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But, the US ''will continue to lead in selected high-valued manufacturing industries,'' says new report.

BOSTON, Mass. – 08/18/08 - Recent forecast revisions suggest that China will overtake the US as the world's leading manufacturer four years earlier than previously anticipated, according to a new report released by Global Insight, the Massachusetts-based economics consultancy.

Measured in real value-added terms, “China's share in global manufacturing is projected to overtake that of the US by 2016 or 2017.”

This “is helped by the Asian giant's rapid gains in the market shares of textiles, basic metals, computer equipment, appliances, and mineral products,” the report said.

However, it said, the US “will continue to lead in selected high-valued manufacturing industries such as aerospace, pharmaceuticals, and specialized equipment.”

Also, the manufacturing sector accounts for only 12.5% of US gross domestic product (GDP), while the service sector is substantially more dominant, it added.

In stark contrast, 36% of the Chinese economy is engaged in manufacturing.Global Insight counts manufacturing production for countries – including the activity of foreign-owned companies and local ones – as value-added output.

Value-added data are arrived at by subtracting “inputs” – such as purchases of materials, parts and services – from raw “gross output” as measured by the sales of individual companies. The data also use current-year figures.

If inflation adjustments are used to put the numbers in constant prices, the expected US position looks better, because its inflation over this period is predicted to be lower than China’s.

According to the report by the Boston-headquartered consultancy, US manufacturing weakened sharply in 2007 in nominal US dollar terms, and despite the outlook for a modest recovery in the coming years, “China's unprecedented growth rates should secure the greatest share in global manufacturing as early as 2009.”

Rather than being a cause for concern, the company said, the forecasted explosive growth of China’s manufacturing sector “is more likely to open up greater opportunities for the US, as well as other producers.”

The forecasted relative decline in US manufacturing's world share “is not a sign of weakening future prospects for the US.”

Rather, the company said, China's rapid manufacturing growth “will help raise its consumer income and infrastructural development needs, thus opening up vastly greater trade opportunities for the US manufacturing and service industries where the United States enjoys a comparative advantage.”

Global value-added manufacturing, estimated at $8.8 trillion in 2007, is projected to expand another $7.0 trillion by 2015, with China accounting for $2.9 trillion of that growth.

Global Insight projects China's manufacturing growth to be trimmed from its current 15% to 8% by 2015, and US manufacturing growth to be roughly stable at around 2.2%.

The US-based manufacturing industries projected to lose the most ground in terms of world output share are textiles, basic metals, mineral products, computers, electrical equipment, and household appliances.

Several important areas of economic growth – such as finance, information technologies, and business services, in addition to such manufacturing industries as aircraft, pharmaceuticals, heavy capital equipment, and scientific and medical equipment – are all expected to remain larger in the US than in China, it said.

Globally, manufacturing accounts for only 17% of GDP, in nominal terms, while the service sector weighs in at 65%. The US share of world services output, currently at 32%, will remain far larger than China's share, currently at 3.7% and expected to reach only 8.0% by 2015.

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