Vietnam seems to be the consensus pick for winner of the US-China trade war, as Chinese and other manufacturers shift production to the cheaper Southeast Asian nation. If there is a loser, at least in terms of missed opportunities, it might be the countries of South Asia.
To understand why, remember that the trade war has only accelerated an important trend a decade in the making. Faced with rising costs, Chinese manufacturers must decide whether to invest in labor-saving automation technologies or to relocate.
Those choosing the latter present an enormous opportunity for less-developed countries, as Chinese companies could help spark industrialization and much-needed economic transformation in their new homes.
Illustration: Mountain People
There might not be another such chance this generation. The only proven pathway to long-lasting, broad-based prosperity has been to build a manufacturing sector linked to global value chains, which raises productivity levels and creates knock-on jobs across the whole economy.
This was how most rich nations, not to mention China itself, lifted themselves out of poverty.
Yet the evidence suggests that South Asian countries are lagging behind in attracting manufacturing investment. It is not just Vietnam that is racing ahead.
African countries, too, are making manufacturing a top priority. Ethiopia alone has opened nearly a dozen industrial parks in recent years and set up a world-class government agency to attract foreign investment. The World Bank has lauded sub-Saharan Africa as the region with the highest number of reforms each year since 2012.
By contrast, in terms of foreign direct investment (FDI) as a percentage of GDP, South Asia lags both the global average for least-developed countries and sub-Saharan Africa.
While South Asia’s total GDP is more than 70 percent greater than Africa’s, the continent received three-and-a-half times the investment from China that South Asia received in 2012, the most recent year for which the UN has published bilateral FDI statistics.
In the last five years, the American Enterprise Institute’s China Global Investment Tracker has recorded 13 large Chinese investment deals in Africa and only nine in South Asia.
Bangladesh is a striking illustration of the problem. The country needs to create 2 million jobs per year at home just to keep up with its growing population.
Yet, despite a world-class garments manufacturing sector, it seems unable to cut red tape and enact the reforms needed to attract investment to diversify beyond apparel.
In the past few years, Bangladesh has fallen to 176 out of 190 countries in the global Ease of Doing Business country rankings.
DBL Group, a Bangladeshi company, is investing in a new apparel manufacturing facility that would generate 4,000 jobs — in Ethiopia.
The fantasy, most common in India, that a country might somehow “leapfrog” from a rural, agriculture-heavy economy straight to a services-based economy is just that: a fantasy. South Asia cannot afford to lose this chance to grow its manufacturing sector.
Attracting manufacturing investments would require, first and foremost, that governments in the region acknowledge the competition is passing them by.
India, for example, must abandon its overconfidence that investors would come simply for its large population.
Pakistan needs to stop relying on its government-to-government friendship with China. Chinese state financing of infrastructure would not automatically lead to manufacturing investment, most of which is dominated by private Chinese companies motivated by competitive forces, not government diktats.
Second, South Asian countries need to undertake a concerted, whole-of-government push to boost investment levels.
Specifically, they need to create the conditions manufacturers need to thrive, from steady power supplies to efficient port operations and customs clearance.
Moreover, they need to understand the specifics of these businesses. Factories have unique requirements depending on what they make. For example, cloth and clothing factories, despite their seeming similarities, have extremely different requirements:
The former is capital-intensive, with huge amounts of power-hungry machinery churning out bolts of cloth, whereas the latter is labor-intensive and features rows of workers cutting and sewing.
Countries need to analyze which manufacturing sub-sectors they are best positioned for, meet the requirements those manufacturers have in order to set up shop, and target the regions of China (and elsewhere in the world) where those types of manufacturers are to be found.
The good news is that all of these measures are eminently feasible. In many cases, the first steps are already being taken, such as with the construction of Bangladesh’s first deep sea port at Matarbari.
The bad news is that unless South Asia moves faster, others might have already seized the opportunity to industrialize.
Irene Yuan Sun is a visiting fellow at the Center for Global Development and a research fellow at the Harvard Humanitarian Initiative.
China has not been a top-tier issue for much of the second Trump administration. Instead, Trump has focused considerable energy on Ukraine, Israel, Iran, and defending America’s borders. At home, Trump has been busy passing an overhaul to America’s tax system, deporting unlawful immigrants, and targeting his political enemies. More recently, he has been consumed by the fallout of a political scandal involving his past relationship with a disgraced sex offender. When the administration has focused on China, there has not been a consistent throughline in its approach or its public statements. This lack of overarching narrative likely reflects a combination
US President Donald Trump’s alleged request that Taiwanese President William Lai (賴清德) not stop in New York while traveling to three of Taiwan’s diplomatic allies, after his administration also rescheduled a visit to Washington by the minister of national defense, sets an unwise precedent and risks locking the US into a trajectory of either direct conflict with the People’s Republic of China (PRC) or capitulation to it over Taiwan. Taiwanese authorities have said that no plans to request a stopover in the US had been submitted to Washington, but Trump shared a direct call with Chinese President Xi Jinping (習近平)
Heavy rains over the past week have overwhelmed southern and central Taiwan, with flooding, landslides, road closures, damage to property and the evacuations of thousands of people. Schools and offices were closed in some areas due to the deluge throughout the week. The heavy downpours brought by the southwest monsoon are a second blow to a region still recovering from last month’s Typhoon Danas. Strong winds and significant rain from the storm inflicted more than NT$2.6 billion (US$86.6 million) in agricultural losses, and damaged more than 23,000 roofs and a record high of nearly 2,500 utility poles, causing power outages. As
It is difficult to think of an issue that has monopolized political commentary as intensely as the recall movement and the autopsy of the July 26 failures. These commentaries have come from diverse sources within Taiwan and abroad, from local Taiwanese members of the public and academics, foreign academics resident in Taiwan, and overseas Taiwanese working in US universities. There is a lack of consensus that Taiwan’s democracy is either dying in ashes or has become a phoenix rising from the ashes, nurtured into existence by civic groups and rational voters. There are narratives of extreme polarization and an alarming
RSS