China's vast interior helps the country deepen influence in global manufacturing

(JW Insights) Oct 10 -- In the contest to knock China off its perch as the world's factory floor, countries such as Mexico, India, and Vietnam face a formidable rival: China's vast interior, reported the Wall Street Journal in an article titled “China's Factory Floor Is Moving—But Not to India or Mexico” published on October 7.

Low-cost manufacturing is expanding away from China's bustling coast as companies hunt for cheaper land and labor in central and western provinces. The migration has accelerated in recent years as U.S. tariffs push up costs for factories, and China's coastal megacities focus on high-tech electronics, electric vehicles, and other advanced industries.

The result has been an export boom for China's inland provinces that dwarfs the acceleration in overseas sales enjoyed by would-be rivals to China's manufacturing crown.

As inland China develops further, it is helping China deepen its dominance in swaths of global manufacturing, even as Western nations grow wary of China as a supplier for critical industries such as semiconductors and renewable energy, reported the Wall Street Journal.

The U.S. and its allies are dangling subsidies and other incentives to persuade businesses to embrace alternatives to China, though a sizable shift in companies' sourcing is likely years away, economists say.

“China is going to be a major player in global manufacturing for the foreseeable future,” said Gordon Hanson, an economist and professor of urban policy at Harvard University's Kennedy School, who explored the possibility of more manufacturing moving to inland China in a 2020 paper.

“China just has too much capacity for the world not to need to rely on it for a good while.”

Since the start of 2018, exports from 15 of China's central and western provinces have rocketed 94% as factory production expanded beyond the Pearl and Yangtze River deltas that are the engine rooms of China's industrial economy, reported the Wall Street Journal.

In the 12 months through August, those provinces exported a combined $630 billion—more than India's $425 billion, Mexico's $590 billion, and Vietnam's $346 billion over the same period, according to official figures compiled by data provider CEIC.

Exports from China's interior have been growing faster than those countries' exports, too, despite the surge in interest in alternative locations for manufacturing other than China.

China's coastal provinces, which encompass manufacturing hubs such as Guangzhou and Shenzhen in the south, Ningbo and Shanghai in the east, and Qingdao and Tianjin in the northeast, remain the powerhouse of global manufacturing.

Economists say loosening China's grip on global manufacturing will be tough.

One advantage for China is its scale. As Japan, South Korea, and other countries in East Asia industrialized during the 20th century, they quit manufacturing products such as textiles or furniture to concentrate limited factory capacity on higher-end products, such as cars and consumer electronics.

China, by contrast, has maintained a stranglehold in manufacturing all sorts of goods, a testament to its factories' ability to keep down overall costs even as the average wages of Chinese workers have risen.

All that means up-and-coming manufacturing nations such as Vietnam, India, and Bangladesh face sizable challenges in competing with China, economists say, according to the Wall Street Journal report.

(Li PP)