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China has long been the world’s
production machine, with its factories churning out huge quantities
of manufactured goods to markets all over the world. Half of all
the DV cameras, 30 percent of the TVs and air-conditioners, and
20 percent of the fridges that find their way into homes from
Albuquerque to Zeeland are labeled “Made in China.”
The manufacturing sector has since the 1990s greatly supported
China’s economic boom by creating jobs, generating taxes
and boosting foreign exchange reserves, but changing circumstances
in global industry mean that today, “Made in China”
needs to become “Created in China.”
Not Worth the Hassle
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A DVD is exported for US $32. It cost US $13 to make, and a fee
of US $18 is payable to the foreign company that holds the patent.
It might say “Made in China,” but a simple calculation
shows that the Chinese manufacturer makes just US $1 profit for
his efforts. MP3 makers fare little better, with average profits
of US $1.5 per unit after costs and patent fees. “This is
a common phenomenon in the Chinese manufacturing sector these
days,” says Liu Qingfeng, CEO of the China-based speech technology
company Anhui USTC-iFLYTEK Co., Ltd.
Sun Shuyi, Vice-President of China Enterprise Confederation indicates
that although China is a massive producer, it’s not a strong
one. “Most Chinese companies make middle-and low-end products,
and are labor intensive with simple processing and assembly operations.
To call China “the world’s workshop,” rather than
the “world’s factory,” would be more accurate,”
he says.
From low value added, low margin businesses Chinese enterprises
earn only the “processing fee,” usually less than 10
percent of the products’ price. What keeps Chinese products
competitive is their low price, so manufacturers are forced to
concentrate on mass-produced, low-quality goods to earn a decent
profit. That can be more hassle than its worth – it’s
said the country needs to sell 800 million shirts to buy just
one Boeing airplane.
For so long manufacturing was the mainstay of China’s economic
boom, but negative effects such as heavy pollution and poor efficiency
are now beginning to seep through, and spiraling coal, electricity
and transportation costs are diluting what’s left of China’s
low price advantage. Changes are essential.
Turn Over
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| Hi-tech computer
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“International investment flows into low-cost countries,
and China, with its vast labor pool, is still one of those,”
says Liu Qingfeng. “However, China should not rely solely
on this advantage, because if costs rise too high, investment
will take flight to other, cheaper countries. Should this happen,
Chinese enterprises that lack cutting edge technology will have
even lost the opportunity to do manual work for foreigners,”
he notes. Chinese companies must therefore seek out other competitive
advantages, such as technological innovation, to keep them profitable
in the future.
Sun Shuyi believes the key strategies for boosting competitiveness
are industrial restructuring and better, home produced technologies.
He would like to see Chinese companies improving the quality of
domestically produced goods, so they can build up world-famous
brands capable of competing with the best that foreign companies
have to offer both at home and in the international marketplace.
Brand building, however, is a big challenge for many Chinese
entrepreneurs. Most of them lack the advanced core technologies
that give today’s successful enterprises that high-quality
reputation. One Chinese company that has succeeded in building
its own brand is the Qingdao-based Hisense Group, an electronics
manufacturer that specializes in plasma TVs. Chairman of the Board
Zhou Houjian says, “The next phase of competition between
domestic electronics producers will be focused on core technologies.
Consumers these days want high quality rather than cheap products.”
Not all Chinese companies face the doldrums in today’s technology-driven
winds of trade. There’re small but rapidly growing embryos
of new-and high-tech companies clustered together in zones around
some of the country’s bigger cities. One of the best known
is Zhongguancun Park, the first national-level new-and high-tech
zone. It grosses a full seventh of the combined income of all
the zones in the country. Ren Ranqi is Vice Director of the Park’s
administrative committee. He says, “Employees at Zhongguan
are smart, highly qualified and inventive. Our industries rely
on brains, not brawn.”
Already the zone’s companies have come up with numerous
innovative products. Perhaps the most successful “Created
in China” product – so far – has been the Chinese
Cmos Chip. Two-thousand kinds of these chips ranging from the
Vimicro VXP V to the ARK RISC CPU are sold all over the world,
all marked “intellectual property of China.”
The year 2004 was a particularly successful one for Zhonguancun’s
innovators and researchers. Chinese companies created several
advanced technologies and products in that year, including the
next generation Internet router, superconductor cable and an inactivated
corona virus used in SARS vaccinations. And it won’t stop
there. A report by China’s Ministry of Science and Technology
predicts the country will make breakthroughs in eight core technology
areas in the next decade, and Zhongguancun has key advantages
in seven.
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South China is also gearing up for a true technological revolution.
One of the leaders is Shijie Town in Dongguan City, Guangdong
Province, which is already famed for domestically produced IT
products. Manufacturers from all over China carry out research
and development of middle-to high-end products in this talent-laden
town, including the Taiwan-based Yaxin Company. CEO Lin Fangshu
says, “In 2000, Yaxin Company moved its research and development
department of power systems to Shijie Town, and we now have more
than 100 researchers in the department. Our goal is to develop
our own brand, and compete, and win, on the international market!”
The selling power of a good brand of national reputation can
never be underestimated. European and American markets have been
flooded with trusted, world-famous brands for decades. If consumers
hear that a high-tech product was “Made in Germany,”
or a shoe was “Made in Italy,” or a watch was “Made
in Switzerland,” they are confident that the product is high
of quality. This is down to years of hard work and dedication
– reputations are not easy to forge. China must devote similar
efforts as it builds its own reputation for high-tech products.
Though “Made in China” might currently be synonymous
with cheap, low-quality goods or those made with foreign technologies,
“Created in China” is the watchword for future.
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