It would be unquestionable that China is the Workshop of the world if it was a few years ago. But now, this is a controversial thesis, comparing the current influence of the economy in international supply chains with other fast-growing countries. The more China grows in its economic size and variety of jobs, working as the world’s factory, the more companies and countries withdraw the capital and business from China. Though Apple’s assembly line of computers and mobile devices used to be based on Chinese factories, the firm is bringing a part of production back to the U.S. from the country. Even the domestic companies have decisions to offshore production from China to other emerging economies like India, South East Asian and African countries. How is China losing its superiority as the world’s factory, and what economic rolls is it expected to play in the next stage of development?
No more cheap labor
Although labor was so cheap and plentiful that few other countries could match it, the workforce is shrinking especially in simple labor such as assembly lines of electronic devices. This is mainly due to ageing population of the country thanks to the government’s one-child policy, but more significantly, the wider range of job opportunity as a result of economic growth gave factory workers less incentive to stay in the exhausting part of the assembly line for the conventional level of salary. As the wage rises, company executives started to re-shore production from China to their home country or relocate manufacturing plants to other developing countries. It is almost common sense that China is out of choice when outsourcing production.
Insufficient investment in R&D
If China has something to blamed for the current slowdown in the economic growth, though the economy still expanding by 7.8% in the third quarter this year, it might be that the country failed to develop infrastructure for R&D. The track record or financial networks to support the sort of speculative research is indispensable for innovation. However, few Chinese companies have established these foundation of R&D, just scaling up their business size with profits by copying foreign products. This caused the country to build its industry upon existing technology and never let it leave from the low-price-and-good-quality standard, even that is being outdated in the recent inflating labor cost.
Scarce manager-class human resources
As the business scale in China expands, the country faces difficulty in finding talent to fulfils the needs for entrepreneurs and executives. There are few qualified human resources who can command a large enterprise and even who operate an office or store as a middle manager. The scarcity of manager-class workers is partly because China’s higher education system is still in the process of development, yet the country’s history of growth in which it’s own corporate governance has not been formed, relying too much on FDIs and foreign company’s capital control, is more in charge.
Conclusions
China is now standing at a turning point where one leads back to the Workshop of the world with no more advantage of cheap and plentiful labor, and another to a different type of economy that leads the world industry by creation and innovation. If China chooses the second one, it has to come through at least three challenges; labours with productivity that is globally competitive in terms of cost effectiveness not of cheapness; investment into infrastructure of R&D that enables companies to create tools for creation; and completion of higher education to meet the demand for managers in the economy. In addition, it is also important to arrange regulatory environment to better protect intellectual property so that each player in the economy recognises costs for copying, otherwise no one tries hard to create anything.
*Michael Schuman, “China Makes Everything. Why Can’t It Create Anything?,” TIME, Nov 11 issue, 2013.
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