Richard Baldwin, professor of international economics at IMD Business School in Lausanne, Switzerland, published an article on January 17, 2024. I saw some reports about this article on the domestic **, but it seems that there is no full translation. Here is a translation for your reference. My own comments are displayed in oblique font. The United States is the world's only military superpower. It spends more on its military than the next ten countries combined. China is now the world's only manufacturing superpower. Its production exceeds that of the next nine countries combined. Using the recently released 2023 update of the OECD TIVA database (based on 2020 data), this column depicts China's journey to manufacturing superpower status and the asymmetric impact of its dominance on the global ** chain in eight charts. I'm not an expert on China, but in the course of ongoing research with my co-authors Rebecca Freeman and Angelos Theodorakopoulos on global chain breaks, I noticed a grim fact – one that I don't think is as widely known as it should be, with China being the only manufacturing superpower in the world today. This column uses the 2023 update of the OECD's recently released valuable TIVA database to show how this happens in eight charts. I'm going to skip the reform narrative in Chinese history, as this has already been covered in detail by real China experts (e.g. Wang 2023, World Bank 2013, Ranganathan 2023). The chart in Figure 1 of the World's Manufacturing Giants shows two views of the global manufacturing share in 2020 (the most recent year in the database). The chart on the left shows the share of the world by total production; In the chart on the right, the share by value added is shown. The difference lies in intermediate inputs: China's total production is equal to the total sales of Chinese manufacturers; China's value added is their total output minus the intermediate goods purchased. Figure 1: The cake of global manufacturing, 2020
Source**: OECD TIFA database, updated 2023. Six countries account for more than 3% of the world's total. China is followed by the United States, Japan, Germany, India and South Korea. Notice how the world has changed. Only three of them are long-established industrial economies; The other three are newly industrialized economies. Four of the G7 failed to advance. The chart lists countries with a share of at least 2% separately, with Italy, France, and Taiwan on the left (two of the G7 countries, the United Kingdom and Canada, are not on the list). In the chart on the right (based on value added), the UK's share is just over 2%. In terms of total production, China's share is three times that of the United States, six times that of Japan, and nine times that of Germany. The aggregate output of Taiwan, Mexico, Russia and Brazil is higher than that of the United Kingdom. Canada dropped further down the rankings to 15th place. Another point worth noting is that this statistic is calculated by amount and converted into US dollars. Given the difference in products** between China and the United States, the difference would be even greater in terms of purchasing power parity, or in terms of production. China's industrialization is unprecedented. The last time the "king of manufacturing" was ousted from the throne was when the United States overtook Britain before World War I. It took more than half a century for the United States to reach the top. It took about 15-20 years for China to surpass the United States to reach the top. In short, China's industrialization is incomparable. Figure 2 depicts China's rise to the top. If we think of it as a 25-lap horse race (one lap a year), all the excitement is focused on the first 13 laps. Since the data can only be traced back to 1995, in 1995, when the race began, China was slightly ahead of Canada, the United Kingdom, France and Italy. China surpassed Germany in 1998, Japan in 2005 and the United States in 2008. Since then, China's share of the world has more than doubled, while the share of the United States has fallen by another three percentage points. If it had been a live horse race, most of the spectators would have left years ago bored because [China was far ahead]. The chart on the right shows that China's share now exceeds that of the top 10 manufacturing countries outside China combined. This striking fact helps us understand the current tensions between China and the United States, as well as the severity of the chain disruption caused by China's reduced production during the pandemic. India (not shown separately) is the second-fastest growing country in terms of share: its share of global manufacturing production has risen by two percentage points since 1995. (China rose by 30 percentage points over the same period).China's rise has slowed and appears to be stagnant at about one-third of world output. However, to confirm this, we need more up-to-date data, as the last two years in the sample have been confused by events related to the COVID-19 pandemic. The World Bank's World Development Indicators (WDI) have value added data as of 2022(According to World Bank data, the added value of China's manufacturing industry in 2022 will be 29% higher than that in 2020, and its share in the world will increase by three percentage points again)., which is in line with previous trends, but WDI does not report total production figures. Figure 2 The rapid rise of China's manufacturing industry (share of world GDP) from 1995 to 20201
Source**: OECD TIFA database, updated 2023. China's dominance in exports is less pronounced than total production (Figure 3), although the growth is just as impressive. In 1995, China accounted for only 3% of the world's manufacturing exports, and by 2020, its share had risen to 20%. The corresponding decline in the G7 share was not as large as the decline in its share of production. This is due to the fact that China's domestic consumption is also growing rapidly. Since 2004, China's domestic consumption has absorbed an increasing share of manufacturing production. What is not shown in the chart is that China's exports-to-production ratio peaked at 18% in 2004 and 13% in 2020 — almost back to 11% in 1995. The same chart in the annex shows the figures on a value-added basis. Figure 3 China's manufacturing exports accounted for the world's share from 1995 to 2020
Source**: OECD TIFA database. Asymmetric Chain Risk: The Global Chain Indicator (Baldwin et al., 2022), developed by the G7 and China Rebecca Freeman, Angelos Theodorakopoulos, and I last year provides a convenient way to identify foreign production exposures in the chain (our eight new metrics can be found in the TIFA 2023 update). When it comes to mapping global chain risk, our two new metrics are particularly intuitive. Foreign Production Exposure (FPEM) from an import perspective. This shows the share of industrial inputs that a country purchases from another partner out of all industrial inputs, including domestic**, on a scale of 0 to 100. FPEM uses a perspective approach to calculate foreign risk exposure, as it pierces the trader-to-dealer veil to uncover the buying country's dependence on production in the selling country. Fig. 4 Bilateral FPEM and FPEX between China and the United States from 1995 to 2020
Figure 4 (left) shows that the U.S. is much more dependent on Chinese manufacturing production than China is on U.S. manufacturing production. While shocking at first, this is not unexpected. It's only natural that 11% of world production buys more from 35% of world production than 35% of world production buys more from 11% of countries, but the figure is staggering. Before 2002, China was more exposed to U.S. production, but since then, U.S. has been more exposed to China's production. In 2020, U.S. exposure to Chinese manufacturing production was about three times that of China's manufacturing production to U.S. manufacturing. Foreign Production Exposure (FPEX) from an export perspective. This indicator reflects the share of total output of intermediate goods exported by a country to a specific partner. It is a measure of exposure risk from a sales perspective. Figure 4 on the right shows the expected outcome: China has always relied more on export sales to the U.S., rather than the other way around. In the mid-2000s, China's dependence on the United States was 10 times greater than its reverse dependence, but the asymmetry had narrowed dramatically. Taken together, this shows that there is a significant, historical, world-affecting asymmetry between China and other major manufacturing countries in terms of first-chain dependence. Politicians may want to decouple their economies from China. The data suggests that decoupling will be difficult, slow, expensive and disruptive – especially for G7 manufacturers. For a definitive estimate, see the simulation study by Felbermayr et al. (2023) and goes and bekkers (2022). Before closing this chapter on the story of China's rise, it is necessary to point out that this huge asymmetry has practically nothing to do with China. This has to do with China's manufacturing superpower status. To see this, imagine what the chart would look like if the charts showed the facts of OPEC and G7 in the oil sector. We will see that the G7 is more dependent on OPEC** than the G7 is on OPEC**. The next chapter of the story turns the focus to the Chinese level. China's Balance, Chain Participation, and Openness by SectorWhat does the rise of superpower status look like from China's perspective? A convenient but simplistic measure of a country's competitiveness is its sector-based balance. Figure 5 shows the balance of exports minus imports from major sectors: manufacturing, agriculture, mining, and services. The overall ** difference is simply the sum of the departmental differences, which are indicated by a thin black line. The pattern is clear, and it's not surprising. China is a net exporter of manufactured goods and a net importer of everything else – agricultural products, minerals, fuels, and services. Both positive and negative net balances grew rapidly. To put it bluntly, China is a big importer and an exporter. Overall, it had a surplus at the end of the 2000s before falling and turning negative in 2018 and 2019 (black line). The right panel provides important tips on the evolution of China's manufacturing industry. It depicts the evolution of the country's net exports of intermediate inputs and final products. Until the mid-2000s, China was a typical offshore destination: a net importer of intermediate inputs and a net exporter of final products containing imported inputs. Since about 2002, China has become a major net exporter of intermediate and final goods. Figure 5 China's net exports by industry from 1995 to 2020
Source**: OECD TIFA database. Balanced aggregate data, like the one shown in Figure 5, can mask the evolution of its components. Figure 6 focuses on manufactured goods, showing exports and imports, respectively. In the graph on the left, we can observe that until the mid-2000s, China's engagement with the global ** chain was very active. The import and export of industrial parts and components have grown rapidly, and the import and export have grown simultaneously. Since then, exports have grown more rapidly, and this difference has resulted in a positive balance in manufactured goods. The diagram on the right shows the difference in the final finished product**. Here, exports consistently outstrip imports, and imbalances widened rapidly in the 2010s. Figure 6 Intermediate and final products in China from 1995 to 2020
Source**: OECD TIFA database. The next two charts show the changes in the composition of China's export industry. Figure 7 shows the industry share in 1995 (the first year in the database) and 2020. It shows that China has moved from a relatively reliant reliance on simple manufacturing such as textiles and apparel to more complex industries such as electronics, basic metal products, and metal products. Chemicals and pharmaceuticals. A telling fact is that in 1995 textiles accounted for the lion's share, but in 2020 electronics accounted for the lion's share. Figure 7: China's export basket, 1995 vs. 2020
Source**: OECD TIFA database. Globalization RatioFinally, consider China's globalization ratio (Figure 8). The chart on the right shows the total globalization rate (GGR) of the country's manufacturing industry. This is the share of manufactured goods sold abroad, where production is measured in terms of total sales of all Chinese manufacturers. It is different from manufacturing GDP because it includes all sales, not just final goods sales. We've seen China's GGR soar and almost double in the first decade of data as it emerges as a manufacturing superpower. In fact, most of the action took place between 1999 and 2004. It was an extraordinary feat of globalization, which is probably why so many people think of China as an extremely export-dependent economy. But the story doesn't end in 2004. Since 2004, China's GDP has been steadily declining. Don't ignore the fact that by 2020, the level of GDP in China's manufacturing sector will not be much higher than it was when it began in 1995. In short, China's manufacturing sector is no longer as dependent on exports as many believe. Admittedly, the first part of the period of rapid growth involves exports growing faster than production (hence the GGR rising). But then production grew faster than exports, which meant that domestic sales became relatively more important than export sales – although both domestic and foreign sales boomed throughout the period of high growth. This shatters the myth that "China's success is entirely due to exports". Since around 2004, China has increasingly become its best customer. The conclusion is simple: China's openness is rapidly declining, as measured by GGR. In 2020, its dependence on export sales increased only slightly from 1995. Figure 8: China's manufacturing growth rate and total globalization ratio (GGR).
Source**: OECD TIFA database. Conclusion: China is now the world's only manufacturing power. As its recent success in the field of electric vehicles has shown, its broad and deep industrial base can help it gain a competitive advantage in almost all areas. The exception is the most advanced areas, where the G7 countries continue to dominate. Politicians who talk about decoupling from China need to take a sober look at the facts. As we have shown (Baldwin et al., 2023), at least 2% of the industrial inputs of all major manufacturers in the world come from China. Decoupling is difficult, to say the least. In today's article, I intend to translate Professor Baldwin directly, and try to add as few comments as possible. Write your own review later. There are only two points that need to be emphasized again. 1. This data is as of 2020. According to the World Bank, in 2022, the added value of China's manufacturing industry will increase by 29% on the basis of 2020. The magnitude of the final output** should be similar. Second, this data is based on the market exchange rate. If calculated on a purchasing power parity basis, China's manufacturing output would at least double its current level in US dollars. Ref. Baldwin, R, R Freeman, and A Theodorakopoulos (2022), "Horses for Lessons: Measuring Foreign **Chain Risk", NBER Job **W31820. Baldwin, R, R Freeman, and A Theodorakopoulos (2023), "Hidden Exposure: Measuring Our Chain-Dependency", NBER Work W31820 (forthcoming in Economic Activity at the Brookings Institution) Felbermayr, G, H Mahlkow, and A Sandkamp (2023), "Cutting Value Chains: The Long-Term Effects of East-West Decoupling", Empirica 50：75-108。 Góes, C, and E Bekkers (2022), "The Impact of Geopolitical Conflicts on **, Growth and Innovation", WTO Staff Working Paper ERSD-2022-09. Ranganathan, TCA (2023), "What Really Makes China a Manufacturing Superpower?" Deccan Herald. Upadhyaya, Y (2023), "How did China become a manufacturing superpower?" ", medium. Wang, T (2023), Understanding China's Economy, Routledge. World Bank and Development Research Center of the People's Republic of China (2013), China 2030: Building a Modern, Harmonious and Innovative Society, World Bank Group, No. 12925. Figure A1 China's manufacturing GDP accounted for the world's share from 1995 to 2020
Source**: OECD TIFA database. Figure A2 Asymmetric Chain Dependency (FPEM): G7, India, and South Korea, 1995-2020
Source**: OECD TIFA database. Figure A1 in the Footnote Annex shows the share from a value-added perspective. The decline in manufacturing value added in the G7 was not as severe as in total production, while the share of value added in the United States has risen slightly since 2010. Recall that the gross output is the total sales of manufactured goods, while the value added is the total sales of manufactured goods, with the difference being intermediate inputs. This is why China's dominance in terms of added value is less pronounced, since it specializes in industries that are particularly intensively put into use in the middle, such as electronics (and therefore the extent by which their total production exceeds value added is unusual in the world). Similarly, China's share of world manufacturing GDP is not as dominant as its share of production, but it is still dominant. In 2020, for example, its share was almost twice that of the United States and four times that of Japan. Figure A2 shows that FPEM insights are available for other G7 countries, as well as India and South Korea. The link to the original article is below.
ENDS) List of high-quality authors