AMERICA ASIA BUSINESS AND ECONOMICS

From rapid growth to stagnation, will “Made in China” products continue to be the pride for Chinese people?

Author: Sansan Wu

Translated by Zimo Zhu, Yunqiao Xu, Yifei Zhu

In 2003, Dijun Liu, who had a stable job in the Food Bureau, resigned resolutely and left Jianli, Hubei with his family. He came to Dongguan, which has rapidly grown into a “World OEM Factory” relying on its superior geographical location, and opened a small garment processing factory called  Jinyuan Garment Factory. Prior to this, Dijun Liu knew nothing about the clothing industry.

At that time, the Dongguan government provided low-cost land and implemented preferential economic policies. With limited technological inputs, business owners were able to earn huge profits with very little technical risks.earn huge profits, which attracted a large number of entrepreneurs to the city. That was the era of rapid development of Chinese manufacturing industry and the era of rapid growth of “Made in China”. Countless Chinese who are as ignorant and fearless as Dijun Liu came to Dongguan with the mentality of “give it a try”. At the same time, there is also a large number of young and low-cost  laborforcefrom rural China coming  to the world largest manufacturing industry. Those people who worked at the bottom of the job ladder, working around the clock to, shape and maintain the Chinese status as the “world factory”.

The rapid development of “Made in China” products

According to  6th  report on the economic and social development achievements in the 40 years of economic reform and opening up released by the National Bureau of Statistics in 2018, the Chinese manufacturing industry has achieved leapfrog development in the 30 years of economic reform and opening up:

In 1990, the Chinese manufacturing industry accounted for 2.7% of the world, surpassing Brazil for the first time to become the top developing country to enterthe world top ten manufacturing industries, ranking 9th.

In 2000, the Chinese manufacturing industry accounted for 6.0% of the world and ranked 4th , after  the United States, Japan and Germany.

In 2007, China’s share  of manufacturing in  the global manufacturing industry increased to 13.2%, surpassing Germany and Japan and became the third largest in the world.

In 2010, China’s share inthe global manufacturing industry further increased to 19.8%, surpassing the United States for the first time, and ranking 1st  in the world. Since then, Chinese manufacturing industry has been ranked first in the world for many years, and its status as the world largest manufacturing country has become an indisputable fact.

Since the 21st century, China has benefited from its  large base of  high-quality and low-cost labor force, relatively abundant natural resources, and preferential industrial policies, and has led to the transfer of the world’s manufacturing ceterAll of these has made China  the irreplacable “world factory”  – China produced and manufactured  80% of the world’s air conditioners, 90% of personal computers, 75% of solar panels, 70% of mobile phones and 63% of shoes.

Thousands of products are labeled as “Made in China” every day, loaded on  cars, ships, planes, and trains andsent to all directions from China. 

“Made in China” products: as important as breathing air

The research report on China published by McKinsey pointed out that among the seven major economies in the world, from the perspective of technology, trade and capital, the world’s dependence on China rised sharply from 0.4 in 2000 to 1.2 in 2017. For the same period, the degree of dependence of China on the world dropped from 0.8 to 0.6.

Photo Credit: China and the World: Understanding Changing Economic Connections, from McKinsey Global Institute

The world’s dependence on China is largely due to its dependence on Chinese manufacturing, which has a large international market share and is highly embedded in the Global Value Chain. This dependence is particularly prominent when the COVID-19 pandemic broke out in 2020. The raging pandemic has led to the temporary absence of China, making people all over the world realize that “Made in China” has long been like the breathing air, subtly immerse itself into every country and the lives of everyone, regardless of race.

How much is the current world’s dependence on “Made in China”?

A few years ago, a Japanese TV show had done an “experiment” as to what would happen if the “Made in China” was removed in Japanese people’s lives?

When the home-moving companies invited by the program team spent 4 hours moving out the items of the participants in the “experiment” one by one, the empty house shocked everyone for Japanese who were proud of their high-quality manufacturing, their lives have long been occupied by products “Made in China”.

Before moving the house

After moving the house

Apart from  common clothes and shoes, from home appliances such as washing machines, air conditioners, vacuum cleaners, to toys, LED bulbs, and even tables and chairs, none of them can escape from the label of “Made in China”.

This is not the end of the story. When the host checked the shirts, T-shirts and pants on the participants of the experiment, their clothings were all “Made in China”. So without made in China, the protagonist has nothing left?

Similar experiments have been conducted  in the United States. From the iPhone of the passerby to the clothes, sneakers , basketballs, smart speakers, computers, toys in the supermarket, even tableware in American restaurants, coffee pots in cafes, and high-end household goods in boutiques, there is no exception .

If the above examples can only be regarded as individual cases, then the following macro-level data may make the international status of “Made in China” more convincing.

During the COVID-19 pandemic, Nihon Keizai Shimbun was assisted by the Japan Economic Research Center and used the European Commission’s “Inter-Country Input-Output Table” to analyze the impact of China’s reducedproduction has on the global economy. Take South Korea as an example. When Chinese manufacturing production was reduced by US$10 billion, Chinese manufacturers’ purchases from South Korea reduced by nearly US$300 million. In addition, due to the reduced supply of parts and components from China, the delivery of finished products has become difficult, and the production will fall by about 200 million US dollars, which will have an impact of nearly 500 million US dollars in total. Adding up the impact of Chinese production stagnation on countries and regions in the world, the total overseas amounted to approximately US$6.7 billion.

From the perspective of the global export volume of “Made in China”, China overtookGermany as early as 2009 to become the world’s largest trade exporter. According to data released by the WTO in 2017, global trade exports in 2017 were US$17,682.8 billion, of which China’s exports were US$2,263.4 billion, accounting for 12.8% of the world’s total, far exceeding the second-ranked United States.

From the perspective of the types of “Made in China” products that penetrate into the global industrial chain, according to statistics from the International Trade Center, as of 2019, the number of global products that are highly dependent on China has increased to 320 types with each takeing around 50% of the international market Share.

Here comes the “wolf”: rising labor costs

The 2008 financial crisis put heavy pressure on the factory owners in the village where Dijun lives as the global economic depression and fluctuations in the international environment have caused a sharp decrease in foreign trade orders. At the same time, Dijun found that it was getting harder and harder to recruit workers, and the terms and  conditions set by the factory owner were falling short of the requirements of workers. On both sides of the Dongguan Labor Market Street, only the recruiters of the factory stood alone holding signs for employees . Only a few workers came up to inquire and asked further questions such as whether the dormitory has air conditioning and whether they often work overtime…

With the continuous improvement of Chinese economic development, the rising labor cost is bound to become an unavoidable problem for business owners like Dijun. This has also become a hindrancethat China’s manufacturing industry has to face. For a long time, low-cost laborforce has been an critical advantage in the rise of Chineses manufacturing industry. However, as Chinese industrialization process enters the later stage, the demographic dividen  is gradually disappearing, and the population is aging, China’s low-cost labor force advantage is gradually also disappearing. .

Yanping Chen is one of the first batch of people to set up factories in Dongguan, and he knows the industry OEM very well. “In the past,  you can get a front-line worker working for you for about 2,000 yuan. This year, it will cost at least 4,500yuan.” This is what Chen Yanping said in an interview with the reporter of the Economic Half an Hour in 2015. “In just two years, the labor cost doubled.”

The rise in labor costs is an inevitable trend of a country’s economic modernization.Meanwhile, the price of many commercial lands in the mainland have exceeded those  in the United States. Under the current situation of rising labor costs and land prices in China, many manufacturing companies have gradually moved their production plants to countries and regions with lower labor costs such as Southeast Asia.

Where will “Made in China” products be in the future?

What we need to recognize is that the international competitiveness of Chinese manufacturing industry is neither as strong as the macroeconomic figures presenting in the reports, nor as tragile as conventional statements that Chinese manufacturing industry is crushed by global economic turbulence The performance is fragile at times, but theChinese manufacturing industry has made its unique “Made in China” competitive advantage based on its active participation in the global division of labor and its alignment  with the national  economic development stage.

The temporary weakening of cost advantages brought about by rising labor costs and land costs is not necessarily a bad thing. It forces Chinese manufacturing companies to change their development models and find a more sustainable development path.

“Wolves” will eventually come. How to explore more profit margins under the inevitable trend of rising labor costs has become the top priority for “Made in China” products to continue to stand out in the global market. Enterprises can improve labor production efficiency through automation upgrades and advancement of labor management methods; the enterprises  can also consider hidden cost reduction paths such as management efficiency, corporate compliance, and social benefits from the perspective of comprehensive costs. In addition, increasing product added value and improving the value of its own brand arealso  directions that “Made in China” products could work hard towards …

Rather than feeling scared of the “wolf”, it is better to accelerate transformation and reform.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: