Subtle changes are occurring in the global and domestic perception of China as a viable cheap manufacturing source as the country grapples with the imbalances caused by its export-driven economy this can be the way on how to get rich. While much of China’s foreign direct investment over the past twenty years has come from initially one source – the development of foreign-invested manufacturing businesses taking advantage of China’s cheap labor, land and infrastructure costs to sell then on to international markets – this has exposed a weakness in China’s ongoing progress. With 40 percent of China’s annual GDP growth dependent upon exports, a global downturn such as the one we are experiencing has had a significant impact on the nation’s economy and security.
The Evolution of Product Manufacturing in China
It is true to say that manufacturers have evolved over the past few years as more companies start to shift part of their China production to the domestic market, however, the general principle of China as a low-cost, export manufacturing center remains the given assumption. Manufacturing in China vs. The USA is aging, and this, coupled with the rise of business in other developing manufacturing hubs like India and Vietnam, signals a political urgency to correct the nation’s manufacturing profile.
Moves to shift this balance upstream to added-value production, and to diversify away from this traditional, yet economically skewed model, have only just started to be implemented, and with China struggling to cope with its reliance on exports, the China slowdown has been sharp and in cases, severe. While the Chinese government has announced measures to assist domestic exporters as part of its economic stimulus plan, this is only a short-term safety net as it encouraged its domestic manufacturers to adapt and search for a wider basket of markets. In any event, such incentives are not available to foreign-owned businesses in China.
Chinese Reforms and Chinese Suppliers
The timing of some of China’s reforms has also been unfortunate. A tightening up of the labor law last year may well have kept much Chinese in jobs that would otherwise have disappeared during the downturn. While this represents a win situation for the government, it has led many manufacturers and potential investors in China to think again. A relatively comprehensive victory by the pro-business and foreign investment friendly Congress Party suggests that India will rapidly become a major competitor for FDI dollars in the short-long term future.
Barriers to FDI in India will likely be torn down, the domestic market will increasingly open up, and massive infrastructure projects, previously on the back burner due to the political horse trading will now be fast tracked. Make no mistake, with a mandate to rule, the Congress Party in India will prove a dynamic regional force in the redevelopment of India. Opportunities abound in the country, and it will see growth at a rate that China did twenty years ago. To cope with this, the priorities for China’s continuing development have to change. It simply cannot compete with India for much longer over cheap wages and export-driven manufacturing cost index.
The Future of Chinese Goods
The implications for China are interesting. It means that it is demographically and economically bound to follow a different route than the one it has for the past twenty years. No longer can China afford to be simply a cheap destination for investing in export manufacturing. Costs will continue to rise, and competition, in the shape of India and the tiger economies of Southeast Asia, has arrived. It means that investing in business opportunities in China has become increasingly dependent upon servicing its domestic market. That, in turn, has huge implications for foreign investors.
Market research in China used to be somewhat perfunctory – a quick scout around which free trade zone offered the best land costs, tax deals, and infrastructure. Quite clearly, this is no longer going to be enough. Setting up business to manufacture and sell to China requires a detailed study: the local area dynamics, the local culture, and of course coming head-to-head with local competition.
Chinese Goods and Increased Demand Throughout China
While Beijing, Shanghai, and Guangzhou are all premium, yet market saturated cities, selling to the China market will increasingly demand greater sensitivities. Opportunities in Xinjiang require an understanding of the local Muslim population; products need to be marketed in a form of Arabic. Selling in Chongqing requires studies of the transportation system down the Yangtze. Yunnan, with several types of minorities, includes dealing with everything from Tibetan to Khmer sensitivities.
The economic factor will additionally start to raise its head, and the research needs to be spot on. Chinese competitors will always be able to supply the domestic market at a lower price. Accordingly, foreign investors in China will need to provide a better quality product, position and market it correctly, and face the threat of local companies evolving to compete. The age of quality market research as a pre-investment tool in China has arrived, and providers will need to be able to cover the entire country to be able to provide accurate and comparable data.
The Party Under Pressure
Short-term, the Chinese government is going under pressure to reduce export costs. However, with the stimulus package firmly geared towards generating a domestic demand, and competitors such as India breathing down their necks, China’s exporters look set to be in the doldrums for some time to come. With 40 percent of China’s annual GDP dependent upon exports, the government is clearly in danger of getting caught between two stools. To reduce that burden, pressure on the government by its export-driven businesses is likely to increase. Whether this manifests itself in grants to exporters, or a climb down on some aspects of the labor law, is hard to pinpoint. However, in keeping Chinese businesses and domestic workers happy, the Chinese government risks losing its attractiveness as a destination for manufacturing and export-driven FDI.
The implications for foreign investors require a change in the mindset away from China as a destination for purely cheap; export-led manufacturing. India is increasingly going to take over this role. China now represents a huge domestic market, but one that is still largely unexplored regarding its massive interior populations, and one that will require patience, and significant resources to crack. “China has changed” is a familiar mantra that has been spoken over the years. It continues to, and in moving up and away from its role over the past two decades will increasingly demand a more sophisticated approach to its market that has, until now, been the case.
Foreign investors in China, instead of just scouting around for cheap production, will now have to think carefully about their longer term position, and whether or not they want to be a China business. At Present, China manufacturing is seemly an essential power in the economic world, and this has an especially astronomical effect on manufacturing.
Competition and Product Manufacturing in China
For a prolonged time, China was precise much an outsider comparison to Western nations, but it is now processing all aspects of its society. The country and its people are becoming more westernized and similar in some ways to Europe and countries like the United States. For a long time, Chinese people were barred from traveling by their government. This is no longer the case, and their people’s influence on other societies may be having an impact on their fast development. It has made some people want to start businesses, while others have been pleased to follow the user society of the west.
The first of manufacturing in China on a large scale was clothing and footwear. China was comparatively miserable the price of labor was inexpensive than western countries. Many western companies outsourced their manufacturing to the country. They have moved more into electrical, computing and telecommunications products. Clothing and footwear are still at the forefront of Chinese manufacturing, though.
China is manufacturing turn such an attractive proposition to organizations these days. When you look at a large magnitude of the world’s manufacturing, you will notice that a significant amount of it takes place in China. The production that is being moved to the China manufacturing plants is to a satisfactory level for the organizations otherwise, they would move their production elsewhere.
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