The world’s factory

China is often referred to as the world’s factory due to its overwhelming presence in manufacturing.  In 2011 it superseded the US in factory production ending a 110-year streak and they hasn’t stopped there in 2017 China accounted for nearly 50% of global manufacturing output. Needless to say, the country lives up to its title, but it wasn’t always the case. Prior to 1978 Chinese manufacturing was almost nonexistent.

       Many aspects of the success of Chinese manufacturing find their origin in the reforms of Deng Xiaoping. He knew that if China was to become competitive it would need to open to the world markets. He dislodged many of the state-owned monopolies and supported the creation of privately-owned business in the country. In the early 1980s he opened the country up to foreign investment through the creation of the free trade economic zones. The cities of Shenzhen, Zhuhai and Shantou of Guangdong Province. These cities today are the great hubs of Chinese manufacturing. While being established in the 80s it would take 10 or so years for the cities to become the hubs that they are today.

      But the question remains why China, and the answer is twofold logistical capability and technical skill. While China’s cheap labor costs seem to be the obvious answer as to its success it isn’t that simple, while labor costs in China are cheap compared to the US and other developed nations, they are still marginally expensive compared with other developing nations such as Vietnam, India or Malaysia. The real catch in Chinese manufacturing is its logistical capability. Due to the close relation between business and the government Chinese factories can expand at scale very quickly, hiring new personnel, expanding physical capabilities and reworking logistics for expanded imports and export of materials, all at minor costs, this is the real hook that keeps business like apple producing in china. The other facet is Chinese technical skill, when we think of manufacturing jobs we tend to envision the assembly line one job fits all approach. This is true in many cases apparel and toys fit this mold, China also assembles highly technical equipment such as cars, phones, and laptops. In these industries workers need to be skilled and thus trained on how to manage equipment and that isn’t cheap. This is where the country shines its ability to scale highly technical manufacturing has been on its greatest accomplishments. As China shifts however from a export growth economy to a consumer grown one we will have to look at how Chinese manufacturing changes.

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