China no longer the World’s Factory

The rise of Chinese drills manufacturing –

•China gre to become the world’s factory over the course of the last 40 years. This started with former president Deng Xiaoping ordering an economic reform in the late 1970s and introducing the concept of a free market to China for the first time.

What made China Lucrative factory?

• Mixture of loosened state regulations
• Access to the world’s largest workforce
• Cheap labour rates
• Way of government subsidies
• Proximal access to quickly growing consumer populations in Southeast Asia
• Ports to transport goods
• Huge market China itself.

Through quick planning, China was able to quickly adapt it’s manufacturing capabilities and developed specialized industries like electronics and PCB manufacturing. Entire cities like Shenzhen were constructed for the sole purpose of enabling more rapid manufacturing of consumer electronics.

What Blew Chinese Manufacturing hub?

1. The price and speed at which China was able to produce goods started to slow as the country’s population grew.
2. Specialization drove labor rates up, resulting in the average manufacturing hourly labour rate settling at $6.5 an hour, up almost 20% from 2019.
3. A global trade war with the US spurred by the Trump also dealt a fatal blow towards Chinese manufacturing. This has resulted in not only decreases export volume to the US, but also to other countries facing American pressures to reduce global dependency on Chinese manufacturing . Analysis reports that Chinese exports globally have estimated to drop by $25 billion since tariffs were first implemented.
4. Covid-19 showed mirror to the global countries about their huge dependence on China. Companies are diversifying their supply chains to reduce risks in their production cycles, leaving no risk of being caught empty handed for the next global pandemic . The companies are trying to find new Mark opportunities, talent availability, proximity to existing accounts and less business disruptions risk.

Where manufacturing is going?

Amidst numerous attempts to drive re-shoring efforts, US manufacturing still suffers from problems of labor skills and wage costs. Tariffs have succeeded in lowering global dependence on Chinese manufacturing, but they have failed in driving manufacturing back to the US.

Vietnam likely to replace China as the factory of world –

• Vietnam followed China’s footsteps and started its own market reform known as ” Doi Moi” in 1986. For the past decades, economic growth of both the countries has been remarkable.
• The factors like owing to great opportunities with cheaper prices over land purchasing rights, cheap labour wages and low operational expenses for factories can lead Vietnam to replace China as the factory of the world in near future.
• Vietnam’s foreign trade rise to USD 176.35 billion Q1 , a year-to-year rise of 14.4%. In comparison, China’s QQ foreign trade rose 10.7% in yuan terms.
• Vietnam’s trade with the US has grown significantly since 2018. The latest data showed Vietnam trade surplus with the US rose to USD 81 billion in 2021 from USD 63 billion in 2020.
• Popular sportswear brands like Nike and Adidas have rapidly re-allocated a vast majority of manufacturing and footwear base to Vietnam, from China.

What about India –

• Prime Minister Narendra Modi, launched the “Make in India” program to put India on the world map as a manufacturing centre and give worldwide recognition to the Indian economy.
• By 2030, India could possibly become a worldwide manufacturing hub. It can add more than $500 billion a year to the global economy. As indicated by DPIIT, India has been one of the most alluring destinations for investment in the manufacturing area.
• Rapid technological advancements, cheap and skilled labour, young workforce, huge market , coastal nation etc are the reasons for why India can be manufacturing hub.