A decade that turns china into economic giant

 

As China begins to reopen its factories and return back to work, what they are returning to will not be the same despite China being the world's economic power for the past 40 years. The balance of the world's economic power has begun to shift towards some places.In fact we are already starting to see some signs of other nations around the world rising up.

In order to take away some of China's manufacturing prowess away from them and who knows we might be witnessing the creation of the next generation of economic superpowers right in front of our very eyes but the reason that this is happening is a little bit complex it started a few decades ago in 1970s in  China.

when the country began shifting its economic policy away from communism and more towards capitalism they soon began building specific economic zones where massive ports and factories could be built that would maximize productivity and efficiency. Once these economic zones were opened up to foreign trade and investment, China's economy began exploding in the 1980s.

Many Fortune 500 companies began having their products manufactured in China because China could make their products with a similar level of quality but for a substantially lower price than if they were to have been manufactured in the West and this was largely because of the extremely low wages that Chinese workers made along with other factors like tax laws and import-export efficiencies so all of a sudden if a competitor chose to manufacture their products outside of China they simply could not compete on price which would likely have made them go out of business so that is when everything began getting made in China.

By the 2010s, one-third of all products on the planet were manufactured in China and within the span of 50 years, China had turned itself around from an impoverished nation of farmers to a nation that has the second largest economy in the world behind the United States.

Now despite all of this success there have been a few strange things that have happened over the past few years now here's a question,  what happens when a country who builds its economy based upon low labor costs all of a sudden becomes very wealthy well here's what happened to China in 1990.

The average yearly wage from a Chinese worker was about a hundred and fifty dollars u.s. by two thousand five it was two thousand eight hundred dollars in 2015, it was eight thousand nine hundred dollars and as of this year.The average Chinese worker makes around thirteen thousand five hundred dollars that is a massive increase where we have seen the average wage of a manufacturing worker increased by over eighty five hundred percent over the last thirty years.

What this means today is that the cost of making products in China has become a lot more expensive than it used to be companies can't make products for an eighty percent discount in China anymore like they used to and because of this we actually began to see a decline in manufacturing in China in 2016 where for the first time in the country's modern history their manufacturing output actually decreased by two percent but the success of China's economy was only the first factor coming into play when talking about the decrease in its manufacturing output after 2016.

China once again saw modest increases in manufacturing output until the United States imposed tariffs on imports from China this caused a decrease in Chinese imports to the US by seven percent in 2019 and forced many companies to begin looking for product sourcing in other countries and if that wasn't enough privacy concerns and tensions between China and the Western world have been on the rise ever since the country began taking over part of the world's tech sector and ever since then governments around the world have been actively trying to push Chinese technology out of their countries while also incentivizing businesses to make their products domestically instead of China.

In fact just last week the Department of Justice in the United States has requested that the FCC terminate China's telecom authorization in the United States citing it as a national security risk and all of these things from rising labor costs to geopolitical issues have led us to today and the pandemic you see even though this China sourced manufacturing has been slowing down over the past decade the country still remains the largest manufacturer in the world so once the pandemic rose out of Wuhan and caused a shutdown of China's manufacturing sector many countries began to run out of essential goods that they needed simply because they relied upon China to produce them and had no backup plan. So for example China is the leading manufacturer of medical equipment in the world so when the world needed an  increase in the supply of masks ventilators and gloves they could no longer get them from their relied upon manufacturer

China is also the second largest producer of drugs and medicinal ingredients in the world so when the pandemic hit roughly 100 commonly used drugs were reported to be in a shortage by the FDA and these shortages didn't just hit the medical sector but they hit virtually every other industry all of a sudden small businesses looking to get inventory for tech fashion or any other kind of business began to see one to two month long delays on their orders and this seemed to be the final straw for most of the world to change their manufacturing strategy you see many companies in the last several months have realized that they had too many eggs in one basket and relied too heavily upon one nation in order for their business to run properly.

Japan announced a 2.2 billion dollar incentive plan to move their manufacturing base out of China and into Japan while also diversifying into other Asian countries and a recent report from Tokyo found that roughly 37 percent of more than 2600 companies surveyed said that they were planning to move at least part of their manufacturing to a country outside of China now that brings up the next question as China's manufacturing sector beacons to shrink and every other nation around the world begins to look to other countries to source their goods from who will be the biggest beneficiaries of this shift out of China

Well the first of which is another Asian country that has been quietly going through an economic boom over the last several decades in the year 2000 Vietnam was a country that was experiencing extreme poverty throughout its population of nearly 100 million people in fact the GDP per capita of Vietnam was a paltry 390 dollars at the time then they were dealt a gift from the economic gods as China's population began to become somewhat wealthy.

In the 2000s apparel companies like Nike began building factories in Vietnam because it became substantially cheaper to manufacture some products in Vietnam as opposed to China and in the following decades many other companies began to do the same as China's wealth began to accelerate into the 2010s Vietnam's manufacturing sector began to accelerate as well.

Today Vietnam is now considered a middle-income country with a GDP per capita of roughly $3,000 and keep in mind that this shift from extreme poverty to middle income has occurred within just 20 years making it one oft he fastest growing economies in history and if this trend were to continue we could see a Vietnam surpassed the likes of the United Arab Emirates Singapore Iran and even Hong Kong.

In terms of economic power within the next several decades another country that has benefited a lot from China's manufacturing downturn especially over the last two years has been Mexico tempest capital has estimated that Mexico will be receiving between 12 billion and 19 billion dollars in Chinese manufacturing redirects per year for the near future and in fact one survey of a hundred and sixty executives by fully and Lardner suggested that two-thirds of large corporations in the United States were planning on moving at least part of their manufacturing base out of China and into Mexico within two years.

Now who knows how many of these companies will actually follow through with their plans but there's a lot of data that is showing how Mexico is already becoming a bigger manufacturing hub of the world for example in 2017 Mexico's exports to the United States have increased by roughly fourteen percent to a whopping 320 billion dollars and just in perspective that is about 42 percent of what China exports to the United States so they're still quite a ways away but they are gaining ground every single year but arguably one of the most intriguing countries that has benefited in recent years is India.

India has about the same population as China with 1.3 billion people but the difference is that India is still largely an agricultural society with a much poorer infrastructure roughly half of the workforce in India still works in some way in the agricultural sector and just for comparison roughly five percent of the American population works in agriculture regardless since 2002 India's economy has grown from a GDP per capita of 470 dollars to roughly two thousand one hundred dollars in 2020 and this economic growth has resulted in India lifting more than 300 million of its citizens out of poverty over the last 18 years but here's the thing unlike a country such as Vietnam

India's growth has not come from manufacturing that has actually come from service based industries like banking retail and information technology except there was one economic experiment that began being run at the start of 2014 and that was cellphone manufacturing so at the start of 2014 India was manufacturing about 10 million cellphones a year but by the end of 2019 India was producing roughly 150 million cell phones per year and quickly became the second largest cellphone manufacturer in the world and despite this massive ramp up in manufacturing of cell phones India's infrastructure is still seen as too inadequate right now for them to become the next China but with big investments from companies like Apple who have begun making some of their iPhones in cities like Chennai we might see an expansion of India's manufacturing sector in the near future and one key advantage that India has is a large young workforce and an extremely low cost of labour currently in India the average manufacturing laborer makes about $5 per day

Meanwhile the average Chinese manufacturing labor makes about 28 dollars per day this has made India a more attractive place for some companies to take a risk and manufacture their products in India even if they run into some infrastructure problems along the way so if India were to fix their infrastructure and capitalize on manufacturing in the same way that China did in the 1990s we might see India become the third true economic superpower of the world behind the united states and china but again that is a big if so even though there are some countries that are benefiting from China's downturn in manufacturing that does not mean that China will be giving up its mantle for being the world's Factory anytime soon it looks like we might be at least twenty years away before another country catches up to the likes of China

In terms of manufacturing output but this brings up the question if the likes of Vietnam Mexico or India become the new China and reach a wealth standard that China reached in the 2010s then what will the next manufacturing hub be well some say that within 50 years with enough advancements in AI and robotics many products will be produced domestically by each country but if that doesn't happen within the next half century there is an entire continent with a large population and cheap labor force that is already being viewed as an economic battleground between the United States and China.