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News : Global Economy Last Updated: Mar 15, 2011 - 4:06 AM

China became the world's biggest manufacturer in 2010; US loses crown held since 1895
By Michael Hennigan, Founder and Editor of Finfacts
Mar 14, 2011 - 4:18 AM

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A materials flow chart of Stegman Tool Company, Inc., Troy, Michigan.

China became the world's biggest manufacturer in 2010, overtaking the US which had held the crown since 1895.

US consultancy IHS Global Insight estimated that in 2010, China accounted for 19.8% of global manufacturing output, compared with the US share of 19.4%.

China was the world's biggest manufacturer until it was overtaken by Britain in 1850 and then the US became the dominant manufacturer from 1895.

In 2000, the advanced countries in Western Europe, North America and Japan, accounted for 72% of global manufacturing output, down from 80% in 1990. By 2010, the wealthy nations accounted for a little more than half of world goods production. The BRIC countries (Brazil, Russia, India and China) accounted for just over a quarter of the total, up from 11% in 2000.

China's share of factory output was 6.9% of total manufacturing  in 2000; its share has tripled in a decade.

The US with 11.5m workers is hugely more productive than China which has 100m employed in the same sector.

China's manufacturing base is skewed towards a dependency on cheaper goods in such sectors as textiles, apparel, appliances, as well as certain commodities. Textile, apparel and appliances together make up 25% of Chinese manufacturing, compared to 13% in the United States.

The US manufacturing base is dominated by sectors such as aircraft, special industrial machinery, medical and scientific equipment and media-related industries, including software.

China's electronics sector is dominated by foreign-owned firms.

In 2010, the UK slipped 2 places behind France, which was in 7th place in terms of global share. According to the league table, Italy was in fifth position and Brazil in the sixth rank, with China, the US, Japan and Germany in the top four slots.

In the US, services overtook goods as the dominant sector in the economy in 1958 and now accounts for almost 70% of economic output.

Last September, Xi Jinping, Chinese vice-president and the heir apparent to Hu Jintao, said foreign-invested enterprises accounted for 22% of tax revenues, 28% of added industrial value, 55% of foreign trade and 45m jobs in China.

A report published last month says China’s economic development as measured by its gross domestic product is still sustained primarily by industry. Exports and investment deliver the bulk of growth - - and have done so for the past four decades. However, services have become steadily more important since the 1980s, bringing their share of economic output close to that of the secondary sector.

World manufacturing production 2010

Country Man. Output ($bn) Change on 2009 (%)
1 China 1,995.40 12.3
2 United States 1,951.60 6.6
3 Japan 1,027.40 18.6
4 Germany 618 11.1
5 Italy 315.2 5.8
6 Brazil 273.7 9.9
7 France 253.3 4.7
8 South Korea 239.2 12.8
9 United Kingdom 235.2 3.8
10= India 217.8 10.7
10= Russia 217.8 9.7
12 Canada 194.8 7.7
13 Mexico 180.6 10.5
14 Indonesia 180.4 4.4
15 Spain 164.9 2.4

World Total 100,783 9.7
Share of world manufacturing output (%)
Country 2000 2010
China 6.9 19.8
Brazil 2.1 3.1
Russia 0.8 2.2
India 1.2 2.2
Total for 4 countries 11 26.9
Position in manufacturing  league table
Country 2000 2010
China 3 1
Brazil 10 6
Russia 21 10
India 14 10

Source: IHS Global Insight

Also last month, Mark Perry, a professor of economics at the University of Michigan, Flint - - a key automotive manufacturing centre, said in The Wall Street Journal (via blog post) that taken on its own, US manufacturing would rank today as the sixth largest economy in the world, just behind France and ahead of the United Kingdom, Italy and Brazil.

Prof. Perry said: "Our world-class agriculture sector provides a great model for how to think about the evolution of US manufacturing. The US produces more agricultural output today—with only 2.6% of our work force involved in farming - - than we did 100 years ago, when farming jobs represented almost 40% of the labor force. Likewise, we're able to produce twice as much manufacturing output today as in the 1970s, with about seven million fewer workers. That means yesterday's farmhands and plant workers can become today's computer engineers, medical doctors and financial managers."

Deborah Wince-Smith, the president and CEO of the Washington DC-based business group, the Council on Competitiveness, told a House Energy & Commerce Subcommittee in early March that the multiplier effect of American manufacturing makes it the cornerstone of any robust economic recovery.

The comments came during her testimony to the Subcommittee on Commerce, Manufacturing, and Trade during a hearing titled, “Made in America: Innovations in Job Creation and Economic Growth."

"The US manufacturing sector is a key engine of innovation, wealth generation, job growth and national security,” Wince-Smith said. “America cannot retain its position of leadership in the global marketplace without a robust and vibrant industrial base.”

The Council’s chief executive also articulated the vision of America’s leading CEOs on the path to manufacturing competitiveness, found in the Council’s most recent publication, Ignite 1.0. The report features specific recommendations from over three dozen chief executives on a broad set of topics that include energy policy, capital costs and US education in science and technology.

Ignite 1.0 is the first in a three-part series to be released by the Council’s flagship US Manufacturing Competitiveness Initiative (USMCI). The initiative will draw insights from university presidents and labor leaders in the second and third installments in the series. The USMCI is focused on developing a comprehensive National Manufacturing Strategy to deliver to Congress and the Administration at a national summit in December 2011.

Meanwhile, the US Business and Industry Council said in a recent report (pdf) that migration of prime contractors overseas inexorably pulls much of their supply chains with them. The export of blue-collar production work leads to the export of white-collar manufacturing-related work, as companies seek the advantages of locating researchers and designers near the factories they service.

In fact, there is a continuous feed-back loop between R&D efforts and the factory floor, with the two functions, R&D and production, operating in tandem. And the report says as is well documented, R&D and other technology work often produce a clustering effect, which draws labs and similar facilities from other industries in search of new synergies. The notion that the United States will retain high-end design functions while letting production migrate overseas is wishful thinking. Without major globalization policy changes, this vicious cycle of manufacturing flight cannot be turned into a virtuous cycle of manufacturing resurgence.

The report says that the United States should focus any new trade agreements on high-income countries capable of serving as final consumers of US exports. Washington’s recent focus on third world countries capable of serving only as re-export platforms has been a substantial contributor to today’s current trade deficits. In particular, the United States should seek a free trade agreement with Europe that excludes agriculture. Washington should also take stronger measures to open Japanese and Korean markets, including unilateral tariffs if necessary.

Charlie Szews, Oshkosh Corporation CEO discusses the state of employment in the US manufacturing sector:

US China-Trade

The US trade gap with China was $273bn in 2010, up from $84bn in 2000.

Data from the US-China Business Council reveal how in nine years the amount of goods imported from China has tripled in size.

In 2000 the value of goods imported was at $100bn but by 2009 that figure was at $296bn. In comparison the US exported $69bn worth of goods to China.

Table 1: China's Trade with the United States ($ billion)
Notes: US exports reported on FOB basis; imports on a general customs value, CIF basis
Source: US International Trade Commission
  2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
US exports 16.3 19.2 22.1 28.4 34.7 41.8 55.2 65.2 71.5 69.6
% change 24.4 18.3 15.1 28.5 22.2 20.6 32.1 18.1 9.5 -2.6
US imports 100.0 102.3 125.2 152.4 196.7 243.5 287.8 321.5 337.8 296.4
% change 22.3 2.2 22.4 21.7 29.1 23.8 18.2 11.7 5.1 -12.3
Total 116.3 121.5 147.3 180.8 231.4 285.3 343 386.7 409.2 366.0
% change 22.6 21.4 21.2 22.8 28 23.3 20.2 12.7 5.8 -10.6
US balance -83.7 -83.0 -103.1 -124.0 -162.0 -201.6 -232.5 -256.3 -266.3 -22

The Re-emergence of China

According to the late eminent economic historian, Angus Maddison (1826-2010), until 1800, about three fifths of the world’s commerce and production took place in and around China and India. So did much of the world’s scientific and technological progress, including the Chinese invention of paper, explosives, and printing, and medieval India’s launch of modern mathematics. In the early 1830s, when President Andrew Jackson sent the first US envoy across the Pacific to Siam (Thailand), Asia still accounted for over half of global GDP (gross domestic product).

It's important to understand that the current post-Mao Zedong modernisation of China, is not a simple story of a backward country achieving an economic miracle. A vast unified country over a span of two thousand years, overwhelmingly dominated by one ethnic group, the Han, was a pioneer in bureaucratic modes of governance. Maddison says that in the tenth century, it was already recruiting professionally trained public servants on a meritocratic basis. The economic impact of the bureaucracy was very positive for agriculture

They nurtured it with hydraulic works; printing enabled the distribution of illustrated agricultural handbooks; farmers settled in promising new regions; a public granary system to mitigate famines was established. They fostered innovation by introducing early ripening seeds which  permitted double or triple cropping. New crops were introduced  - - tea in the T’ang dynasty, cotton in the Sung, sorghum in the Yuan, and new world crops such as maize, potatoes, sweet potatoes, peanuts and tobacco in the Ming.

From the nineteenth century, internal rebellions and colonial intrusions resulted in China's share of world output falling from one third in 1820 to one twentieth by 1952. Its real per capita income fell from 90% to less than a quarter of the world average. Nineteen foreign powers established colonial enclaves; three wars were fought with Japan and two with France and the UK, the Boxer rebellion in 1900 involved action with an international force including Americans from their new colony of the Philippine Islands; Russia seized 10% of Chinese territory in the 1850s in what is now Eastern Siberia and in the first years of the Chinese republic from 1912, it helped detach Outer Mongolia. After all these foreign wars, the victorious powers exacted large financial indemnities.

Professor Maddison, a British-born economic historian with a compulsion for quantification, spent many of his 83 years calculating the size of economies over the last three millenniums. In one study he estimated the size of the world economy in AD 1 as about one five-hundredth of what it was in 2008.

In his research, he sought to reconstruct thousands of years’ of economic data, in particular in his 2007 book “Contours of the World Economy 1-2030 AD.”He claimed that per capita income around the globe had remained largely stagnant from about 1000 to 1820, after which the world became exponentially richer and life expectancies surged.

In another influential book, Chinese Economic Performance in the Long Run,” in 1998, he tracked the history of Chinese growth since 960. The book demonstrated that China’s recent rise was merely a return to economic superpowerdom, as the Middle Kingdom had already dominated the world economy for many centuries.

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