China is an important Global Manufacturing Hub

From 1990 to 2018 China captured a quarter of the world’s global manufacturing output, moving from 3% to 28% of total output in less than 30 years. The volume of Chinese production is staggering. China produces 50% of the world’s cement, 25% of its cellphones, and 70% of its air conditioners.

To support this growth China has invested heavily in education, research and development and, perhaps most critically, infrastructure, to create a world class business environment for the manufacturing of virtually any product. This dominance in manufacturing has even bled into pop-culture with a popular video of a vlogger constructing an iPhone 6s “from scratch,” in the high-end manufacturing hub of Shenzhen, garnering over twenty million views on the video sharing website YouTube. Accordingly, China has increasingly taken on the role of a global manufacturing hub, referred to by some as “the world’s workshop. This label is reminiscent of British dominance over global manufacturing in the 19th century.

Increasingly, as wages in China rise and the country moves up the global supply chain some observers have began to predict China’s demise as the preeminent destination for manufacturing. However, a closer look reveals that China has several critical structural advantages that will likely make it the single largest manufacturer on the planet for at least the coming decade.

Scale:

The sheer scale of China, the largest nation by population and third largest in geographic terms, gives it an advantage in manufacturing that by very nature is impossible for the vast majority of its economic rivals to compete with. This scale translation into a myriad of specific secondary structural advantages.

For example, no country has supply chains that are as developed as China. In China’s vast manufacturing hubs, access to materials and equipment is unrivaled. It is possible to have prototypes machined in Shenzhen in a day that it would take other nations weeks to produce. China is also a huge producer of core-components and resources, like rare-earth elements an industry that China dominates, that make these supply chains even more extensive.

Despite rapidly growing wages, China’s labor force continues to be a huge advantage stemming from its scale. China’s labor force is educated, productive, hardworking and suitable for increasingly high-end manufacturing. In addition, despite the success of coastal metropolises like Shanghai and Shenzhen, huge parts of China’s labor force remain untapped, over half of Chinese citizens with a rural Hukou remain engaged in agricultural work. Even if this makes up only a fraction of China’s overall population, the country’s size means that there are still millions of Chinese citizens willing to work for much lower wages than their coastal compatriots.

Finally, the sheer capacity of China’s production capabilities is vast. As some low-end manufacturing moves to nations like Vietnam and Indonesia, buyers are finding difficulty filling orders in a time period that is considered standard in China, especially with regards to complex electronics. Despite increasing costs many manufacturers are finding that there is simply no alternative to China.

Investment and Innovation:

China did not rest on its laurels as it grew into a global manufacturing hub. It invested heavily in education, R&D, and infrastructure. These investments are paying dividends today with China poised to accelerate its push into high-end manufacturing and become a center for global innovation in and of itself. The “network effects,” always a popular buzzword, are increasingly abundant in this kind of environment.

This concentration of technological resources and capabilities have culminated in internal innovation, with hugely popular new products like electronic cigarettes or “e-cigs” and hoverboards entering the global market after being developed in China. In terms of more traditional technologies like cellphones and information technology, China is increasingly becoming known for its innovative practices. Chinese technology companies, Xiaomi and Huawei, pioneered high-value handsets with products like the Huawei Mate line of cellphones years before Apple and Google started competing in this category with the “A” line of Pixel phones and the 2020 addition of the IPhone SE. Furthermore, Chinese companies are increasingly competitive in the “flagship” sector of consumer electronics, with goods designed and manufactured in China increasingly receiving mainstream international acceptance. In other words, China is quickly moving up the global supply chain.

China continues to look towards the future in terms of technology and infrastructure. China’s rapid development of its 5G infrastructure combined with the overall general trend of automation in the workforce will lead to innovations and cost-savings in manufacturing that are only now beginning to be understood. China is poised to continue to outpace other economies in the development of infrastructure especially in terms of manufacturing and supply chain management.

Global Demand:

China’s economic relationship with the developing world continues to deepen as it increases infrastructure investment and general economic support. Generic Chinese products that American or European consumers have never heard of are hugely popular in Sub-Saharan Africa and South America. For example the Chinese company Tranission held a 49% share of the Africa cellphone market through its brands like Tecno and Infinix and was valued at $6.5 billion when it listed in 2018. As the size of the global middle class continues to increase the demand for affordable, relatively high quality, Chinese products will remain robust. China’s manufacturing industry is extremely well positioned to benefit from economic growth in nations like Vietnam, Indonesia, and Nigeria.

One important thing to keep in mind when evaluating the future of Chinese manufacturing is that economic growth and development is not a zero-sum game. As some low-end manufacturing leaves China, due to increasing economic pressure and political risk, other opportunities will continue to arise for Chinese manufacturers. Having what may be the world’s strongest industry fundamentals mean that China is well positioned to capitalize on these opportunities and remain the preeminent global manufacturing hub for the foreseeable future.