Manufacturing News

Manufacturing is strength, and therein lies future

By producing more goods, not only can China export more and rely less on imports, it can also make itself more self-sufficient and weather future economic crises.

Call me old-fashioned-but I'm still one of those votaries of traditional manufacturing, yet to be swayed by the modern notion that 21st century economies are better fueled by a successful services industry.

Most of my friends here and back in India tease me that I am stuck in a time-warp and have got my priorities all mixed up. But I beg to differ.

While there is still little evidence to prove that manufacturing is growing again globally, I am comforted by the steady flow of indicators, which show it has at least started to recover from the abyss.

My biggest gripe against the services sector-which includes restaurants, hotels, marketing firms and a plethora of other activities that people pay for-is that it doesn't actually produce anything tangible. With manufacturing, you can at least see items that you can feel, touch, and use.

It creates factory jobs, it makes solid things that form an industrial foundation, and it leaves lasting legacies. In times of real crisis, it's manufacturing that can act as a buffer and shock absorber, whereas the services sector may crumble and collapse at any moment.

In my experience, there can be no economy worth its salt without a solid manufacturing base. Most economists and experts in their over-enthusiasm to vouch for services tend to overlook one crucial aspect: That a vibrant manufacturing sector is a sine qua non for sustained economic development.

Yes, there have been troughs and peaks, blips and job losses, but what sector is immune to economic downturn in a highly integrated global market?

By producing more goods, not only can China export more and rely less on imports, it can also make itself more self-sufficient and weather future economic crises.

I'm not suggesting we relegate services to the back benches.

But my ideal growth scenario would be a combination of services and manufacturing. Growth in services is crucial for manufacturing, as the former makes businesses more competitive over the long and short terms. But they need to supplement, not supplant, each other.

And in this respect China appears to have hit the bull's eye. How else would one explain its "Made in China 2025" plan, the purpose of which is an innovation-led manufacturing transition.

Critics of manufacturing have gone gaga over a string of subdued economic data in recent months.

The key gauge of China's manufacturing, the Caixin/Markit manufacturing purchasing managers' index, slipped to 47.3 in August, the lowest reading since March 2009 and down from 47.8 in July. Any reading above 50 indicates an expansion in activity while one below points to a contraction.

TB Nair, a friend of mine who's an economic commentator in India, reckons China's manufacturing crisis is likely to deepen. "I don't see the Chinese economy achieving a growth rate of 7 percent this year. Labor costs are rising sharply, leaving the perfect opportunity for India to fill the void in manufacturing," he told me this week.

Nair goes as far as suggesting that India's economic growth rate will surpass that of China by 2016-the kind of prediction which could prove a strong incentive for businesses, including Chinese companies, to relocate their manufacturing operations.

But on the flip side, China's gross domestic product and per capita income are both much more than that of India, and the country remains appealing to inward investors as the living standards continue rising.

Foreign direct investment was just $35 billion for India last year, according to the United Nations, compared with $128 billion in China, according to the Washington Times.

Views of Zhang Jingwei, a research fellow at the Beijing-based Charhar Institute, counter Nair's.

In a recent article, he insisted China has little cause for concern, as it is still streets ahead of India in terms of factory and other industrial modernization.

"We may see some low-end manufacturing moving to markets like India, but high-end firms will stay put in China."

The ball will be volleyed over the net on this subject for months to come. Clearly, opinion is still divided.

But I would be more than happy to go back to the good old days, when big businesses and big enterprises held sway over storms and shocks.

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