Why China Can Dominate Next-Generation Manufacturing

In a recent article in the Washington Post, “Why China won’t own next generation manufacturing,” the author Vivek Wadhwa discusses China’s new 10-year plan, called “Made in China 2025.” The plan aims to modernize China’s manufacturing with advanced technologies such as robotics, 3-D printing, cloud computing, and big data.

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China has committed $150 billion to this gigantic modernization scheme. “But no matter how much money it spends,” Mr. Wadhwa writes, “China simply can’t win with next-generation manufacturing.”

The reason? Chinese robots are poor quality, Wadhwa argues, and they cannot be more productive than American robots. And most importantly, the Chinese workforce lacks the skills to perform in an advanced manufacturing setting.

But I would not write off China’s ability to advance its technologies as well as its workforce so quickly. There are signs that Chinese industries are catching up with, and in some cases, even exceeding the West. For example, Sunway, a Chinese supercomputer made using only local computer chips, is five times as fast as the best American rival. Also, in the fields of gene editing, big-data analytics, or 5G mobile technology, Chinese experts are among the world’s best.

A recent report by Global Innovation Index 2016 (GII), jointly-conducted by Cornell University, INSEAD, and the World Intellectual Property Organization (an agency of the United Nations), finds that China has joined the ranks of the world’s 25 most-innovative economies, along with countries such as Switzerland, the United Kingdom, and the United States.

The GII surveyed over 100 countries based on 82 indicators across the globe for the last nine years. An important indicator it measures, called “innovation quality,” looks at the caliber of universities, the number of scientific publications and international patent filings. China moves to 17th place in innovation quality, making it the leader among middle-income economies for this indicator.

Chinese manufacturers are almost entirely owned by private or foreign firms. They have every incentive to innovate and improve. Although wages are increasing, productivity is also rising. According to The Economist, Chinese productivity is far higher than that of India and Vietnam, and is forecast to grow at 6-7 percent a year to 2025.

Research by Morris Cohen of the Wharton Business School shows that China leads in several industries, and manufacturing “re-shoring” to advanced economies is not happening on a large scale. As a matter of fact, manufacturers want to move their production closer to consumers, and nearly 700 million of them are in China.

Even without the “Made in China 2025” plan, Chinese manufacturing will likely pose significant challenges to American manufacturers. Mr. Wadhwa seems to foresee this as well. He closes his article with an ultra weak argument: “Even if China solves its skills problem, builds its own high-quality industrial robots, and develops innovative industrial processes, it won’t be able to maintain its advantage for long. We could simply import the Chinese robots and copy its industrial innovations.”

Americans can do better than that! American competitive advantages should never depend on wishing China to fail, or copying China’s innovations if it doesn’t.

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