From SCDigest's On-Target e-Magazine
- March 18, 2015 -
Global Supply Chain News: Think China is Losing its Manufacturing Clout? Think Again
Factory Asia with China at Its Center is Gaining Share of Global Production
SCDigest Editorial Staff
The world's manufacturing landscape has been dramatically changed by the rise of China over the past 25 or so years as perhaps never in the history of the industrialized world, save perhaps Britain's rapid ascent in the 1800s.
In 1990, China produced less than 3% of global manufacturing output by value; its share now is nearly 25%. China produces about 80% of the world's air-conditioners, 70% of its mobile phones and 60% of its shoes, according to a recent article in The Economist magazine.
SCDigest Says: |
 |
"Just waiting for higher Chinese wages to push jobs their way is a recipe for failure," The Economist says. |
|
What Do You Say?
|
|
|
|
The rise of China has also lead to a rise in the manufacturing share of other countries in Southwest Asia, both as suppliers to Chinese manufacturers and a secondary source for Western companies looking for additional sources of supply.
"This "Factory Asia" now makes almost half the world's goods," The Economist notes.
But of late, many have seen signs of weakness in China's manufacturing fortress, primarily from the rapidly rising wage structure in the country. That has some predicting a wave of so-called "reshoring" in the US and maybe parts of Europe, and/or a shift from China to other Asian countries such as Vietnam, South America, or even parts of Africa as alternatives to China.
But such trends are overrated, The Economist says, and in many ways work to increase China's individual and Southeast Asia's overall dominance in global manufacturing.
"Far from being loosened by rising wages, China's grip is tightening," the magazine says. "Low-cost work that does leave China goes mainly to South-East Asia, only reinforcing Factory Asia's dominance. That raises questions for emerging markets outside China's orbit. From India to Africa and South America, the tricky task of getting rich has become harder" for most other countries.
What is happening to counter some of the prevailing wisdom about China losing competitiveness? China has several important advantages that are likely to enable it to weather the storm, The Economist says.
1. Despite rising wage, China is still clinging on to low-cost manufacturing, even as it goes upmarket to pursue higher-value added products. For example, China's share of global clothing exports has actually risen of late, from 42.6% in 2011 to 43.1% in 2013, the last year for which data is available. China is also making more of the parts that go into its finished goods production. The World Bank estimates that the share of imported components in China's total exports has actually fallen from a peak of 60% in the mid-1990s to around 35% today. This is partly because China boasts clusters of highly efficient suppliers that other countries will struggle to replicate.
Chinese manufacturers are also now investing heavily in robotics and other automation to offset the increase in wages - the idea behind the government's new "Made in China 2025" strategy.
(Global Supply Chain Article Continued Below)
|
"As Samsung, Microsoft, Toyota and other multinational firms trim production in China and turn instead to places such as Myanmar and the Philippines, they reinforce a regional supply chain with China at the center," The Economist says.
