The rise of new Asian manufacturing centers
In the past 20 years, Bangladesh has achieved an economic miracle. Decades ago, the country was one of the poorest countries in the world, plagued by famine and floods. Today, the country has entered the ranks of middle-income countries. The same is true for Vietnam; Cambodia is not far behind. The astonishing growth of these countries shows that worries about "premature deindustrialization" are superfluous, and a new generation of manufacturing powers is emerging and beginning to shape the 21st century.
Bangladesh’s achievements are particularly impressive because the world pays so little attention to the country. Driven by the textile industry, a classic start-up industry with low labor costs, Bangladesh's growth rate has steadily accelerated to more than 6%. Currently, it is the world's second largest garment exporter. The powerful growth gear began to turn. These textile mills have hired millions of young women, empowered them, promoted rural families to invest in education, and brought demographic dividends.
The growth of these new manufacturing centers is one of the most exciting changes in the global economy. They provide new consumer goods markets, bring huge opportunities for investors, and become a way to lift millions out of poverty. However, as Bangladesh took off, there were doubts about whether other centers could keep up.
Harvard University economist Dani Rodrik has discovered a pattern of premature manufacturing collapse in poor countries: In these countries, the level of development achieved when factories disappear is much lower than in Europe and the United States. From the perspective of output and employment, he used graphs to depict the industrial decline in parts of South America, Africa and Asia since the 1980s. This is bad news for developing countries. As Roderick pointed out, manufacturing is driving productivity gains. It is difficult to get rich without manufacturing.
Since the 1960s, people have sometimes compared Asian economies to "flying geese." When Japan climbs upward in the manufacturing value chain (such as entering the electronics field), Taiwan or South Korea can enter the textile market left by Japan. The result is a stepped development like migratory birds. However, if automation and robotics can now compete with even the cheapest labor, then these opportunities will never show up. Developing countries will be forced to find a new growth model that relies on services, or they will fall into the situation of exporting commodities forever.
Such concerns are wrong. More likely, Bangladesh heralds that poor countries will start a new wave of industrialization; eventually, this wave of industrialization will also spread to sub-Saharan Africa.
Researchers from the United Nations (UN) confirmed that in general developing economies, the share of manufacturing and manufacturing jobs has fallen. But they found that the developing economies as a whole have a record level of manufacturing and manufacturing jobs. In other words, it is not that the manufacturing industry is declining or robots occupy all manufacturing jobs. Rather, all manufacturing industries are increasingly concentrated in one place, leading to a decrease in industry in all other regions. Of course this place is China. Dayan tried to fly over China to migrate elsewhere, but was shot down by China's huge comparative advantage in manufacturing.
If other manufacturing countries want to grow, they must replace China, a major industrial country. The experience of Bangladesh shows that this is possible now. Chinese factories are investing large sums of money in automation and robotics to increase productivity and remain competitive as domestic wages rise. However, we have little reason to believe that the effect of China’s actions will be better than that of the rich countries that China replaced in the 1990s.
Robotics have progressed, but fully automated production lines are still extremely expensive and difficult to adjust. Because of this, the use of robots is rare except in the automotive and electronics industries where the output is high enough. In industries with rapidly changing customer needs like the clothing industry, robots have to wait decades to replace skilled workers who are willing to work for a few dollars a day.
A big deciding factor is whether China will allow its low-tech industries to die, or try to keep them. China's reduction in exchange rate intervention and the weakening of the renminbi have directly helped the rise of new manufacturing centers. On the other hand, China’s extremely high savings rate and investment rate have led to overcapacity and suppressed industrial growth in other regions. Other developing countries should pray for the success of China's economic rebalancing and a preference for consumption. Nothing can speed up their growth more than this.
If the Chinese no longer produce cheap clothing, but consume more cheap clothing, it will mean creating the largest market in history. In the 1980s, China could sell goods to hundreds of millions of wealthy consumers in Europe, the United States, and Japan. Today, there are billions of consumers buying clothes, shoes and toys. Regardless of the degree of automation, the larger market will offset its impact.
For the global economy, countries such as Bangladesh have provided new growth and reduced their dependence on China. This has an important impact on prices in developed countries. One of the reasons for global low inflation is the shock brought by China's entry into the global market. The rise of Bangladesh means that prices will not rise as China's own income increases. There are still many other countries hoping to get rich through manufacturing-especially African countries.
Since the start of the Industrial Revolution in the middle of the 18th century, manufacturing has been a path from poverty to wealth. Although China's embarking on this path has brought a lot of congestion, the road remains open as always. The wild goose is ready to migrate again.
Box: Africa is expected to become the world's manufacturing center in the future
Africa is expected to become the world's manufacturing center in the future. As the Chinese economy shifts from labor-intensive to capital-intensive, 85 million surplus jobs will flow out of China, and Africa has a huge working-age population, which is the ideal place to receive these jobs.
Although the population of Africa accounts for about one-sixth of the total global population, according to the African Development Bank (AfDB) previously released "African Economic Outlook 2017", Nigeria and South Africa contributed nearly half of Africa’s GDP, while Africa’s three Large countries, the combined GDP of South Africa, Egypt and Nigeria only account for 1.5% of the world's total, and Africa's international trade volume only accounts for 2% of the world's total.