China: From “Workshop” to “Economic-hub”

china.jpg Ever since China’s prominence in the global arena began to grow, Western observers often described her as the “workshop of the world”. And there was reason enough to do so. China mastered the art of mass production. And one must admit it was a pretty good strategy. The country neither had a skilled labor force, nor the expertise to manufacture high-end products. One could even put it down to a paucity of innovative ideas. What they did have (and still have!) was a mammoth size labor force, large tracts of natural resources, a coastline they made the most of, and most importantly, a strong political will; the really amazing bit is how they managed to leverage all these factors to attain favorable and desired outcomes.

But things are changing, and changing for the better! A series of recently concluded research papers by the IMF shows the changing structure of China’s exports and production structure. China earlier played the role of an intermediary. Components were imported, assembled in Chinese factories, and then exported all over the world, hence the ‘workshop’ tag However, the margins in such trade were not very high. Also, exports mainly consisted of textiles, apparel and footwear. Needless to say, these products are highly price elastic, a small change in price and the consumers would shift to other producers,(we’re not talking about Chanel and Lacoste but the made in China stuff whose USP is its competitive price rather than quality or brand name), thus forcing manufacturers to operate within tight margins.

However, it seems China is gradually moving towards high end products (not as yet into services though). A greater proportion of China’s exports are becoming more technologically intensive. Apparel and textile exports are still significantly large, but their share in total exports has declined considerably. Now, it’s not really possible to manufacture technologically intensive goods without having a skilled labor force. Another significant development is the fact that the Chinese are using greater domestic content in their exports.

These to my mind are healthy signs for any economy. China seems to be keen on shedding its workshop image and these trends are steps in that direction. It no longer just assembles parts but actually manufactures the components thus inducing the development of skills in its labour and sophistication in its production process. The fundamentals of the economy are becoming stronger. India had better watch out, as the other Asian Giant makes its claim to the ‘economic hub’ title and in style.

Sromon Das