The People’s Republic of China is known to be the manufacturing capital of the world given to its intense workforce and manufacturing capabilities. Manufacturing has a special hold on public imagination and for good reason. The transition from agriculture to manufacturing is still the route to higher productivity and rising living standards for developing economies. In advanced economies, manufactured goods stand as the tangible expression of innovation and competitiveness.
Globally, manufacturing output (as measured by gross value added) continues to grow by about 2.7 percent annually in advanced economies and 7.4 percent in large developing economies (between 2000 and 2007). Economies such as China, India, and Indonesia have risen into the top ranks of global manufacturing and in the world’s 15 largest manufacturing economies, the sector contributes from 10 percent to 33 percent of value added. In China manufacturing creates $500 billion in services demand, and services demand $600 billion a year in manufactured goods. And while manufacturing drives more than 80 percent of exports in Germany, services and manufacturing contribute nearly equal shares of value added to the country’s total exports.
In China and India, manufacturing employment rose by nearly 30 percent between 2000 and 2008, as their workforces expanded and as these economies continued their transition from agrarian/rural to industrial/urban. Contrary to the expected pattern, Chinese manufacturing employment dropped in the 1990s, due to the restructuring of state-owned enterprises, and has grown rapidly since.
In China, per capita income for more than one billion citizens has doubled in just 12 years, an achievement that took the United Kingdom 150 years with just nine million inhabitants as it industrialized. In the United States in 2010, every dollar of manufacturing output used 19 cents of service inputs, while every dollar of service output used 7 cents of manufacturing input. Overall, manufacturing created more than $900 billion a year in demand for service inputs, while service companies generated $1.4 trillion of demand for manufactured goods. A similar pattern is observable in developing economies: China’s manufacturers created demand for $500 billion in services, while its service companies created demand for $600 billion in manufactured goods inputs.