U.S. set to take over China as No. 1 manufacturing power

By Chan King-cheung –

In contrast with the importance given by the Hong Kong media to the Global Financial Centre Index (GFCI), their publicity of another list of ranking, Global Manufacturing Competitiveness Index (GMCI), has been scanty. This is understandable. Hong Kong ranks fourth in the GFCI; the city is nowhere to be found in the competitiveness index. Manufacturing is not among the four economic pillars of Hong Kong. But among nations in the world, manufacturing is a major component of their GDP, and a indicator of the strength and weakness of their competitiveness.

The GMCI research is jointly conducted by Deloitte Touche Tohmatsu Limited (Deloitte Global) and the Council on Competitiveness in the United States. In its 2016 report, it says: “From its influence on infrastructure development, job creation, and contribution to gross domestic product (GDP) on both an overall and per capita basis, a strong manufacturing sector creates a clear path toward economic prosperity.” It says China is the most competitive manufacturing nation in the 2016 report, same as 2010 and 2013. But based on views given by senior executives in global enterprises, i predicts the United States will take over the Number One position in the next five years. China will come second.

Apart from the race for the Number One and Second position, the report has observed that the changes of the manufacturing competitiveness of different countries have reflected the changes of the strengths and weaknesses of various blocs in the world. Among the top 10 most competitive manufacturing nations, America and Asia-Pacific are dominating. Three belong to America. They are the United States, Canada and Mexico. Among the 10, five are in Asia-Pacific. They are China, Japan, Korean, Taiwan and India. The remaining two are Germany and Britain. Europe and America had been the “major powers.” Europe has declined since the World War II, being replaced by the Asia-Pacific region. The report predicts the rise of “Mighty Five”, or five Asian countries, to the top-15 club. The five are Thailand, Indonesia, Malaysia, India and Vietnam.

The leading factor that determines manufacturing competitiveness is talent, followed by cost competitiveness, productivity and suppliers’ network. China takes up the Number One position because it leads in three factors: cost, productivity and suppliers’ network, in particular cost. It also means China’s manufacturing still relies on low cost. In term of talent, China lags the U.S. Taking together their strength in science and technology, the U.S. will soon surpass China.

Apart from talent, China falls behind the U.S. in spending on science and technology in the manufacturing competitiveness contest. Data shows the U.S. is still the nation that spends the biggest amount of money on science and technology, on top of basic research. The total amount hit US$65.5 billion. China has increased spending on science and technology in recent years. But the percentage of their total research expenditure and number of people engaged in research compared with GDP are still low. Many countries have rolled out manufacturing strategy following the 2008 financial turmoil. U.S. President Barack Obama has vowed to rebuild the superpower status of their manufacturing sector. It seems that his goal is closer to becoming reality.

Chan King-cheung is a veteran journalist. He writes on political and economic issues in Hong Kong and China. This article was translated from his regular column in the Chinese-language Ming Pao.

Photo: VOHK Picture