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.
Palauan President Surangel Whipps Jr in a letter to an unnamed US senator on Feb. 9 said that China has offered to “fill every hotel room,” in Palau, “and more if more are built” if the small island nation were to break ties with Taiwan. The letter further claims that China offered US$20 million per year for the creation of a “call center” in Palau, a nation whose economy relies heavily on tourism. It is more evidence that for China, tourism is an economic tool for its political gain. Cleo Paskal, a senior fellow at the Foundation for Defense of Democracies, posted
Due to enduring the Kafkaesque situation of having two accidents in 30 minutes, one involving an accident with an ambulance, I would like to share my personal experience. Both cases show the loopholes of Taiwanese law, which is a driving factor for the terrible traffic conditions in the nation. I was driving my scooter on the main road in Taoyuan’s Yangmei District (楊梅). Despite there being no cars behind me, a young man in an old car made a sudden left turn and I bumped into his vehicle. At first, the man tried to run away, but was blocked by other
The pre-eminent authority on the English language, the Oxford English Dictionary (OED), last month issued an update to one of its entries, adding the term “Chinese dragon” to its lexicon for the first time. The Chinese word long (龍) has for a long time been translated simply as “dragon,” but many commentators opposed this, believing that the traditional Western concept of a dragon is represented by the embodiment of a fearsome, wicked monster that must be killed. It was deemed unsuitable to use a wicked and inauspicious Western dragon to refer to an auspicious Chinese dragon, so it was recommended that a
It has been a year since China relaxed the “zero COVID-19” measures that had been stifling economic activity, but the country has yet to experience the rebound that policymakers and pundits anticipated. Instead, economic indicators from last year have painted a disheartening picture. The fallout from the massive property developer Evergrande’s 2021 collapse is far from over, and the sector continues to struggle, even after the Chinese government relaxed purchasing restrictions in cities like Guangzhou and Shanghai. China’s financial health has also declined as local government debt has snowballed, leading Moody’s to downgrade the country’s credit outlook in December last year.