China still world's factory, even upgraded: analyst

Despite the rise of production costs, the U.S.-China trade war and the COVID-19 pandemic, China's position as the "world factory" has been strengthened in the past few years, an analyst has said in an article published recently in the South China Morning Post.

While the economy has rebalanced away from export expansion in recent years, there is no let-up on China's trade competitiveness, Aidan Yao, senior emerging Asia economist at AXA Investment Managers, said in the article.

Despite U.S. tariff increases on Chinese products, China's market share still grew on the global stage as exporters explored new markets in Southeast Asia and countries involved in the Belt and Road Initiative, Yao said, adding that export diversion has also helped circumvent some trade levies.

China's forceful response was quite effective in containing the COVID-19 outbreak, paving the way for a swift resumption of production and exports and making it the supplier of last resort in many pandemic-related goods, Yao said.

The effective defense against the trade war and COVID-19 reflects the resilience of China's supply-chain ecosystem, which is no longer built on cost competitiveness, he said, stressing an accelerated upgrading of the domestic production system enabled the Chinese economy to move up the value chain.

China's emergence as an export powerhouse has also reshaped the landscape of global trade, and developed economies -- led by Japan and the United States -- have lost significant market share to China in the medium to highly skilled export segments, he said.

The country may have lost some market share in the low-skilled and labor-intensive sectors, but it has retained many critical supply chains locally, Yao said, noting that China is able to establish an inclusive and enduring production ecosystem that could prolong its days as the "world's factory."