Viewpoint -- What's the Real Threat To U.S. Manufacturing from China?

As the table at the bottom of the article describes, for its size, land and population, the U.S. has significantly better infrastructure and economic production than China however China has a much stronger industrial base.

Summary Comparison

Analyzing the data the results are that as compared to China the U.S. has:

• 2 times the electric and oil production
• 10 times the natural gas production
• 2 times the per capita telephone/cellphones
• 7 times the per capita Internet use
• 3 times the density of railways and highways
• 16-25 times the density of oil/gas pipelines
• 13 times the number of paved airports
• 30 percent larger GDP (purchasing parity basis)
• 6 times the GDP per capita
• 48 percent larger volume of exports (a surprising fact to most people)

However, China has a much stronger industrial base with over twice the industrial concentration in GDP, 5 times larger industrial labor force and 9 times larger industrial growth rate.

China Economy Overview

In late 1978, China switched to a system of household and village responsibility in agriculture in place of the old collectivization, increased the authority of local officials and plant managers in industry, permitted a wide variety of small-scale enterprises in services and light manufacturing, and opened the economy to increased foreign trade and investment. The result has been a tenfold increase of GDP since 1978.

Measured on a purchasing power parity (PPP) basis, in 2004 China became the second-largest economy in the world after the U.S., although in per capita terms the country is still poor. Agriculture and industry have posted major gains, especially in coastal areas near Hong Kong, Taiwan, and Shanghai, where foreign investment has helped spur output of both domestic and export goods.

China's total import and export volume tripled over the past five years, and the amount of foreign direct investment actually used came to $274 billion during the same time period. The Central Committee of the Chinese Communist Party in October 2005 approved the draft 11th Five-Year Plan (2006-2010) and the National People's Congress gave it final approval in 2006. The plan calls for a 20% reduction in energy consumption per unit of GDP and an estimated 45% increase in GDP by 2010. China aims to double its per capita gross domestic product by 2010 from its year 2000 baseline. China also intends to increase its total volume of trade in goods and services to $2.3 trillion and $400 billion respectively by the year 2010, double that of 2005.

According to an article by former U.S. Trade Representatives, Revolutionary China; Complacent America, China's economy has tripled in size since 1980 and continues to grow at 9% per year. It could equal the U.S. by 2020. China is also climbing the tech ladder, investing in ports, coastal-road systems, telecom networks, research centers and universities. It draws $50 billion a year in foreign direct investment, and topped $60 billion in 2004.

There are three trends:

• Asia is pooling its strengths. In 2003, China's Commerce Ministry calculated that Asian investment puts up about 20,000 'manufacturing facilities' a year.
• Asia's human capital is improving. The Chinese government builds about 200 new research centers a year. Since the 1980s, Chinese college enrollment has quadrupled to 20 million. Chinese universities now produce 200,000 engineers a year (compared to 60,000 in the U.S.).
• Asia is saving money. Chinese families save as much as 40 percent of GDP. Our economic growth rests on a consumption and shopping boom, financed by China, Korea, and Japan, which has pushed up current account deficits and overseas liabilities.

Asia has weaknesses too, of course. China, in particular, faces weak finances, environmental stress, severe income inequality, widespread poverty, and an uncertain rule of law. The U.S. maintains many strengths as well, from a robust political system to superior universities, from sophisticated environmental and intellectual property policies to special advantages in medicine and the life sciences.

The authors further identified three priorities that impact U.S. manufacturing:

• Further currency appreciation in China, deficit reduction, and personal savings incentives in the U.S., and sustained liberalization in Japan and Korea.
• Our tax policy needs a sharpened focus on encouraging innovation. Both the government and the private sector should increase investment in research, particularly in the physical and information sciences.
• Ambitious [trade] agreements should be negotiated with the major Asian countries, South Korea and Japan. In addition, strengthened economic ties with India should further ensure a robust U.S. economic presence in Asia.

Although the U.S. presently has a large advantage in infrastructure and productivity, China has plans to catch up. We can't become complacent and miss the economic revolution now taking place in China. Despite China's recent manufacturing miscues, its stronger industrial base is only going to grow stronger. Numbers don't lie.