Will China Still be the World’s Manufacturing Center in 2030?

Will China still be the world’s manufacturing center in 2030?

–Asked by a Quora user.

Joseph Philleo, B.S. Applied Mathematics & Economics, University of Southern California (2019):

They say pictures are worth a 1,000 words. I found one that’s worth considerably more than that.

Manufacturing Production by Country
Manufacturing Production by Country

As you can see, from 2000 to 2010, China’s manufacturing output increased by ~ 375%. That’s ridiculous.

However, it appears that while growth is indeed slowing (for a variety of reasons), China is not finished yet. Here are some fundamental reasons why China will remain and even further its position as the world’s manufacturing leader.

* With a population of 1.357 billion people, China has a gigantic, still largely untapped, supply of labor. This means that despite all the concerns about rising wages, labor will remain very cheap, and manufacturing thus very lucrative.

* Chinese productivity is benefiting from better infrastructure and investment. Currently about 40% of China’s GDP comes from investment spending. India, the next highest, is at 30%. Most rising nations are in the mid 20%s, and most developed nations are between 5%-15%. This huge investment bodes well for China as it implies greater capital accumulation and thus greater productivity.

* The rise of South East Asian consumption makes Chinese production optimal. South East Asia is a hot spot for growth, sort of. As these countries continue to grow and their consumption continues to rise (including China’s own consumption), it will be optimal for companies to produce in or near those countries and avoid the inconvenience and cost of extended supply chains across the Pacific.

* Currency advantages. China’s Central Government is intentionally keeping the Yuan low which favors Chinese manufacturers looking to export their products. It can be reasonably expected, based on China’s recent August decision to devalue the Yuan, it will continue to pursue a mercantilism-like economic policy. This will further incentivize producers to come to China at the expense of foreign nations.

* “Me too” Culture. Outsourcing to china has been and remains quite a popular cost-cutting strategy for multinational firms. Given the “me too,” sheep-like tendency of corporate cultures, the persistence of this outsourcing trend can be expected long after the situation is actually that advantageous. So, from its own momentum alone, China’s industrial output is likely to continue to grow.

Paul Denlinger, Have worked in several China internet startups:

Yes, but it will be fundamentally different from what it is now.

Here is my thesis:

Chinese economic development up until now was based on two major premises:

The consumer economy where economic growth is dominated by consumer spending. This reached its peak in 1999, when US consumer spending reached its peak, but had been on a steady slowdown till 2008, and then collapsed in that year. The western economies would continue to be leading consumer economies.

Low energy costs based on coal and other fossil fuels.

Let me be clear about two things:

I don’t believe that the consumer economy will ever return to what it was like before because the global economy is undergoing fundamental changes. The US Fed and the Chinese government have basically been trying to beat life into a dead horse by trying to revive western consumer spending. Instead, the global economy is heading into a prolonged period of falling birth rates, and changes in human immigration patterns which will be caused by political factors and global warming. The consumer economy will no longer exist as the Fed and US economic observers think it will, and the sooner they own up to this new normal, the better. Beijing realizes that the western consumer economies are basically history, which is why it is trying to encourage Chinese consumer spending so that China is less reliant on manufacturing.

We are at the tipping point when it comes to energy costs, and within 20-30 years we will have a new situation: new free non-polluting energy mainly from solar.

This brings us back to the original question: Will China still be the manufacturing center of the world in 2030.

My answer is yes, for two reasons:

All the major supply chains for manufacturing are in China. At a time when manufacturers are getting close to zero inventory costs in manufacturing, this is becoming more important. Just look at the manufacturing centered around Shenzhen, Zhengzhou and Chengdu which are built up around iPhone manufacturing. Twenty years ago, this scale of manufacturing would not have been possible anywhere in the world, but China, Foxconn and Apple have made it possible now because their supply chains and large supplies of labor are all centered there.

Within ten years, China will begin to offer free electricity and energy to major manufacturers as more of the Chinese electricity grid switches to solar, wind and nuclear. New supply chain parks will form around these free energy grids.

As China moves to a free energy economy, more investment money will be drawn into China, sucking the energy out of other economies.

At the same time, China will play an instrumental role in developing the new economy formed around free energy.

The lesson for the US is clear: the US government should work towards building a free energy economy, not just for manufacturing, but for all Americans.

There is another lesson here: hoarding capital is becoming less important. As hoarding capital becomes less important, Wall Street will have less influence. As Wall Street becomes less important, fewer of the best and the brightest will head for Wall Street.

This is already happening, and is the best hope for the revival of US manufacturing.

Devendra Govil, Aspiring Sinologist:

Yes.

First let me just cite the most recent data on the current state of things:

This is an image regarding output of top manufacturers, on the basis of Manufacturing Value Added.

Manufacturing Value Added of Different Countries
Manufacturing Value Added of Different Countries

(Manufacturing Value Added is the value addition in manufacturing happening in a country. So for example, in the manufacturing of an iPhone, only the manufacturing in China for the iPhone, is included, which will obviously exclude out the value of things like Chip Fabrication, Display, etc.)

China would retain the title of the manufacturing center because:

  1. Talent: China will, by 2030, still have a huge labor force, which will be far better skilled and educated than any country at a similar level of development. The higher education enrollment rate in China are very high. This labor is also cheap for their education levels.
  2. Infrastructure: China already has a world class Infrastructure, and continues to invest in this regard. In the East Coast, the Infrastructure levels approach, or even exceed that of the West.
  3. Investment (Overseas): China has huge foreign reserves, which till now have been in low yielding investment products like T bills. It is now beginning to deploy its capital for Infrastructure Investments across the world, which helps Chinese companies get contracts for their products, ranging from cranes, steel, cement, capital products and the like. Basically it helps create markets, and ensure their access to Chinese firms.
  4. Location: China is at the center of Global Supply Chains, and will only extend this centrality over the next 10 years, as lower value added manufacturing increasingly proliferates to countries in South East Asia.
  5. Climbing up the Value Chain: China has huge potential to make higher complexity, greater value stuff like Aero planes, Medical Devices, Chips, LCDs, Robots, and LNG Carriers, etc. Currently, China is located in the lower-middle section of the value chain, where it makes fairly cheap and bulk products. Hence, while a single Boeing jet would sell for $100 million, China would have to produce a record 500,000 metric tons of Steel to make a value of about one Boeing Jet. Just look at the difference of scale and weight. Steel worth 500,000 metric tons, is largely equivalent to value of a 100-200 metric tons jet. So, if the above chart were to actually account for Manufactured Goods in weight or something, China could as well take almost half of the world’s manufacturing.
  6. Lack of a viable competitor: Look at all the countries and their shares. After China, at 23% comes US with 17%. But, even the most optimistic projection of US manufacturing growth will be 2%. Rather, US will itself start facing competition in higher value added segment, while the lower value added stuff would largely just shift to S E Asia. Next come Japan, Germany, and Korea, all of which have severe demographic problems, and are already in the high end segment, which will see competition from China in the coming years. The other countries with shares around 2% are too far behind, and it will be a big achievement to even cross the 10% mark. On top of that most of them are again developed countries, with limited scope of growth. The only ones with scope of growth are Indonesia, Mexico, and India.
  7. Trendlines: China is already migrating in the value ladder, and by 2030, we could very well be flying in Chinese made jets. China has active programs to climb the value chain, and make increasingly complex stuff. Chinese ship building sector has started making LNG carriers, Cruise Liners which are among the most complex, and expensive ships. Chinese semiconductor and electronics industry is going at a tremendous rate. I think China’s advance in the value chain is a constant across sectors, albeit with differing paces.
  8. Policies/Government Support: Chinese Government, Bureaucracy, Banks, are very good at implementing policies in tandem, and coordinated matter. No country today can do what China is doing in the Ship Building sector. Here, Chinese banks are supporting Chinese leasing companies and ship owners with incredibly cheap credit, for placing order at Chinese Shipyards, to manufacture incredibly complex ships. The scale is incredibly huge.
  9. Market/Consumption: China has a huge market of its own, which gives it the ability that few other countries have.

Quoted from https://www.quora.com/Will-China-still-be-the-worlds-manufacturing-center-in-2030.

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