Issues in Brief

Is China the Largest Manufacturer in the World?

VP and Chief Economist
January 31, 2012

World Rankings

According to recently published data from the United Nations, the fear that China will displace the United States as the world's largest manufacturing nation has been realized. Manufacturing value-added in China totaled $1.92 trillion in 2010 while U.S. manufacturing value-added was $1.86 trillion.[1] China therefore accounted for 18.7 percent of world manufacturing in 2010 while the U.S. share was 18 percent. When measured in terms of U.S. dollars, China is the largest manufacturing nation in the world.

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 at the beginning of the last three decades. By this method, China was the seventh largest manufacturing economy in 1990, third in 2000, and number one in 2010. Interestingly, several other emerging economies are also rising in the ranks of global manufacturing: Brazil was 11th in 1990 and then jumped to 6th in 2010; South Korea rose from 12th to 7th; and India went from 15th to 10th.

Table 1 – Top 15 Largest Countries in the World for Manufacturing Value-Added
(Valued in U.S. dollars)
Table 1 – Top 15 Largest Countries in the World for Manufacturing Value-Added (Valued in U.S. dollars)
Source(s): United Nations and MAPI

Composition of the Growth

China's leap to the top came through a combination of price increases, exchange rate appreciation, and an extremely fast growth rate in the physical volume of manufacturing value. In the last decade, the nation saw increases at an annual rate of a modest 1 percent for prices, 2 percent for the yuan, and very strong 11.4 percent for physical volume. Multiplying these changes together produces a 14.8 percent per year change in the dollar value of Chinese manufacturing value-added during the 10 years ending in 2010. At that pace, China's manufacturing value-added almost quadrupled in a decade, a speed of growth that dwarfed what was achieved in the United States. U.S. manufacturing value-added expanded at only a 2 percent annual rate over the same period (0.4 percent for prices and 1.6 percent for physical volume).

The other emerging countries in the world rankings achieved their gains in differing combinations of price, currency appreciation, and physical growth. South Korea achieved a 7.6 percent annual rate of growth in manufacturing value-added from 2000 to 2010. Similar to China, the gain came primarily from growth in physical volume. Inflation-adjusted manufacturing value-added increased at a 6.3 percent annual rate, price increases averaged only 1.5 percent a year, and there was virtually no currency adjustment.

India achieved outsized expansion with strong physical growth and higher inflation, and the manufacturing value-added increased 12.7 percent a year in the decade ending in 2010. The composition of that dollar-based growth in annual rates was 4.7 percent for inflation, virtually no currency adjustment, and stellar 7.8 percent growth in physical volume.

Brazil experienced an increase of 11.3 percent a year from 2000 to 2010, but this jump in dollar-denominated manufacturing value-added growth came primarily from inflation. The country had a large 8.3 percent annual inflation, 0.4 percent annual currency appreciation, and only relatively modest 2.4 percent a year increase in physical volume.

Normalizing the Comparison

China is a large, rapidly emerging, densely populated country. It is inevitable that the country would compare more favorably with the United States, a large, advanced, lightly populated country growing at a relatively modest pace. Rather than using total manufacturing value-added, a more relevant analysis of very different economies involves normalizing the comparisons based on the size of the respective populations. In other words, divide total manufacturing value-added by the size of the population to get a per capita figure.

Per capita manufacturing value-added is a better way to show the manufacturing intensity of a country. As seen in Figure 1, there is a dramatic reordering when the per capita measurement is used. The most manufacturing-intensive countries (among the 15 largest manufacturing countries in the world) are Japan ($8,566 per capita) and Germany ($7,463). The United States ($5,980) is third and South Korea ($5,799) is fourth.

Figure 1 – Per Capita Manufacturing Value-Added, Top 15 Manufacturing Countries, 2010
Figure 1 –Per Capita Manufacturing Value-Added, Top 15 Manufacturing Countries, 2010
Source(s): United Nations and MAPI

China ($1,459) has a much lower stature in world manufacturing when using a per capita comparison, ranking 12th. With its 1.318 billion people, China had more than four times the population of the United States (310 million) in 2010 but only a slightly larger manufacturing value-added. Brazil ($1,445) is only somewhat less manufacturing intensive than China and ranks 13th. India, the second largest country in the world in terms of population (1.225 billion people in 2010) is the 10th largest manufacturing economy but has a manufacturing intensity of a very low $185 per person.

There is a tendency to take too narrow of a view when calculating whether China has the largest manufacturing economy in the world. China's currency appreciation gave it a boost in surpassing the United States in the 2000s; however, when manufacturing value-added is normalized into a per capita metric, the nation's rank among global manufacturers falls to 12th. China's manufacturing performance should not be understated, either—it has demonstrated an incredible ability to grow its physical volume of manufacturing very rapidly. And the Chinese have a plan to continue moving up the manufacturing intensity ranks in the next decade.[2]

Footnotes

[1] The statistics are estimated by the United Nations based on the international classification of manufacturing (ISIC D); http://unstats.un.org/unsd/snaama/selectionbasicFast.asp.

[2] Willy C. Shih, China's Five Year Plan, Indigenous Innovation and Technology Transfers, and Outsourcing, testimony before the U.S.-China Economic and Security Review Commission, June 15, 2011, www.uscc.gov/hearings/2011hearings/written_testimonies/11_06_15_wrt/11_06_15_shih_testimony.pdf.

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