Hamilton Index Is Cautious About China's Growth?

Discussing today's IP wave in the context of the Hamilton Index 🌐💡

Hamilton Index Is Cautious About China's Growth?
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The Hamilton Index is a crucial tool for measuring a country's competitiveness in advanced industries. Recently, the Information Technology and Innovation Foundation (ITIF) released a report highlighting China's impressive ascent in strategically important sectors, posing challenges for other nations. Over the past 25 years (1995-2020), China has expanded its global share of advanced industry production from 3% to an impressive 25%, while OECD nations witnessed a decline from 85% to 58%.

China dominates seven out of ten essential sectors listed in the Hamilton Index, emphasising the urgency for the United States to reverse its fortunes. The report underscores that the U.S. needs a significant expansion of approximately $1.5 trillion (a 69% increase) in Hamilton Industries output to match China's specialisation. Failure to do so could risk a permanent weakening of production from U.S.-led nations once China secures adequate global market share.

Source: Hamilton Index

In 2020, Hamilton Industries collectively generated over $10 trillion globally, with China emerging as the dominant player, contributing 25% to the world's output. The United States ranked third, contributing 21%, showcasing the significant gap that needs to be addressed. Despite India's larger workforce, its advanced industry output only constituted 13% of China's.

The Information Technology and Information Services sector, a vital global industry, exhibited a remarkable 508% growth from 1995 to 2020. The United States dominates with 36.4% production, led by industry giants like AWS, Meta, Google, and Microsoft. However, China and India show significant growth, with the EU contributing 25.3%. Geopolitically, the Quad nations (Australia, India, Japan, and the United States) outpace China and Belt & Road nations in industrial specialisation.

Source: Hamilton Index

The global computer hardware industry witnessed a 141% growth from 1995 to 2020, with China overtaking the U.S. with a 26.9% production share. The Quad and the EU experienced significant market share losses, highlighting the changing dynamics in industrial specialisation.

In the global chemicals sector, China dominated production with 29.1% in 2020, a significant rise from 3.8% in 1995. The Quad and the EU witnessed declines in market share, while China, India, and Saudi Arabia showed substantial growth. Geopolitically, China and Belt & Road nations surpassed the Quad, EU, and NAFTA in chemical industrial specialisation.

Source: Hamilton Index

The global pharmaceutical sector expanded by 223% from 1995 to 2020, with the United States dominating production with 28.4% in 2020. OECD nations lost market share, declining from 85% in 1995 to 78% in 2020. Geopolitically, the Quad and NAFTA surpassed China and Belt & Road nations in the pharmaceutical industrial specialisation.

The global machinery and equipment sector grew by 123% from 1995 to 2020, with China leading in 2020 with 32% production. The Quad lost significant market share, and industrial specialisation varied, with Germany having the highest Location Quotient (LQ) of 2.02. The motor vehicles sector grew 130% from 1995 to 2020, with China leading in 2020 with 24.3%. The Quad lost market share, dropping to 27.3% from 47.4%. Industrial specialisation varied, with Mexico having the highest Location Quotient (LQ) of 3.14.

Over the period from 1995 to 2020, the fabricated metals industry, vital for advanced manufacturing, witnessed a 115% growth rate, trailing behind the global GDP increase of 174%. OECD countries, contributing 88.1% in 1995, saw a decline to 59.8% in 2020, with China seizing a substantial 25.6% share. The Quad and EU lost market share, while China, South Korea, and India gained. Belt & Road nations doubled their share to 17%, and Poland exhibited the highest industrial specialisation. The United States, with an LQ of 0.75, underperformed, and post-financial crisis, Poland and Turkey showed the fastest LQ growth.

Source: Hamilton Index

China emerged as a global leader in advanced manufacturing by 2020, surpassing the United States. Despite challenges in software development, China's comprehensive strategy, in addressing transportation gaps, underscores its commitment to industrial dominance. In contrast, the U.S. struggles, with advanced manufacturing constituting only 10.3% of its 2020 economy, below the global average. India, with growth potential, boasts a momentum score above the global average. China dominated the motor vehicles sector with 24.3% production in 2020, while the Quad lost market share.

Source: Hamilton Index

The global transportation equipment industry surged by 157% from 1995 to 2020, with the United States leading at 34.5%. China's share rose to 15.1%, driven by high-speed rail and shipping expansion. Belt & Road nations doubled their share, while the Quad lost market share. In the global electrical equipment industry, growing by 107%, China dominated with 36.1% in 2020. Belt & Road nations experienced significant growth, up 267%, while Japan suffered the most significant market share decline.

The global basic metals industry, encompassing copper, aluminium, and iron, grew by 175% from 1995 to 2020, aligning closely with the 174% global GDP growth. China dominated with 45.6% in 2020, a remarkable increase from 6.1% in 1995. The Quad and EU faced significant market share losses, while Belt & Road nations more than doubled their share. China held the highest LQ of 2.46 in 2020, outperforming others, with geopolitical implications of China and Belt & Road surpassing the EU-27, NAFTA, and the Commonwealth in basic metals industrial specialisation.

The global electrical equipment sector, encompassing products like batteries, cables, and appliances, grew 107% from 1995 to 2020, trailing the 174% global GDP growth. China dominated in 2020 with 36.1%, a notable increase from 3.8% in 1995. Belt & Road nations saw substantial growth, up 267%, primarily driven by China. Japan witnessed the most significant market share decline, down 24 points.

Recent data underscores China's remarkable rise in the global quest for dominance in advanced industries, positioning it ahead of the United States and the rest of the world by 2020. Challenges persist in software development and IT services. Still, a multifaceted approach, including efforts to address deficiencies in other transportation, signifies China's commitment to maintaining and expanding its global industrial dominance.

The United States faces challenges in sustaining its competitive edge, with the Hamilton Index revealing that advanced industries constituted 10.3% of the U.S. economy in 2020, trailing behind the global average of 11.8%. Regulatory challenges and systemic attacks on large IT firms pose significant threats to the sector.

Written by Shivani