China to overtake US as largest manufacturer

09:34, June 23, 2010      

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China is set to overtake the United States as the world's biggest manufacturer next year at the earliest, ending the latter's more-than-a-century reign in the field, according to an economic report.

Some analysts voiced caution Tuesday, saying that without securing core competitiveness through innovation and industry upgrades, goods producers should not celebrate such a title.

The US-based consultancy IHS Global Insight said in a report Monday that China's manufacturing sector will reach the "real inflation-adjusted" size of that of the US "sometime around 2013- 2014," though the US economy as a whole is now three times bigger than China's.

China is very likely to surpass the US in manufacturing in 2011, and it could be a "close call" this year, Mark Kilion, managing director of IHS, was quoted by CNN as saying. By then, China will supply one fifth of the goods consumed worldwide.

The manufacturing sector in China was close to bridging the gap with that of the US last year, with the value of goods produced by Chinese factories reaching $1.6 trillion, while those of the US' were valued at $1.72 trillion.

According to IHS, China's manufacturing sector is estimated to have grown by 14 percent in "real" inflation-adjusted terms from 2007 to 2009, while the US witnessed a decline of 8.2 percent over that period.

In 2007 IHS predicted that Chinese manufacturing would overtake the US by 2009. But the outbreak of the global financial crisis slashed demand for Chinese goods around the world.

The report also pointed out that a stronger Chinese yuan in recent years "magnifies the growth rates" in its manufacturing sector.

China pledged to enhance the yuan's flexibility on Sunday.

However, the added value of goods from the Chinese manufacturing sector is low compared with that of the US, Ding Yifan, a researcher at the Development Research Center of the State Council, told the Global Times Tuesday.

Ding said the composition of the US manufacturing industry is more appealing than that of China, which is still much more dependent on low-end products such as apparel, textiles, appliances and other commodities, while US manufacturing focuses on high-end products, including airplanes, automobiles and technology.

The situation was succinctly described by former Chinese commerce minister Bo Xilai, who said in 2005 that "China had to sell 800 million shirts to cover the cost of buying an Airbus A380."

In terms of production, high-end products are still being produced by foreign-funded companies in China, and domestic companies are hardly creating their own brands or designs, Tian Yun, vice president of the China Macro Economics Institute, said.

"China still lacks skilled workers and advanced equipment to upgrade its manufacturing mix," he added.

The manufacturing sector makes up more than a third of the country's GDP, while it only accounts for 13 percent of the US', Tian said.

Wan Jun, an economist at the Chinese Academy of Social Sciences, told the Global Times that the gap between the Chinese manufacturing sector and its US counterpart is still obvious in terms of production quality.

"Chinese manufacturing still focuses heavily on assembly and processing, which generate a narrow profit margin, while the US' manufacturing is well ahead in R&D, innovation and technological progress," Wan said.

"The US is able to transform its innovation capacity into industrial production and control the 'commanding point' in worldwide manufacturing through the optimum allocation of economic resources worldwide," he added.

Uncertainties ahead

Recent labor unrest prompted some experts to predict that rising labor costs will mark the end of the cheap-production era in China.

But Ding believes that low-end production and other problems in the manufacturing sector are inevitable along China's development path, and the country's industrialization process is still progressing.

"What we should do now is to speed up the process by focusing on industrial adjustment and move to a higher-tier manufacturing mix as soon as possible," he said.

The number of labor disputes has increased recently as awareness of workers' rights has been raised.
This month workers went on strike at Japanese carmaker Honda's plants in Foshan, in southern Guangdong Province.

In the same province, 11 workers of Taiwanese technology giant Foxconn have committed suicide in Shenzhen by jumping from tall buildings this year.

According to the Ministry of Human Resources and Social Security, the authorities accepted 693,000 labor-dispute cases in 2008, 98 percent more than in 2007.

Source: Global Times

(Editor:黄硕)

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