the United States, what followed was high inflation and high quality goods. The problem facing them directly was the shrinking of real purchasing power. For more than a decade, Americans have enjoyed accustomed to inexpensive manufacturing in China. Will they give up such benefits for the sluggish employment in some manufacturing industries?

Looking back, let's look at what happened to China and the United States under globalization. In the past, we simply explained and resolved the economic and trade frictions between China and the United States from the “commodity + currency” level. The issues such as the exchange rate of the RMB and the expansion of domestic demand in China are all based on this aspect, but it seems that “no solution” exists. In fact, we have overlooked a more fundamental factor: the workforce. China's rapid urbanization brings to the world, on the surface, rich and low-priced goods. Essentially, it is the output of the labor force. Large-scale agricultural populations are continuously transformed into urban working population. This new number is even large enough to be able to cope with the United States. The population is quite large.

U.S. manufacturing must face China's competition

In the context of globalization, capital and commodities are flowing, while the labor force is restricted by nationality and cannot move freely. From the classical economic theory, it can be seen that the income of the Chinese agricultural labor force is very low, and it is only lower than 1/3 of the Chinese urban labor force. By contrast, the price of U.S. labor is clearly overestimated. The effective unified market should be that China exports a large amount of labor to the United States. New immigrants will systematically reduce the wage level, social welfare, and other labor protection policies of the existing labor force and make it equal to the income level of the Chinese labor force.

The strictly controlled US immigration system is obviously impossible to export labor. Therefore, the process of the transfer of Chinese peasants to the urban working population will only impact the Chinese labor force in the cities, and the wage level of the urban labor force will be suppressed. As China deepens its participation in the global division of labor, this impact is transmitted through the commodity trade to the urban working population in the open economy including Europe and the United States. And farmers in China’s cities are working harder and harder. They are the best workforce candidates for production companies. In the process of global industrial division of labor, the labor force of the tradable trade sector in developed countries is naturally high in quality in the eyes of multinational corporations and is not considered. Even so, American industrial workers will feel threatened or unhappy about the large-scale import of cheap Chinese goods. What they did not expect is that if they open up to immigrants, their situation may be worse.

Therefore, the United States made no more than two ways out. First, the U.S. manufacturing industry can go global or withdraw from globalization. The U.S. employment population can naturally eliminate the impact of China’s rural peasants. But is this possible? Globalization is the main background factor for the United States to have today’s international status. The United States is the beneficiary of globalization, there is no production in China, and where a variety of inexpensive and high-quality goods from U.S. supermarkets come from, U.S. multinational corporations are frequently used in hundreds of billions of dollars. How to complete the turnover?

Since we cannot return to the self-sufficient economic environment, the U.S. labor force must face up to the impact of China’s peasants entering the city. The U.S. wants to consider not to drive China’s goods out of the country and to produce for sale, but to promote U.S. labor transition. China's peasants enter the city for differentiated competition.

In major domestic cities such as Beijing and Shanghai, there are always local residents who view foreigners with an eye of hostility. Their foreigners have seized on their jobs, hospital beds, and places for children to enter school. However, they seem to have forgotten that Shanghai and Beijing can develop and have low-quality, high-quality public services. This is directly related to the influx of a large number of foreigners. The huge compensation for the demolition of local old houses and the purchase of money for foreigners can be found. The enthusiasm is inseparable. The social security benefits of the local people can be maintained at a relatively high level, which is also the result of the ever-increasing base of contributions from outsiders. American industrial workers’ rejection of Chinese manufacturing and local residents in Shanghai complained of being robbed of jobs by foreigners. What are the essential differences between the US immigration control and the Beijing-Shanghai household registration system?

Fortunately, this is not the mainstream. The dissolution of the household registration system is a matter of time. The majority of local residents in Beijing and Shanghai have learned to stop complaining. Instead, they improve their survival skills in big cities and bravely cooperate with the new Beijing-Shanghai people. Competitive differentiation. This is also true for American industrial workers.

The writer is a research fellow at the Shanghai Institute of Finance and Law.