Chris Devonshire-ellis On China Manufacturing

As the global economy further integrates and the price of oil looks set to gain in the long-term, U.S. buyers, are realizing that they are generating the upper hand over Chinese manufacturers in the supply of products to the United States.

A seismic shift is occurring as buyers plan the next wave of consumerism and deal with Chinese manufacturers, who are now desperate for American invested businesses, technology and sales.

With more than twenty years of dealing with Chinese manufacturers, U.S. buyers are progressively dictating terms in getting what they want, from a nation whose manufacturing organizational skills are without question, but whose service aspect remains poor.

Increasingly, American buyers are concerned with a number of specific factors when purchasing from China:

* The price of oil will continue to rise over the next decade, a cost factor that has to be absorbed by the American consumer
* Legal recourse against Chinese manufacturers in China is notoriously difficult to pursue
* Concerns over quality control issues
* Concerns over intellectual property rights
* Logistics difficulties with U.S. executives traveling such distances, timezones, language and so on
* Legal difficulties with investments in China that actually assist with upgrading Chinese facilities not being given full asset recognition, or having to be watered down in value through Chinese partners injections under the Chinese joint-venture law

The upshot of this is a surge in demand from the United States that Chinese manufacturers, if they wish to remain competitive, must now start making investments overseas to service the North American market and those investments now being structured in Latin America.

It brings the assets the Chinese manufacturers do have disciplined labor forces, well organized manufacturing facilities and so on- closer to the American consumer and lessens logistics and shipping costs.

American buyers can also inject investment with greater security in Latin America than what China currently permits and employ a far closer watch over quality and IPR issues.

Last year, U.S. investment in Latin America reached a record US$138 billion, while Chinese investment in the same region reached USD24 billion. The link between the two should not be underestimated. The key issues here are:

* China released its first foreign policy paper on the region last year, and has pledged to raise investment to US$100 billion in the next three years
* In 2008, 41.2 percent of Latin America exports were to the United States while 5.6 percent was to China
* Latin America exported USD46.7 billion goods to China, and imported US$71.4 billion
* China wishes to secure oil, copper and soybean exports from the region

As Chinese manufacturers remain affected by the financial crisis, the American buyer wants a greater commitment to product and service from them. Accordingly, a wave of joint Chinese/U.S. ventures are taking place in Latin America, in a trend that is only likely to increase.

We will be following the development of Chinese manufacturing and M&A in Latin America in a special section on China Briefing, including the provision of reports and strategic Sino-U.S. backed investments being made, over the next few weeks.