The China strategy : harnessing the power of the world's fastest-growing economy by Tse Edward

The China strategy : harnessing the power of the world's fastest-growing economy by Tse Edward

Author:Tse, Edward
Language: eng
Format: epub
Tags: New business enterprises -- China, Economic development -- China, Cities and towns -- Growth, Globalization -- China, Cities and towns -- Growth, Economic development, Economic policy, Globalization, New business enterprises, China -- Economic policy -- 2000-, China
ISBN: 9780465020997
Publisher: New York : Basic Books
Published: 2010-09-19T16:00:00+00:00

The Future of Foreign Investment

As multinationals continue to take elements of their value chain to China, foreign investment can be expected to increase. The global financial crisis may lead to a decline in the rate of investment volume in the immediate future. It might generate protectionist pressure that shows the growth of outsourcing and value-chain migration for a time. But this must not be mistaken for any fundamental alteration in the overarching trend. Indeed, it may contribute to a rise in foreign investment, as many companies will be under even greater pressure to enter China or to grow their Chinese business. They will still look to China to reduce costs, but they will also be drawn to the Chinese consumer markets, which will offer stronger growth than the “mature markets” of developed countries.

We will see a further simplifying and shortening of supply chains and a continued outsourcing of manufacturing. Chinese companies in particular will drive the commoditization of more products in many high-volume end-use segments, from laptops and computer peripherals to what were formerly high-end consumer electronics. This in turn will continue to accelerate demand for production outsourcing to the lowest-cost manufacturing centers.

Before the onset of the global financial crisis there was widespread speculation that rising costs, particularly for labor but also for other inputs, including land and materials, could lead low-cost manufacturers to favor other locations, such as Vietnam, over China. However,

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only some of the lowest-end manufacturers appear to be moving operations outside China. Often, manufacturers move within China, to locations farther inland. Intel, for example, is relocating some facilities from Shanghai to the inland city of Chengdu, where it had previously established a test and assembly plant. Already a network of expressways links the most important inland locations to the coast. That infrastructure will improve, thanks to the emphasis on transportation in the stimulus measures of 2008-2009.

The strengths of coastal China, especially in its key locations around the Yangtze and Pearl River deltas, will also improve over the next decade, especially for manufacturing sites a little further up the value chain. Even if costs rise, innovations in production processes (generated by the fiercely entrepreneurial will to succeed among Chinese companies) will continue to keep manufacturing competitive.

As more suppliers and manufacturers set up in China, the outsourcing and procurement trends of low-cost manufacturing will migrate to higher-end, lower-volume products such as medical equipment, machinery, automobile components, and other higher-end technologies. Other industries will include power generation, especially in areas to do with increasing energy efficiency, and electronics and IT, where ever greater numbers of Chinese manufacturers will replace manufacturers of components and modules from other countries.

The Chinese government is not likely to change its policies around strategic industry sectors, no matter how integrated its economy becomes. Thus, China will not welcome foreign investment in industries that are regarded as strategic (nor in those where it perceives its companies are not receiving reciprocal treatment overseas). In the longer run, official China is likely to modify its definition of


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