A Feb. 18, 2004, report of the U.S. Congressional Budget Office addresses this concern. “From 1992 to 2003, the trade deficit with China grew from $18.3 billion to $124 billion, which is larger than the deficit with any other country,” states the report. “However, much of the increase in imports from China reflects a shift away from imports from other Asian countries rather than an increase in total imports. In fact, while U.S. imports attributable to China increased from 5 percent in 1992 to 12 percent in 2003, the share of imports from other Pacific Rim countries declined from 34 percent to 21 percent.”
The report takes a macro view of global trade, noting, “A portion of the long-term decline in employment in some manufacturing industries can be linked to the expansion of trade. The gains from trade arise as nations specialize in the goods and services that they can produce efficiently relative to other countries. Thus, the expansion of trade necessarily involves changes in the mix of products. The United States has specialized in products requiring a highly skilled labor force, even as lesser jobs have shifted to countries where labor is less skilled.”
Raghuram Rajan, the International Monetary Fund’s economic counselor and director of the research department, recently reported on the IMF’s world economic outlook. “Because of the tremendous growth in the early part of the year,” says Rajan, “we have raised global growth forecasts from the one we made in April to 5 percent for 2004. This is the fastest in nearly 30 years. For 2005, however, we have lowered our forecast slightly to 4.3 percent, largely reflecting the effects of higher oil prices.”
Turning to China’s role in the world economic outlook, Rajan notes, “Growth has been particularly strong in emerging Asia, with China picking up speed again. The question increasingly is not hard or soft landing, but whether China will land at all. In its own long-run interest, we strongly believe it must land.”
Rajan sees risks to the outlook coming from energy supply. “The phenomenal growth of China could have run a few more years without weighing on global energy resources. But because it accompanies the global recovery, the loss of oil production in certain quarters, and the targeting of oil supply by terrorists, oil prices have risen sharply. While it would be alarmist to call this the first resource crisis of the 21st century, it is certainly a wake-up call. We have to realize that in the long run, and without dramatic technological change, it will simply be unsustainable for every Chinese or Indian household to consume as much energy and as inefficiently as the average American suburban household.”
Monsoons in India
Turning the focus to India, Rajan reports, “India’s growth will soften a bit because of the vagaries of the monsoon. India has to improve its infrastructure, even while bringing overstretched government budgets back into balance.”
Meanwhile, A.V. Rajabahadur, general manager for Indian operations at ARC Advisory Group, a Dedham, Mass., analyst firm specializing in manufacturing, reports growing awareness in India that manufacturing companies in that country must take steps to achieve greater productivity and world awareness. “Leading automation suppliers in India recently formed the Automation Industry Association (AIA),” notes Rajabahadur. “The founder members of the association include ABB India, Emerson, Invensys India, Larsen and Toubro (L&T), Rockwell Automation, Siemens, Tata Honeywell and Yokogawa India. The association’s major objective is to increase knowledge and awareness levels about new automation technologies among the Indian manufacturing industries to help them achieve greater productivity, quality enhancements and product consistency—key elements to global competitiveness.”
ARC has completed several research reports on the Asian manufacturing market this year. Reporting on Aug. 10 on the distributed control systems (DCS) market, ARC Research Director Larry O’Brien states, “The DCS market in Asia is expected to grow at an average annual rate of 6.3 percent through 2008. The market is $2,612 million in 2003 and it will exceed $3,540 million in 2008. The high levels of growth in the Asian DCS market are primarily tied to the basic infrastructural development and capital projects occurring in China, and, to a lesser degree, India and Southeast Asia. There is still significant growth potential in basic industries such as refining, chemicals, power, and pulp and paper.”
A report on the programmable logic controller (PLC) market in China released in September notes, “China, with an environment where manufacturing industries are growing fast, has exceeded 20 percent per year growth in some automation segments. The China market for PLCs is expected to grow at a Compounded Annual Growth Rate of 14.1 percent over the next five years in spite of a decline in prices. The market was about $370 million in 2003 and is forecasted to nearly double in 2008.”
ARC’s Senior Analyst Himanshu Shah, comparing China and India regarding DCS sales prospects, says, “China and India adopted different strategies to set in motion the cycle of disposable incomes, demand fulfillment, capital formation and growth. China successfully created their initial affluence through the traditional route of development through manufacturing. India succeeded in generating wealth through new economy industries and services, a development path that has not been traversed before. Foreign investment, which spurred further capital formation in the manufacturing industry in China, is also beginning to happen in India. In 2003, India attracted around $4.5 billion in foreign direct investments. It is a modest beginning, but the trend bodes well for the Indian economy and its manufacturing activity. DCS suppliers can look forward to the growth of the Indian market on a sustainable long-term basis.”
Asian miracle?
Takatoshi Kato, Deputy Managing Director, International Monetary Fund, looks at the regions and sees reason for optimism in East Asia’s economic potential. “East Asia’s rapid recovery from the 1997-98 Asian Financial Crisis, and its return to very impressive growth, has made some observers wonder whether a new Asian miracle is upon us. Certainly there are many reasons for growth in the region to remain robust in the years to come. Gains from further integration into the global economy, rising intra-regional trade (including closer ties with India), and stronger productivity growth stemming from foreign direct investment and innovation, are all likely to be significant.”
Kato includes a powerful insight into the reasons for this turnaround, “A clear lesson that emerged from the Asian crisis is that strong market economy fundamentals—including institutions, regulatory frameworks, and business practices—are essential for sustaining rapid growth and increasing resilience to shocks in countries that are rapidly integrating into the world economy.”
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See sidebar to this article: Eye-Popping Progress for Chinese Manufacturers
