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Countries, international trade

The Red Dragon of Asia

It feels like just a few weeks ago that Americans were putting 2015 to bed and welcoming the new year. This week, on the other side of the world, about 1/5 of the global population is celebrating their biggest and and most important holiday: the Chinese New Year. Most people won’t even notice, but during this time of year international trade to and from China slows down quite a bit as the country celebrates. In our industry, we notice. If you’ve handled home goods, clothing, electronics, or just about anything else, you’ve probably noticed many of items are marked “Made in China.” But when, and how, did China become our most frequent trade partner and main manufacturer for the world?

To answer this question, we must go back to the 60s (*) when Japan started rising in power as exporters of electronics and consumer goods. Taiwan and South Korea were not far behind. But China’s embrace of foreign trade was a game changer. In 1990, Asia accounted for 26.5% of global manufacturing output. By 2013, this number reached 46.5%. Compare this to China’s output: in 1990, China’s share of global manufacturing was 3%. Now, it is nearly a quarter. This means that China produces the lion’s share of the world’s goods. China produces about 80% of the world’s air-conditioners, 70% of its mobile phones, and 60% of its shoes.

So how did China grow so quickly? The country’s firms worked to increase prices, while adding large amounts of manufacturing value. Combine this with an exchange rate that is steadily appreciating, and you have all the ingredients for an impressive leap in just a few decades. And while most people only see final products that are “made in China,” the country has also ramped up production of parts and components. In the two decades between 1995 and 2007, China’s export of parts and components increased more than 9% compared to the USA’s decrease of 6.3%. The importance of this cannot be overlooked. Instead of simple assembly contracts that end up with exports of final products, China’s manufacturers who are exporting parts can now control how many parts to produce, as well as set the price and delegate who gets what. At least to a certain extent.

Picture1 Source: The Atlantic

So what does this mean for the US, who was once the largest manufacturing nation in the world? Well, they’re down to second place. And they aren’t closing that gap any time soon. In 2013, Chinese manufacturing value-added was $2.74 trillion compared to the US’s $2.03 trillion. Trillions are hard to conceptualize, but if you imagine the world’s manufacturing as a pie graph, you’ll see China has nearly a quarter, at 23.2%, where the US only has pretty big slice, at 18%.

For how long more will China maintain its status as the world’s manufacturer?

Despite the fact that when people think of Chinese goods, they think of companies saving lots of money by foreign production, the “Cheap China” era beginning to end. Not only are costs rising for land and for keeping up with environmental and safety regulations (that US companies have had to enforce for some time now), but labor costs are also increasing at a fast rate. Chinese wages increased an average of 10% in 2012, and have been surging even higher every year since.

These ever growing wages are causing manufacturing to slow down, and causing some concern for the Chinese government, who must fight the stalling by stimulating growth. Many are concerned that business will go elsewhere, such as the Philippines (where labor costs only grew 8%) or Mexico (where the labor costs stayed almost stagnant with a 1% increase). China does have one very important factor on its side: reliability. They’ve been the leader for the last few decades for a reason, the Chinese supply chain is reliable, and also flexible. China makes parts, components, final products, and has the means to move all of its goods. This supply chain is enviable, especially for electronics. Once you’ve cornered the market on all the components of the product, as well as the product itself, it’s very hard to make that product somewhere else (without cutting deeply into your bottom line). Take Apple, for example. We all need our iPhones, and Apple knows it. To keep costs low and profits high, Apple trusts Chinese firm Foxconn because they have more than one supplier and manufacturer of components nearby and at the ready. Nobody else can provide this reliability and price – so making an iPhone on US soil (like many have called on Apple to do), or even just shipping and assembling the parts, would not be a sound economic choice.

Those were some impressive numbers of China’s contribution to the world’s manufacturing. How about the China – US trading relationship?

The US is the top export destination for china, the 4th top import origins for China. In 2013 China's exports to America amounted to $486.3 billion or 20.2% of the US’ overall imports. The top five commodities the US imports from China are:

1. Electronic equipment: $129.8 billion
2. Machines, engines, pumps: $108.1 billion
3. Furniture, lighting, signs: $28 billion
4. Toys, games: $23.7 billion
5. Footwear: $17.8 billion

On the other hand, US exports to China amounted to $160.1 billion or 8.2% of China’s overall imports. Top commodities include:

1. Electronic equipment: $21.6 billion
2. Machines, engines, pumps: $16.8 billion
3. Oil seed: $16.8 billion
4. Aircraft, spacecraft: $15.5 billion
5. Vehicles: $14.2 billion

Trade volume is measured in TEU, which is the size of a common shipping container. In terms of TEU, China’s busiest port (also the world’s busiest - which should come as no surprise), Shanghai, handled a volume of 35.4M TEU in 2014. Compare this with the USA’s busiest port, Los Angeles, which only handled 8.3M.

Chinese’s two state shipping giants, COSCO and China Shipping Line in December 2015 merged their container-shipping operations to create the world’s fourth-biggest container shipping line, after AP Moller Maersk Group, Mediterranean Shipping Co., and France’s CMA CGM SA. These are the top ocean freight carriers. The USA doesn’t have any ocean carriers but FedEx and UPS are the world’s top two air cargo companies; with the largest fleet size (over 500) and the most destinations.

How often do businesses in US import goods from China?

Every day, every hour. The average number of shipments sent from China to New York in any month is about 20,000. Approximately half of the consignees fall under the small and medium-sized business category, meaning they have 10 shipments per month or less.
Fleet’s mission is to make international shipping simpler and easier for this group of businesses, from explaining basic concepts in international shipping to providing shippers with an easy-to-use technology to connect and work with different logistics service providers.

As an online marketplace for logistics, Fleet offers a quoting platform where shippers can receive and compare quotes from different service providers on a shipment. If you’re looking for freight forwarders who can help you ship your goods from China to the US – try Fleet. Freight forwarders – both in the US and in China – are ready to give you their best offers on our platform. We’re also home to reviews and ratings from thousands of shippers, so our quoting platform empowers shippers to make informed decisions about which service providers to work with.

Fleet is fast, easy, and completely free for shippers. The Chinese New Year is starting soon, there’s no reason to wait – start your new year right with Fleet.

(*): Contact us for references

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