on recent analyses and reports, a leading manufacturing sector
economist asserts the Chinese will stand to lose significant market
share in the years to come, and will have not a cost advantage over U.S.
manufacturing by the year 2016.
a statement would have evoked peals of laughter and derisive remarks
only a few years ago, but times change and situations alter,” says Dr.
Chris Kuehl, economic analyst for the Fabricators & Manufacturers
Association, Intl. (FMA). “There are no guarantees, of course, and these
reports make it clear that idiotic policies can still ruin the trend.
analysts are starting to string together some of these trends, and they
inevitably point to better news for the U.S. than for China. Some feel
that it has been a nice run for the Chinese, but all things must come to
an end,” Kuehl states in the current economic update newsletter
Fabrinomics published by FMA.
points out that in 1990 the Chinese share of world manufacturing output
was a paltry 3 percent. Today its share is 19.8 percent and the U.S. is
slightly behind at 19.4 percent.
Chinese built quickly on a base of low wage workers and significant
government assistance as well as a very low valued currency that has
allowed the growth of the export economy,” he says. “The future is not
looking so positive for the Chinese, however. Wages are growing at 17
percent annually, while in the U.S. they are growing at 3 percent.
is just for the average worker’s wage,” he stresses. “If one looks at
the managerial levels and among skilled workers, the rate of Chinese
wage growth is about 135 percent per year; in the U.S. that same group
is seeing wage growth of 3.7 percent. The Chinese pay scale is still far
less than in the U.S., but that gap is closing very fast.”
admits China has made great strides in terms of productivity – an
improvement of 10 times in the last 20 years. Yet, he claims, this still
leaves China at a third of the productivity the U.S. boasts, and the
U.S. is seeing productivity gains of almost 8 percent per year these
amazing observation from all this is that China is not going to have a
cost advantage over the U.S. after 2015,” he says. “If, as expected, the
Chinese are forced by inflation threats to start pushing the value of
their currency higher, the balance could shift pretty quickly. Then
there is the potential for much higher transportation costs as the price
of oil rises. None of this will cause the U.S. manufacturer to shed a
the newsletter article, Kuehl notes the U.S. currently competes with
the Germans in terms of the value of their manufacturing, as these
nations combined cover almost 80 percent of global value. “These are the
countries that supply the high value manufactured goods while the
Chinese are still focused on the cheaper consumer goods,” he explains.
“The U.S. will see that lead expand, but there will be competition from
China in these areas as they will see these more expensive goods as the
only way to retain some competitive edge.”
believes that for both nations future emphasis will be on the domestic
market and that could well be significant for the U.S. manufacturer in a
variety of ways.
China shifts its attention to its own domestic market and away from
exports, it will allow U.S. producers to recapture domestic market
share,” he says. “As the U.S. manufacturing company looks to its own
market, it will be generally better positioned than the Chinese
competitor as the distribution infrastructure in the U.S. is better
suited than China’s.”
to Kuehl, most everything in China’s transportation network is
currently pointed out of the country to service export, and its internal
transportation system is often inferior. China will need some
infrastructure work to be able to service its domestic markets as
effectively as U.S. suppliers are able to service American customers.
is not to say that China will cease to exist as a global competitor,
but it does suggest that the same patterns that affected other fast
growing nations have started to impact them,” he says. “Japan looked
unstoppable in the 1970s, and they faded over time. It now appears to be
the beginning of China’s return to earth.”