Losses from flight of man­u­fac­tur­ing have to be off­set

China Daily (USA) - - VIEWS - The au­thor is a se­nior writer with China Daily. xinzhim­ing@chi­nadaily.com.cn

About 30 years ago, the cen­ter of global man­u­fac­tur­ing started mov­ing from theWest to Asia, most no­tice­ably to China. Now the pen­du­lum has started swing­ing in the other di­rec­tion, toWestern Europe and the United States, with sports goods gi­ant Adi­das an­nounc­ing it will es­tab­lish new fac­to­ries in Ger­many and the US.

The pos­si­bil­ity of man­u­fac­tur­ing flow­ing from China to theWest has been in dis­cus­sion for some years now but few seem to have taken it se­ri­ously, with most Chi­nese dis­miss­ing it as a false alarm. Well, the alarm was not false.

Adi­das CEOHer­bertHainer re­cently told the Nikkei Asian Re­viewthat the com­pany will soon open a fac­tory in­Ger­many to meet the ad­di­tional mar­ket de­mand for its shoes and set up an­other in theUS next year. Au­to­ma­tion and 3D print­ing tech­nolo­gies will greatly lower the cost of la­bor in the rel­a­tively ex­pen­sive Western coun­tries, he said, and thus make the shift worth­while.

Adi­das’ new­strat­egy should set off alarm bells for China as the global tech­nol­ogy rev­o­lu­tion has made pos­si­ble what used to be im­pos­si­ble even till re­cently. The cost of la­bor in China is low, which, along with its com­pet­i­tive pref­er­en­tial poli­cies for for­eign in­vestors and a huge con­sumer mar­ket, has cre­ated the il­lu­sion for many that it is al­most im­pos­si­ble for global in­vestors to shift their pro­duc­tion bases to the ad­vanced economies where pro­duc­tion costs are rel­a­tively high.

Still, China needs to in­ten­sify its tech­no­log­i­cal pre­pared­ness to em­brace the next in­dus­trial rev­o­lu­tion.

In­deed, man­u­fac­tur­ing has been shift­ing out of China to coun­tries such as Viet­nam and Cambodia, but it mostly in­volves low-end prod­ucts that pos­si­bly will have lit­tle im­pact on China’s man­u­fac­tur­ing vi­a­bil­ity.

But the fast ad­vance­ment of tech­nolo­gies, spear­headed by au­to­ma­tion tech­nolo­gies, will make it pos­si­ble for man­u­fac­tur­ers to greatly re­duce the cost of la­bor in ad­vanced coun­tries. And sim­i­lar moves by com­pa­nies like Adi­das will have a greater im­pact on China’s com­pet­i­tive­ness in the com­ing years. There­fore, China must be fully pre­pared for the pos­si­ble change in the global in­dus­trial land­scape.

AlthoughHainer said Adi­das would main­tain the ex­ist­ing pro­duc­tion vol­ume in China, the shift­ing of the com­pany’s ad­di­tional ca­pac­ity to Europe and the US will de­prive China of the ben­e­fits from the con­tin­ual ex­pan­sion of the sports goods gi­ant. China, there­fore, must find ways to fill the gap left by the flight of man­u­fac­tur­ing.

As the world’s sec­ond-largest econ­omy and the most pop­u­lous coun­try with a grow­ing mid­dle class, China’s vast con­sumer mar­ket means it will re­main the cen­ter of global man­u­fac­tur­ing for quite a long time. Hainer’s ad­mis­sion that he still sees “huge po­ten­tial in China” adds cre­dence to that fact.

Still, China needs to in­ten­sify its tech­no­log­i­cal pre­pared­ness to em­brace the next in­dus­trial rev­o­lu­tion. For ex­am­ple, it is al­ready home to a num­ber of in­dus­trial ro­bot man­u­fac­tur­ers, but they lag be­hind the world lead­ers in the sec­tor.

China’s sup­port­ive poli­cies such as higher in­puts in re­search and devel­op­ment, and tax cuts for high-tech en­ter­prises have helped a num­ber of ma­jor tech­com­pa­nies to wield global in­flu­ence. But its over­all tech­no­log­i­cal com­pet­i­tive­ness re­mains weak com­pared with the ad­vanced economies.

The gov­ern­ment’s “Made in China 2025” plan is just right to trans­form the coun­try into a ma­jor global man­u­fac­tur­ing power with a tech­no­log­i­cal com­pet­i­tive edge. The gov­ern­ment has also em­pha­sized the role of in­no­va­tion, in­clud­ing tech­no­log­i­cal in­no­va­tion, in driv­ing eco­nomic growth. Also, China now has a com­pet­i­tive edge in fields such as nano ma­te­ri­als, clean en­ergy, and high-speed trains. If it can stick to its pol­icy of pri­or­i­tiz­ing high-tech and in­no­va­tion, more Chi­nese en­ter­prises will be­come glob­ally com­pet­i­tive and thus off­set the im­pact of the pos­si­ble flight of high-end man­u­fac­tur­ing from the coun­try.

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