Viewpoint -- What's the Real Threat To U.S. Manufacturing from China?

Nov. 1, 2007
To clearly understand the competition between the manufacturing sector in the U.S and in China, we need to look at some basic facts.

As the table at the bottom of the article describes, for its size, land and population, the U.S. has significantly better infrastructure and economic production than China however China has a much stronger industrial base.

Summary Comparison

Analyzing the data the results are that as compared to China the U.S. has:

  • 2 times the electric and oil production
  • 10 times the natural gas production
  • 2 times the per capita telephone/cellphones
  • 7 times the per capita Internet use
  • 3 times the density of railways and highways
  • 16-25 times the density of oil/gas pipelines
  • 13 times the number of paved airports
  • 30 percent larger GDP (purchasing parity basis)
  • 6 times the GDP per capita
  • 48 percent larger volume of exports (a surprising fact to most people)

However, China has a much stronger industrial base with over twice the industrial concentration in GDP, 5 times larger industrial labor force and 9 times larger industrial growth rate.

China Economy Overview

In late 1978, China switched to a system of household and village responsibility in agriculture in place of the old collectivization, increased the authority of local officials and plant managers in industry, permitted a wide variety of small-scale enterprises in services and light manufacturing, and opened the economy to increased foreign trade and investment. The result has been a tenfold increase of GDP since 1978.

Measured on a purchasing power parity (PPP) basis, in 2004 China became the second-largest economy in the world after the U.S., although in per capita terms the country is still poor. Agriculture and industry have posted major gains, especially in coastal areas near Hong Kong, Taiwan, and Shanghai, where foreign investment has helped spur output of both domestic and export goods.

China's total import and export volume tripled over the past five years, and the amount of foreign direct investment actually used came to $274 billion during the same time period. The Central Committee of the Chinese Communist Party in October 2005 approved the draft 11th Five-Year Plan (2006-2010) and the National People's Congress gave it final approval in 2006. The plan calls for a 20% reduction in energy consumption per unit of GDP and an estimated 45% increase in GDP by 2010. China aims to double its per capita gross domestic product by 2010 from its year 2000 baseline. China also intends to increase its total volume of trade in goods and services to $2.3 trillion and $400 billion respectively by the year 2010, double that of 2005.

According to an article by former U.S. Trade Representatives, Revolutionary China; Complacent America, China's economy has tripled in size since 1980 and continues to grow at 9% per year. It could equal the U.S. by 2020. China is also climbing the tech ladder, investing in ports, coastal-road systems, telecom networks, research centers and universities. It draws $50 billion a year in foreign direct investment, and topped $60 billion in 2004.

There are three trends:

  • Asia is pooling its strengths. In 2003, China's Commerce Ministry calculated that Asian investment puts up about 20,000 'manufacturing facilities' a year.
  • Asia's human capital is improving. The Chinese government builds about 200 new research centers a year. Since the 1980s, Chinese college enrollment has quadrupled to 20 million. Chinese universities now produce 200,000 engineers a year (compared to 60,000 in the U.S.).
  • Asia is saving money. Chinese families save as much as 40 percent of GDP. Our economic growth rests on a consumption and shopping boom, financed by China, Korea, and Japan, which has pushed up current account deficits and overseas liabilities.

Asia has weaknesses too, of course. China, in particular, faces weak finances, environmental stress, severe income inequality, widespread poverty, and an uncertain rule of law. The U.S. maintains many strengths as well, from a robust political system to superior universities, from sophisticated environmental and intellectual property policies to special advantages in medicine and the life sciences.

The authors further identified three priorities that impact U.S. manufacturing:

  • Further currency appreciation in China, deficit reduction, and personal savings incentives in the U.S., and sustained liberalization in Japan and Korea.
  • Our tax policy needs a sharpened focus on encouraging innovation. Both the government and the private sector should increase investment in research, particularly in the physical and information sciences.
  • Ambitious [trade] agreements should be negotiated with the major Asian countries, South Korea and Japan. In addition, strengthened economic ties with India should further ensure a robust U.S. economic presence in Asia.

Although the U.S. presently has a large advantage in infrastructure and productivity, China has plans to catch up. We can't become complacent and miss the economic revolution now taking place in China. Despite China's recent manufacturing miscues, its stronger industrial base is only going to grow stronger. Numbers don't lie.

Metric U.S. China
Area 9,631,418 km2 9,596,960 km2
Arable Land 18.0 % 14.9%
Population (2007 est.) 301,139,947 1,321,851,888
Age over 65 12.6% 7.9%
Pop. Growth Rate 0.90% 0.61%
Literacy Rate 99% 91%
Government Federal Republic Communist
Executive Chief G. W. Bush Hu Jintao
Legislative Senate/House Nat'l People's Congress
Judicial Supreme Court Supreme People's Court
Political Parties Dem./Rep. Chinese Communist Party
Diplomat Clark Randt Zhou Wenzhong
GDP Purchasing Power Parity
(World Bank, 2006)
$13.2 trillion $10.2 trillion
GDP Growth 3.2% 10.7%
GDP per capita (PPP) $44,000 $7,700
GDP Industrial 20.4% 48.1%
Labor Force 149.3 million 791.4 million
Labor - Industrial 23% 24%
Unemployment 4.8% 4.2% urban; 20% overall
Gross Fixed Investment 16.6% of GDP 44.3% of GDP
Budget Expenditures $2,660 billion $490 billion
Public Debt 65% of GDP 22% of GDP
Industrial growth rate 4.2% 22.9%
Electricity production 3.98 trillion kWh 2.5 trillion kWh
Oil - Production 7.6 million bbl/day 3.6 million bbl/day
Oil - Consumption 20.7 million bbl/day 6.5 million bbl/day
Nat. Gas - Production 531 million m3 52 million m3
Nat. Gas - Consumption 635 million m3 48 million m3
Exports $1,445 billion $974 billion
Imports $2,204 billion $778 billion
Current Account Bal. ($758 billion) $196 billion
Telephones/cellphones 1.6 per capita 0.6 per capita
TV Stations 2,218 3,240
Internet Users 70% of population (205 million) 9% of population (123 million)
Railways 226,605 km 74,408 km
Paved Highways 4,164,964 km 1,515,797 km
Gas Pipeline 548,665 km 22,664 km
Oil Pipeline 244,620 km 15,256 km
Airports (paved) 5,119 403
Military expenditures (PPP) $492 billion (4.0% of GDP) $380 billion (3.8% GDP)

Source: CIA World Factbook for the United States and China

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