China's manufacturing industry approaches critical point

The upgrading of manufacturing industry is the ruling party’s new governing appeal. The consequence of this appeal on political personnel is that senior officials from developed regions are transferred to the Mainland to promote the domestic transfer of manufacturing industries. The question that this appeal brings to enterprises is what kind of changes the company will make in exchange for state support.

The low profits in the global industrial chain have encountered frequent trade frictions and competition from other developing countries. This is a problem that has plagued China's manufacturing industry in recent years. Looking at the development context of China's manufacturing industry, we can clearly see that the manufacturing industry is approaching the critical point of transition. The introduction of a series of policies and the formulation of major policies have indicated that the government has realized that danger is approaching.

Manufacturing Pyramid

Manufacturing industry mainly refers to the industries that process and reprocess raw materials including mineral products and agricultural and sideline products. It has always played a decisive role in our country. Of the 40 industrial categories in China, 29 are manufacturing industries. In the industry, the total manufacturing industry accounts for 95%. In the first 30 years after the founding of the People's Republic, China's economic development relied mainly on manufacturing. In the past two or three decades, China's manufacturing industry has maintained a growth rate of 12% to 14%, which is higher than the economic growth rate. Manufacturing industry is also the main industrial field to solve the employment problem in China, and it absorbs more than 10% of employees.

However, behind the surface of these scenery, China's manufacturing industry has serious problems.

If we regard the high-tech industry as the first level, the equipment industry as the second level, and the light industry as the third level, China's manufacturing industry is mainly in the second half and the third level. If we regard light industry as the bottom layer, the more industrially developed countries, the smaller the bottom layer and the thicker the upper layer, and the composition of China's manufacturing industry is a pyramid with a very large base and a very low height.

China's manufacturing industry has been in a period of rapid growth for many years. Many people have embraced the manufacturing industry. However, when they started, they often started from low thresholds such as textiles, light industry, and building materials, resulting in industries with low technology intensity like steel industry. , Overcrowding, there is excess. However, in the high-end industries, there are a large number of vacancies. This vacancy is currently occupied by foreign-funded enterprises. For example, the electronics industry has a high demand for market development capabilities and technical capabilities. At present, in the Pearl River Delta and Yangtze River Delta, the main bases for China's manufacturing industry, the electronics industry is mainly composed of Taiwanese and American businesses. The degree of manufacturing equipment is a benchmark for the industrialization degree of a country. The market for China's equipment industry has been occupied by foreign countries. The equipment manufacturing industry mainly depends on imports. The annual foreign trade deficit is as high as tens of billions of dollars.

Gao Liang, director of the State-owned Assets Research Center of the National Development and Reform Commission’s Institute of Economic System and Management, told reporters that in the past 30 years since the reform and opening up, China has introduced a large number of advanced technologies through joint ventures, which is conducive to economic development. However, there is a serious misunderstanding in China, which is only to buy Regardless of the absorption of digestion. For more than 20 consecutive years, China has bought one yuan of equipment and spent less than 8 cents on digestion. When South Korea is at such a stage of development in China, it spends 1 yuan for the introduction and it needs to spend 5 yuan to digest it. Gao Liang said that the intention of the joint venture is to learn the management and advanced technologies of foreign companies through joint ventures. However, in some places nowadays, lack of technology has become a technology dependence on joint ventures, and finally it is equal to the transfer of property rights and management rights to foreign companies. In so doing, China can only become a big country and never become a powerful country.

The emergence of the pyramid of manufacturing in the process of industrialization in a country is inevitable. The worrying aspect of China's manufacturing industry is that the upper layer of the pyramid has not grown as the development of Chinese industry, but has been shrinking.

Because of the pyramid structure of China's manufacturing industry, Chinese manufacturing is at the low end of the international industrial chain. The industrial chain corresponds to the value chain and value-added chain. China's manufacturing industry, which is located at the low end of the international division of labor, consumes a lot of labor and receives little profit. At present, the core competitiveness of China's manufacturing industry is still low labor costs, and the technological advantage is the core of competition among developed countries for competitive advantage.

The Pearl River Delta is the base of China's manufacturing industry and the largest manufacturing base in the world. The US new product wireless mouse made in the Pearl River Delta is sold in the United States at a price of 40 US dollars. In this US$40, the US design company needs to Take away 8 US dollars, vendors take away 15 US dollars, China can only get 5 US dollars. The more developed Pearl River Delta is still the case in the international value chain, let alone the less developed mainland.

According to a report from the National Bureau of Statistics, China's current manufacturing value-added ratio is only 26.2%, which is 23, 22, and 11.7 percentage points lower than that of the United States, Japan, and Germany. Especially in the field of communications equipment, electronic computers and related equipment manufacturing, the value-added rate is only 22%, and the gap with developed countries such as the United States exceeds 35%.

A grim reality is that the profitability of China's industrial manufacturing industry is still deteriorating. Statistical data show that compared with 2003, the manufacturing industry increased sales by 77.91% while the profit increased by only 47.94%. 5.96% dropped to 4.94%.

According to Gao Liang, it is only when China has a large share of profits that it is meaningful. Otherwise, it will only work, and it will not be possible to become rich.

Many domestic companies do not have strong awareness and are only satisfied with earning low profits. The R&D expenses of foreign manufacturing companies can reach 5% or even 10% of the total cost. In a domestic company with a sales income of several billion yuan, the annual investment in product research and development is only tens of millions of dollars, and this is still relatively high R&D investment.

In 2005, the state began to investigate and formulate policies for major equipment industries. On June 28 this year, the State Council issued a number of opinions on the revitalization of the equipment manufacturing industry, which pointed out that foreign investment in domestic large-scale key equipment manufacturing industry must be approved by the government. , and pointed out that it will focus on the development of equipment manufacturing industry in 16 industries. The State Ministry of Finance, the State Council Legislative Affairs Office, and the State Administration of Taxation are stepping up the drafting of a draft law on corporate income tax law, making final sprints and preparations for the deliberations of the Standing Committee of the National People's Congress in August.

China is also gradually reducing its support for the export of low-level products (such as lowering export tax rebates) by taking advantage of the “reducing pressure on the appreciation of the renminbi”, and it has formed an inverse trend toward internal industrial upgrading.

Domestic industry transfer and official flow

The fundamental reason why China's manufacturing industry is based on the low level of industry and at the low end of the value chain lies in the low price of labor. The labor price of textile workers in China is about 69 cents per hour, which is equivalent to only 3% to 5% of developed countries. This price is only moderate in developing countries. The price of China, which once served as a benchmark for global manufacturers' pricing, inspired the desire and enthusiasm of Western investors and caused foreign investors to flock to China. However, with the development of China's economy, this advantage is gradually losing.

The shortage of migrant workers that broke out in 2004 showed for the first time the seriousness of the problem. In July this year, Shenzhen raised the minimum wage by a maximum of 23%, from 690 yuan per month to 800 to 850 yuan, highlighting the rapid increase in local costs. Donald Gao, chief executive of home cleaning appliance and electrical product manufacturer, said recently that the labor cost of the Pearl River Delta is “approaching the limit” and may force him to consider transferring part of his business to lower cost Mainland. Galanz, headquartered in the Pearl River Delta, stated that the wage costs of Galanz's more than 30,000 workers have soared as factories have successively raised labor costs. At the same time, because of the rising prices of raw materials such as petroleum, copper, and steel, the cost of products has also risen sharply.

"China is no longer the lowest cost place," said foreign investors.

Hong Kong-based purchasing company Li & Fung Group recently announced that for more than six years, rising costs have affected consumer prices for the first time, and European and American customers are paying 2% to 3% more than they were a year ago. Obviously, the "China price" that has been boasted by manufacturers is rising.

In recent years, manufacturers have begun to complain about the rising labor, raw materials, capital, and regulatory costs of the Pearl River Delta.

Looking at the development of China's manufacturing industry, we can see a trend. The earliest manufacturing industry is the Pearl River Delta. It was very prosperous in the 1990s. By the end of the last century, many enterprises in the Pearl River Delta began to shift to the Yangtze River Delta. In recent years, many manufacturers have turned to the Mainland.

Sooner or later, major economic changes will require superstructures. As has been observed, in recent years, a number of senior officials from developed coastal regions in the east have been relocated to the Mainland, regardless of the original intentions of the central high-level executives, which objectively promoted the transfer of manufacturing industries to the interior. Perhaps a few years later, the Mainland will experience the prosperity and splendor of the manufacturing industries that the Pearl River Delta and the Yangtze River Delta have experienced and become a new manufacturing base. China has a vast area, obvious economic disparities, and rich levels. There will always be places to undertake the transfer of manufacturing industries. But where are the sustained growth points for the Pearl River Delta and the Yangtze River Delta that drive China's economic development? After the glory of the Mainland, where is the way out of China's manufacturing industry? The answer is obviously to change the pyramid structure of China's manufacturing industry and increase its level in the international division of labor. In the developed regions of the country, this trend of governance can be clearly seen. It can be expected that the developed regions will receive more support from the central government (for example, the investment in science and education resources). In a developed province, there is a popular saying that the provincial party committee is most troubled by two things. One is who is sent to the backward areas in the province as "parents' officials" and the other is the upgrading of industries in the province. Industrial transfer and industrial upgrading have all set requirements for the adjustment of political (including personnel) resources.

Some efforts in the Pearl River Delta have also proved that the solution is always more problematic. Although it is increasingly facing the pressure of rising costs, the Pearl River Delta’s exports have continued to grow at a rate of 30% per year in recent years, and they still have overall competitiveness. The Guangdong Province, which accounts for about one-third of the country's exports, recently announced that in the first two months of this year, the value of goods shipped to foreign countries increased by 29% to 34.6 billion U.S. dollars. Similarly, the recent survey conducted by the American Chamber of Commerce in 161 companies in Guangdong found that more than three-quarters of companies have money to make.

The composition of China’s export products is changing, gradually relinquishing its dependence on cheap, low-margin products, and shifting to higher value-added finished products whose profits are much higher. Since 2005, exports of China's telecommunications equipment, auto parts, software and ships have increased by 30% to 150%. This change means that China is increasingly in some industries that it used to be insignificant, competing with developed countries.

Manufacturing upgrade may change the relationship between the state and the company

Every country in the process of industrialization will become a factory in the world. At different stages of human industrialization, Britain, the United States, and Japan all experienced this stage. The production and trade of the United States in the early 19th century and the early 20th century in the United States respectively controlled 1/3 and 1/4 of world production and trade. By the 1970s, Japan’s manufacturing industry began to rise. Although the international economy has doubled in size, it has not reached the previous position that UK or U.S. manufacturing had previously achieved, but in some important manufacturing industries such as home appliances and steel, Shipbuilding, automobiles, etc., all have a significant impact on the world market.

In the second half of the 20th century, with the outward transfer of manufacturing industries from Europe, the United States, and Japan, Asia became the next home to undertake the transfer of manufacturing industries, and the Asian Four Little Dragons emerged. After China's reform and opening up, because of its vast domestic market, it has become a new factory in the world. This is an inevitable result of China’s economic development and has played a catalytic role in economic growth. However, with the advancement of China’s industrialization process, as well as the growth of China’s economic strength and rising international status, China’s manufacturing industry has not only been satisfied with becoming a factory in the world. The transfer of manufacturing has become inevitable.

Radar, director of the Department of International Economics at Renmin University, said that China should transfer industries with low technological content to surrounding underdeveloped countries. He said that now in Asia, China has formed an embryonic division of the world, that is, in this region, China is equivalent to the United States in the international division of labor and is at the high end of the industrial chain. Some third-world countries are just because of the underdeveloped economy. Become the low end of China's manufacturing industry chain.

At present, countries and regions with cheaper labor such as Vietnam and India have already formed competition with China. The rising wages of Chinese workers have forced some low-end manufacturing industries to go overseas, leaving what they consider to be core parts of the company, while non-core parts have been selectively moved or outsourced globally.

The development of Western countries also shows that the more industrialized countries, the more labor-intensive companies move outside, leaving the core in the country. The Chinese economy has developed into a critical point of industrial transfer. The problem in China is only how to grasp the degree of outward transfer and transfer between different regions in China. China’s huge domestic market and increasingly severe employment pressures determine that China’s industrial upgrading needs to grasp the rhythm.

At this stage, China’s participation in the international division of labor is still based on manufacturing. It is crucial to identify its position in the international division of labor. The PRD and some companies are actively raising their position in the industry chain, but the overall improvement of China's manufacturing industry requires state support. According to Gao Liang, in the 1980s, the United States discovered that 7 of the 9 core chips used by domestic advanced weapons were provided by Japan. When the United States began to study how Japan achieved such success, the results of the study found that the Japanese government played a role in it. Important role. The United States recognizes that there are some things that cannot be achieved by a single enterprise and requires the joint efforts of enterprises and the government. In the 1990s, the United States introduced the "Strategic Industry in Crisis" and introduced a series of industrial policies, including government interest subsidies, tax cuts, and tax exemptions. Wait. It is this series of policies that have contributed to the formation of Silicon Valley and the rapid development of high-end U.S. manufacturing.

In the post-war period of post-war Europe, facing the economic rise of Japan and the United States' strong free competition, Europe was once faced with the same problem of improving economic competitiveness as China. The European experience is that industry organizations have been strengthened unprecedentedly, and the country is relying more on industry organizations (related theories are called “corporatism”) to carry out policy coordination and policy implementation. This change in the relationship between the state and industry organizations has changed the situation of internal friction in the past. Under the pressure of competitiveness escalation, the industry organizations have strengthened the coordination of internal members, and at the same time they have obtained strong support from the country.

Gao Liang said that successful examples in China's equipment manufacturing industry show that the state must have some support. Because banks are too poor and love rich, when companies face an uncertain market, even if some companies want to develop high-end market, they often have more than enough resources in terms of loans and financing. The state should give certain support to selected industries and products, such as equipment manufacturing. Such support is also permitted by the WTO. This kind of support may mean that the country puts forward higher requirements for the degree of coordination between industries. As has actually happened, the state's policy support for an industry is usually exchanged between industrial concentration and higher self-regulation in the industry.

Perhaps the upgrading of China's manufacturing industry will also raise similar issues. In the past, people were concerned about the relationship between the state and the enterprise, and more were considering how to reduce the government's intervention in the enterprise. This is of course still valid today, but when the national economic competitiveness and the survival of enterprises begin to overlap, how will the relationship between the state and the enterprise change? What changes will the company make in exchange for the support of the country? This is China's manufacturing industry. Upgrade deeper connotations.

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