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Near-shoring Is Hurting China's Growth

Near-shoring Is Hurting China's Growth

Near-shoring - the locating of manufacturing and production close to end markets - is gaining traction and, along with reshoring, chipping away at China's offshore manufacturing empire.

A 2015 survey of manufacturing and distribution companies serving North America and Western Europe by AlixPartners shows an acceleration in near-shoring. Thirty-two percent of respondents reported that they have already near-shored or are in the process of doing so to meet end-market demand. Forty-eight percent said they are likely to engage in near-shoring activities within the next one to three years.

The shift away from China manufacturing may be small compared to the massive size of the country's manufacturing sector. But it may be affecting China's economic growth. In recent months, China's economic growth has stalled below 7 percent. That growth is still huge compared with growth in developed economies, but it's small compared with the country's rapid economic expansion in recent decades.

"My very rough estimate is that 400,000 jobs have moved out of China so far," Harry Moser, founder and president of the Reshoring Initiative, told Design News. "Is that enough for a dent given that China has 100 to 150 million manufacturing workers? I'd say yes, and it's certainly a huge impact versus shifting maybe 400,000 jobs a year into China from abroad."

Moser noted that the trend away from offshoring manufacturing in China is not exclusive to the US. "This is happening in all developed countries and even some developing countries," said Moser. "[South] Korea has a program to reshore from China."

While AlixPartners pegs Mexico as the winner in near-shored manufacturing of goods headed for the US and Canadian markets, Moser believes the US will get the bulk of that production work. "Of the work shifting out of China to be sold in North America, our best estimate, based on surveys, is: 40 percent is going to the US; 25 percent to Mexico; a little to Canada; and the rest to Vietnam, Cambodia, India, and others," said Moser.

Moser sees the shift away from China manufacturing as a long-term trend that will force the country to develop its domestic market in order to make up for the loss. "Robust growth [in China] based on exports is history," said Moser. "Future growth will depend on domestic consumption."

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Rob Spiegel has covered automation and control for 15 years, 12 of them for Design News. Other topics he has covered include supply chain technology, alternative energy, and cyber security. For 10 years he was owner and publisher of the food magazine Chile Pepper.

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