China’s Intangible Future

China, as everyone knows, is a manufacturing powerhouse: it accounted for nearly one third of manufacturing globally in 2022, according to United Nations data. Factories were responsible for 28 percent of China’s economic output (compared to around 10 percent for the United States). So it’s understandable that on a recent visit to talk about my book Outside the Box, my hosts were particularly eager to discuss my assertion that in the future, globalization will have more to do with spreading ideas than with moving stuff.

How does one support such a claim? Normally, one would bring data to bear, perhaps creating a simple chart showing a rising line. In this case, though, the data aren’t worth much. Even people who specialize in tracking international trade at places like the World Trade Organization and the United Nations Conference on Trade and Development admit that they don’t have a handle on the exchange of intangibles across borders. If an American tourist buys a ticket on Lufthansa or rents a hotel room in Tokyo, statisticians can tally a U.S. import of services because a monetary transaction occurs. But if engineers in France and Korea collaborate on the design of a video game, their sharing of code may not register as trade. Some of the value of digits moving internationally shows up in economic statistics as a return on investment, but much of it doesn’t show up at all.

While we don’t know the quantity of intangibles flowing across borders, there are some relevant things we do know. One is that services, from research and development to after-sales maintenance and repair, account for a growing proportion of the value of manufactured goods. Another is that consumers in the world’s wealthy countries, and even in some middle-income countries, are devoting increasing shares of their spending to services and diminishing shares to goods.

My hosts in China, I suspect, are concerned that if goods trade grows slowly, China’s vast factories and gigantic container ports won’t be fully utilized. They may be right. That’s a good reason for Chinese firms and their workers to focus more on creating intangible value, such as by inventing products and selling services, and focus less on stamping or weaving or assembling goods. But the government’s crackdown on data flows shows that it may not be ready for Chinese firms to export intangibles as vigorously as they export stuff.

Tags: Manufacturing