'Made in China' labels don't tell whole story
By David Barboza (The New York Times)
Updated: 2006-02-09 11:50

Foreign expertise has been critical as manufacturing supply chains become increasingly complex, involving multiple countries that separately produce individual components that are then shipped to China for final assembly. Since such a system can render global trade statistics misleading; some experts say that a more apt label would be "Assembled in China."

Because so many different people in different places touch a particular product, other experts say you might as well just throw away the trade figures.

"In a globalized world, bilateral trade figures are irrelevant," said Dong Tao, an economist at UBS. "The trade balance between the U.S. and China is as irrelevant as the trade balance between New York and Minnesota."

China's supply of cheap labor, coupled with a deliberately undervalued currency, helped bring about $465 billion in foreign direct investment into China from 1995 to 2004, making the country one of the hottest destinations in the world for foreign capital.

In the electronics industry, relocations to China mainland have soared. A decade ago, Taiwan controlled the computer components market and relied on domestic manufacturing. Now, Taiwanese companies produce 80 percent of the world's motherboards, 72 percent of all notebook computers and 68 percent of liquid crystal display monitors. And most of the assembly takes place in Chinese mainland.

"Everyone has moved to China," said Tony Yang, an executive at AOpen, a subsidiary of Acer, a huge computer and electronics company in Taiwan. "Our suppliers, our buyers, their main production facilities have all been relocated. Wages in Taiwan are just too high."

Japanese and South Korean companies are also coming to China in force. Panasonic of Japan now has 70,000 employees working in China; Toshiba's largest information technology production site in the world is in the Chinese coastal city of Hangzhou. And Samsung, the South Korean company, has 23 factories, 50,000 employees and all of its notebook PC production in China. Its last computer notebook factory in South Korea closed last year.

The migration has left footprints in trade statistics. In 1990, Japan was America's dominant trading partner in the Pacific, and Asia accounted for 38 percent of all U.S. imports.

Last year, however, China was Asia's dominant trading power. The country's trade with the United States has soared about 1,200 percent since 1990. And yet Asia's share of imports into the United States has held remarkably steady, at 38 percent. In other words, if production labels simply read "Made in Asia," almost nothing changed from 1990 to 2005, except that many goods got a lot cheaper as China took on a greater role as the world's factory floor.

Even as that shift was taking place, most Asian countries retained and even expanded their powerful influence in the global supply chain, designing increasingly sophisticated models, making the preassembly components, and carrying out the marketing and brand management. So, while China now has an estimated $200 billion trade surplus with the United States, it also has a $137 billion trade deficit with the rest of Asia.