Forecasts of a decline in China’s manufacturing sector are silly

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However, China’s challenges in the medium term are really more about reducing addiction to asset and infrastructure-led growth and a soft landing from excessive debt build-up in the economy. According to World Bank data, domestic private sector debt as a percentage of GDP stood at an astonishing 183% in 2020. Even this underestimates the scale of the problem as local government debt is calculated separately.

Leaps of logic pointing to China’s population decline and the argument that it may no longer be the factory of the world may make for attractive investment bank research reports, but do not stand up to scrutiny. As it happens, China saw its population decline last year, coinciding with the publication of an in-depth study of Apple’s excessive reliance on China to manufacture its range of products, from iPhones to Macs, on the same day. according to an article in financial Times, Apple still relies on China for more than 95% of the production of these key products. Research firm Centrepoint estimates that even by 2024, China will account for about 90 per cent of iPhone production. So much for ‘friend-shoring’ as the world deals with an aggressive Beijing.

Apple knows it has an over-dependence problem and lawmakers in Washington won’t take kindly to these staggering statistics. But the world’s most complex supply chain is effectively semi-permanently embedded in China. To change this radically would be like asking CEO Tim Cook to swap his DNA. China accounts for 70% of smartphone production globally. feet The article used ISO 9001 certification as a proxy to gauge China’s “dominance” in global manufacturing. China has over 426,000 enterprises with that certification, or 42% of the global total. For India, the equivalent figure was 36,505. The issue, manufacturing experts say, is that relocating assembly plants for these products out of China is not as easy. The problem is that component manufacturers and other vendors are concentrated in southern China. The region – especially Guangdong province – also has one of the most efficient ports and customs clearance, thus enabling components and products to easily cross the border to tap into supplies from South Korea or Taiwan, and makes it difficult for global multinationals to diversify.

Between 2010 and 2013, I was a reporter based in Hong Kong with access to factories run by incredibly nimble entrepreneurs. As the Guangdong government pushed wages to double-digit levels every year since 2010 to drive out low-cost firms, Guangdong’s role as the factory of the world remained resilient, even though its factories were more focused on electronics. went. Several times I found myself outside the Foxconn factory in Taiwan where Apple products are made. It resembled a township more than a manufacturing plant; Then it had 250,000 employees. It was hard not to feel overwhelmed.

Even clothing and toy factories have begun using robots to stay afloat in southern China, despite the high cost. A report by the International Federation of Robotics confirms that China is the only developing country among the top 10 countries in the world in terms of deploying robots in factories. Based on 2020 data, South Korea leads the pack, with 932 robots installed per 10,000 workers; China ranks ninth with 246 robots. Even this appears to be an undercount, as Hong Kong is listed with 275 robots per 10,000 workers, but most of these are certainly in South China.

This record of increasing automation and rising productivity far outstrips other developing countries, creating confusion for writing off China as a global manufacturing powerhouse as its population shrinks and its belligerence leaves it with fewer friends in the world. Is. In contrast, simplistic claims about 2020 being “India’s decade” need to be treated with skepticism, partly due to the offshoring of production.

We have heard for 20 years that India’s demographic dividend somehow makes it inevitable that it will rival China as an offshore base. Instead, Vietnam, with less than 100 million people, is well ahead in that race. Amita Batra, professor of economics at JNU, uses foreign value added (FVA) as a proportion of gross exports to calculate a country’s integration with global value chains used by multinational companies. Between 2010 and 2018, “Vietnam registered an annual growth of 17.3% in the FVA component of its gross exports,” she wrote. trade standard Earlier this month. The equivalent figure for India and the rest of Asia was less than 5%. Furthermore, Vietnam seizes every opportunity to enter into a major free trade agreement, while New Delhi has been spending years negotiating its so-called “early harvest” or preliminary agreements with supply-chain non-commodities such as the UK and Australia. Get involved. it must be. By now it is clear that manufacturing supply chains are concentrated in North Asia – not where India wants them.

Rahul Jacob is a columnist for Mint and former foreign correspondent for the Financial Times.

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