China Is Officially Dusting the U.S. In Manufacturing

[beijingwalker]

China Is Officially Dusting the U.S. In Manufacturing
Dec 13 2012, 12:20 PM ET

In 2010, China just barely edged out the United States as the world's top manufacturer by output -- a distinction it hadn't held since 1850. Still the two countries were basically neck and neck.

No longer. The United Nations has updated its national accounts data to capture 2011, and thanks to China's breakneck growth, its manufacturing output is now leaving ours in a cloud of coal dust, as shown in this graph from AEI's Mark Perry. China's trend line is practically an asymptote.

The chart tracks the combined category of manufacturing, mining, and utilities because the U.N. didn't track manufacturing alone for China until 2004. That said, they're beating us on the solo category too, $2.3 trillion of output versus $1.9.

As a point of pride, this might all be a bit of a blow for the United States. As an economic issue, though, it's not really so terrible.Yes, we envy China's factory and export engine, but we still build plenty here. In fact, we're building more than ever, and much of our output consists of extraordinarily profitable, technologically advanced products like aircraft that China has yet to master. And, though it's sometimes easy to forget with all the talk of China rising, we're also, well, richer. America's household consumption alone generated $10.7 trillion of economic activity in 2011 -- $3.5 trillion more than China's entire gross domestic product. This, despite the fact that our population is one quarter the size. We might not be the world's top builders anymore, but our economy's bias towards spending does insulate it a bit from the rest world's economic problems, something China's policy makers almost certainly envy themselves.

 

[kawaraj]

I wonder how Japan,Germany and India appear in that chart....

 

[rcrmj]

the trends for China from 2000 - 2011 seem a bit unrealistic``thats not a growth, its a boost, I believe it has a lot to do with the appreciation of the RMB since 2000`?

 

[longyi]

America's household consumption alone generated $10.7 trillion of economic activity in 2011 quoted from the article


As the baby bloomers are retiring or in their mid to late 50s and out of jobs I'm not sure how long this trend is going to continue. A big part of that consumption are generated by home buyers but getting mortgages now a day are difficult and people simple won't buy because there are no job securities. I see consumer spending will ease downward in coming years.

Obama had a good idea to revitalize the manufacturing sector but so far the signs are not positive. Unless there are drastic improvements or the Tertiary Sector can cover the lost revenue American economy will move side way in the coming years. The stock market clearly indicates this trend in 2012 but without the 'fiscal cliff' factors in yet. Bumpy ride.

 

[DroneAcharya]

It is extremely interesting to read some of the comments here, which gives an impression of a "Great Firewall" akin to the "Iron Curtain".
Chart of the day: China is now world’s No. 1 manufacturer

Through the quarter-century in which China has been opening to world trade, Chinese leaders have deliberately held down living standards for their own people and propped them up in the United States. This is the real meaning of the vast trade surplus—$1.4 trillion and counting, going up by about $1 billion per day—that the Chinese government has mostly parked in U.S. Treasury notes. In effect, every person in the (rich) United States has over the past 10 years or so borrowed about $4,000 from someone in the (poor) People’s Republic of China.

Any economist will say that Americans have been living better than they should—which is by definition the case when a nation’s total consumption is greater than its total production, as America’s now is. Economists will also point out that, despite the glitter of China’s big cities and the rise of its billionaire class, China’s people have been living far worse than they could. That’s what it means when a nation consumes only half of what it produces, as China does.

Neither government likes to draw attention to this arrangement, because it has been so convenient on both sides. For China, it has helped the regime guide development in the way it would like—and keep the domestic economy’s growth rate from crossing the thin line that separates “unbelievably fast” from “uncontrollably inflationary.” For America, it has meant cheaper iPods, lower interest rates, reduced mortgage payments, a lighter tax burden. The average cash income for workers in a big factory is about $160 per month. On the farm, it’s a small fraction of that. Most people in China feel they are moving up, but from a very low starting point.

This is the bargain China has made—rather, the one its leaders have imposed on its people. They’ll keep creating new factory jobs, and thus reduce China’s own social tensions and create opportunities for its rural poor. The Chinese will live better year by year, though not as well as they could. And they’ll be protected from the risk of potentially catastrophic hyperinflation, which might undo what the nation’s decades of growth have built. In exchange, the government will hold much of the nation’s wealth in paper assets in the United States, thereby preventing a run on the dollar, shoring up relations between China and America, and sluicing enough cash back into Americans’ hands to let the spending go on.

GDP = Consumption + Investment + Government + Net Exports.

If you take away China’s investments and net exports, you have consumption and government, and we know consumption is low and malinvestment is high.

China’s GDP is an illusion. The private sector is small (consumption fell from 45% to 36% of GDP in the past decade). Basically, China is a giant assembly plant.

What the Chinese do best is corruption, crony capitalism, misallocate resources, cause negative externalities, prevent creativity, create inefficiency, and export much of its GDP.

there are still about 1 billion peasants, who make almost nothing.

And with its one-child policy, there will be a huge demographic imbalance.

Its standard of living will peak somewhere between India and Japan.

I’m not sure you want to be the biggest manufacturer in the world when the world is moving away from manufacturing, because there’s just not much value there. According to this chart, manufacturing makes up 40% of China’s economy, as opposed to the worldwide average of 18%, almost double. Obviously China is an export nation so it’s going to be much higher, but that is dangerously high. The Chinese govt thinks they are giving lots of low-wage jobs to the workers, but what happens when robotics comes along and obsoletes most of these factories? They will all be out of work again and mad at the Communist govt.

The govt bureaucrats think they are being smart by getting a ton of manufacturing jobs and maybe it seems to be working in the short-term, but in the medium-term it will fail catastrophically and lead to upheaval. China needs to get into information services, because that is where all the value is, and to some extent they are, with baidu, tencent, alibaba, etc., but not quiet enough. All those firms compete only locally, not globally, a sign they couldn’t compete with international competition. I think they can make the transition, but it’s worrying that they’re not really trying yet, just like India.

In order for China to “make the transition” they would have to establish and enforce a regime of intellectual property rights, a major task for a people who pride themselves on their cunning ability to steal intellectual property from others.

China is a kleptocracy, name a single product conceived, engineered, produced and marketed in China that the rest of the world wants to buy.

They have advanced by adopting technologies developed by the West. In order for China to continue to advance they will have to push the intellectual envelope. Otherwise, they will remain what they are today, sweatshop to the rest of the world.

 

[beijingwalker]

military industry can be the next big thing for already number 1 Chiinese manufacturing.that is one of a few industries big enough to keep China's vast manufacturing sector afloat in the long run.

 

[beijingwalker]

China to become world's largest consumer market in 2015: Commerce Minister
2012-05-28 15:53:38

China's Commerce Minister Chen Deming said Monday that China is expected to become the world's largest consumer market in 2015.

The volume of consumer retail sales will surpass 5 trillion U.S. dollars in 2015 amid an accelerated urbanization rate and the rise of people's incomes

 

[my2cents]

my question is how long can you sustain a manufacturing base for the entire world by keeping the wages low??? Also the raw materials and precious commodities which goes into these factories is getting dearer by the day. My point is... will china loose its cost advantage which it enjoys today say in a decade.

Also people of US are now enjoying very high standards of living because of cheap goods.... coming mostly from China. It looks like you guy are sacrificing your comforts for others in United States. On top of that you guys lend them money you have saved. This gives them cheap credit and they buy more stuff of yours. Is this sustainable in long run???

 

[longyi]

my question is how long can you sustain a manufacturing base for the entire world by keeping the wages low??? Also the raw materials and precious commodities which goes into these factories is getting dearer by the day. My point is... will china loose its cost advantage which it enjoys today say in a decade.

Also people of US are now enjoying very high standards of living because of cheap goods.... coming mostly from China. It looks like you guy are sacrificing your comforts for others in United States. On top of that you guys lend them money you have saved. This gives them cheap credit and they buy more stuff of yours. Is this sustainable in long run???

Let me try to answer you this way:

1) China's manufacturing is sustainable as long as the government's policies are in favor of the industry considering the infrastructure is already in existence.

2) Even the costs become parity China's manufacturing sector still has advantage compares to others because of the above.

3) China's manufacturing sector aims to make profits, not as a low cost supplier for the world.

4) China's manufacturing sector still has plenty of rooms to grow because of internal consumption will grow much faster for the next few years.

5) China's investments in the US and Europe because there are no other places that are safe enough to hold such amount of cash. But this is changing because China is in the process of diversifying that portfolio by investing more in other parts of the world.

6) China's manufacturing sector will hold the leadership role for a long time to come because she will have the biggest internal market in the world, physical infrastructure and people infrastructure. This industry can also complete with anybody around the world.

 

[Icecreamcart]

my question is how long can you sustain a manufacturing base for the entire world by keeping the wages low??? Also the raw materials and precious commodities which goes into these factories is getting dearer by the day. My point is... will china loose its cost advantage which it enjoys today say in a decade.

Also people of US are now enjoying very high standards of living because of cheap goods.... coming mostly from China. It looks like you guy are sacrificing your comforts for others in United States. On top of that you guys lend them money you have saved. This gives them cheap credit and they buy more stuff of yours. Is this sustainable in long run???

The Chinese economy is reacting to such a change by moving up the manufacturing value chain. Essentially, low-cost goods are being outsourced out of China into the rest of Asia and Africa. China still maintains a great advantage in cheap educated labor and infrastructure levels far in excess of developing world standards that keeps them extremely competitive in more advanced industrial goods and engineering projects.

Chinese reliance on the US market is much less than before, thanks to the global recession, and it will continue to fall in favor of emerging economies.

Here's a good chart.

 

[beijingwalker]

China accounts for roughly half of the world steel,copper,aluminum..production and consumption,there are rumors that China is buying up and stockpiling all base metals from the world market for future use.

 

[Developereo]

China got the manufacturing advantage because of cheap labor and a wealthy Western market. Using that advantage, China has invested the proceeds wisely to build up its infrastructure. However, this setup won't last indefinitely.

Low-end, low-profit, manufacturing may not change significantly, but mid- to high-end manufacturing is increasingly using robotics and advanced technologies and, unless China can remain competitive in those technologies, it will lose that manufacturing base. This also means that the service sector will need to pick up the slack created by robotics and manufacturing efficiency.

The other aspect, as several people have mentioned, is to develop a domestic consumer base.

 

[Chinese-Dragon]

The other aspect, as several people have mentioned, is to develop a domestic consumer base.

Financial Times - China unlocks the right kind of growth

China has never lacked for growth over the past decade but it has suffered from the wrong kind of growth, developing a dangerous reliance on investment.

Tucked into its latest economic data was evidence that the country has finally started to address this problem. Consumption clearly surpassed investment as China’s biggest growth engine, reinforcing a trend that emerged earlier this year – and something that has rarely happened over the past decade.

Consumption is now the largest growth engine in China's economy, followed by Investment.

Net exports actually subtracted 5.5% of GDP growth in the same period. Much of the manufacturing output is being consumed within the domestic market.

In the first three quarters, consumption accounted for 55 per cent of growth, while investment contributed 50.5 per cent. With external demand weak, net exports actually subtracted 5.5 per cent, according to data from the national statistics bureau.

 

[beijingwalker]

China last year became the world largest patent filing nation and fast moves up the value chain.the countries have the biggest talent pool,with heavy investment in education and R&D,China now has the most college graduates and postgraduates and churns out more every year by the millions.China also tops the world in sending students studying oversea,which guarrantees the free flow of knowledge and information exchange,besides,China has tons of money and superb facilities for scientific research and innovation,so we don't really worry about the future.

 

[Viet]

Consumption is now the largest growth engine in China's economy, followed by Investment.

Net exports actually subtracted 5.5% of GDP growth in the same period. Much of the manufacturing output is being consumed within the domestic market.

closing the gap between the rich and the poor may be worth to be considered, too.

(source: the wallstreet journal)