Why Is China Still the World's Factory?

Willy Shih says China is still the world's factory because provinces and cities compete to make better products at lower prices, and the factories spend heavily to win. Beijing sets the objectives. The regional governments then compete with each other, and they keep raising the bar, so the technology gets better.

The contest shows up on the floor. A student told him that his father's answer to every threat at a Shanghai factory was more capital spending: buy the latest machine. In another plant Shih visited, equipment that was only two or three years old was being ripped out and replaced with the current generation, because surviving meant a more efficient process and a better product. He says Chinese factories are ahead of factories in the United States in how they use automation, because they are investing so hard.

Western companies struggle to match that pace inside China. The pressure is staying alive in the market, not a single round of cost cutting.