Markets & Sectors

China: Manufacturing moves West

8 Jan , 2019  

The traditional picture of China as a land of plains and valleys dotted with villages and subsistence farms dramatically giving way in the east to a great coastal belt of manufacturing metropolises is changing. In recent years a series of government initiatives have emerged both to confront the inequalities implicit in that picture, and to test new ways forward for the economy.

The pace of the country’s economic growth since the late 1970s has been without historical precedent. Its distinctive state capitalist (or socialist market) model has presided over an average GDP growth of almost 10% a year and in 2010 saw its manufacturing industry overtake the USA’s to become the largest in the world.

This remarkable rise has depended in no small measure on international trade. At its peak ten years ago the share of the country’s GDP represented by exports was over a third. It was natural that China’s geographical interface with the rest of the world – its coastal provinces and export ports – should over the course of three or four decades have become its industrial heartland.

The development of China’s manufacturing sector

Privileged as Special Economic Zones, east and south coast cities such as Shanghai, Beijing, Guangzhou and Shenzhen have become the home of factories producing everything from cars and mobile phones to petrochemicals and pharmaceuticals.

That vast areas of inland China have lagged behind is an understatement. The country’s rural hinterlands have traditionally not only suffered relatively neglectful levels of state investment (in such basics, even, like electricity and running water) but, permanently or seasonally, have lost millions of young workers to the pull of the distant cities.

Since the turn of the millennium, efforts have been underway to redress the economic imbalance between the seaboard success stories and poorer provinces inland. The Western Development programme has attempted, largely through infrastructural developments, to improve the attractiveness of western regions to investors.

This drive has involved the state-sponsored introduction of manufacturing operations into areas such as Henan province in the centre of the country. So-called ‘satellite factories’, built by the local government, have been bringing to the nearby population the kind of manufacturing work (typically garments and textiles) that would formerly have drained them from the area.

Besides, China’s once mighty migrant workforce is gradually getting older and some are starting to seek work closer to home. One of the attractions of shifts at local factories is that they can be combined with the continued upkeep of food-producing home farms of the kind that formerly came close to being altogether abandoned.

China’s manufacturing market is open to Western operations

Wages in the new inland factories are typically lower than those on the coast, an inevitable consequence of eastern manufacturing now having advanced significantly up the value chain. Another government initiative – the Made in China 2025 strategy – is fostering the growth, largely on the coast, of the kind of high-tech industries traditionally associated with Europe and the United States.

In July this year Tesla announced plans to open an electric car factory in Shanghai, its first outside the US. Costs of setting up operations will in part be met by the municipal government. Further down the coast in Shenzhen are the headquarters and manufacturing plant of Chinese smartphone OnePlus whose product already successfully competes with Apple on the international stage.

shipping made in china manufacturing products

With governmental, economic and demographic pressures all on simpler factories to consider operations inland, logistics issues need to be sorted out. These are not so pressing when it comes to the movement of goods for domestic consumption (itself an increasingly important aspect of China’s continued economic growth). But for materials destined for export, a landscape of river barges, airports too small for cargo freight and GPS tracking problems requires upgrading.

Infrastructure and the growth of China’s manufacturing sector

But with inland road, rail and air services all being developed by incentive and subsidy, and increasingly supported by the opening up of new warehousing spaces, several geographically central cities – Zhengzhou, Chengdu, Xi’an – are already on the map not just as growing distribution hubs but as potential industrial centres in their own right.

A number of railway projects are, in particular, promising to put the commercial accessibility of western and central China on a par with the east. Starting last year, four cargo trains a week have been shuttling between Zhengzhou and Hamburg in Germany. And this year DHL Global Forwarding struck a deal with the Austrian Rail Cargo Group to construct a continuous rail connection between Vienna and Chengdu.

These moves are part of yet another Chinese government programme, and perhaps its most ambitious. The Belt and Road initiative – unveiled by President Xi Jinping in 2013 – is a scheme for using new infrastructure and overseas investments to enhance China’s connectivity with the western world. The multibillion-dollar enterprise entails the construction not just of railways reaching through Asia into Europe and Africa, but the founding of new ports, industrial zones and diplomatic ventures in over 50 countries.

The expansion of Chinese industry westwards is therefore likely to involve far more than just a new generation of inland textile factories. Whether or not it goes as far as establishing a global network of supply chains funnelling through the land corridors of Eurasia will depend upon certain investment bubbles not bursting (and some economists believe they must).

In the meantime, the opportunities for the rest of the world to do business with China become more numerous and more diverse. Two years ago the government announced plans for seven new Free Trade Zones, the majority of which are inland. And this year Shanghai hosts China’s first International Import Expo, at which more than 800 EU companies will be exhibiting.

Whatever the economic, cultural and logistical challenges posed by the new opportunities, it remains clear that, as its economy continues to transition from rapid growth to sustainable development, China has today opened up more doors than ever before.

, ,


Leave a Reply

Your e-mail address will not be published. Required fields are marked *

Alex Byles

Alex Byles