Bloomberg: No country will replace China in the role of world factory, instead of “China mini versions”.

The US-China trade war has ignited a debate about which developing economy in Asia can replace China as a world factory. India and Indonesia are the two most mentioned names.

However, according to a new report published by Bloomberg Economics, no country can achieve the same success as what China enjoyed during the transition of the economy. Instead, there is a group of economies that have the potential to replace China, each of which is trying to take advantage of it but is blocked by structural problems such as Inadequate infrastructure or political instability.

Sophisticated network of Chinese factories, suppliers, logistics and transport infrastructure developed in a completely different era, backed by money and technology from Japan, Taiwan and Hong Kong at a time when environmental issues and workers' rights were not paid as much attention as they are now. China also has a cheap, plentiful workforce, and for almost three decades it has not faced any barriers to entering the global market.

Bloomberg Economics looks at 6 aspects – from labor to business environment – of 10 Asian economies to find out which developing economies will move to occupy a bigger slice of the pie in manufacturing.

"No single economy is able to fit in the comedy that China has left behind," experts Chang Shu and Justin Jimenez wrote in the report. "Many places have the advantage of cheap cost, but except for India, all are too small in size compared to China. And they all face challenges of competitiveness."

India ranks first in export potential thanks to its large population. The second is Indoneisa, the third is Vietnam.

Part of the problem is the need to create supply chains, a large consumer market, just like in industrial cities of China. This is impossible in a day or two because the network has been occupied by Chinese small and medium enterprises for a long time.

Take Quanzhou Kuisheng, for example, a company that manufactures home and garden decor in Quanzhou, Fujian Province. Mr. Trump's tariffs reduced the company's sales by 30%, but that was not enough for the company to consider moving production overseas. Instead, they compensate by pursuing other strategies, such as increasing operations in Europe.

According to sales manager Will Huang, "Vietnam has cheaper labor but a different working culture. Chinese workers have better skills and are willing to work overtime." Unlike in Vietnam, products made in China rarely require third-party quality control. Huang said that in the past few years, only two rival companies in Quanzhou had moved factories to Vietnam.

China still has other advantages such as large consumer markets and easy access to capital for businesses. Over the past decades Chinese factories have had to compete with each other on their own, figuring out ways to cut costs and optimize production processes.

In fact, China's production price index has been falling steadily in recent months, mainly due to lower energy costs, making it difficult for overseas factories to compete. And the positive developments of the trade war may partly help ease the pressure on Chinese manufacturers.

India began its efforts to catch up with China's manufacturing capacity five years ago, when Prime Minister Narendra Modi announced the "Make in India" initiative with incentives for foreign companies wishing to open factories. here.

By 2050, India is forecast to surpass China as the world's most populous country, and the working-age population is forecast to reach 1 billion. However, the advantage of cheap labor has been countered by other factors, such as underdeveloped infrastructure, land laws and backward labor laws, and the bureaucracy. bulky.

This South Asian country has advanced quite a bit by increasing 37 places in the World Bank's business environment ranking, but still ranks 63th and far away from China.

The story of Indonesia is similar. Although Indonesia ranks above India in terms of macroeconomic stability, it is pulled back by weak infrastructure. In September, President Joko Widodo admitted that his country cannot attract factories from China because investors are still worried about complicated cumbersome laws.

When Sharp wanted to move its washing machine production line from Thailand to Indonesia, it took the Japanese company two years to complete the preparation, from site design, to find local suppliers, to test production and Addressing all administrative issues, a Sharp leader said.

Last year, Indonesia implemented an online one-stop-shop system to help businesses get their business licenses easier. But this move is also not effective because businesses still need more licenses from local governments. The same thing exists in the tax system.

The case of Vietnam is also entangled with infrastructure problems. The influx of money into new factories has overwhelmed roads and ports, increasing complaints and congestion in ports. While China owns 7 of the 10 busiest container ports in the world (Shanghai is No. 1), the two largest ports of Vietnam are Saigon and Cai Mep ports, ranked 26 and 50 respectively.

And it is not only developing economies in Asia that benefit from new trade trends. US businesses diverted US $ 21 billion of imports from China in the first half of 2019. Of which Taiwan was the biggest beneficiary, with exports increasing by US $ 4.2 billion in the same period. Mexico ranked second with an increase of 3.5 billion USD, followed by EU with 2.7 billion USD and Vietnam with 2.6 billion USD.

And while economies are racing to copy China's production model, new technologies make the nature of global supply chains and manufacturing transform very quickly, making China's success story Quoc increasingly difficult to repeat.

There won't be a new China, but a series of "Chinese mini versions".