International Relations
Economics
Infrastructure Development
Economic Development
Infrastructure
Asia
manufacturing
International Trade
1/6
"China’s rise wasn’t all about cheap labor. Modern infrastructure was a big factor in drawing global companies to use the country as a manufacturing hub."
This is a point that analysts often miss in discussing China's potential manufacturing exodus.
wsj.com
"China’s rise wasn’t all about cheap labor. Modern infrastructure was a big factor in drawing global companies to use the country as a manufacturing hub."
This is a point that analysts often miss in discussing China's potential manufacturing exodus.
wsj.com
2/6
Manufacturers are not in China because labor is cheap. They're in China because labor is cheap relative to productivity, and what drives that productivity is heavy manufacturing subsidies, which include tremendous overspending on transportation and logistics infrastructure.
Manufacturers are not in China because labor is cheap. They're in China because labor is cheap relative to productivity, and what drives that productivity is heavy manufacturing subsidies, which include tremendous overspending on transportation and logistics infrastructure.
3/6
Throw in a systematically undervalued currency, a repressed and administered financial system that prioritizes cheap lending to manufacturers, low social safety-net commitments and weak labor unions, and it is no surprise why global manufacturers like China.
Throw in a systematically undervalued currency, a repressed and administered financial system that prioritizes cheap lending to manufacturers, low social safety-net commitments and weak labor unions, and it is no surprise why global manufacturers like China.
4/6
As long as this continues to be the case, China-based manufacturers will be more internationally "competitive" than those abroad, and so will tend to outperform in global markets. That's why, for all the talk, I don't think we will see a great manufacturing exodus from China.
As long as this continues to be the case, China-based manufacturers will be more internationally "competitive" than those abroad, and so will tend to outperform in global markets. That's why, for all the talk, I don't think we will see a great manufacturing exodus from China.
5/6
The problem of course is that subsidies must be paid for, and both the direct subsidies and the even greater indirect ones (via infrastructure overspending, weak currency, cheap financing. etc.) have come at the expense of Chinese workers and households.
The problem of course is that subsidies must be paid for, and both the direct subsidies and the even greater indirect ones (via infrastructure overspending, weak currency, cheap financing. etc.) have come at the expense of Chinese workers and households.
6/6
This is why the household income share of Chinese GDP is among the lowest ever recorded, and why China's domestic demand is so weak. China's manufacturing and export success is just the flip side of its structurally weak domestic demand.
carnegieendowment.org
This is why the household income share of Chinese GDP is among the lowest ever recorded, and why China's domestic demand is so weak. China's manufacturing and export success is just the flip side of its structurally weak domestic demand.
carnegieendowment.org
Here is a good recent study on the value of direct subsidies to manufacturing in a number of major economies.
csis.org
csis.org
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