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The Rise and Rise of Chinese Manufacturing

Articles > The Rise and Rise of Chinese Manufacturing

Since 1989, the Chinese manufacturing sector (as measured by GDP) has grown an average of 9.4% year over year.

With explosive growth in the sector despite the global economic turndown of 2008 and 2009, many are forecasting China to become the world’s top manufacturer by the year 2020.

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But this isn’t a new trend. China has been a top manufacturer for the better half of the last century; their latest growth spurt only solidifies their position.

What is driving growth?
China’s growth can be attributed to a short list of causes:

1. Growing middle class/domestic demand
Chinese manufacturing continues to grow despite a global recession, primarily due to domestic demand. Hong Kong, the quasi-capitalist heart of China and a previous British colony, has been attracting wealth to the nation for the better part of the last 30 years.

That same wealth is now flowing down to the people, creating a rock solid middle class that are revving to improve their style of living.

This economic improvement at the family level is fueling strong demand for “homemade” manufactured goods, as well as hard assets such as real estate and precious metals. Chinese manufacturers are catering to this growing demand, pushing in-country factories to capacity and maximizing national productivity.

2. Low labor costs
Couple this domestic demand with low labor costs and you have a recipe for a burgeoning manufacturing sector. It’s virtually impossible for developed countries to compete with the labor costs, which are kept low by the influx of country peasants looking for easier lives working in factories.

It’s estimated that at least 109 Million people are working in the Chinese manufacturing sector. These men and women work for an average of $0.57 an hour – a fraction of labor costs in competing countries.

Global effect
If one sees the global economy as a zero sum situation, one might be behooved to ask, “Which competing country has the most to lose as Chinese manufacturing grows?”

However, in the case of China, such concerns are largely unfounded.

Why? The biggest reason is that much of the growth is being spurred by domestic consumption. As Chinese consumers become more accustomed to buying manufactured goods, new opportunities will open up for foreign companies.

A secondary reason: The topography of the global manufacturing vertical will only change slightly, even if China becomes a manufacturing powerhouse.

Currently the top 5 countries are as follows:
1. United States
2. Japan
3. China
4. Germany
5. France

The expected top countries by 2025 are as follows:
1. China
2. United States
3. Japan
4. Germany
5. South Korea

In Conclusion
No analyst can say for certain what we should expect in the wake of the 2008 global crises. We're in the last few months of 2009 and unemployment is still high across the globe, commodities such as crude oil and gold are skyrocketing, and there are major talks about the future reserve currency.

Yet despite this lingering uncertainty the writing is starting to form on the proverbial wall. Major manufacturing countries Germany and China are believed to be out of the global recession, while the United States remains in the grips of the storm.

Beyond that, Chinese stimulus packages are directly improving infrastructure in the country. This is leading to higher productivity levels, and puts other manufacturing countries with aging infrastructures on their heels.

Regardless of what comes to pass over the next few quarters, one can say one thing with confidence: the Chinese manufacturing sector is poised to be an even bigger player in the very near future.

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