Something important happened in the world economy last week that went virtually unreported in India. China has over taken the US as the world’s biggest manufacturing nation.
China reported a manufacturing sector output estimated at US$1,995.40 billion in 2010. This was ahead of the US output of US$ 1,951.60 billion for the same year. It was also ahead of the combined manufacturing sector output of the next six countries in rank, namely, Germany ($618 bn), Italy ($315.2 bn), Brazil ($273.7 bn), France ($253.3 bn), South Korea ($239.2 bn) and the UK ($235.2 bn), which added up to $1,993 billion. India shared the tenth rank along with Russia with each country estimated to have manufactured $217.8 bn worth of manufacturing output. The data was put out last week by the economic research firm IHS Global Insight (www.ihsglobalinsight.com).
With total world manufacturing output in 2010 estimated to be US$100,783 billion, China’s share was estimated to be 19.8 per cent, compared to US share of 19.4 per cent. Reporting this news, analysts commented that China has overtaken the US as the world’s largest manufacturer after the US’s uninterrupted reign of 115 years. The last time China enjoyed this status was between 1700 and 1850. In 1850, according to some studies, Britain emerged as the top manufacturing nation of the world, yielding this status to the US in 1895.
| WORLD MANUFACTURING PRODUCTION 2010 | ||
| Country | Manufacturing Output ($bn) | Chg on ’09 (%) |
| China | 1,995.40 | 12.3 |
| United States | 1,951.60 | 6.6 |
| Japan | 1,027.40 | 18.6 |
| Germany | 618 | 11.1 |
| Italy | 315.2 | 5.8 |
| Brazil | 273.7 | 9.9 |
| France | 253.3 | 4.7 |
| South Korea | 239.2 | 12.8 |
| United Kingdom | 235.2 | 3.8 |
| India | 217.8 | 10.7 |
| Russia | 217.8 | 9.7 |
| Canada | 194.8 | 7.7 |
| Mexico | 180.6 | 10.5 |
| Indonesia | 180.4 | 4.4 |
| Spain | 164.9 | 2.4 |
| World Total | 100,783 | 9.7 |
The entire 20th century was a century of the US. China’s rise as a manufacturing nation was, based to a considerable extent on the help it received from foreign direct investment coming in particularly from the US and the export market provided by it (the reason for the so-called ‘global imbalances’). China’s rise as an industrial power was also partly at the expense of the European Union and Japan, both of which also invested heavily in Chinese manufacturing.
It is well known that China’s rise as a manufacturing nation was based on the growth of labour-intensive industries, which is why while the US manufacturing sector produced 19.4 per cent of world output using only 11.5 million workers, China produced 19.8 per cent of world output employing as many as a 100 million workers.
The report showed that while in 1990 the world’s richest nations — western Europe, North America and Japan — accounted for 80 per cent of world manufacturing output, their share was down to 72 per cent by 2000 and further down to just over 50 per cent in 2010. The big gainers were the four BRIC nations — Brazil, Russia, India and China. Brazil’s share in world manufacturing output went up from 2.1 per cent in 2000 to 3.1 per cent by 2010, while the shares of Russia and India went up from 0.8 per cent and 1.2 per cent, respectively, to 2.2 per cent each in the first decade of the 21st century. The biggest gainer was China, which improved its share during the decade from 6.9 per cent to 19.8 per cent.
Together, the BRIC economies saw their share rising from 11 per cent to 26.9 per cent during the decade. Interestingly, while China improved its global ranking as an industrial power from 3 to 1 between 2000 and 2010, and Brazil went up from 10 to 6, with India moving up from 14 to 10, Russia saw its dismal rank of 2000, at 21, go up to an impressive 10 in 2010, catching up with India. Clearly, Russia has been able to recover from the catastrophic collapse of its manufacturing capabilities after the collapse of the Soviet Union, but its manufacturing base is still in old industries, with very little competitiveness in consumer durables and electronics industries, where China has stolen a march on the rest of the world.
Few months ago China hit the headlines overtaking Japan as the world’s second largest economy. This was splashed all over the western media. Surprisingly, last week’s news of China overtaking the US as a manufacturing economy went largely unreported or under-reported. Even the Chinese media seems to have downplayed the event.
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China’s emergence as a manufacturing superpower has been made possible by the emergence of a new entrepreneurial class within China that is dynamic and globally savvy. Equally, it has been accompanied by new production structures in Asia, with China importing both raw materials from Asian and African less developed countries (LDCs) and exporting finished goods to the developed economies. This has made China at once an exporting and an importing power. Equally, China has now become an exporter of capital and is looking for investment opportunities abroad, including India.
While recognising China’s rise and strengths, India need not retreat into inward-orientation. Rather, it is time for Indian manufacturing to explore and widen its relative strengths and its competitive advantage. India needs a manufacturing strategy that will enable it to also recover the space it lost to Europe two centuries ago. After all, in 1700 both China and India had virtually equal shares of world manufacturing output. By 2050 India too should be able to turn the clock back. But for now, dealing with competition from China and, at the same time, taking advantage of new opportunities is the challenge for India.