China's manufacturing industry: Where is the road?

The trouble is always constant, isn't it? Just over a year ago, most Chinese companies also optimistically believed that the European debt crisis that occurred on the other side of the globe had nothing to do with it. This has caused many people to selectively forget the layoffs of some world-renowned companies such as Nokia Siemens AG and British HSBC Holdings. However, the bad news is still unceremoniously followed. It also allows Chinese companies to reflect: Where exactly is China's manufacturing path?

BYD, Midea, Evergrande, and Sany Heavy Industry ... Many leading companies in China that have made great strides in many different industries have revealed rumours of layoffs. (As shown in the figure, "2011-2012 domestic and foreign companies layoffs incomplete statistics") is the most representative of the United States and the group. In November 2011, Midea Group was exposed to large-scale layoffs and almost all new employees of its daily household appliance group recruited in 2011 on the campus were waived. Just after the Lantern Festival, the United States again passed news of layoffs. It is ironic that in October 2010, the Chinese home appliance giant also proposed to use five years to build a hundred billion US dollars. Not only that, like the recurrence of the global economic crisis in 2008, in July last year, a toy company in Dongguan, "Su Yi," and the textile company "Cheng Jia," suddenly collapsed, adding to the shadow of the poor market.

These less than wonderful signals seem to indicate that the winter made in China has really come.

Either transition or crash

For most foundries, one of the challenges is that it is difficult for foundry manufacturers to change their business model, followed by how to build a brand. For a long time, there have been few domestic consumer brands going overseas, and they are even rare in the high-end market. The reason for this is that it is difficult for the foundry to have both the fish and the bear's paw - traditional customers are not happy to see the situation where the foundry worker is keeping pace. On the other hand, we must be alert to the endless patent traps. Another major obstacle is the bad reputation of the “Made in China” label, which is often associated with sweatshops and poor quality.

Take the electronics industry as an example. Today, Chinese companies still have a high degree of reliance on imported technology, and most companies are still confined to assembling parts and components, and this part accounts for a negligible portion of the finished product price.

It is particularly urgent to strengthen professionalism and improve profitability. Between 2004 and 2009, unit labor costs increased by 50%. Most small manufacturers that pursue puerile are forced to face a simple choice: either transfer to the high end of the value chain, or go bankrupt.

What has added to this is that China has repeatedly raised the deposit reserve ratio, and the major banks have reluctant to lend and have tended to issue large long-term loans to large state-owned enterprises instead of SMEs. The latter was forced to resort to underground banks - it is said that interest may be as high as 70 to 80%, which further exacerbated the risk of death.

Where is the road?

The essence of transforming the mode of economic development lies in the economic rebalancing, including the shift from labor cost advantages to independent innovations such as R&D and design, high-end technologies, and fine manufacturing; from OEM to private label; from dependence on investment and exports to investment, exports, and domestic consumption. Equal emphasis; from extensive, high energy consumption, high emissions to green, low energy consumption, low emissions.

The intrinsic motivation behind this shift is that China has exhausted all the elements driving the old economic model—energy, cheap labor, water resources, and consumer markets. Paradoxically, on the one hand, China has the world’s population with the fastest ageing population. On the other hand, it is also directly facing the labor shortage caused by the lack of competitive wages; on the one hand, air and water pollution, irreversible land degradation, etc. Many environmental issues have paid huge fees, and on the one hand, they have been able to make ends meet because they have exported cheap goods to developed countries.

This includes the following paradox: China, as the largest resource-consuming and polluting country, may also become the largest clean energy producer. Such as wind turbines, solar module manufacturing, etc. are among the world's forefront. New energy and clean technologies are originating in the traditional polluting industries, which may help them transform or improve their operation processes. Another way is to unite the new energy industry with traditional industries and look for new growth points.

Chinese companies seeking globalization need to focus their strategy on how to build brands, expand their scale, market their networks, and integrate global resources. Are mergers and acquisitions, self-optimizing operations and extending the value chain?