1. China Syndrome:
Area Companies See Threat, Opportunity from Economic Giant
Sunday, October 19, 2003
By Lisa Eckelbecker
SHREWSBURY-- The 17 workers at New England Molders Inc. lost a job to China in July. A big job.
Big enough to keep busy eight injection molding machines, the kind of equipment that turns out test tubes and
aerosol pump parts.
Claire B. Beauregard, president of privately held New England Molders , watched the manufacturing go
overseas, where the departing customer secured six to eight unskilled laborers who would toil away for 20
cents per hour on eight machines.
Her cost to have one to two skilled people run the machines in Shrewsbury? $14 per hour.
“I sometimes, with tongue in cheek, say, `Why did Nixon ever go there in 1972?'i' Mrs. Beauregard said.
Other Central Massachusetts manufacturers could wonder the same thing as China continues its emergence
as a controversial economic powerhouse. Some companies bemoan what they see as a loss of manufacturing
jobs to low-cost Chinese laborers, while others consider China a site to launch new businesses. Congress is
considering measures to restrict trade with China, and the Bush administration is pushing China to reform its
currency to address a growing trade gap with the United States.
For good or ill, China simply cannot be ignored.
“They've become a world powerhouse through manufacturing, no ifs, ands or buts about it,'' said John J.
Healy, director of Worcester's Manufacturing Advancement Center.
For Mrs. Beauregard, New England Molders and others concerned about U.S. economic relations with China,
trouble did not really explode with former President Nixon's remarkable trip to communist China and the
political rapprochement that followed.
What raises the ire of China critics is more recent U.S. government actions, including Congress' decision in
2000 to permanently normalize trade with China. That helped clear the path for China to join the World Trade
Organization in 2001 and ignited a debate over the fairness of free trade.
“Global competition shouldn't be a bad thing,'' Mrs. Beauregard said, “as long as it's a level playing field.''
In China's case, make that a very large playing field.
The country is home to nearly 1.29 billion people, about 744 million of them in the labor force.
Those numbers make China a potentially massive market for goods and services. But so far, China has shown
its power in how much it sells.

2. The country imported $295.3 billion in goods and products last year but rang up $325.6 billion in exports.
Its largest trading partner, the United States, imported $125.2 billion in Chinese goods last year. China, in turn,
bought just $22.1 billion in U.S. goods.
That produced a trade gap of $103 billion for the United States, the largest gap ever recorded with any country.
The imbalance has been similar in Massachusetts, according to the state and federal sources. Massachusetts
imports from China totaled $1.7 billion in 1999, but exports added up to just $331.7 million.
U.S. hunger for Chinese goods is also growing at a faster rate than U.S. sales to China. Between 1998 and
2002, the value of U.S. imports from China grew by 76 percent. U.S. exports to China over the same period
grew by just 56 percent.
More of those China-produced goods are more complex, too. Not only are Chinese workers cheaply turning
out parts, they are creating molds for components, producing the components and then assembling them into
larger items.
“They're industrializing at an incredible rate,'' said Paul F. Kennedy, president of Worcester-based Kennedy
Die Castings Inc., which operates joint ventures in China. “When those things leave this country, they don't
come back.''
No one knows how many jobs have been transferred to China, but one estimate suggests that about one-third
of the 2.7 million manufacturing jobs lost over the last three years in the United States may have gone
overseas.
China's influence in that process has been overwhelming, according to Joel A. Barkin, communications director
for U.S. Rep. Bernard Sanders, I-Vt. Mr. Sanders and Rep. Peter A. DeFazio, D-Ore., have proposed
legislation that would repeal China's permanent normal trade relations status.
“The first thing we have to do is figure out a way to solve the problem of U.S. manufacturing jobs being
hemorrhaged to China,'' he said. “Essentially when permanent normal trade relations passed in 2000, people
argued that this was going to be great for American workers, that this was going to be great for our trade deficit
and also that it would improve the human rights record of China, all of which did not happen.''
The criticisms against China break down into key areas: tariffs and nontariff barriers, production conditions and
currency.
Critics argue that the United States has dropped its tariffs, opening its markets to cheaply produced Chinese
goods and commodities, but that China has not honored World Trade Organization commitments to lower
barriers against U.S. goods and farm commodities or to allow U.S. banks, telecommunications and service
companies to compete for business.
George W. Shuster, the chairman, president and chief executive of textile manufacturer Cranston Print Works
Co., blames “free traitors,'' large retailers and Wall Street interests that he says value the money made off
cheap imports over American economic development.
“I actually want to have trade,'' Mr. Shuster said. “But what we call trade is not trade. Trade, in the dictionary, is
two-way. We're doing all the buying. They're doing all the selling. That's not trade.''
Cranston Print Works, which operates a plant in Webster, considers its competition with Chinese
manufacturers mixed. The 500-worker company buys canvases from China, then prints its own designs on the
fabric for sale.
But Mr. Shuster chafes under the blunt warning a congressman once gave him and a colleague when they set
out to talk to legislators about U.S. tariff policy.

3. “He said, `What are you going to do about campaign contributions? The enemy's out there raising money,'i''
Mr. Shuster said. “Congress should be doing the right thing, not what they're paid by somebody to do.''
Other manufacturers complain that free trade with China cannot be fair as long as China operates under wage,
labor, environmental and financial conditions vastly different from those in the United States.
One difference lies in banking. Four state-controlled banks dominate the banking system in China, accounting
for 86 percent of all Chinese bank assets. But years of propping up inefficient state-owned companies with
loans left Chinese banks with at least $213 billion in nonperforming loans in 2001. That was estimated at 25
percent of all Chinese loans.
In the United States, a business with high debt might restructure operations and lay off workers to pay down
loans. Banks might foreclose on borrowers or write off loans.
But the same cannot be easily done in China, where an estimated 10 million people join the labor force each
year and about half of all workers are employed by state-owned enterprises, according to the Federal Reserve
Bank of San Francisco.
Instead, government-controlled banks roll over the bad loans, keeping workers employed but extending their
own financial difficulties.
A result is that Chinese manufacturers face no real pressure to pay back loans that allow them to operate, said
Mr. Kennedy of Kennedy Die Castings. That gives them an advantage over U.S. competitors.
“You have this whole large sector of the manufacturing establishment that isn't low-cost, it's no-cost, because
they have no cost of debt,'' Mr. Kennedy said.
Under those conditions, some U.S. manufacturers argue, the Chinese are selling goods below production
costs.
John C. Stowe, president of Lutco Inc. in Worcester, a company that makes ball-bearing assemblies, said he
has seen Chinese products selling in the United States for the same price that Lutco would pay for raw
materials.
“Which means somebody's subsidizing something,'' he said. “There's a lot more to it than labor costs.''
A third point that rankles China critics is the country's currency, the yuan. The Chinese government has
pegged the currency to the dollar at a rate of about 8.28 yuan per dollar for the last nine years, a move that
keeps Chinese goods cheap in the United States.
Some economists believe that a free-floating yuan would appreciate 15 percent or more, which would make
Chinese goods more expensive here. President Bush is expected to discuss the issue with Chinese President
Hu Jintao at a coming Asia Pacific Economic Cooperation forum in Thailand.
A group of U.S. senators also recently urged Treasury Secretary John W. Snow to confront China about
“hoarding'' $345 billion in U.S. dollars in its reserves.
Not everyone agrees, however, that China represents a threat to the U.S. economy. Those who bash China,
said Al Cotton, spokesman for Clinton-based manufacturer Nypro Inc., “haven't made the effort to be part of
the global economy.''
Nypro operates 10 facilities at five sites and employs about 5,000 people, or about one-half of its global work
force, in China. But none of that would exist if Nypro did not have customers in Asia demanding that Nypro's
products, such as cell phone casings, be made nearby, Mr. Cotton said.

4. “A lot of them want operations to back them up in China,'' he said. “We make the plastic that they use to
present their technology. It's really that our customers are there and our customers are growing there.''
In addition, operations in China require management and oversight from the United States, Mr. Cotton said.
The employee-owned company is preparing to open a $10 million technical center in Clinton, and demand
around the world is creating the need for the research and engineering scheduled to take place in the new
center.
“Every time a cash register in China rings, somebody in Clinton has to write it down,'' Mr. Cotton said.
In other words, coping with China means doing business with China for many manufacturers. Cranston Print
Works buys raw materials from China. Kennedy Die Castings makes and sells components in China through
joint ventures with Chinese businesses.
Lutco tries to overcome the pull of China and other foreign competitors by focusing on niche markets, making
goods that require specialized skills to produce and emphasizing their quick turnaround time and nearness to
North American customers.
“We have seen some customers who went overseas and came back swearing they'd never do it again,'' Mr.
Stowe said. “But you could never plan your survival on the chance they'll screw up over there. Plenty of times
they do it right.''
Mrs. Beauregard of New England Molders has taken her frustrations over China into the political realm. She
has joined coalitions of manufacturers and scrutinized the positions of presidential candidates, noting that U.S.
Sens. John F. Kerry, D-Mass., and Joseph I. Lieberman, D-Conn., never even voted last summer on free trade
agreements covering Singapore and Chile.
She also asserts that the public is awakening to China's impact on the United States. Public pressure, she
said, will be needed to force Congress to reconsider trade relations with China. China's advantages, she
thinks, simply cannot endure.
“It's obvious to everyone, even the Chinese, although it won't be admitted by them, that this won't last forever,''
she said.
ART: PHOTO; CHARTS
PHOTOG: (PHOTO) T&G Staff/PAULA FERAZZI SWIFT
CUTLINE: (PHOTO) Xuan Mai, a lead inspector, inspects urinanalysis test tubes at New England Molders Inc.
in Shrewsbury. (CAHRT 1) Manufacturing Week (CHART 2) Trading partners
Caption: PHOTO; CHARTS (PHOTO) T&G Staff/PAULA FERAZZI SWIFT (PHOTO) Xuan Mai, a lead
inspector, inspects urinanalysis test tubes at New England Molders Inc. in Shrewsbury. (CAHRT 1)
Manufacturing Week (CHART 2) Trading partners