Will China’s “Dominance in Manufacturing” Endure?

Earlier this week at The Atlantic, Matt Schiavenza analyzed an infographic published by the International Business Times to show that, despite rising labor costs, we can expect China to remain a dominant force in global manufacturing:

It doesn’t take expertise in economics to know that China manufactures a lot of stuff — just look at the label on your computer, floor lamp, and shoes. But it’s remarkable just how, three and a half decades after Beijing first launched market reforms, the country’s dominance in global manufacturing endures. […]

[…]How long will this last? The rising cost of land and labor, combined with stricter environmental regulation, is supposed to force manufacturers to shift operations to cheaper countries. This is indeed happening — but to a limited extent. In fact, China still has advantages that cheaper countries don’t: tight and well-sourced supply chains, efficient transportation logistics, modern ports, and an enormous domestic market that, if all goes according to plan, will start buying a lot more of the goods that China produces.

So while the “end of cheap China” may be on its way, the country’s major role in global manufacturing isn’t going to evaporate anytime soon. [Source]

The Atlantic later posted a response to Schiavenza’s piece from Heritage Foundation researcher Derek Scissors pointing out weaknesses in Chinese manufacturing and arguing that, while China will surely remain a prominent manufacturer, its failure to move up the value chain will limit future success:

[…]China will play a major role in global manufacturing for years — and probably decades — to come. But the country’s role is not a healthy one, and the weaknesses in Chinese manufacturing outshine the huge numbers displayed in the graph.

The apparently dominant Chinese industries listed in the infographic, such as cell phones, shoes, and cement, suffer from three different problems:

  • China doesn’t make as much as it seems
  • China doesn’t want to make as much as it does
  • China soon won’t be able to make as much as it does

[…]Size matters in industry, but brains matter more. China doesn’t know how to make some of the things it wants to make and seems not to know how to stop making things it makes too much of. Its prominence is unquestionable — but success is another story.

Scissors has been a vocal skeptic in past media commentary: see “The Great China Debate” (via CDT) for his 2012 face-off with Arvind Subramanian regarding China’s rise.

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