China has long been known as the "world's workshop," its vast export manufacturing capacity playing a vital role in the global supply chain. Find out why the country’s global significance is only set to grow.
Over the last 40 years, Kingstec has worked closely with manufacturers in China, helping a wide range of companies in North America and Europe maximize their growth. In that time, we have seen many changes in technology and policy, as well as the development of manufacturing capabilities in competing countries, particularly in Southeast Asia.
China, however, is set to continue being a dominant force in global manufacturing. In this blog post, we’ll explore some of the reasons why, including contributing economic factors, investments in infrastructure, the ongoing development of skilled labour, the adoption of innovative technology, and continued government support.
“In the second half of the year, I think that the Chinese economy is going to be on fire.”
This is what José Viñals, Standard Chartered’s chairman, told CNBC at the 2023 World Economic Forum. Viñals believes the global economy will diverge between eastern and western hemispheres in 2023, with Chinese manufacturers strongly outperforming European and North American plants over the next 12 months.
He’s not alone in his bullish outlook for China. Forbes is forecasting that the Chinese economy will grow by as much as 6% in 2023, beating the global average in GDP expansion. This economic growth is due largely to China’s manufacturing and export industries – the country is now the largest exporter of goods and services in the world. Its export volume was $3.36 trillion USD in 2021, the most recent year for which figures are available, and this represented a growth rate of 30% over the previous year.
The growth of the manufacturing sector, and the overall Chinese market, continues to improve the standard of living. According to Goldman Sachs, China’s blue collar incomes are benefiting the most from the country’s economic expansion, leading workers to broaden their spending to improve amenities in their own homes – thereby creating a growing domestic market for manufactured goods.
The benefits of this increased prosperity is not impacting one of the country's main manufacturing and exporting advantages: labour costs. While the average hourly labour cost in the US is $22, the comparable wage rate in China is closer to $4. So, even with China’s rising prosperity, your business can still expect to reduce labour costs by roughly 80% by offshoring manufacturing there.
Overall, the continued growth of China’s manufacturing sector and middle class has emboldened investment across the country, further improving the capabilities of its facilities and labour force.
Unlike other competing countries in Southeast Asia, China has developed a unified, national infrastructure that rivals – and in many cases outpaces – western countries. More importantly, the Chinese government very wisely designed its transport systems to support and stimulate its manufacturers, creating an extensive, integrated network of ports, highways, and railways that have one primary goal: to move raw materials and manufactured goods to market in safe, orderly, and efficient ways.
China now boasts over 40,000 kilometers of high-speed rail. That’s in addition to its 169,000 kilometers of modern highways. Across the country, there are also 248 civil airports, all of which are open for regularly scheduled cargo flights.
Looking at marine transportation, China’s coastal ports offer over 2,200 berths, each of which can handle at least 10,000 tons of deadweight. That doesn’t include the 452 similar berths in China’s inland river ports.
Beyond transportation efficiency, China’s domestic manufacturing industry is advanced, interconnected, and diverse. Working with Kingstec, you'd be tapping into 40 years of experience and contacts in the Chinese markets, allowing your business to leverage a logistical network that can manage its entire supply chain within a single country, limiting customs and admin hassles.
China has a working-age population of over 880 million people, of whom 218 million attended university. It’s a young and energetic workforce with an overall average age of just 39.
The average level of education within the Chinese workforce is also rapidly rising. Among younger workers, the average years of schooling is now 14 years, lifting the overall national average to 11 years. The imminent retirement of the aging baby boom generation will boost China’s average education level even higher in just a few years. For perspective, the average years of schooling in the US is 13 years, while the global average is nine.
It’s important to note that China’s education system places an emphasis on technical and vocational skills, which develops practical capabilities that can be applied in the workforce. The country has developed a variety of vocational training programs to help students enter specific industries – such as manufacturing and engineering – ensuring there is always a pipeline of well-trained, emerging talent.
In 2021 alone, 31 million students were enrolled in technical courses in more than 11,300 vocational training schools. The result is the continued development of a labour force that is already far more skilled and experienced than competing countries in Asia and beyond.
China is second only to the United States in its investment in research and development (R&D). Overall R&D spending in China exceeded $455 billion in 2022, an increase of 10.4% over the previous year.
China's intelligent manufacturing equipment industry now generates roughly $419 billion USD in revenue while industrial software product sales exceeded $33.5 billion USD last year.
Over the past ten years, 110 Chinese factories have attained the international advanced level of intelligent manufacturing, according to the Ministry of Industry and Information Technology. In that time, manufacturers have built over 2,000 new, high-level digital workshops and smart factories.
These facilities manufacture a wide range of cutting-edge technology products, including intelligent manufacturing equipment, aerospace components, computer technology, high-tech ships, marine engineering equipment, energy equipment, construction machinery, and household appliances.
China’s manufacturing sector is also a leader in the production of cutting-edge industrial robotics. And as a result of this domestic production, the number of robots used in China’s manufacturing sector has reached 322 per 10,000 workers, 13 times the level used just ten years ago.
This level of technological innovation and adoption has enabled Chinese manufacturers to apply automation to production lines and materials handling, cutting labour costs while also helping to boost productivity and overall product quality.
Back in 2006, China implemented the National Medium and Long-Term Program for Science and Technology Development, a comprehensive plan to boost the country's science and technology capabilities. The program focused on 402 core technologies that were identified as critical for the country’s future development, including information technology, biotechnology, advanced manufacturing, clean energy, and more. The goal was to enhance China's competitiveness, and led to substantial investments in research and development, as well as ongoing collaborations between government, academic institutions, and private industry.
The country has since maintained its innovation-driven development strategy, promoting scientific and technological innovation to upgrade industries, further streamline supply chains, and improve quality assurance in manufacturing.
The new goal for China’s leadership is to make the country a driver of the Fourth Industrial Revolution (Industry 4.0), including 5G, the Internet of Things (IoT), artificial intelligence, and advanced robotics. The Made in China 2025 Plan, announced in 2015, prioritizes R&D in these areas to enhance manufacturing efficiency and quality.
The government has also encouraged further innovation by:
China’s ambitious drive for innovation is also not limited to its own borders; its global Belt and Road Initiative (BRI) has a footprint in 147 countries and territories around the world. Through the BRI, Chinese manufacturers are establishing a network of manufacturing, processing, and assembly facilities on a global scale. The benefits are twofold: international plants can now serve local markets in host countries and tap into the thriving Chinese market.
By further expanding and diversifying its already strong and interlinked supply chain, the BRI will only reinforce China's position as a global economic power.
It’s clearly an important moment in China’s history and all signs point to the country continuing to be the dominant, innovation-driving force in global manufacturing and exporting. If you’re looking to maximize your business’ growth, partnering with Chinese contract manufacturers is your best bet – now more than ever.
Kingstec has worked with China’s leading facilities for over 40 years and can help your business navigate this exciting market, acting as an extension of your mechanical and electrical engineering, design, and logistics departments.
Call us today to learn how your business can partner with China’s world-class, cost-efficient manufacturers.
