INTRODUCTION

In the modern era, China's influence in the world economy was minimal until the late 1980s. At that time, economic reforms initiated after 1978 began to generate significant and steady growth in investment, consumption and standards of living. China now participates extensively in the world market and mostly state owned but also some private sector companies play a major role in the economy. Since 1978 hundreds of millions have been lifted out of poverty - yet hundred of millions of rural population as well as millions of migrant workers remain unattended: According to China's official statistics, the poverty rate fell from 53% in 1981 to 2.5% in 2005. However, in 2009, as many as 150 million Chinese were living on less than $1.25 a day The infant mortality rate fell by 39.5% between 1990 and 2005, and maternal mortality by 41.1%. Access to telephones during the period rose more than 94-fold, to 57.1%. as did in many development countries such as Peru or Nigeria. In the 1949 revolution, China's economic system was officially made into

a communist system. Since the wide-ranging reforms of the 1980s and afterwards, many scholars assert that China can be defined as one of the leading examples of state capitalism today. China has generally implemented reforms in a gradualist fashion. As its role in world trade has steadily grown, its importance to the international economy has also increased apace. China's foreign trade has grown faster than its GDP for the past 25 years In todays global environment whoever manufactures products better, cheaper and faster, wins. Every country in the world is competing. In consumer products, China is grabbing a lot of the prizes.

BASICS IF MANUFACTURING Global horizons

There is something very basic about manufacturing value is added by taking raw materials and labor, and producing products that can be sold in high quantities, with quality, to generate good return on the investment. In the past decade, manufacturing technology has expanded rapidly on a global scale. Many countries have mastered the methods, the quality processes, the execution systems and software. In this new century, the global spread of manufacturing knowledge is having far-

reaching consequences. We are seeing fundamental changes in international business structures and deployment of global capital. The manufacturing sector remains significant in leading economies worldwide, but faces major issues such as cost competitiveness, product innovation and how to compete in an increasingly global market. One of the very first questions is: Where in the world should the manufacturing plant be located? Of course, innovative design and product development are important to generate competitive advantage. But design and development can be done in locations that are not necessarily tied to the production plant. Intel, for example, builds semiconductor fabrication plants in many different worldwide locations. Likewise, many automation companies build products wherever it suits their business needs.

Choice of plant location

Labor skills and availability are important, but automation (available globally) reduces dependency on those factors. This brings the choice down to proximity to material sources, and/or proximity to markets, plus lowest cost with the best quality. During the past decade or so, it seems clear that manufacturing is tending to migrate away from the U.S. for a variety of factors, not the least being that manufacturing appears to have a negative image. PLC inventor, technology guru and author Dick Morley suggests that the idea that manufacturing is somehow bad has caused jobs to be driven out. He suggests that no community in North America really wants a new assembly plant, a printed board facility or a semiconductor enterprise. In television dramas the villain is the businessman, and the hero is the scrubby squatter who fights to prevent progress.

In the U.S. today, big factories are despised and penalized with high taxes, strict zoning regulations and infinite bureaucracy. NIMBY (Not In My Backyard) attitudes are driving manufacturing offshore. On the other hand, Ireland, China, Korea, Hong Kong and many other countries seem to be inviting industry with open arms and deferred taxes. And manufacturing people are often honored as heroes.

US manufacturing statistics

Manufacturing's share of the US economy, as measured by real GDP, has been stable since the 1940s. During this entire time, the ratio of manufacturing output to GDP has ranged from 16 to 19%. As of 2002, it was 16%. During this same 50-year time span, with alternating booms and recessions, the number of manufacturing employees has remained fairly constant, oscillating at around 16.5 million. In the recent downturn, manufacturing employment fell to about 14.2 million. Manufacturing has sustained its share of a growing economy with the same number of workers, mainly due to automation, which caused faster productivity growth. As the economy has grown, manufacturing's share of non-farm employment has decreased from 32% in 1947 to 11.5 % in 2002. Automation and outsourcing are modern facts of life. So the well-intended but job-inhibiting laws that enforce things such as workers' comp, higher benefits and "living wages" simply are disincentives for employers to create jobs. Traditional manufacturing payroll jobs simply won't be coming back. Many U.S. manufacturers, including major automation manufacturers like GE, Emerson, Honeywell, and Rockwell are moving production plants to other global locations like China. And this is not simply because of cheaper labor.

CHINAS MANUFACTURING POWER

Let's look at some facts about manufacturing in China today. y y y y y y y Continually increasing manufacturing prowess Significant cost advantages (beyond just labor cost) Good, repetitive quality Worldwide market-share 50% of cameras, 30% of air conditioners and televisions, 25% of washing machines, 20% of refrigerators One private Chinese company makes 40% of all microwave ovens sold in Europe The city of Wenzhou, Eastern China produces 70% of the world's metal cigarette lighters Wal-mart Buys $18 billion from China, providing a direct link to the US consumer

A massive shift in economic power is under way. A tenfold surge in high-quality Chinese imports at below US manufacturing costs is changing the landscape. In the US, the message is loud and clear cut your price at least 30% or lose your customers. There has been fierce competition in the past, but the new Chinese competition is dramatically different; they are about half the price. This has been a big factor in the loss of about 2.7 million manufacturing jobs since 2000.

Meanwhile, America's trade deficit with China keeps soaring to new records. It's likely to be more than $150 billion in 2004, and about 12% of that through the world's biggest retailer: Wal-Mart. All the other large retailers (Target, Home Dept, Sears, K-Mart) are following suit. A new book, "The Chinese Century" has a clear message: If you still make anything labor intensive, get out now rather than bleed to death. Shaving 5% here and there won't work. You need an entirely new business model to compete. America has survived import waves before, and it has lived with China for decades. But now something very different is happening. The assumption has always been that the U.S. and other industrialized nations will keep leading in knowledge-intensive industries while developing nations focus on lower skills and lower labor costs. That's now changed. What is stunning about China is that, for the first time, a huge country competes both with very low wages and high tech. Combine the two, and America has a problem. How much of a problem? On one side, the benefits of the relationship with China are enormous. After years of struggling to crack the Chinese market, US multinationals like General Motors, Procter & Gamble and Motorola are finally reaping rich profits. They're making cell phones, shampoo, autos, and PCs in China and selling them to the Chinese middle class about 100 million people, a group that should more than double in size by 2010. Also, by outsourcing components and hardware from China, US companies have sharply boosted profits and return on capital. China's surging demand for raw materials and commodities has driven prices up worldwide, creating a windfall for US steelmakers, miners, and lumber companies. The cheap cost of Chinese goods has kept inflation low in the US and fueled a consumer boom that helped America weather a recession.

The Cost of the China syndrome

But there's a huge cost to the China relationship. First there is the huge US trade deficit; China is the largest and fastest-growing part. While US consumers binge on Chinese-made goods, the US deficit is a record 6% of GDP. The trade shortfall coupled with the US budget deficit is driving the dollar ever downward, raising fears that cracks will appear in the global financial system. By keeping its currency pegged to the $ at an undervalued level, China amplifies the problem. In the meantime, America's industrial base has eroded to a dangerous level, not only in the old segments, but in more advanced tech-industries. China is adding state-of-the-art capacity in cars, specialty steel, petrochemicals, and microchips. These plants are aimed at meeting seemingly insatiable demand in China. But if China's growth stalls, the resulting glut will turn into another export wave and disrupt American industry.

Meanwhile, U.S. companies are no longer investing in much new capacity and the ranks of U.S. engineers are thinning. By contrast, the number of Chinese engineers is growing by 350,000 annually, young workers and managers willing to put in 12-hour days and work weekends, an unparalleled component and material base in electronics and light industry, and an entrepreneurial zeal to do whatever it takes to please big retailers such as Wal-Mart. And Chinese producers are hardly standing still. In a recent survey of Chinese and U.S. manufacturers by Industry Week, 54% of Chinese companies cited innovation as one of their top objectives, while only 26% of U.S. respondents did. Chinese companies spend more on worker training and enterprise-management software. And 91% of U.S. plants are more than a decade old, vs. 54% in China. More innovation. Better goods. Lower prices. Newer plants. America will surely continue to benefit from China's expansion. But unless it can deal with the new industrial realities, it will suffer a loss of economic power and influence. Can the U.S. meet the China challenge? ANALYSIS China's growth comes both from huge state investment in infrastructure and heavy industry and from private sector expansion in light industry instead of just exports, whose role in the economy appears to have been significantly overestimated. The smaller but highly concentrated public sector, dominated by 159 large SOEs, provided key inputs from utilities, heavy industries, and energy resources that facilitated private sector growth and drove investment, the foundation of national growth. In 2008 thousands of private companies closed down and the government announced plans to expand the public sector to take up the slack caused by the global financial crisis. In 2010, there were approximately 10 million small businesses in China. The PRC government's decision to permit China to be used by multinational corporations as an export platform has made the country a major competitor to other Asian export-led economies, such as South Korea, Singapore, and Malaysia. China has emphasized raising personal income and consumption and introducing new management systems to help increase productivity. The government has also focused on foreign trade as a major vehicle for economic growth. The restructuring of the economy and resulting efficiency gains have contributed to a more than tenfold increase in GDP since 1978. Some economists believe that Chinese economic growth has been in fact understated during much of the 1990s and early 2000s, failing to fully factor in the growth driven by the private sector and that the extent at which China is dependent on exports is exaggerated despite the lack of full convertibility of the RMB. Nevertheless, key bottlenecks continue to constrain growth. Available energy is insufficient to run at fully installed industrial capacity, and the transport system is inadequate to move sufficient quantities of such critical items as coal.

The two most important sectors of the economy have traditionally been agriculture and industry, which together employ more than 70 percent of the labor force and produce more than 60 percent of GDP. The two sectors have differed in many respects. Technology, labor productivity, and incomes have advanced much more rapidly in industry than in agriculture. Agricultural output has been vulnerable to the effects of weather, while industry has been more directly influenced by the government. The disparities between the two sectors have combined to form an economic-cultural-social gap between the rural and urban areas, which is a major division in Chinese society. China is the world's largest producer of rice and is among the principal sources of wheat, corn (maize), tobacco, soybeans, peanuts (groundnuts), and cotton. The country is one of the world's largest producers of a number of industrial and mineral products, including cotton cloth, tungsten, and antimony, and is an important producer of cotton yarn, coal, crude oil, and a number of other products. Its mineral resources are probably among the richest in the world but are only partially developed. China has acquired highly sophisticated foreign production facilities and through

"localization policies" also built a number of advanced engineering plants capable of manufacturing an increasing range of sophisticated equipment, including nuclear weapons and satellites, but most of its industrial output still comes from relatively illequipped factories. The technological level and quality standards of its industry as a whole are still disastrous, notwithstanding a marked change since 2000, spurred in part by foreign investment. A report by UBS in 2009 concluded that China has experienced total factor productivity growth of 4 per cent per year since 1990, one of the fastest improvements in world economic history. China's increasing integration with the international economy and its growing efforts to use market forces to govern the domestic allocation of goods have exacerbated this problem. Over the years, large subsidies were built into the price structure, and these subsidies grew substantially in the late 1970s and 1980s. By the early 1990s these subsidies began to be eliminated, in large part due to China's admission into the World Trade Organization (WTO) in 2001, which carried with it requirements for further economic liberalization and deregulation. China's ongoing economic transformation has had a profound impact not only on China but on the world. The market-oriented reforms China has implemented over the past two decades have unleashed individual initiative and entrepreneurship, whilst retaining state domination of the economy. Wayne M. Morrison of the Congressional Research Service wrote in 2009 that "Despite the relatively positive outlook for its economy, China faces a number of difficult challenges that, if not addressed, could undermine its future economic growth and stability. These include pervasive government corruption, an inefficient banking system, over-dependence on exports

and fixed investment for growth, the lack of rule of law, severe pollution, and widening income disparities." Economic consultant David Smick adds that the recent actions by the Chinese government to stimulate their economy have only added to a huge industrial overcapacity and commercial real estate vacancy problems. China is one of the fastest-growing economies in the world, together with other emerging economies such as (Botswana) it has also sustained a healthy average growth rates of over 6% per annum for several decades, China's rapid-fire growth is as longer-lived as the Japanese counterpart in the 1960s to 1980s and is not showing signs of slowing. In China, as in other developing countries and emerging economies, growth has occurred across a vast population (nearly 1.3 billion), thus, liberating millions of people from poverty and unlocking massive segments of demand. In 2010, China was largest consumer of energy and accounted for 20.3%% of the global total. China also consumed 48% of the world's coal in 2010. As of 2011, China consumed 54% of the world's production of cement

IMPORT EXPORT AND INDUSTRIES- CHINA Period Two-way trade Exports Imports

198185

+12.8%

+8.6%

+16.1%

198690

+10.6%

+17.8% +4.8%

199195

+19.5%

+19.1% +19.9%

19962000 +11.0%

+10.9% +11.3%

200005

+24.6%

+25.0% +24.0%

2006

+27.2%

+19.9% +23.8%

2007

+25.6%

+20.8% +23.4%

In 2009 around 8% of the total manufacturing output in the world came from China itself and China ranked third worldwide in industrial output that year (first was EU and second US). Research by IHS Global Insight states that in 2010 China contributed to 19,8% of world's manufacturing output and became the largest manufacturer in the world that year, after the US had held that position for about 110 years. China has become a preferred destination for the relocation of global manufacturing facilities. Its strength as an export platform has contributed to incomes and employment in China. The stateowned sector still accounts for about 30% of GDP.

ECONOMIC GROWTH TREND OF CHINA Inflation Gross domestic US dollar Year index product exchange (2000=100) Nominal Per PPP Per Capita GDP Capita GDP (as % of USA) (as % of USA)

1955 91,000

2.46

19.2

2.43

1960 145,700

2.46

20.0

3.04

1965 171,600

2.46

21.6

2.63

1970 225,300

2.46

21.3

2.20

1975 299,700

1.86

22.4

2.32

1980 460,906

1.49

25.0

2.52

2.04

1985 896,440

2.93

30.0

1.65

2.84

1990 1,854,790

4.78

49.0

1.48

3.43

1995 6,079,400

8.35

91.0

2.17

5.44

2000 9,921,500

8.27

100.0

2.69

6.75

2005 18,308,500

8.19

106.0

4.05

9.61

2010 25,506,956

6.97

112.0

6.23

15.90

CONTRADICTING VIEWS

People often compare Chinas urbanization to Western industrialization in the 19th century. In both cases, a large population moved from the country to the city. Society advanced from agricultural to industrial via manufacturing on a massive scale. However, there is a key misconception about Chinas manufacturing power. In the United States and Europe, the manufacturing industry was created due to technology innovation. For example, railways came into existence because of the invention of the steam engine and automobiles were created because of technology breakthroughs in automobile engines. In China, the manufacturing industry is being created in response to global demand. Chinese manufacturers take orders from Western companies that have designed products for their home markets. They have no involvement with product development, innovation, market research and even packaging. Chinese manufacturers have no experience in bringing their own products to overseas markets. Unlike the manufacturing industry in the West that gave birth to a middle class of both whitecollar and blue-collar workers, manufacturers in China mostly absorb surplus labor from rural areas with few skills. Those rural migrant workers live in dormitories, earn very low incomes (about $100 to $200 a month) and hardly fit into the category of the middle class. While people in the West fear China as a global manufacturing powerhouse, the Chinese consider their manufacturers to be the sweatshops for the world and see themselves as being in a disadvantageous position. Contrary to the conventional view, manufacturing in the U. S. has been growing in the past two decades despite the decline in manufacturing jobs. The latest data show that the United States is still the largest manufacturer in the world. In 2008, U.S. manufacturing output was $1.8 trillion, compared to $1.4 trillion in China. This means that the United States is producing goods with higher value, such as airplanes and medical equipment. In addition, most jobs the U. S. lost to China are low-skilled jobs. By outsourcing those lowskilled jobs to China, Americans have actually become more competitive in high-skilled jobs such as management, innovation and marketing. The low-skilled jobs also serve China well as Chinese rural migrants have opportunities to move up in life and gain some skills. The results are mutually beneficial. On one side of the globe, hundreds of millions of Chinese rural migrant workers earn more and have a higher standard of living; their children have

more training, which leads to more growth. On the other side of the globe, Western consumers are able to afford goods at lower prices and enjoy lower inflation.

PROBLEMS FACED

The government has in recent years struggled to contain the social strife and environmental damage related to the economy's rapid transformation; collect public receipts due from provinces, businesses, and individuals; reduce corruption and other economic crimes; sustain adequate job growth for tens of millions of workers laid off from state-owned enterprises, migrants, and new entrants to the work force; and keep afloat the large stateowned enterprises, most of which had not participated in the vigorous expansion of the economy and many of which had been losing the ability to pay full wages and pensions. From 50 to 100 million surplus rural workers were adrift between the villages and the cities, many subsisting through part-time low-paying jobs. Popular resistance, changes in central policy, and loss of authority by rural cadres have weakened China's population control program. Another long-term threat to continued rapid economic growth has been the deterioration in the environment, notably air and water pollution, soil erosion, growing desertification and the steady fall of the water table especially in the north. China also has continued to lose arable land because of erosion and infrastructure development. Other major problems concern the labor force and the pricing system. There is largescale underemployment in both urban and rural areas, and the fear of the disruptive effects of major, explicit unemployment is strong. The prices of certain key commodities, especially of industrial raw materials and major industrial products, are determined by the state. In most cases, basic price ratios were set in the 1950s and are often irrational in terms of current production capabilities and demands. Over the years, large subsidies were built into the price structure, and these subsidies grew substantially in the late 1970s and 1980s. By the early 1990s these subsidies began to be eliminated, in large part due to China's admission into the World Trade Organization (WTO) in 2001, which carried with it requirements for further economic liberalization and deregulation. China's ongoing economic transformation has had a profound impact not only on China but on the world. The market-oriented reforms China has implemented over the and entrepreneurship. past two decades have unleashed individual initiative

By 2010, rapidly rising wages and a general increase in the standard of living had put increased energy use on a collision course with the need to reduce carbon emissions in order to control global warming. There were diligent efforts to increase energy efficiency and increase use of renewable sources; over 1,000 inefficient power plants had been closed, but projections continued to show a dramatic rise in carbon emissions from burning fossil fuels.

CONCLUSIONS China's estimated employed labor force in 2005 totaled 791.4 million persons, about 60% of the total population. 49% of the labor force worked in works in the primary sector namely fishing, agriculture and manufacturing.

Though the debate about who is the manufacturing supremo of the world has been ensuing ever since the second world war, it has seen changes in context of the contenders. After the second world war it was US and USSR , after the disintegration of USSR for a long time it was only US but with the advent of the CHINA in the manufacturing sector the scenario changed completely.

The reasons for the sudden burst of china into dominating the manufacturing sector are many and different from what are prevalent in the common world. The type of government being the first and foremost, which influences their other reasons namely labour laws, working conditions, working union formations, worker demands, law and order, social uprising and expression of opinions. The others being more genuine reasons like the hard working attitude of Chinese people which is evident from the fact that they are performing outstandingly wherever they are going. Be it Olympics or intellectual fields and physical labour. The discipline in general the Chinese people have is immense and astounding. Their physical condition is par excellence and more than 70 % of the population pass the annual physical test that the Chinese government conducts. Some people cite the reason of plagiarism as a factor of their rate of development. The type of economy they have also effects the rate of development and manufacturing which is directly related to the type of government to a certain extent. The CLOSED ECONOMY model that they have creates a shield for their countrys economic condition and price regulation. During the inflation and recession hit times, china was protected, not completely but to an extent which was more than other open economies or semi open economies. All these factors combine and give china a sort of a head start as compared to other countries. When these factor amalgamate they make a recipe which puts china ahead of all developing countries in the world.

BIBLIOGRAPHY

y y y y y y

http://www.forbes.com/sites/china/2010/05/24/the-myth-of-chinasmanufacturing-power/ http://helenhwang.net/2010/03/myth-of-manufacturing/ http://www.stats.gov.cn/english http://www.adb.org/PRC/default.asp http://www.chinaeconomicreview.com/ http://www.imf.org/external/country/CHN/index.htm