31

Many people argue that it is hard for Western countries to pose economic sanctions on China by banning all (or most) imports from China, due to China's huge role in the world supply chain. I wonder what makes it hard for Southeast Asian countries (including India) to replace China and become new "world factory".

In my opinion, Southeast Asian countries (including India) have a bigger total population than China and cheaper labor prices. What makes it difficult for Western countries to move all (or most of) their factories from China to Southeastern Asia (very few of them are doing so as far as I know).

Please note that I am asking about the manufacturing industries, not about Wallstreet's investments in China (I suppose it is not hard for Wallstreet to withdraw their money from China)

8
  • 13
    "cheaper labor prices" also if adjusted for productivity? (unit labor costs)
    – Trilarion
    Mar 27 at 17:59
  • 1
    Customer inertia could also be an issue. How many of you would immediately switch to shopify and ditch amazon? It is the same for companies. They have worked with Chinese suppliers for a long time, know them well--sometimes personally well--and just don't want to waste time building new relationship and connection to a new government and new business just because the price is slightly cheaper and some other political intrigue.
    – Faito Dayo
    Mar 28 at 13:42
  • 1
    @Blueriver I personally prefer to see someone talking about SEA as a group, but never mind to see answers for individual SEA countries
    – No One
    Mar 28 at 23:59
  • 3
    Note that India is generally considered to be a South Asian country, not part of Southeast Asia.
    – V2Blast
    Mar 29 at 21:25
  • 1
    @V2Blast I suppose that's the reason for explicitly mentioning (including India).
    – user42728
    Mar 29 at 22:38

4 Answers 4

38

(This answer focuses on only the India aspects of this question. Individually, other countries in SE Asia have less people, with smaller internal markets and also have different strengths/weaknesses)

What makes it difficult for Western countries to move all (or most of) their factories from China to Southeastern Asia

This seems to be genuinely misunderstanding China's role and position, with regards to manufacturing.

China is not just acting as a cheap labor pool and subcontractor for "smart Western companies".

It has a highly educated workforce and a whole network and subnetwork of highly competent manufacturers that depend on each other and, besides copying and pirating IP willy-nilly, has long reached the point where it is actually quite innovative in many fields, with significant R&D. Large Chinese companies have the capital to innovate on their own, without being given orders by "the world".

(This doesn't apply to all fields, China is still struggling with jet engines or microchip fab technology, for example.).

China has 5x the GDP of India and a quickly growing middle class meaning that it has a large internal market for its manufacturers to sell stuff to. This lure of a big market is also what got many Western companies to invest in China, despite various concerns.

It is also a highly unequal society, but many poor rural workers do have the skills necessary to work in high/medium tech factories for low wages (not all, remember that China's 2017 per capita GDP is about Costa Rica's - there are lots of dirt poor Chinese farmers):

Now, some of these aspects do apply to India, as far as Information Technology goes. They don't seem to apply in manufacturing however where the broad base seems lacking. India's rural poor, as a whole, also seem less educated and less capable to take on roles in advanced manufacturing.

China is at #66 on World corruption index, while India is at #85.

China is also ahead on "infrastructure ranking". It sits at 77.9%, very close to Australia, while India is at 68%, near South Africa.

Bottom line: it takes time and persistence to build a competitive advantage in any domain. That's true for finance (NY, London), films (Hollywood, Vancouver), IT (India), manufacturing (China, Japan, Korea). Low labor costs is only an ingredient, and not the most important one when you truly want to innovate.

Last, India's politics under Modi doesn't make it exactly the most reassuring place to invest in. Nor is impossible to see something caused by his brand of Muslim baiting developing into a public relations disaster in the future for firms which do invest there.

p.s. Note that this answer, and more specifically, the bit about Modi's politics, is in no way an endorsement about how China goes about doing things in terms of employment practices or human rights.

14
  • 3
    @Trilarion True, but I don't see Vietnam as innovating and R&D. Whereas China does. And India too, but in IT, not manufacturing. Mar 27 at 22:19
  • 8
    Public relations hassle. It's not hard to see some anti Muslim crap Modi is so fond of doing coming back to bite a company with hefty Indian investments. Not necessarily right now, true. But ruling out happening in the future? Not something I'd bet on. Mar 28 at 0:37
  • 3
    Yeah,I too share the opinion that the one of the crucial aspect that is slowing India's progress are communal differences,whereas PRC espouses state atheism thus no(or less) communal angle.
    – user42728
    Mar 28 at 15:08
  • 3
    @ItalianPhilosophers4Monica, China's anti-Muslim policies, such as re-education camps where they keep numerous Uyghurs, are no better. Between reaping the benefits of having affordable good and standing up for oppressed World tends to choose the affordable goods 90% of the time.
    – Michael
    Mar 28 at 16:59
  • 2
    @Michael China has been doing far more horrible things than India for a decade now and the Muslim countries are not doing anything about it: politics.stackexchange.com/questions/34108/…. China can clearly get away with a lot more than any other nation. Mar 28 at 17:48
22

Let's start with some interesting stories.

The Guardian detailed how a Foxconn factory making Apple products worked

“It’s not a good place for human beings,” says one of the young men, who goes by the name Xu. He’d worked in Longhua for about a year, until a couple of months ago, and he says the conditions inside are as bad as ever. “There is no improvement since the media coverage,” Xu says. The work is very high pressure and he and his colleagues regularly logged 12-hour shifts. Management is both aggressive and duplicitous, publicly scolding workers for being too slow and making them promises they don’t keep, he says. His friend, who worked at the factory for two years and chooses to stay anonymous, says he was promised double pay for overtime hours but got only regular pay. They paint a bleak picture of a high-pressure working environment where exploitation is routine and where depression and suicide have become normalised.

“It wouldn’t be Foxconn without people dying,” Xu says. “Every year people kill themselves. They take it as a normal thing.”

That feeds into this fascinating anecdote about the original iPhone

And then, with Apple just about to ramp up iPhone production, Steve demanded that the iPhone's screen be replaced with unscratchable glass.

“I want a glass screen," Steve is quoted as saying. "And I want it perfect in six weeks.”

Later

Before they even won Apple's business, the Chinese company started building a new factory building in which to cut the glass. (The Chinese government was providing subsidies, and the company took advantage of them--"just in case.") The company provided Apple with a team of cheap engineers, as well as spare glass for Apple to experiment with, the latter for free. The company's engineers were housed in dormitories, so they were available to Apple 24 hours a day.

I once heard a rumor that Jobs' edict meant these iPhones were actually refitted by 12-hour shifts. China responded to the story by swearing they do not allow 12-hour shifts.

China does several things India is far less willing to do

  1. Maintain lax labor law enforcement (supposedly China even has forced labor camps)

  2. Subsidize new industries with state money

  3. Enter new fields with little regard for safety. A Chinese booster in 2021 made an uncontrolled re-entry and in 1994 an early Long March rocket killed an untold number of civilians when it crashed into their village (the government covered the whole thing up)

  4. Steal technology from other countries

    China’s efforts to steal unclassified American technology, ranging from military secrets to medical research, have long been thought to be extensive and aggressive, but US officials only launched a broad effort to stop alleged Chinese espionage in the United States in 2018.

India, by contrast has

TL;DR

China has a large and cheap labor pool at their disposal (literally, in some cases) and as long as other countries are willing to look the other way, they remain a top source for it. India has a more open government that is far less open to some of the things China does to keep their labor pool cheap.

9
  • 1
    Yep, unions and safety regulations are a huge impediment to economic development. Its one of the main reasons Western countries are stalling out in their GDP growth too. China understands that sacrificing some freedoms for the sake of the future is an important and reasonable trade off, as long as you don't go too far. Mar 28 at 17:50
  • 1
    @JonathanReez "China understands that sacrificing some freedoms..." When I read this I thought about the forced labor camps of Uighurs. And indeed labor cannot became any cheaper than this. I'm actually happy, many other countries do not do the same.
    – Trilarion
    Mar 28 at 19:44
  • 2
    @JonathanReez Yes, but sacrificing freedoms as you said includes some kind of slavery in China. They sacrifice some freedoms more than others and it makes me very uneasy. I would rather pay more for the stuff I buy (or pay someone else) if I know that the persons producing that stuff get a larger cut from it. That was always my problem with clothes or consumer tech products. But even if I bought from a known brand I would have no idea under which circumstances it was produced.
    – Trilarion
    Mar 28 at 19:50
  • 3
    @JonathanReez There are unions and unions. Near Vancouver we have a decommissioned copper mine which used to be the biggest in UK empire. Their machines in the 20s were spewing so much rock dust that miners developed silicosis after 6-7 years and died from lung bleeds. Stronger unions would have helped. Then you have modern public sector employee unions, "protecting" desk jockeys from "predatory" governmental employers. It really depends - China is at one end, India is at another. Neither are all that great but there are indeed unions who only seek rents. Mar 28 at 21:55
  • 4
    @JonathanReez "unions and safety regulations probably do a lot more net harm to humanity," I do not agree, but also would rather answer to that in a separate question. Just short: I do not envy the Chinese and I would not like to be a Chinese living in China right now. I would rather choose freedom over richness in this regard. But then I guess that people hardly have a choice there. Also this answer does focus on what China did well, but it does not compare to other Asian countries.
    – Trilarion
    Mar 29 at 8:18
6

The big difference is China's powerful centralized government and their ability to wield a planned command economy. Once China's communist leadership decided to adopt capitalism (in the limited form of a socialist market economy) at the end of the 1970s, they have been extremely single-minded in their goal of building China into an economic powerhouse over the last 50 years.

Not only has this has allowed a significant portion of China's citizens to enjoy the fruits of a higher standard of living, including a good education, it's helped the autocratic government keep a lid on any possibility of mass protests against their repressive policies and widespread human rights abuses.

It would be extremely difficult for any other country (Asian or otherwise) to replicate China's success without their government having the same centralized control over the economy and the near inevitable stifling of freedoms that typically comes with it.

India obviously has the population, but it is significantly less homogeneous than China, and as a relatively fragile democracy, doesn't have the political will or means to put India on the path of competing with them as an industrial juggernaut.

1
  • 2
    One example of China's incredible state capacity is them being able to maintain "zero COVID" for close to two years. Its no small feat for the world's most interconnected nation with thousands of ships/planes/trucks/trains moving in and out every day. Mar 28 at 17:53
5

I second the assertion that China is not just low-cost labor (with labor costs actually rising due to a growing middle class) but has a massive established manufacturing and R&D capability in tech. For example in raw metals, China dwarfs all other countries in steel production. China, Japan, Taiwan (which Chinese government considers part of China) also have vastly more established semiconductor fabs. Wikipedia list of chip fabs

For the point of tech R&D: for example, if you want to get a new IoT device made, China, specifically Shenzhen, is the place to be. Wired video on Shenzhen: The Silicon Valley of Hardware Report on IoT in China Next door you have tons of electronics suppliers, people with IoT know-how and engineering background, and lots of manufacturing capacity. I feel safe in saying the sheer scale of manufacturing warehouses have no US or India counterpart: Chinese industrial markets tour I can't speak for the ease of moving other manufacturing such as textiles (which China leads by a huge margin) which require far less technology sophisticiation to produce.

1
  • 1
    The Shenzhen stuff is exactly the kind of links I was looking for, but did not quickly find. Mar 28 at 22:18

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .