April 27, 2015Comments Off on How will China’s Economic Slow-Down Affect the U.S. Plastics Industry?
China’s economic growth slowed to 7.4% in 2014, the lowest growth rate in 25 years. While this growth rate is stellar compared to most countries, it represents a potential for excess capacity in many areas including housing and manufacturing industries. Prices for commodities such as copper and iron ore have dropped significantly. These price decreases are due, at least in part, to China’s slowing economy. At the same time, the dollar has strengthened. How will this affect the U.S. Injection Molding industry?
The top line take away is that China’s competitiveness is increasing.
First, after several years of decline, the dollar is getting stronger against the yuan and that increase is expected to continue resulting in an increase in buying power of upwards of 5% for companies that source molds or parts in China.
Second, the increase in labor rates has ceased or even reversed. Many young Chinese are finding it harder to find work so they are settling for less. Offsetting the labor excess in the manufacturing centers on the coast is a shift to more jobs available in the inner provinces, although at lower pay. This shift of workers to the interior may put upward pressure on labor rates in the coastal provinces.
However, the smart factories in China already started looking at process and automation improvements to offset the increase in labor. Those factories will continue on that path whether or not labor rates stabilize or decrease. We toured a local injection molding factory in Zhongshan City where the owner focused on process improvements. He cut the labor per shift in half, from 50 to 25, by improving his tooling, adding robotics, and moving assembly into work cells at the presses. That reduction far offsets the 10-20% increase in labor over the last couple of years.
The take-away is that China’s tooling industry is on a path toward lower costs, independent of labor rates. While tooling typically represents less than 10% f a project’s cost, the reduction of any cost is important in a highly competitive business. U.S. injection molders stand to benefit from lower offshore tooling costs in 2015.