William Bratton, who formerly served as the head of Asia-Pacific stock research at HSBC, is the author of “China’s Rise, Asia’s Decline.”
There is an all-too-common mismatch between hype and reality when talking about China’s manufacturing capacity.
On the other hand, it is well known that Chinese producers are becoming less competitive globally. Exporters are enticed to leave the country by rising labor costs, acrimonious trade conflicts, escalating geopolitical tensions, and the domestic goal of zero COVID.
As a result, some claim that China has reached “peak manufacturing” and that other nations in the region may soon surpass it as the world’s top manufacturer. Additionally, this will significantly affect China’s economic development and the shifting geopolitical balances in the area.
However, there hasn’t been any solid proof presented to back up the claim as mentioned above. Although there are numerous examples concerning specific corporations moving production outside China, the evidence indicates that such actions are unlikely to be of the magnitude required to halt the expansion of the nation’s manufacturing sector and its competitiveness on the global stage.
The trade flows provide the most evident proof of this.
Not only have Chinese exports remained exceptionally strong despite lockdowns connected to COVID, but other factors. Additionally, the most recent figures from the U.N. Chinese producers have reportedly been more competitive in recent years, not less, according to the Conference on Trade and Development.
For instance, China’s manufactured exports have increased far more quickly than those of Germany, the United States, Japan, or South Korea. As a result, its value-based percentage of worldwide manufactured exports increased last year to a record high of 21% from just 17% in 2017. The nation now ranks higher among global suppliers than Germany, the United States, and Japan.
Despite all the talk about businesses moving out of China and the shifting geography of supply chains, in 2021, China produced nearly half of the region’s exports of manufactured goods, up from less than a third 15 years earlier.
Since it can be pretty misleading to infer conclusions based on the patterns of any particular factor, it is essential to view China’s manufacturing advantages holistically.
This is evident from the undeniable reality that domestic manufacturers are still increasing their export market share in low-tech and labor-intensive sectors like textiles. In other words, their inherent advantages are so significant and overpowering that even rising labor costs have little effect on their ability to compete.
There is also little concrete proof that the factors behind China’s competitiveness are changing, notwithstanding all the frequently mentioned anecdotes. Instead, China will continue to dominate Asia’s manufacturing sectors, solidifying its position as the region’s economic engine.
The remainder of the area must overcome this obstacle. Few other nations will then be able to equal or replicate China’s inherent advantages despite their best efforts. Additionally, this will have significant long-term economic and geopolitical repercussions.
Emerging economies will struggle to build the manufacturing sectors they require to achieve and maintain productivity-led growth over the long run in the face of an avalanche of fiercely competitive Chinese goods.
However, even more, developed countries are not immune to the pressures put on them by China, and a genuine threat exists that their industrial structures will become hollowed out. China has already eliminated South Korea and Japan from the global shipbuilding and telecommunications equipment industries, demonstrating how swiftly it can compete with its neighbors at their games and prevail.
The truth is far different from all the claims that China’s control over manufacturing is waning. Not the Chinese producers, but their regional rivals, are gaining ground.
