Asia’s manufacturing dominance just hit a wall. Manufacturing giants like Toyota, Samsung, Foxconn and Huawei have ensured that five of the top 10 most competitive manufacturing economies in 2016 were Asian — China, Japan, South Korea, Taiwan and Singapore — with the first three also ranking as top manufacturing environments in 2018.
But except for Singapore, these countries posted dismal figures last month. Japan’s purchasing managers’ index (PMI) for manufacturing barely stayed afloat, recording a two-year low of 51.8 (50 or above indicates growth). China did even worse, hovering at 50.2, while South Korea dropped at its fastest rate in over five years to 48.6 and Taiwan hit a three-year low of 48.4.
But these figures aren’t as scary as they seem. For one thing, Japan has already since rebounded to 52.4. And while much can be attributed to the ongoing U.S.-China trade war, these disappointing numbers also reflect a long overdue need for some upgrades.
Taiwan’s PMI reading, for example, can be traced to low consumer demand thanks to innovation complacency by Samsung and Apple, says Wang Jian-chyuan, acting president of the Chung-Hua Institution for Economic Research (CIER), and this has in turn hurt Taiwanese parts suppliers.
South Korea’s PMI reading, meanwhile, is largely the result of poor performance by its auto industry. Hyundai Motor, Kia Motors, GM Korea, Ssangyong Motor and Renault Samsung saw their combined sales drop 4.9% last month compared to a year ago — and this, too, is the result of poor innovation regarding technologies like electronic vehicles and autonomous driving.
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Finally, there’s China, although here we should be careful since its PMI reading takes into account the entire country, including large regions that produce very little. But even when we zero in on its manufacturing center, the picture doesn’t get much better.
If, as the robotics expert Ren Yutong once said, “China is the factory of the world,” Guangdong is its production floor. And while Guandong’s manufacturing PMI has steadily grown since 2016, this year it fell for several consecutive months to hit 49.3 in August. That’s when Beijing pulled the plug.
The National Bureau of Statistics ordered Guangdong authorities this month to stop producing a regional manufacturing PMI. This has led some to subsequently conclude things are worse than they seem. So while Chinese is stepping ahead in terms of equipment technology, it’s still dragging its feet when it comes to transparency and production standards.
Manufacturers worldwide are relying more on 3D printing for rapid prototyping, advanced robotics production, AI control systems and cyber manufacturing, all areas where East Asia has an advantage, if it chooses to press it. The pressure being created by the U.S.-China trade war is therefore almost a blessing, because it reminds us that complacency is death. As the saying goes, pressure doesn’t create character, it reveals it. Oftentimes, that’s also true of fatal flaws.