China’s manufacturing sector reported 6.1% growth over the weekend, not the expected 6.4% growth. Stocks slumped and investors are worried.
In 1990, China was responsible for about 3% of global manufacturing; now it’s doing about a quarter of all the manufacturing in the world, making it the biggest manufacturing player of all. But China’s economy is in trouble. Does that mean new opportunities for other countries?
Maybe not.
First, China’s economy is struggling, but that might not be news. Reports from China sometimes are more about telling a good story than about accuracy. Some commentators feel that the apparent slowdown is only apparent.
Second, China is still well positioned for low-cost manufacturing. The U.S. is turning away from Chinese-made goods and back to U.S. goods, but it’s doing so slowly, and China continues to be the world’s top manufacturer. Labor costs are lower in other places, but they’re still higher in most of Europe and North America.
Third, they are working on being able to compete in higher-value manufacturing. Increasing automation is a priority in the official Made in China 2025 manufacturing plan, and China has been a top customer for industrial automation for years. Now, they’re the world’s largest market for robotics and automation. This fact is expected to offset the rising labor costs, leaving more room for development of skilled production.
Fourth, China’s place in the supply chain is still strong. China is half as likely to import raw materials or components now than they were in 1990, according to the World Bank. When rising wages in China send jobs to Southeast Asia, China still has the raw materials and the components. As the government makes investments in China’s infrastructure, China keeps its hand in manufacturing all over Asia.
Fifth and finally, China now has a booming local market for consumer goods, and Chinese manufacturers are in the best possible place to serve those new customers. More manufacturing plants are now Chinese-owned, and more of the profits stay in China.