Why China will remain the world’s top manufacturing destination?

Despite its slowing economy, China is in no imminent danger of losing its position as the manufacturing hub of the world. Chinese manufactured products are still appealing to overseas customers because of their cost advantage, while a growing middle class within the country is expected to support domestic efforts to produce more, higher-margin branded items.

China is often called the world’s factory. In 1990, the country contributed less than 3% to global manufacturing output. Today, estimates place this at nearly a quarter of the total and manufacturing value-added in China is calculated to be more than $2.5 trillion, according to manufacturing analyst group, MAPI. The tagline, “Designed in California. Assembled in China”, sums up China’s role. Many global businesses have turned to the Asian economy for its manufacturing prowess. Nearly half of all items in a typical Western household are made in China, according to a recent report by Popular Science. Despite some of the negative headlines about a downturn in the country’s economy, China remains the world’s number one manufacturer – for a number of good reasons.

First, China excels at both low-cost and upmarket manufacturing – thanks largely to its access to large domestic reserves of minerals and metals. As well as exporting many crude products, China is also making more of the components that go into finished, manufactured goods. According to the World Bank, the share of imported components in China has fallen from 60% in the 1990s to around 35% today. This is because China now has efficient suppliers that other manufacturing nations struggle to replicate. For factories based in China, this means effective, easy to access local supply chain for supplementary products and services. China’s position in “Factory Asia” is central to its status as the key global manufacturer. “Factory Asia” is the term used to describe the industrial interconnections and supply chain links which span the region. A number of multinationals, including Samsung, Microsoft and Toyota have production lines in countries such as Myanmar and the Philippines – companies which are strengthening the region’s supply chain by maintaining China as their manufacturing hub. This in turn bolsters China’s local suppliers and increases their expertise.

Another reason why manufactures pick China is because of indigenous demand. China’s economy is worth over $11 trillion, according to figures reported by The Economist in September last year – nearly three times the value of India’s economy. Greater sophistication and purchasing power for China’s middle class, whose population will reach 340m this year, has fueled demand for locally produced, higher-margin branded items, which has benefited the manufacturing supply chain. China’s famously large population provides factories with a steady stream of employees and employers have access to a labour force with a variety of skillsets and expertise.

Chinese infrastructure

China also has excellent infrastructure, having built a nationwide network of transport links and that includes highways, high-speed railways, deep sea ports and airports, illustrated by a recent KPMG report, entitled “Infrastructure in China”. Seven of the world’s busiest deep sea ports are located in the country and under its 13th Five Year Plan, China is set to build ten airports a year until 2020. As the country’s infrastructure has developed, factories have been able to move away from Tier 1 cities and take advantage of new and cost effective free trade zones and manufacturing plants. Nanjing, a Tier 2 city in the Yangtze River basin, is one of China’s leading producers of IT, petrochemicals and automobile components. Other popular Tier 2 locations for factories include Wuhan and Chongqing.

Digital Silk Road

Along with transport infrastructure, China has built a robust network of technical infrastructure that spans the country. It has invested over $25bn in its telecommunications industry and Chinese network providers have intercontinental cables that connect Europe and Asia – known as the Euro-Asia network – providing factories with secure, resilient, high speed data connectivity across Tier 1-4 cities. For high-tech factories and businesses, China has a network of high bandwidth point-topoint data connections, known as International Ethernet Private Lines (IEPLs) for next generation Ethernet connectivity. Today, data can travel between a factory in China and its corporate headquarters in Europe in less than 150 milliseconds, which is faster than the blink of an eye.

For manufacturers who want to sell to the local market via an ecommerce portal or an app, China has hundreds of collocated data centres (DC) and Points of Presence (PoP) across Tier 1-4 cities.

These efforts to upgrade its manufacturing status are built upon its strength in raw materials, and increasingly, the country is looking to reserve its high grade resources for domestic value-addition into higher-cost manufactured products, rather than simply shipping minerals and metals out to global centres of high-tech products and engineering, such as Japan, Korea, the US and Europe. Although slowing GDP growth has tested the country’s ability to sustain its enormous raw materials capacity, China will continue to be the centre of Factory Asia and will remain pivotal for overseas businesses looking to establish manufacturing links with Asia. To find out how we can support your business in China, please contact EMEA.Marketing@chinatelecomglobal.com or visit www.cteurope.net.