The Manufacturing Sector: Growth Story of India

CHINA ENJOYED HEALTHY TRADE SURPLUS GLOBALLY (USD BN)

THE EMERGENCE OF CHINA+1 DIVERSIFICATION STRATEGY 3 .

562

European Union

285

Trade tensions, rising labor cost and ad-hoc policymaking duringCovid-19 compels global manufacturers to look for diversifying theirmanufacturing base During the 1990s, many US and European manufacturers started to shift their production base to China, taking advantage of its low-cost manufacturing resources and access to a large domestic consumer market. Consequently, China moved swiftly from cornering an average 9% in 2004 share of the global manufacturing share to nearly 30% share in 2021 thereby becoming a dominant force in global manufacturing share. 1

277

582

USA

178

404

567

Southeast Asia

408

RISING SHARE OF CHINA IN GLOBAL MANUFACTURING OUTPUT

159

18,000

35%

173

30%

Japan

184

30%

28%

15,000

27% 27%

-12

26% 25% 26%

In global trade, owing to large manufacturing bases been set up in China, the country’s exports swelled and it enjoyed a large trade surplus with many advanced as well as emerging nations. Very few nations such as Australia have a trade surplus with China, largely owing to them supplying raw materials such as iron ore, liquefied natural gas, nickel etc. to the world’s largest exporting nation. The resulting outmigration of semi-skilled jobs to China was also turning out to be a political debate across many countries. For instance, one of the focus areas of the-then (2015-16) US Presidential contender Donald Trump was to introduce import tariffs on China and protect local manufacturing jobs. Gradually, countries such as India, Vietnam, Bangladesh, Mexico, Thailand, Philippines, and Malaysia have been explored as viable locations for diversifying global manufacturing base as opposed to having a high concentration in China.

24% 25%

25%

22%

12,000

79

20%

20%

18%

142

Australia

17%

9,000

-63

14%

15%

12%

6,000

82

9% 11%

9%

10%

UK

22

3,000

5%

60

54

0% $16,047

0

$7,261

$7,771

$8,403

$9,451

$10,237

$9,341

$10,578

$11.817

$12,065

$12,283

$12,715

$12,329

$12,389

$13,239

$14,1711

$14,011

$13,570

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Canada

42

11

USD Billion World Manufacturing Output Value

% Share of China in Total

115

*Source - Macrotrends Database

81

Singapore

34

China’s one-child policy that was announced in 1980 led to far-reaching consequences in its labor market. For instance, between 1980-96, the working age population (aged 15-64) growth was at 2.2% annualized. Post 1996, when the policy’s impact started to show, this growth rate reduced to 1.5% from 1996-2006, and thereafter the growth rate reduced further to 0.5% during 2006-2016 period. While the policy was called-off by the Chinese government in 2015, the labor market continued to see its impact for a long time. This will likely result into upward pressure on labor wages, which is currently at USD 8 per hour. During the period from 2010 21, Chinese labor cost index grew by 38%, thereby diluting the advantageous cost arbitrage it enjoyed over several other nations. 2

118

India

17

101

China Exports

China Imports

China Trade Balance

Source - General Administrative of Customs of People’s Republic of China-2022

1 Macrotrends Database | 2 Global data – Labor cost index, China

10

Cushman & Wakefield

The Manufacturing Sector Growth Story of India

11