China, India Challenge U.S. Manufacturing Competitiveness

Jan. 11, 2011
One index places the United States fifth in manufacturing competitiveness among top 10 countries by 2015.

Is the United States gradually losing ground to India and China in manufacturing? According to various surveys and indexes, India and China will become global leaders in manufacturing competitiveness in short term.

According to the 2010 Global Manufacturing Competitiveness Index, which was quoted in the latest issue of the United Nations Industrial Development Organization (UNIDO, www.unido.org) quarterly magazine “Making It: Industry for Development,” the world's top 10 countries in manufacturing competitiveness in 2015 will be China, followed by India, Korea, Brazil, the United States, Mexico, Japan, Germany and Poland.

The competitive index is a collaboration between Deloitte (www.deloitte.com) and the U.S. Council on Competitiveness (www.compete.org). The index, based on the views of more than 400 manufacturing executives worldwide, has rated the overall manufacturing competitiveness of 26 countries currently and in five years.

Asian trio

“The rise of three countries, in particular, China, India and Korea, appear to parallel the rapidly growing and important Asian market,” the news report on the index in the UNIDO magazine said.

The state-affiliated China Federation of Logistics and Purchasing said that its purchasing managers index, or PMI, rose to 55.2 last month from 54.7 in October and 53.8 in September, easily beating market forecasts of 52.9. Readings above 50 indicate an expansion in manufacturing activity.

Sharp increases in purchasing managers indexes in China were mainly driven by output and export orders, revealing strength both domestically and overseas.

Goldman Sachs economists Yu Song and Helen Qiao point out that the strength of China's official PMI was especially striking because the index normally heads down in October. "The fact that the PMI went up despite this seasonal bias suggests real activity growth was likely to have been exceedingly strong in October," they said in a note.

A competing Chinese survey, the HSBC China Manufacturing PMI—a seasonally adjusted index designed to measure the performance of the manufacturing economy—rose to an eight-month high of 55.3 percent in November, up from 54.8 percent in October.

Manufacturing in India put in a performance every bit as strong as China's. The HSBC Markit PMI for India, Asia's third-largest economy, rose to 57.2 in October from 55.1 in September.

"The manufacturing sector remains supported by strong local consumption growth, and growing employment suggests that domestic demand will remain robust," said Frederic Neumann, co-head of Asian Economics Research at HSBC (www.hsbc.com), a London-based banking and financial services organization.

Baton passing

According to analysis from Morgan Stanley and the Global Times, China’s rapidly aging population is set to dramatically shrink its workforce and effectively pass the baton to India as the world’s manufacturing hub.
The Global Times says, “2015 will mark the beginning of the end of China’s demographic dividend.”

Recently, World Bank predicted that China’s gross domestic product (GDP) growth will fall to 7.7 percent in 2015 and to 6.7 percent by 2020. Morgan Stanley expects India’s growth to head in the opposite direction and to surpass China’s growth two years from now.

Recently, U.S. Energy Secretary Steven Chu stated: "Eight of the 10 global companies with the largest Research and Development budgets in the world are establishing R&D facilities in China or India or both. And 77 percent say they will build in China and India."

About the author

Uday Lal Pai, [email protected], is a freelance journalist based in India.Council on Competitiveness www.compete.comDeloitte www.deloitte.orgHSBC www.hsbc.comUnited Nations Industrial Development Organization www.unido.org

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