efforts needed for firms to go global
(Wang Xu and Yin Ping)
SHANGHAI: The manufacturing industry is at an important juncture
as the country will soon face a new round of development in the
next five years.
policies and future trends of the sector were discussed last Sunday
at the 19th China Daily CEO Roundtable in Shanghai.
than 30 top-level managers in the manufacturing sector attended
the forum themed "Made-in-China Under Globalization".
forum is of great significance as it is designed to promote the
rapid development of China's manufacturing industry and help smooth
communication of manufacturers and government and media,"
said Larry Lee, Executive President of China Daily East China
Bureau in Shanghai.
manufacturing industry will enter a critical stage as the nation
enters its 11th Five-Year Plan (2006-10), a new transitional period
for the nation's economy, said Gao Huiqing, Director of the Strategic
Planning Division of the Development Research Department of the
State Information Centre, a think-tank for the State Council.
the process of China opening up, the manufacturing sector has
played an important role by creating one-third of the nation's
gross domestic product (GDP) and contributing one-third of the
government's fiscal income," Gao said.
present, China's manufacturing industry ranks fourth in the world,
behind the United States, Japan and Germany.
more than 100 categories of products made in China rank first
in the world in terms of output. For example, China makes 40 per
cent of toys in the world each year, 50 per cent of the shoes
and 40 per cent of personal computers.
Group Co Ltd, a Guangdong-based home appliance company, produces
almost 35 per cent of the microwave ovens in the world. And East
China's Jiangsu Province makes 65 per cent of the mice used with
China is regarded as the world factory, its manufacturing industry
is confronted with four major problems," said Gao. By this
he means trade protectionism, rising business costs, environmental
pressure, and the lack of efficiency in research and development
(R&D) of its domestic enterprises.
recent years, more anti-dumping cases are being filed against
Chinese products, most of which are targeted at manufacturing
industries such as machinery and textiles.
said the technological standard of China's manufacturing industry
is still very low compared with its production scale.
the Chinese Government adopted a market-oriented technology strategy,
opening its market in hope of technology transfer from foreign
companies. But in fact, the strategy didn't work, as little technology
was transferred to Chinese companies over the years," Gao
Chinese enterprises are not putting enough investment in R&D,
manufacturing industry is also facing serious pressure because
it pollutes the environment," says Gao.
available statistics show that about 178,000 people die of pollution
in China each year.
to official statistics, the manufacturing industry produces more
than 6.2 billion tons of industrial waste each year, accounting
for more than 70 per cent of China's environmental pollution.
business costs are another challenge for China's manufacturing
industry. Labour costs, which remained virtually unchanged for
a decade, have risen since last year as many local governments
have raised the minimum wage.
addition, energy and environmental protection costs for businesses
will also rise in the coming years, Gao said.
central government said earlier this year that it will carry out
reforms in the public utilities' pricing mechanism such as oil,
gas, water and electricity.
land prices will be more market-sensitive in the coming years,
the situation, the government has introduced a new strategy for
the manufacturing industry, said Gao.
to Gao, the central government will continue to support the development
of heavy and chemical industries.
addition, it will advocate a new type of development, which is
to use information technology to drive industrial growth. To promote
widespread usage of information technology, the government will
increase its subsidies to e-commerce, e-government, e-infrastructure
and e-medical service in the coming years.
addition, the government will also encourage innovation in domestic
enterprises and launch major projects to help improve their technology
the threshold for foreign investment will be raised, with more
focus on quality than on quantity.
technological advances will also be encouraged. According to government
plan, the country's energy consumption will be reduced by 20 per
cent at the end of 2010 compared with that of 2005. And China's
per-capita GDP will double by the end of 2010.
government will spend more efforts encouraging enterprises to
use energy efficiently and restrict the development of industries
that consume high volumes of energy.
the short term, the growth of China's manufacturing industry will
slow down next year with the slow-down of investment, consumption
and exports," Gao said.
my personal view, GDP growth will stand at 8.5 per cent next year,
down 0.7 or 0.8 percentage points from this year."
to Gao, the prospect of China's manufacturing industry still looks
promising as its heavy and chemical industries will continue to
grow for at least another 20 years. And China's urbanization will
continue during the same period.
more foreign companies coming to China and Chinese companies going
abroad, intellectual property rights (IPR) protection is becoming
a hot topic in the manufacturing sector.
Hussey, Vice-President of Danaher Motion Asia, said China has
shown a stronger commitment to IPR protection in recent years.
Jiarui, a registered foreign lawyer with Baker & McKenzie
LLP, said China has established a legal regime for IPR protection
with many legal weapons for foreign investors to use.
a foreign investor faces an IPR case, there are three places where
he can go: to the court, the most common choice; to the local
administration for industry and commerce; or to the police station.
biggest benefit for China's economy and technological development
is to show commitment in protecting and enforcing IPR on behalf
of firms that bring technology here," Liu says.
is no greater truth than the market itself - only when we see
new technologies arriving do we know there is sufficient enforcement."
China joining the World Trade Organization (WTO), Hussey said
IPR protection will be the biggest issue for China if it intends
to compete globally.
should allow competitors to come here with confidence and provide
benchmarks for local companies not only to meet but also to exceed,"
for Chinese companies' going abroad, Hussey said many are beginning
to face issues they did not face at home., And IPR is just one
prevent these issues from affecting their business, Hussey said
some Chinese companies, such as TCL, have made the right move
in acquiring businesses overseas.
a major household electrical appliances and communications technology
company, acquired Alcatel's mobile phone business and Thomason's
television business last year.
said that through the acquisitions, TCL not only inherited overseas
production capacity, but brought its own strength to the overseas
operation to avoid controversial IPR issues.
for China's medium-sized companies - who are most often charged
with IPR violation, Hussey said they need to enhance their design
ability, which involves long-term investments and years of expertise
Chinese companies, not multinationals, are his company's major
clients, Hussey said.
realized that our progress is fuelled not by the multinationals
coming to China, but by these indigenous companies," he said.
smaller companies have a strong market presence and good engineering
skills, but lack fundamental design on the motion-control integrated
systems that Danaher considers one of its strengths.
that these indigenous companies are winners in the Chinese market,
Hussey said his company had focused its efforts on co-operating
textile companies as an example. Hussey believes that Chinese
textile companies need more efficient machinery to compete globally.
offering motion-control technology to these textiles companies
and partnering with them, said Hussey, Danaher was able to avoid
from textiles, Danaherapplies the same technologies to other fields
such as electronic assembly and automobile automation.
Danian, Partner and Chief Representative of Baker & McKenzie
LLP, said that China has been busy improving the legal system
regarding the Made-in-China concept.
environmental legislation, Zhang said the key is to balance economic
elements with sustainable development.
many Chinese companies are diversifying their ownership, be they
State-owned, collectively owned or private enterprises.
the country has recently improved its company and property Laws.
Corporate governance has also been emphasized.
believe that with better corporate governance, enterprises will
behave better - not just in IPR protection, but in many other
areas," he said.
also pinned high hopes on the standardization of the tax system
for foreign and domestic companies.
one or two years, foreign companies and domestic companies will
enjoy the same tax benefits," he said.
predicts that the tax incentives will not be determined geographically,
but on whether companies are using the highest available technology.
to Liu Jiarui, fewer than 40 per cent of Chinese companies enjoy
their own trademarks, and fewer than 10 per cent have patent rights.
logistics contributes to 21.3 per cent of China's GDP, Gary Wu,
president and CEO of Volvo Trucks in China, said China still does
not have an integrated logistics system. Water, air, road and
train transport in China are not integrated.
said water transport accounts for 70 per cent of the country's
total, of which train takes up 15 per cent and road 5 per cent.
you set up a manufacturing centre in Chengdu in western China,
the costs of transporting goods from Chengdu to Shanghai are even
higher than from Shanghai to New York," Wu exclaims..
of such an ineffective logistics system, companies end up scattering
their material, manufacturing and distribution centres in many
adds up to another 20 per cent of the GDP, Wu said.
China, 40 per cent of GDP goes to logistics, but nobody benefits
from it, not manufacturers nor consumers," he says.
year, Wu said, 1.5 trillion hours are wasted on logistics in China,
so improving logistical efficiency should become a priority.
Brady, Vice-President and General Manager of Siemens Logistics
and Assembly System Ltd, said the low efficacy and the high cost
of logistics have forced companies to set up their manufacturing
plants in coastal sites.
production of mobile phones, he said, could be cited as an example.
you produce mobile phones in the west, say, in Sichuan Province,"
says Brady, "By the time you transport them to Shanghai,
they would already have become outdated."
is improving its roads and railways, but there is no standout
professional logistics company, he said.
even if there are some, they are not doing very well, he said.
So many international players are trying to get into the business.
Besides, with the country adopting a go-west strategy, many manufacturers
are confronted with problems such as workforce, said Brady.
companies bring their experts and new technologies with them to
western China where they are setting up their manufacturing centres,
Brady said, so good logistics have to be in place to ensure smooth
flow of personnel.
about the future of the manufacturing sector amid globalization,
Hussey said there has been a dramatic transformation of quality
years ago but even more recently, China was reputed for mass-produced
low-quality products, which Hussey stated was an unfair label.
reminded people of the example of Japan.
years ago, Japan had the same reputation for low-quality goods,"
he said. "But now Japan leads the world in high-quality products
and set standards for the rest of world to follow."
is no reason why China cannot go the same way, he said.
him, China's biggest challenge is notjust to produce high-quality
domestic goods, but to produce high-quality goods for the global
biggest challenge is to compete overseas," Hussey said, using
Haier Group, a big enterprise with worldwide presence and manufacturing
sites in the United States, Europe and Japan as an example.
said Haier is capable of designing products to suit the Japanese
market while adhering to the highest environmental standards.
said, "These top-end companies really show China's ability
to go global, or to the Chinese multinational level."
Daily 11/29/2005 page 7)