Friday, July 2, 2010

China to Surpass USA as World Leader in Manufacturing?

The headline in a June 2010 Financial Times article was bothersome. It chronicled “US Manufacturing Crown Slips”.

In summary, the article reported:

“The US remained the world’s biggest manufacturing nation by output last year, but is poised to relinquish this slot in 2011 to China – thus ending a 110-year run as the number one country in factory production.”

“Last year, the US created 19.9 per cent of world manufacturing output, compared with 18.6 per cent for China, with the US staying ahead despite a steep fall in factory production due to the global recession.”

“If the figures are calculated in inflation-adjusted, constant price terms, then….the US will keep its top role in manufacturing…. On an inflation-adjusted basis….China is forecast to take over the number one position in manufacturing….”

In this article, population is a primary factor impacting the prediction. China is four times as large as the USA in terms of population. This size, coupled with a lower wage rate, estimated at one tenth of the average cost in the United States, makes it reasonable to expect China will surpass the USA in manufacturing production.

However, in my opinion, there are sincere problems with this premise. The USA is superior in several manufacturing categories, particularly in the innovative capability to create new products, technologies, and industries. A properly focused, capitalized USA manufacturing industry, can remain the world leader in output.

After having a number of business experiences within China, I now believe the Chinese will not retain the leadership in manufacturing in the world. I predict a pendulum will swing eventually. China will most likely stumble, similar to the historic decline of Japan's edge in business.