How to re­vive the man­u­fac­tur­ing sec­tor?

China Daily (Hong Kong) - - VIEWS -

China’s man­u­fac­tur­ing sec­tor will face more chal­lenges next year. How to make the man­u­fac­tur­ing sec­tor com­pet­i­tive in the global mar­ket and trans­form the coun­try from a big man­u­fac­tur­ing hub to a great man­u­fac­tur­ing power is the top task of the gov­ern­ment.

In re­cent years, the pro­por­tion of Chi­nese above-scale in­dus­trial en­ter­prises’ added­value growth, com­pared on a global scale, de­clined year-byyear from 20.8 per­cent in 2013 to 7 per­cent in 2015, and 6.5 per­cent in the first quar­ter of 2016. China’s in­dus­trial added-value growth, too, de­clined from 10.5 per­cent in 2013 to 7 per­cent in 2015, and 6.9 per­cent in the first three quar­ters of 2016.

The slow­ing growth of China’s man­u­fac­tur­ing in­dus­try has ex­posed its un­der­ly­ing prob­lems.

First, China’s man­u­fac­tur­ing in­dus­try faces the pres­sure of high cost in these times of eco­nomic down­turn. Due to the rapid growth of costs of hu­man re­sources, cap­i­tal and en­ergy, man­u­fac­tur­ing in­dus­tries’ cost of pro­duc­tion has in­creased sharply. Also, there are huge gov­ern­ment-re­lated “hid­den costs” in the sec­tor, in­clud­ing in­sti­tu­tional costs for ap­provals, and leg­isla­tive costs such as so­cial se­cu­rity de­posits.

For ev­ery 100 yuan ($14.37) of in­come, the cost of pro­duc­tion of the main man­u­fac­tur­ing sec­tor in­creased from 85.27 yuan in 2013 to 85.68 yuan in 2015, and 85.87 yuan in Septem­ber 2016.

Sec­ond, over­ca­pac­ity, too, is a se­ri­ous prob­lem for the man­u­fac­tur­ing sec­tor. Over­ca­pac­ity is the re­sult of the eco­nomic down­turn China has been fac­ing since 2013; it is a ma­jor prob­lem es­pe­cially for the in­dus­tries mak­ing lowend prod­ucts with a high de­gree of ho­mo­gene­ity.

But the ef­fec­tive sup­ply of some high-end prod­ucts by this sec­tor is in­suf­fi­cient. Take the iron and steel in­dus­try for ex­am­ple. Al­though over­ca­pac­ity plagues the iron and steel in­dus­try, China’s im­port of thick steel plate, medi­umwidth steel plate and cold-rolling steel sheets in­creased 18.5 per­cent, 6.9 per­cent and 4.5 per­cent year-on-year in 2015, in­di­cat­ing the de­mand for these high-end steel prod­ucts ex­ceeds sup­ply.

Third, China’s man­u­fac­tur­ing sec­tor still lags be­hind in re­search and de­vel­op­ment. A huge num­ber of Chi­nese man­u­fac­tur­ing en­ter­prises are still orig­i­nal equip­ment pro­duc­ers of fa­mous in­ter­na­tional brands, and al­most all the core tech­nolo­gies in these fields are the in­tel­lec­tual prop­er­ties of for­eign com­pa­nies. Be­sides, China’s man­u­fac­tur­ing sec­tor lacks suf­fi­cient in­vest­ment in R&D, and cul­ti­vat­ing tech­no­log­i­cal and in­no­va­tive tal­ents, not to men­tion in­de­pen­dent brands, and sup­ply and mar­ket­ing net­works.

Fourth, China’s man­u­fac­tur­ing sec­tor faces in­creas­ingly se­vere com­pe­ti­tion in in­ter­na­tional mar­kets. While some de­vel­op­ing coun­tries, such as In­dia and Viet­nam, face lower-cost com­pet­i­tive­ness than China, man­u­fac­tur­ing giants like the United States and Ger­many have launched a new round of in­dus­tri­al­iza­tion to help de­velop their man­u­fac­tur­ing sec­tor, which are hav­ing an

im­pact on China’s man­u­fac­tur­ing sec­tor.

To strengthen China’s man­u­fac­tur­ing sec­tor, the gov­ern­ment has to im­ple­ment sep­a­rate poli­cies to re­duce over­ca­pac­ity and cul­ti­vate in­dus­trial com­pet­i­tive­ness. Pref­er­en­tial poli­cies should be of­fered to pro­duc­ers of high­end goods whose de­mands are high. The gov­ern­ment should also help en­ter­prises with over­ca­pac­ity to re­or­ga­nize or merge with other or­ga­ni­za­tions to solve their over­ca­pac­ity prob­lem.

Mea­sures such as pref­er­en­tial tax­a­tion and fi­nanc­ing sup­port should be im­ple­mented by the gov­ern­ment, too, to help en­ter­prises re­duce their pro­duc­tion costs. One way of help­ing such en­ter­prises to over­come the prob­lem is to en­cour­age them to trans­form into more ser­vice­ori­ented and high value- added com­pa­nies, which in turn will help in­crease the core com­pet­i­tive­ness of “made in China” prod­ucts.

In­no­va­tive en­ter­prises and in­no­va­tive cen­ters pro­mot­ing core com­pet­i­tive­ness should also be es­tab­lished to sup­port in­de­pen­dent re­search and de­vel­op­ment of China’s man­u­fac­tur­ing sec­tor.

In ad­di­tion, the de­vel­op­ment of “in­tel­li­gent man­u­fac­tur­ing” should be ex­pe­dited with the help of “In­ter­net Plus”. And mo­bile in­ter­net, cloud com­put­ing, big data and “In­ter­net of Things” should be in­te­grated with the mod­ern man­u­fac­tur­ing in­dus­try, in or­der to pro­mote China’s added-value in­dus­trial rev­o­lu­tion.

The au­thor is a re­searcher at the In­sti­tute of In­dus­trial Eco­nomics, Chi­nese Academy of So­cial Sciences.

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