'Made in China 2025' key to China's development
- By John Ross
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E-mail China.org.cn, July 19, 2015
Two countries with developing economies - Brazil and Mexico - have also fallen further behind the U.S. in terms of development level. Three major economies - Indonesia, India and Russia - have achieved some modest success in narrowing the gap with the U.S., decreasing the gap in per capita GDP by three, six and eight percentage points, respectively. But the countries that have achieved truly dramatic success are China and South Korea. China has narrowed the gap with the U.S. by 22 percentage points, while South Korea, which started from a higher base than China, has narrowed the gap by 48 percentage points.
The comparison of China to South Korea is particularly relevant, as South Korea's 1980 development level of 17 percent of the per capita GDP level of the U.S. is not far from China's current 24 percent. To be precise, China's current level of development relative to the U.S. is equal to that of South Korea in 1986. Given that South Korea's current level of development has now reached 65 percent of that of the U.S., standing only marginally behind Japan, China's development problems would largely be solved during the next three decades if it could achieve the same level of success as South Korea; in absolute terms, China's economy would also be over twice as large as that of the U.S.
To summarize, the truly outstanding successes in development strategy over the past three decades have been in South Korea and China, while the development strategies of most advanced economies during this period have largely been a failure.
Turning from the data to its explanation, the feature that distinguishes China and South Korea from the world's other economies is clear: Both focused on the development of the manufacturing industry. China has become the world's largest industrial producer, overtaking the U.S., while key South Korean manufacturing companies such as Samsung and Hyundai have become major global brands. International data shows that large companies have higher productivity on average than small companies, and the degree to which South Korea's large companies are dominated by manufacturing is evident from Table 2. By 2004, 34 percent of the turnover of South Korea's large firms came from manufacturing companies, and by 2013, this figure rose to 46 percent.
It is also striking that the two advanced economies that have lost the least ground relative to the U.S. (with the exception of the U.K.) are Germany and Japan, both of which are dominated by the manufacturing industry. More recently, the U.S. itself has been the only major advanced economy in which manufacturing output has exceeded levels seen before the international financial crisis.
This data clearly shows why "Made in China 2025" is the decisive strategic initiative for China. It also corrects a frequent misunderstanding of the process of global economic development. The data clearly shows that the decreasing prevalence of manufacturing and the rise of service industries in most advanced economies has been a sign of economic failure, not success. With the exception of the U.K., the advanced economies that have best maintained their position in manufacturing - the U.S. itself, Germany and Japan - have been most successful in terms of their relative economic development. Globally, the two economies that have concentrated the most on developing their manufacturing industries - South Korea and China - have been the most successful in terms of relative economic development. India's recent shift toward emphasizing manufacturing with its "Make in India" campaign follows the same logic. Manufacturing is clearly key to the most successful economic development. This is the context of "Made in China 2025."
But while manufacturing will be strategically decisive for China for an entire era, the type of manufacturing which has to be undertaken needs to radically change. Numerous studies confirm economic theory's prediction that industries dependent on low wages - various types of textile or toy production, for example - or dependent solely on assembly cannot provide a strategic way forward for China at its present level of development. Studies show that China received only 2 percent to 4 percent of income from iPhone and iPod assembly for Apple. Meanwhile, Chinese companies are, for example, moving shoe production to lower-wage countries like Ethiopia. Furthermore, in a modern economy, advanced manufacturing is increasingly integrated with the internet and similar sectors, which is why China has simultaneously launched its "Internet Plus" program.
Global trends clearly show that increasingly advanced manufacturing will be the key to the overall success of China's economic development. This is why "Made in China 2025" is so crucial.
The writer is a columnist with China.org.cn. For more information please visit: http://m.keyanhelp.cn/opinion/johnross.htm
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