Chinese manufacturing has been affected by the recent Coronavirus incident and the US-China Trade War earlier. As a result, trends have raised questions about whether China’s ascent as a manufacturing superpower has hit a plateau. Some companies, including world’s top bicycle maker, has announced that they were shifting production for US-bound orders out of China.
I have been working closely with Chinese factories as a sourcing agent for almost ten years. I believe that despite these headwinds, China’s manufacturing future remains bright. Over a year after the punitive tariffs in US first imposed, there’s a growing realization among the global companies that moving manufacturing out of China may be possible, however, it will not come cheap or easy.
CHINA’S MANUFACTURING PROWESS doesn’t come in one day
To better understand it, let’s take a quick look at China’s manufacturing history. China’s manufacturing first emerged in global trade in the early 1990s known for the ultra-cheap labor. After joining the WTO in 2001, China has exploded onto the world stage as a manufacturing platform for international companies. China’s manufacturing value-added output has been growing at a 12.8% average annual clip, according to Oxford Economics, compared with 1.9% growth in Japan, 1.8% in Germany, 1.4% in the US, and virtually no growth in the UK. From 2007 through 2017, a period when Chinese labor costs rose sharply, China’s annual apparel exports grew by $36 billion, to $145 billion. Over that same period, annual apparel exports from Vietnam, Bangladesh, Indonesia, India, and Thailand increased by $53 billion, to $88 billion. Nowadays, it would take a 50% increase in the combined real manufacturing value-added output of Indonesia, Malaysia, Thailand, and Vietnam to equal just a 6% increase in China’s manufacturing output—which is its current annual growth rate.(Sources: Oxford Economics; BCG analysis)
China’s irreplaceable industrial clusters
Through 30 years’ of growth in China’s manufacturing, hundreds of industrial clusters have been formed to maximize the efficiency and reducing cost. The clusters have expertise and advantages like access to raw materials, access to component parts, cheap and specialized labor, convenient logistics and most of all government incentives. The clustering gives factories more competitive price and promising quality comparing to those manufacturing outside the clusters. And even when some accidents happen during production, there’s a big chance that they will share resources, workers or materials, so that your order won’t be delayed too much or canceled. For instance, Datang in Zhejiang province is a typical industrial cluster, accounting for 30% of the world’s socks production. All factories related to this industry concentrate in this small area from sock machines to threads. It function as an large assembly line, while different factories in charge of supplying various components to assemble in the final factory.
Export-oriented Transport Infrastructure and Services
The rapid growth of export-oriented manufacturing in China has generated comprehensive transport infrastructure and servicing system supported by government and large investments. On one hand, the transportation condition allows raw materials to swiftly reach factories and completed products to be efficiently ferried to the designation ports. On the other hand, associated services, such as inspection companies, sourcing agencies, pre-shipment fulfilment center and etc., facilitate exporting business into another level of customers’ satisfactory.
Above all, I believe that it’s difficult to unseat China as the “world’s factory” in the foreseeing future. As Chinese sourcing agents, it’s our duty and honor to take contribution in strengthening the prowess by improving our servicing.