The Decline of China

And Who Is Poised to Benefit

THE DECLINE OF CHINA AND WHO IS POISED TO BENEFIT

The Decline of China

And Who Is Poised to Benefit

In this Deep Dive, we look into the details of Chinas decline and the
migration of manufacturing to other countries. We analyze several
reasons that Chinas economy has slowed and the dynamics of the
countries that will step in as manufacturing leaders.
Here is a summary of some of our key predictions for the countries
that are poised to benefit from this major change.
To read the complete special report, please become a subscriber.

www.geopoliticalfutures.com

2016 Geopolitical Futures

THE DECLINE OF CHINA AND WHO IS POISED TO BENEFIT

The Decline of China

And Who Is Poised to Benefit

In July 2013, while I was chairman of Stratfor, I

oversaw a project called the Post China 16 (PC16).
It identified the 16 countries that were likely to
succeed China as the high-growth, low-wage
countries. Three years later, it is time to review and
adjust that list.

does not mean that the rotation isnt there. It does

mean that the rotation is quite slow.
This is not a forecast. This project looks at what is,
not what we expect to be. The study is based on a
simple method. First, identify how prior countries
emerged. Then, identify the products or equivalents that could be useful tools for introducing
disciplined industrialization to a society. Last,
search for the places where this process is already
underway. Having seen what is in place, we can
designate a country as a potential successor.

The decline of China as an economic power has

been precipitous. So, the question of who will
succeed China has become more urgent. Geopolitical Futures has focused on this question and
narrowed the list of potential successors to 13,
with some important shifts among the remaining
countries.

We do not expect this list to be definitive in all

respects, but are confident it will be in most respects.

The international system has usually had lowwage, high-growth countries producing basic and
inexpensive manufactured goods. More advanced
countries took advantage of their production, while
successful developing countries used exports to
vault into the first tier of economies.

We welcome your comments and questions.

George Friedman
Chairman
Geopolitical Futures

Before China, there was Japan. Before Japan were

South Korea and Germany. All had been shattered
by World War II. In the 1870s, the United States
was in this role. You might think of the countries
we have identified as preposterous. We ask you to
consider the condition before their rise to global
prominence of China and these other countries,
including the United States, which was fresh from
the Civil War. All were preposterous in their time.
This is a difficult time for new economic powers to
emerge. China emerged in the 1980s and 1990s,
a period where the global economy was robust
and demand for cheap manufactured goods was
surging. The 2010s are a very different world. That

www.geopoliticalfutures.com

Summary
China can no longer sustain its role as the worlds
leading producer of low-cost, basic manufactured goods given higher wages and lower global
demand in recent years. It was a matter of time
before China would outgrow this role. Production
of labor-intensive, basic manufactured goods has
historically rotated through developing economies.
The purpose of this report is to identify where this
production has been migrating as it leaves China

2016 Geopolitical Futures

THE DECLINE OF CHINA AND WHO IS POISED TO BENEFIT

Identifying Chinas Successors

and, therefore, which developing economies will

attract more investment in the future.

Financial markets and media outlets have become

obsessed in recent months with the deceleration
of the Chinese economy. With every release of new
trade, production and other economic data, there
is renewed commentary on how the Chinese economy keeps going from bad to worse. Its no secret
that Chinas economic boom has passed. Rather
than focus on what has been, this Deep Dive focuses on the new centers of low-wage manufacturing
activity, which once drove the Chinese economy.

Countries emerging as successors to China were

identified based on three criteria. The country must
be producing and exporting basic manufactured
goods textiles, footwear, basic electronics, etc.
Production of these goods has, in the past, led to
more complex industrialization. The country must
also have a pool of cheap labor to carry out these
manufacturing activities. Lastly, the country must
have enjoyed high GDP growth rates in this decade.

Until recently, China served as the primary motor for the worlds production of basic consumer goods. At its peak in early 2015, the country
produced nearly half the worlds shoes, clothes,
electronic devices, furniture, utensils and other
similar products. High growth rates and abundant
exports had been commonplace in the country for
the last 30 years when its economic boom began.
However, years of high growth do not mean unending growth.

Our key findings include:

No one country can replace Chinas labor force
and manufactured output. However, these production levels can be achieved by a combination of countries. They are: Bangladesh, Cambodia, Ethiopia, India, Indonesia, Kenya, Mexico,
Mozambique, Myanmar, Nicaragua, Paraguay,
Peru and Vietnam.
Three states with diverse internal economies
India, Indonesia and Mexico appear on the
list. While there are developed areas within
these large countries, there are also specific
regions that meet the conditions to support
low-wage, basic manufacturing.

The 2008 financial crisis marked the beginning of

the end for the Chinese export-dependent economy. Consumption began to fall in developed
countries, which were major markets for Chinese
goods. The government was able delay the impact
of declining exports by pumping money into the
economy, but this could not go on forever.

The emerging, underdeveloped nature of these

countries is what makes them attractive locations for producing basic manufactured goods.
Therefore, infrastructure, security and political
scenes will appear questionable and inadequate compared to developed economies. But
these conditions do not necessarily preclude
industrialization or development.

An even more critical factor that slowed global

consumption is Chinas transition out of its most
recent phase of economic development. Chinas
days as a low-wage, high-growth economy that
produces basic manufactured goods are coming
to an end, as its economy starts to produce more
high-value goods and services.

The current exporter crisis means that moving

production from China to these other countries
will be a slow process. The countries on our list
will assume their roles as successor producers
gradually, rather than emulate the boom seen
in China.

www.geopoliticalfutures.com

This was possible due to the capital generated

from low-priced exports. These exports boosted
growth, which in turn brought more wealth and
investment into the country. More money entering the country meant that standards of living,
including wages, increased. Lower global demand
coupled with higher wages have negatively impact-

2016 Geopolitical Futures

THE DECLINE OF CHINA AND WHO IS POISED TO BENEFIT

ed profit margins, leading companies to look for
cheaper workforces.

The combination of these two conditions begs

the question: Who will produce cheap consumer
goods in lieu of China? Who are Chinas successors? The short answer is the 13 countries highlighted on the map below.

When considering the impact of Chinas decline,

keep in mind two critical issues. First, even though
China is transitioning out of its basic manufacturing phase, the world still needs cheap, basic
consumer goods. The worlds most advanced
economies are focused on producing high-cost
products and services efficiently made by an expertise-oriented workforce. These economies have
a competitive advantage in this market. But they
also have a demand for cheap consumer goods
that cannot be fulfilled by domestic production.

The countries that appear on this list may surprise

some given their lack of development and wealth.
But no one imagined in 1978 that China would develop into the global leader of basic manufactured
goods and then transition into more advanced
economic activities. The countries with the most
potential for future growth and development will be
those with large, relatively unskilled and low-paid
workforces.

Second, the economic transformation underway

in China is by no means exceptional. Rather, it
marks the end of an economic development cycle.
Manufacturers of cheap consumer goods occupy a niche in the global economy and different
countries have rotated through this spot since the
Industrial Revolution. Examples include the United
States at the end of the 19th century and Japan in
the 1980s.

Many of these countries on our list may also be

unexpected areas of growth because they are
known for political instability and high crime, as
well as susceptibility to corruption in the public
and private sectors. But these conditions are common in countries with large informal economies
and labor markets. Basic manufacturing industries
often initially develop in this informal sector, which
is therefore a key part of economic development in
these countries.

Economies that fill this niche start with a large,

cheap, unsophisticated labor force that develops
over time. Eventually, these countries transform
into more complex and advanced economies.

www.geopoliticalfutures.com

The countries on our list have a number of shared

characteristics. They all show signs of growing

2016 Geopolitical Futures

THE DECLINE OF CHINA AND WHO IS POISED TO BENEFIT

activity in at least two of the three key industries
(textiles, footwear, cellphone assembly). Additionally, they all have high growth rates in recent years
well above the global average and unsophisticated
workforces that will work for low wages.

Two fundamental weaknesses of Europe (and

what this means for the future of the Continent)
Russias most prominent problem (and whether
the Russians will correct it)

Conclusion

The long-term impact of low oil prices (and

which countries will be most affected)

While it does not need to be robustly developed, at

least basic infrastructure is also necessary to support small production centers of a couple dozen
people and ensure the export of goods. The presence of major companies that establish large-scale
factories (a couple hundred workers) and invest in
major infrastructure projects is an indicator that
this process is well under way. Unique characteristics and specific attributes for each country are
further discussed in our full report, Chinas Successors: The Manufacturing Migration available only
to premium subscribers.

Which county will lose its status as a consolidated world power (and the reasons for its
inevitable decline)
The dominant power in East Asia by 2040 (and
the events leading up to its rise)
Who will be forced to confront the Islamic
State (and whether they will be successful)
You will learn all this and much more by joining
our thousands of informed premium readers. And
as a reader of this report, you can save $40 by subscribing now. Thats about $9 a month for the type
of on-the-ground global intelligence, vital analysis
and accurate forecasts that money usually cant
buy. Geopolitical Futures is not just a newsletter
its a complete package of reports and updates to
keep your future in focus.

With these 13 countries poised to reap the benefits

of Chinas downturn, its critical to understand the
implications of this for each country, individually.
Investors and concerned citizens alike will benefit
from the analysis needed to navigate the changing
global landscape The full version of this special
report available only to premium subscribers
goes into all the details of each country, its economy and what the future will hold.

How would your outlook on the world change if

you knew about the hidden connections likely to influence world events? Leverage global intelligence
to help you stay one step ahead in your personal
and business decisions with Geopolitical Futures, an exclusive publication from intelligence
and geopolitics expert George Friedman, New York
Times best-selling author of The Next 100 Years
and The Next Decade and former chairman and
CEO of Stratfor.

Act now to become a premium subscriber to

Geopolitical Futures and discover the worldwide
implications of Chinas decline and which of the
13 countries stands to benefit the most. And, as a
reader of this special report, you will not only get
the full version of Chinas Successors: The Manufacturing Migration, you will also receive our exclusive forecast The Road to 2040.
In The Road to 2040, you will learn

George Friedman combines decades of experience

in geopolitics, sharply honed research and analytical skills, and information gleaned from his international network to deliver this essential tool that
will enable you to navigate the future.

Which country will emerge as a new major

player in Europe (its not who youd expect)

www.geopoliticalfutures.com

2016 Geopolitical Futures

THE DECLINE OF CHINA AND WHO IS POISED TO BENEFIT

Subscribe today and receive:

Unbiased Information: Youll never again get caught up in the agendas of media outlets
Expert Analysis: Youll be able to arm yourself with the knowledge you need to act, not react
Proven Results: Enjoy the confidence that comes with Georges long track record of accurate predictions
Unique Perspective: Never again wonder why all this is happening, with a world-leading intelligence
expert by your side

Be in the Know. Be Prepared. Be Ahead. Subscribe today.

Act Now

www.geopoliticalfutures.com

2016 Geopolitical Futures

facebook.com/geopoliticalfutures
twitter.com/GPFutures
linkedin.com/company/geopolitical-futures

www.geopoliticalfutures.com

2016 Geopolitical Futures