Chinese Manufacturing – All It’s Cracked Up to Be?

This weekend a friend of mine posted a link to a blog post by Helen Wang entitled “Myth of China’s Manufacturing Prowess.”  The article points out the fact that US manufacturing output is still larger than China’s — which surprises some — and makes a number of claims regarding Chinese manufacturing.

I have always been a skeptic of claims that China is on an infinite exponential growth path that will surpass the US in all aspects within a few decades.  When I was in college in the late 80’s/early 90’s Japan was going to do the same — and I went to a job as a production engineer in Osaka to learn from the best (Panasonic), and help bring some of the knowledge back to the US.  We all know how that exponential projection went.

That said, some of the statements in Wang’s article seem to run contrary to much of the data.

Cheap Labor vs Building a Middle Class
First, if one looks at the historical emergence of manufacturing in the US, I would argue that it didn’t immediately result in a strong middle class.  Look at the textile mills around Boston (Lowell, Lawrence, etc) — were those employed there enjoying a great middle class life?  Not until they fought for it.  All that said, every figure I have seen says that a large middle class is being created in China — just look at demand for cars!

Cheap Manufacturing vs Innovation
China is not going to just manufacture things designed and sold by Americans forever.  Neither did the Japanese, Koreans or Taiwanese.  Though it may take a while, eventually companies learn design and marketing (or hire the talent).

Just 10 years ago I was working in telecom equipment and everyone was ridiculing cheap little components from China and talking about our revolutionary new MIT and Caltech optics technologies which were going to enable the equivalent of Moore’s Law in optics.  The cheap Chinese components largely won.  And Huawei, which at the time was seen as fit for developing countries that couldn’t get our good stuff, is a market leader.

Wafer-Thin Profit Margins?
As for the “wafer-thin profit margins,” tell that to the 27 Chinese who just moved into the billionaire club last year.  Yes — part of that is a result of speculation.  But you don’t build up dollar reserves at that rate without profits.

US Manufacturing
The US still has great manufacturing capability.  We need to give it a chance, and work to strengthen it.  Don’t let every investor have the knee-jerk reaction that anything involving actually building things must be moved to the latest fashionable country (I have seen that, from early ventures to big companies).  As I’m discovering with a new venture we are incubating, there’s still a big gap when you are designing and engineering in one place, and manufacturing in another.

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