China’s transformation to a world manufacturing power is remarkable. At the beginning of China’s accession to the WTO, China was still a small player in the global manufacturing arena. In the following years, China has become a low-cost factory in the world, manufacturing labor-intensive products for the world, such as textiles, toys, clothing, etc. For China, these industries are springboards to develop its economy and enter more advanced production areas such as electronic products. But now China wants to focus on higher end manufacturing, rely on domestic consumption to boost economic growth, and leave the job of producing cheap labor-intensive goods to other countries.
If China’s plan works, who will replace it as the factory of the world? This is the question Gordon Hansen, an economics professor at Harvard University’s Kennedy School, tried to answer in a recent article for the National Bureau of economic research. After examining the most qualified candidates and examining whether China itself, which is undergoing major changes, can continue to play that role, he admitted that “who will replace China is still a mystery.”.
Perhaps the most obvious competitors to fill the gap are Asia’s emerging export economies. But in the past 20 years, only Bangladesh, Cambodia and Vietnam have seen a significant increase in the share of global labor-intensive exports. “Bangladesh and Vietnam are growing the fastest,” Hansen said. “If we have to say who is the next China, it is these two countries. But the problem is that they are not big enough to replace East Asian production as China did in the first place. ” When economic productivity is taken into account, China dwarfs it. The candidates from Europe, North Africa and the Middle East, such as Romania, Poland, Morocco and Turkey, are even less impressive.
Is China itself the “next China”? Labor intensive manufacturing will remain in China, but it is undergoing great changes in technology, especially automation. In fact, China is a leader in the use of industrial robots, but it is mainly used in automobile, electronics and other fields, and the low-cost commodity industry does not show obvious application motivation.
Hansen thinks there is another possibility. Labor intensive manufacturing may be dispersed to other parts of China, “so China may eventually replace itself.”. A similar development occurred in the United States after World War II. But in China, companies are not urgently moving from the coast to the mainland, where a lack of industrial infrastructure may inhibit productivity.
Despite efforts by some companies to expand their procurement outside China, they find it too expensive to abandon China. This led to the rise of the “China + 1” strategy, that is, the company continued to keep most of its manufacturing industry in China and spread part of its business to Vietnam and other places. However, China’s manufacturing infrastructure is still unparalleled and cost-effective.