China Takes Top Spot on Emerging Asia Manufacturing Index 2024

China leads the Emerging Asia Manufacturing Index 2024, leveraging innovation, trade networks, infrastructure, and a skilled workforce, according to a new report produced by Dezan Shira & Associates’ specialists. The report also highlights China’s comparative disadvantages in the manufacturing sector within the Asia-Pacific region.

Known as the “World’s Factory”, China has held the title of the world’s largest manufacturer for 14 consecutive years, starting from 2010. Its factories churn out approximately one-third of the global manufacturing output, a testament to its industrial might and capacity.

Despite facing challenges from global geopolitics and competition from other emerging economies, China’s manufacturing sector continues to thrive. In 2023, the value-added by China’s manufacturing reached an impressive US$5.57 trillion, accounting for 31.7 percent of its GDP.

China’s dominant role as the world’s sole manufacturing power is reaffirmed in Dezan Shira & Associates’ Emerging Asia Manufacturing Index 2024 report (“EAMI 2024”), in which China secures the top spot among eight emerging countries in the Asia-Pacific region. The other seven economies are India, Indonesia, Malaysia, the Philippines, Thailand, Vietnam, and Bangladesh.

The EAMI 2024 aims to assess the potential of these eight economies, navigate the risks, and pinpoint specific factors affecting the manufacturing landscape.

In this article, we delve into the key findings of the EAMI 2024 report and navigate China’s advantages and disadvantages in the manufacturing sector, placing them within the Asia-Pacific comparative context.

Background and context

Emerging Asia countries face various challenges, especially in the current phase of increased volatility, uncertainty, complexity, and ambiguity (VUCA). One notable challenge is the impact of global demand disparities on the manufacturing sector, affecting industrial output and export orders.

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Meanwhile, the manufacturing landscape in Emerging Markets has undergone significant changes. According to the Boston Consulting Group, over 90 percent of North American manufacturing companies have shifted their production to various regions, including Mexico, India, Southeast Asia, Turkey, and Morocco, over the past five years. This trend is expected to continue in the medium to long term.

Despite these challenges, Emerging Markets offer substantial investment opportunities. China remains a dominant manufacturing powerhouse, leveraging innovation, trade networks, infrastructure, and a skilled workforce. The China+1 strategy involves supply chain restructuring and risk diversification.

Against this backdrop, the EAMI 2024 report examines top performers within specific parameters and sheds light on areas requiring improvement.

Highlights from the EAMI 2024 report

The evaluation provided by the EAMI 2024 report hinges on the measurement of 48 distinct parameters organized into eight fundamental core criteria – economy, political risk, business environment, international trade, tax policy, infrastructure, workforce, and innovation.

Among the eight areas, China ranks high in terms of innovation, infrastructure, international trade, and political risks. However, it still faces challenges related to the economy, workforce, tax policy, and the business environment.

Infrastructure (1^st)

The infrastructure criteria measure the overall quality of the infrastructure. It accounts for various infrastructure parameters, such as Energy Cost, which measures the electricity prices offered in each country to support manufacturing operations, while Infrastructure Investment addresses the total percentage of GDP invested in infrastructure by the government. It also includes an analysis of Water Availability and International Freight Costs.

China ranks first in this parameter due to its excellence in energy availability, infrastructure investment, quality of infrastructure, and Internet speed. However, there is room for improvement in terms of water availability and cost, as well as gas/fuel expenses.

China dominates the infrastructure tier, boasting the region’s largest ports, airports, leading highway network, and fastest high-speed railway. China’s strategic infrastructure investments provide reliability and efficiency for manufacturers (if there is no lockdown).

— Bruno Hernandez, Senior Associate, International Business Advisory Dezan Shira & Associates

Innovation (1^st)

The Innovation criteria measure the specific innovation performance of each country. This parameter encompasses two main parameters: R&D expenditure and Innovation/Technology Access.

China comes out on top for innovation. China’s research and development (R&D) expenditure witnessed an impressive increase of over 35 times between 1991 and 2018. This remarkable growth has made China an innovation powerhouse, drawing significant FDI from international investors.

None of the other seven countries in this ranking can surpass China in terms of its current innovation rate, given China’s status as an innovative powerhouse, distinguished by substantial investments in research and development across multiple industries.

— Ines Liu, Senior Manager, International Business Advisory Dezan Shira & Associates

International trade (2^nd)

The International Trade Tier provides insight into the degree of openness for international trade in each economy. This section provides a comprehensive look into the overall trade flow of each country, the restrictiveness of trade barriers, and an estimate of domestic suppliers for key industries in each country.

China ranks second in this parameter, following Vietnam. It excels in trade balance, custom facilities, free trade integration, and domestic suppliers. However, its ranking is slightly impacted by its trade openness level.

Additionally, when compared to Vietnam, China benefits from membership in seven out of nine “significant” FTAs but lacks free trade agreements with the UK and EU, which means it has not achieved the same level of free trade as Vietnam.

Surpassing China in terms of domestic suppliers seems improbable for any country in this index, given the heavy reliance of numerous industries on China for specific parts and resources, posing challenges in finding alternatives.

— Pritesh Samuel, Head of Business Intelligence at Dezan Shira & Associates

Political risk (3^rd)

The Political Risk criteria provide a comprehensive assessment of the country’s government and regulatory stability.

China ranks third in this parameter, following Malaysia and Vietnam. The country has maintained a high level of political stability through a complex and multifaceted policy system. However, its ranking is slightly affected by a highly restrictive regulatory framework and censorship schemes.

Economy (4^th)

The economy criteria encompass parameters such as economic growth and inflation, evaluating the general economic situation with a focus on stability, resilience, and growth potential.

Among the eight countries, China ranks second in terms of economic resilience, following Bangladesh. China’s swift response to the COVID-19 pandemic significantly reduced the death toll and helped stabilize the economy. In the post-COVID era, concerted efforts were made to facilitate economic recovery. In 2023, the country’s GDP grew by 5.2 percent, meeting the targets set for the year.

However, China’s economic ranking was negatively impacted by debt issues and manufacturing growth potential, resulting in a fourth-place position under this parameter.

Tax policy (4^th)

The Tax Policy criteria measure the tax incentives in each economy for the manufacturing sector. Key parameters include Corporate Tax Rates and Tax Incentives for Manufacturers.

China ranks fourth in this parameter, following Thailand, Vietnam, and Malaysia.

Workforce (7^th)

The Workforce criteria measure the current condition of the labor force. Noteworthy parameters include the combination of Population Size, Population Growth, Median Age, Minimum Wage, and Average Wage. These factors can play a pivotal role in identifying markets with cost-effective labor.

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China ranks seventh in this parameter, followed by Thailand. Despite having one of the largest populations in the world, which provides diverse opportunities for a sizable workforce, China is currently experiencing minimal population growth. Additionally, the emergence of an aging population, reflected in a median age of 39, poses challenges, especially for manufacturers, as this higher median age may not align with the optimal workforce cohort.

Moreover, increasing labor costs have affected China’s attractiveness to manufacturing investors, but its high labor productivity partly mitigates this concern.

Business environment (8^th)

The Business Environment tier provides insights into the specific restrictions, regulatory framework, and operational conditions within an economy.

China ranks eighth in this parameter. Despite its high rankings for the general business environment, intellectual property protection, and ease of hiring foreign staff, China’s final position is adversely impacted by factors such as the minimum average manufacturing capital, the average time required for company setup, and restrictions on industries for foreign direct investment (FDI).

Why China?

Despite the economic fluctuations and challenges faced by international companies in recent years, China remains resolute on its path to recovery. While some businesses explore re-shoring, near-shoring, or diversifying their global footprint by moving capital elsewhere, those with established operations in China are committed for the medium to long term. Many recognize the unfolding opportunities and incentives within China, positioning it as a pivotal hub in their broader Asia strategies.

Below we list some reasons why foreign investors choose China as an investment destination in the first place:

For content on choosing China as your investment location, relocating to China, and how to take advantage of the China + 1 strategy, please navigate our “Doing Business in China” portal.

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