China is set to eclipse the United States as the world’s leading manufacturing country. What does that really mean for U.S. manufacturers?
According to a report from economic, financial, and political analysis firm Global Insights, China will overtake the U.S. as the world’s leading manufacturing country in the next few years, probably by 2016-17. Due to continued growth in Chinese manufacturing and a cooling in the U.S., the catch will take place several years earlier than previously anticipated.
It’s probably fitting that this news comes during the 2008 Summer Olympics in Beijing. Like many other things about China, the sheer scale of these games and the organization surrounding them is simply astonishing. By all accounts the games are the biggest and most expensive in Olympic history, with the Chinese government said to have invested more than $60 billion—yes, with a b—to prepare for the 17-day event.
But, just as a lip-synching Chinese schoolgirl and fake fireworks lent an aspect of smoke and mirrors to the games’ opening ceremonies, there’s more to the manufacturing story than might be apparent at first glance.
According to Global Insights, China’s ascension in manufacturing is being driven by rapid growth in certain manufacturing segments, including textiles, basic metals, computer equipment, appliances and mineral products.
The U. S. will continue to lead in high-value-added manufacturing industries such as aerospace, pharmaceuticals and specialized equipment. U.S. industries projected to lose the most ground in terms of world output share are textiles, basic metals, mineral products, computers, electrical equipment, and household appliances.
It’s also important to note that the manufacturing sector accounts for only 12.5% of U.S. gross domestic product (GDP). In contrast, 36% of the Chinese economy is engaged in manufacturing.
So what does all this mean to the U.S. in general, and to domestic manufacturers in particular? Will the rapid rise in China’s manufacturing sector choke the U.S. economy?
Far from it, Global Insights says. Instead, the expanding Chinese market is more likely to open up greater opportunities for U.S. manufacturers as well as other producers by raising its consumer income and infrastructural development needs, thus opening up greater trade opportunities for U.S. manufacturing and service industries.
According to the report, income gains among China’s population also mean that future expansion of the country’s manufacturing sector will be increasingly diverted to meet growing domestic demand. China’s manufacturing sector is also facing other challenges, such as cost pressures from rising commodity prices and labor costs.
Finally, rising wages will eventually catch up to Chinese manufacturers and they will no longer be the low-cost producers they are today. At some point, other countries will take that spot, and China will have to compete on quality and productivity.
When it comes to matters of global economy, I readily admit I’m not as smart as the analysts who wrote this report. I sincerely hope they’re right about the impact of Chinese manufacturing hegemony on U.S. companies, but I’d feel better about it if the Chinese were more responsible global citizens who played fair in terms of trade, currency, copyrights, the environment and other areas.