Is Chinese Manufacturing Declining?

The U.K.’s Daily Telegraph newspaper has reported an article that first appeared in the China Daily, discussing the current underlying issues facing manufacturing in China.  Well, in the interests of balance from my story last week on why manufacturing in China is so worthwhile, I thought that we should discuss this topic and see whether India, Vietnam and others are in a position to take advantage of this alleged decline. Is it just the press making headlines, or is there anything behind the numbers?

It is generally agreed that China’s Industrial Added Value Growth is indeed lower now than it was even 4 years ago. In 2013, it stood at around 20%, with the figure in 2016 being just under 7%. This is obviously a legacy of higher costs for manufacturers – especially in relation to wages and rent – as well as creeping overcapacity, due to more companies producing the same or similar items. Other demand on finances has also come from increased electricity and raw material costs, as well as a push from the buyers to pay lower prices for products to compensate for deficiencies in their own financial markets.

Is Chinese Manufacturing Declining?

Such a cocktail is never going to signal double digit growth and a never-ending increase in Gross Domestic Product (GDP) figures, but I don’t necessarily think China’s manufacturing industry has had its day. As the market matures, it will continually face more and more problems, which it must overcome. Chiefly, these will include environmental and corporate social responsibility demands that were not a part of the manufacturing landscape even 10 years ago. Such responsibilities increase costs to both suppliers and purchasers, leaving purchasers to attempt to look at other destinations when pricing jobs. However, the world is increasingly becoming a place where environmental and social responsibility is not just the preserve of the large, wealthy companies and industrialised nations, but something that affects us all, no matter where we live.

Consumers demand that we manufacture their products in a humane and responsible fashion and just because this manufacturing is undertaken in a less developed or wealthy country many miles away, does not mean that they will accept shoddy workmanship and abused staff. This costs money and, as such, will mean that India and Vietnam, amongst others, will have the same costs and responsibilities that China now faces in the very near future. What they do not have is the government back-up and long-established skill set of China and this will benefit customers who want to know they can have their products manufactured responsibly and at the right price.

China is also now realising that increased investment in home-grown talent and innovation, alongside top-notch research and development are the way forward and this can only come with enhanced packages of help from the government involving tax incentives, as well and other fiscal stimulus measures. This will allow China to migrate from a purely manufacturing entity to one that is a one-stop-shop from R&D through to project completion. 

Author: Fymicohuang