(Yicai) Sept. 28 -- Chinese furniture makers that mainly focus on the North American market have been shifting their production to Mexico to cope with high export tariffs from China.
Polyvinyl chloride floor maker Elegant Home-Tech, furniture retailer Kuka Home, and sofa and mattress manufacturer Man Wah Holdings are among the Chinese firms that have built factories in Mexico since the United States imposed an additional 25 percent tariff on USD200 billion worth of Chinese products exported to the US in 2019.
Exports from Mexico to the US and Canada enjoy extremely low tariffs. Moreover, labor costs in Mexico are relatively low. In 2021, the minimum monthly pay of Chinese workers was USD402, while in Mexico, it was about USD256, according to data from Huatai Securities. Moreover, after the Covid-19 outbreak, maritime transport costs rose, narrowing the profitability of Chinese exporters.
Last year, China’s direct investment in Mexico grew 48 percent from the previous year, as China became Mexico’s largest investor, according to a report from the National Autonomous University of Mexico.
However, the overall costs for building factories in Mexico can be even 15 percent higher than in China, as many raw materials are more expensive in the North American country, Chinese firms investing in Mexico told Yicai.
Mexico’s Hofusan Industrial Park, whose construction kicked off in 2015, is located about 200 kilometers from the Texas border. It has lured nearly 30 Chinese firms to build plants there, including Kuka Home and Man Wah.
Despite lower labor costs, the efficiency of Mexican employees is lower than that of Chinese workers, meaning that the workload of one person in China may equal that of two in Mexico, said Fu Jiacheng, a light industry analyst at Zheshang Securities.
Moreover, US mattress makers applied to launch an anti-dumping investigation on 13 countries, including Mexico. Therefore, mattresses produced in Mexico will likely have high tariffs in the future, which means Chinese related firms may be forced to relocate their production elsewhere.
It is noteworthy that Chinese furniture makers are going global also because the Chinese market is facing overcapacity. Fixed-asset investment in China’s furniture sector rose 13.2 percent last year from the previous one, while retail sales of furniture fell 7.5 percent in the period. In addition, the number of loss-making furniture companies in China rose between 2010 and last year.
Chinese furniture makers’ revenue from overseas business is improving. The ratio of overseas business revenue to the total of smart home and electric furniture supplier HHC Changzhou was 95 percent last year. The figures for mattress makers Mlily and Keeson Technology were 80 percent and over 90 percent, respectively.
Even Kuka Home and Man Wah, which have much larger revenue than the above companies, had overseas business revenue accounting for 40 percent of their total.
This also means that the global influence of products made in China is constantly improving, said Cai Ling, director of the China home appliance business division at German market research firm Growth From Knowledge. “Generally speaking, we are winning the global share,” Cai noted.
Editors: Liao Shumin, Futura Costaglione