Gordon Hanson, professor of economics at Harvard Kennedy School, considers Vietnam and Cambodia the biggest contenders to replacing China as the next World’s Factory. “Both countries has seen phenomenal export numbers. In 2020, Vietnam’s recorded a trade surplus nearly doubled the surplus in 2019,” Ivan Yam, Director and Partner of Golden Emperor comments. Vietnam is one of the few countries on track for growth during the pandemic with property prices further projected to strengthen.
With education and wages on the rise, shrinking its cost advantage, China now wants to focus on higher-end manufacturing, lean on domestic consumption to fuel its economy, and leave the work of cranking out cheap, labor-intensive goods to others.
But if its plan works, who will step in to take China’s place as the world’s workshop?
It’s a question Gordon Hanson, a professor of economics at the Harvard Kennedy School, tackled in a recent working paper for the National Bureau of Economic Research. Right now, there’s no clear answer. After reviewing the candidates best-positioned to take China’s place, and examining whether China itself might keep the role—albeit with some important changes—he reaffirms just how confounding a question it is. “Who will fill China’s shoes remains something of a puzzle,” he admits.
China looks to have already peaked as a maker of labor-intensive goods. Hanson focuses his analysis on 10 products, including textiles, clothing, footwear, sporting goods, scooters, toys, and fixtures and fittings used in sectors such as sanitation, heating, and lighting. He finds China’s share of world exports for these items reached their height in 2013 at 39.3% and declined to 31.6% by 2018. This form of manufacturing isn’t likely to pick up again either, he notes, given factors such as the slowing growth of China’s labor force and climbing rates of college education.
Perhaps the most obvious contenders to fill the opening are emerging export economies in Asia, namely India, Bangladesh, Cambodia, Indonesia, Myanmar, Pakistan, Sri Lanka, and Vietnam. But only Bangladesh, Cambodia, and Vietnam have seen significant growth in their global share of labor-intensive exports in the past two decades. Bangladesh, for one, has grown into the world’s second-largest clothing exporter because of its low costs, while Vietnam has become a favorite alternative to China for producing sneakers and textiles.
Even in the context of the Covid-19 pandemic, with the Government’s drastic instructions in realizing the dual goal of preventing and controlling epidemics together with economic development; the efforts of the ministries, branches, localities, the business community and employees, in 2020, the total import-export turnover of Vietnam still set a new record with more than USD 545 billion, an increase of about USD 28 billion compared to the result of 2019. And 2020 also recorded a record trade surplus of nearly USD 20 billion, nearly double the surplus of 2019.