By India Today Business Desk: China has been the manufacturing hub of the world for decades, but the Asian nation has been gradually losing its position due to a number of factors.
Cheap labour-intensive manufacturing firms largely drove China to become the largest exporter in the world for decades and made it a force to reckon with globally. However, over the past few years, the country's position as the world's factory has been threatened due to the same factors that propelled its economy starting from the 1980s.
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Aging manufacturing hubs that rely on cheap labour are simply not working for China anymore. According to a Reuters report, many Chinese factory bosses who inherited the business from their parents told the news agency that the work environment needs to change as workers do not have the same mindset they had during their parents' generation.
Steven Du, 29, one of the factory owners who took over his parents' factory producing temperature control systems in Shanghai, said, "If you don't improve their environment, the workers aren't as happy and it's harder for them to do their best work." He told the publication that the change is "worth the extra cost."
Shrinking workforce, trade tensions, and fierce competition
A shrinking and aging workforce in China means the country's labour-driven manufacturing expertise is fading, and moreover, it is facing stiff competition from other South Asian nations.
For instance, India and other countries from South Asia are now rolling out the red carpet for major companies around the globe, hurting the lower spectrum of China's industrial base. Simply put, China's low-end manufacturers are rapidly becoming obsolete.
Data from China's statistics bureau indicated that the country lost 41 million workers in just three years due to cheap labour costs and its aging population. China's rapidly aging population is estimated to cross 400 million by 2035, and it is expected to pose a major threat to the country's labor-intensive economy.
Another factor that is hampering China's position as a global manufacturing hub is rising labour costs. It may be noted that China is no longer a low-cost manufacturing hub, forcing major companies to explore cheaper options in Bangladesh, Vietnam, and even India.
In addition to aging labour and rising costs, escalating trade tensions between China and the United States have driven many major tech companies to explore diversifying their supply chain. For instance, companies like Apple and Foxconn are aggressively pushing to expand operations in India – a development that indicates that many companies are narrowing their presence in China or completely moving out.
Also Read | Competition shouldn't veer into conflict, says US state secy Blinken ahead of China visit
China's strict lockdown during multiple waves of the Covid-19 pandemic, which it called the "zero Covid policy," is another reason why major companies around the world are working towards reducing their dependence on Chinese manufacturing.
From big tech to consumer goods, many companies had already started diversifying their backends after the US-China trade war, but Covid accelerated their efforts further after they faced huge losses as a result of the stringent lockdown imposed in the country.
All these factors opened the doors for many South Asian nations, including India, to increase their share of global manufacturing and exports.
India has particularly ramped up efforts to attract the biggest global brands to the country and remains on track to lure in more businesses, supported by its cheap labour availability, young workforce, and improving ease of doing business.
While China still remains the undisputed leader when it comes to manufacturing and exports, countries like India are gradually gaining momentum by establishing themselves as cheaper and business-friendly alternatives to China.
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June 19, 2023 at 02:30PM
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Explained: How China is slowly losing its position as the world’s factory - India Today
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