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.
After nine days of holidays for the Lunar New Year, government agencies and companies are to reopen for operations today, including the Legislative Yuan. Many civic groups are expected to submit their recall petitions this week, aimed at removing many Chinese Nationalist Party (KMT) lawmakers from their seats. Since December last year, the KMT and Taiwan People’s Party (TPP) passed three controversial bills to paralyze the Constitutional Court, alter budgetary allocations and make recalling elected officials more difficult by raising the threshold. The amendments aroused public concern and discontent, sparking calls to recall KMT legislators. After KMT and TPP legislators again
Taiwan faces complex challenges like other Asia-Pacific nations, including demographic decline, income inequality and climate change. In fact, its challenges might be even more pressing. The nation struggles with rising income inequality, declining birthrates and soaring housing costs while simultaneously navigating intensifying global competition among major powers. To remain competitive in the global talent market, Taiwan has been working to create a more welcoming environment and legal framework for foreign professionals. One of the most significant steps in this direction was the enactment of the Act for the Recruitment and Employment of Foreign Professionals (外國專業人才延攬及僱用法) in 2018. Subsequent amendments in
US President Donald Trump on Saturday signed orders to impose tariffs on Canada, Mexico and China effective from today. Trump decided to slap 25 percent tariffs on goods from Mexico and Canada as well as 10 percent on those coming from China, but would only impose a 10 percent tariff on Canadian energy products, including oil and electricity. Canada and Mexico on Sunday quickly responded with retaliatory tariffs against the US, while countermeasures from China are expected soon. Nevertheless, Trump announced yesterday to delay tariffs on Mexico and Canada for a month and said he would hold further talks with
Taiwan’s undersea cables connecting it to the world were allegedly severed several times by a Chinese ship registered under a flag of convenience. As the vessel sailed, it used several different automatic identification systems (AIS) to create fake routes. That type of “shadow fleet” and “gray zone” tactics could create a security crisis in Taiwan and warrants response measures. The concept of a shadow fleet originates from the research of Elisabeth Braw, senior fellow at the Washington-based Atlantic Council. The phenomenon was initiated by authoritarian countries such as Iran, North Korea and Russia, which have been hit by international economic
RSS