On the Train to Nanjing

I took the bullet train from Shanghai to Nanjing a couple of weeks ago, a journey in a pleasant First Class, sparkling clean rail car at 200 km/hour, for about $30. It’s a two-hour journey where you see things you would never see from an airplane.

Along the way, in every direction, are miles and miles of factories. They come in all shapes and sizes - small and squat to miles-long facilities and enormous smokestacks. All of these factories are apparently producing simple assembled products, electronics, plastics, castings and everything you can think of in between. The smokestacks are producing energy to serve China’s insatiable appetite for growth.

Chinese Finance Minister Lou Jiwei told the G-20 meeting in 2014 that manufacturing accounts for nearly 60% of Chinese GDP, an unsustainable share which has created the problems of pollution and overcapacity, he said. This is very evident as I traveled through the manufacturing areas between Shanghai, Wuxi and Nanjing. The pollution was overwhelming; the skies were thick with a smoky fog and the sun was a muted disk low in the sky. I could smell the air that made my eyes sting and my throat sore. The pollution gets so bad from time to time that people wear surgical masks during the most dangerous periods. I brought along some drugstore surgical masks this time too, as the pollution rates were reported to be off the charts.

This is the Chinese Industrial Revolution on steroids. Europe and the US went through significant periods of pollution as we industrialized our economies. But in China, it is happening very rapidly.

The Chinese government is no longer shying away from or denying allegations of the horrendous air quality. In fact, in the latest government Five Year Plan, China is finally putting real muscle and money into environmental clean-up. I expect to see substantial improvement over the next few years.

Americans need to work on balancing the difference between the Chinese economy supported by 60% manufacturing and the US economy where only 11-12% is based on manufacturing. Manufacturing is the fundamental backbone of a healthy economy. We need to bring some of it back to the US- but very carefully. We want skilled jobs that pay a living wage and don’t pollute the environment.

Rebalancing global supply chains is not a step back to your father’s manufacturing of the 1960s. Instead, it is a strategic leap forward with manufacturing consideration given to all of your global growth markets. Consider manufacturing the appropriate products in countries where you sell those products, including China, the largest target market in the world.

What you bring back to the US matters. Through automation, innovation and localization your US operations can be cost-competitive for products sold in the US. We are helping clients consider Reshoring part of their production, but not all of it. After all, China is the largest target market in the world and some of your manufacturing should be left there to serve the local market.

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