What are the trends that are shaping the future of China’s manufacturing migration?

By Liao Qun Source:Global Times Published: 2019/7/14 19:53:40

Illustration: Xia Qing/GT

In recent years, migration of the manufacturing sector from the Chinese mainland has become a major concern, especially against the backdrop of the US-China trade war over the past year. Indeed, if manufacturing moved offshore on a large scale, the mainland would lose its status as the world's factory and, like many countries, would face a potential hollowing-out of the economy. In this context, the Chinese economy would lose not only growth momentum but also its status as a manufacturing and economic power.

But despite the worrying picture, there is no need to be so pessimistic about the future. First of all, manufacturing is not leaving China as fast as many expected, and the scale is not that large either. There will also be a rise in high-end manufacturing after low-end manufacturing moves out. Also, the services sector will see accelerated development following the manufacturing slowdown.

Industrial migration is in line with the natural law of global economic development. In the economic history of the modern world, there have been five rounds of large-scale industrial migration. The current moving of manufacturing from the Chinese mainland to Southeast Asia, South Asia and African countries can be considered the sixth round of industrial migration in modern world history.

The history of global industrial migration shows that it is inevitable for some manufacturing industries to move offshore, but this doesn't mean that the mainland will lose its status as a manufacturing and economic power. In the past, even though countries saw their traditional industries moving to other countries, the development of the pioneering countries didn't stop. Instead they saw the rise of high-end manufacturing and services sectors. For instance, the US remains the world's economic leader even after three rounds of industrial migration.

The manufacturing migration in the mainland is still going on, and we have some forecasts for future trends.

First of all, manufacturing is not leaving China as fast as many expected. From 2008 to 2018, global trade grew at an average annual rate of 2.4 percent, while mainland exports grew 6.3 percent annually, 3.9 percentage points faster compared with global trade growth. Also, the proportion of mainland exports to global exports climbed from 8.9 percent in 2008 to 12.9 percent in 2018. The data clearly shows that the speed of industrial migration is not as fast as many have said. It may be because the economic sizes of Southeast Asian and South Asian countries are relatively small compared with China, and they have weaker manufacturing capability, so they can only absorb a limited amount of industrial transfer. Moreover, with a complete and strong industrial chain, the mainland has only seen low-end industries with relatively short industrial chains move to other countries. 

While the US-China trade war will inevitably accelerate the process of industrial migration, these two factors will continue to restrain the speed of industrial transfer. In particular, Chinese authorities have already realized the importance of further strengthening the construction of the industrial chain, so industrial migration will probably slow further.

Second, the rapid rise of the emerging manufacturing industries in the mainland will largely offset the impact of the loss of low-end industries on the economy. The eight strategic emerging industries are currently undergoing flourishing development in the domestic market. Their efficiency, profit-making capability and impact on economic growth are much greater compared with traditional low-end industries such as clothing, shoes, hats and furniture. With the rapid development of high-end emerging industries, China's entire manufacturing sector and economy will still maintain high-speed growth, with better growth quality.

Third, the development of the mainland's services sector is accelerating. Over the past decade, the services sector grew at an average annual rate of 13.1 percent, 4.3 percentage points higher compared with industrial growth. Nevertheless, China's services sector only accounts for about 50 percent of GDP, and there is still a big gap compared with the 70 to 80 percent seen in developed countries. The gap also means that China's services sector will continue its high growth rate in the future, which will offset the influence of the manufacturing slowdown to a large extent. 

The author is chief economist with China CITIC Bank International. bizopinion@globaltimes.com.cn


blog comments powered by Disqus