China Has a Dominant Share of World Manufacturing
China is the largest manufacturing economy in the world, with a 22% share of manufacturing activity. The U.S. is in second place with a 17.4% share. China has achieved this position through extremely fast growth in physical volume of manufacturing activity with modest inflation. China has more than four times the population of the United States, and though its manufacturing intensity of $1,856 per capita value-added in 2012 is high for a developing economy, it is well behind advanced countries such as the United States ($6,280).
Mainland China displaced the United States as the world’s largest manufacturing nation in 2010 and widened its lead in 2012, according to recently published data from the United Nations. Manufacturing value-added in China totaled $2.56 trillion in 2012 compared with $1.99 trillion for the United States (these statistics are estimated by the United Nations based on the international classification of manufacturing, ISIC D). China accounted for 22.4% of world manufacturing that year, up from 18.9% in 2010. The U.S. share of world manufacturing value-added declined from 18.1% in 2010 to 17.4% in 2012.
China’s ascent in manufacturing importance has been in the making for decades. Table 1 shows the top 15 manufacturing countries based on the dollar value of manufacturing value-added in 1992, 2002, and 2012. China was the 7th largest manufacturing economy in 1992, 3rd in 2002, and 1st in 2012. Several other emerging economies rose in the ranks, including Brazil’s jump from 12th in 2002 to 8th in 2012. From 1992 to 2012, Korea rose from 13th to 5th, India climbed from 18th to 9th, and Indonesia rose from 22nd to 12th.
Composition of the Growth
China attained its number one ranking through a combination of price increases, exchange rate appreciation, and an extremely fast growth rate in the physical volume of manufacturing value-added. A decomposition of the dollar change over the 10 years ending in 2012 is shown in Table 2. During that period, prices increased at a moderate 3.6% annual rate, the yuan appreciated at a 2.7% annual rate, and physical volume grew at a very strong 11.6% annual rate. Multiplying these changes together produces an 18.8% per year change in the dollar value of Chinese manufacturing value-added.
At that pace of growth, China’s manufacturing value-added doubles every four years, a speed that dwarfs what was achieved in the United States. U.S. manufacturing value-added expanded at only a 2.7% annual rate over the same period (from a 0.7% annual increase in prices and 2.0% annual growth in physical volume).
Korea reached a 9.0% annual rate of growth in manufacturing value-added from 2002 to 2012. As with the case of China, physical volume (6.1% annual growth) was the primary reason for the gain.
India achieved outsized growth with strong physical volume and higher inflation, with manufacturing value-added increasing 12.7% a year during the period. The composition of that annual dollar-based growth was 5.7% inflation, 0.9% currency depreciation, and stellar 7.7% growth in physical volume.
Brazil’s growth came mostly from inflation. Manufacturing value-added increased 13.2% a year in Brazil over the period, composed of 6.7% inflation, 4.1% currency appreciation, and a relatively modest 1.9% increase in physical volume.
The very strong growth in dollar-based manufacturing value-added in Russia and Indonesia was largely because of domestic inflation. Meanwhile, currency appreciation explained much of the growth in the Eurozone and Japan.
A Different Story
Manufacturing value-added is the product of the number of workers multiplied by productivity (value-added per person). It is a global market share metric and does not reflect the differences in product sophistication, production complexity, and manufacturing worker productivity.
Many developing economies in the list of the top 15 countries by manufacturing value-added achieve such status because of high population, even if productivity is relatively low. China’s population and rapid pace of development ensured that the nation would overtake the U.S. in total manufacturing value-added.
Rather than looking at total manufacturing value-added, a more relevant comparison between very different economies involves normalizing the relationships based on population size. In other words, dividing total manufacturing value-added by population size to get a per capita figure (the number of manufacturing workers is the best metric but is not used because data comparable across countries do not exist).
As Figure 1 shows, a dramatic reordering of the rankings takes place with a per capita metric. Of the top 15 manufacturing countries, the two most manufacturing-intensive and productive are Japan ($8,705 per capita) and Germany ($8,292). Korea ($6,446) ranks third and the United States ($6,280) is fourth.
Among developing economies, China’s manufacturing value-added per capita is highest at $1,856 per person, but Russia’s ($1,833) is only slightly lower. Brazil has $1,278 per capita manufacturing value-added, while India—the second largest country by population—has a very low manufacturing intensity of $194 per person.