The Chinese manufacturing industry will face challenges in the near future. How to maintain the competitiveness of the manufacturing industry in the global market, while transforming the country from a large production center into a large and advanced manufacturing power is the government’s primary task. The slowdown in growth of the Chinese manufacturing industry has revealed its underlying problems.
Firstly, the Chinese manufacturing industry is facing the burden of high costs in face of an economic slowdown. Due to the rapid growth in human resource, capital, and energy costs, the production costs of manufacturing industries have risen sharply. In addition, there are huge “hidden costs” in the sector that are mostly government and bureaucracy related. These include institutional costs for approvals and social welfare costs such as social security deposits.
For each RMB 100 (US $ 14.37) in revenue, the cost of production of the manufacturing industry increased from RMB 85.27 in 2013 to RMB 85.68 in 2015 and RMB 85.87 in September 2016.
Second, overcapacity is a serious problem for the manufacturing industry. Overcapacity is the result of the economic slowdown that China has been facing since 2013. This is a major problem especially for industries producing low-end products with a high degree of homogeneity.
But the actual supply of some high-end products by this sector is insufficient. Take the example of the steel industry. Although overcapacity affects the steel industry, Chinese imports of heavy gauge steel plate, medium-width steel plate and cold-rolled steel sheet increased by 18.5%, 6.9% and 4.5% respectively in 2015, indicating that demand for these high-end steel products exceeds supply.
Thirdly, China’s manufacturing industry is lagging behind in research and development. A large number of Chinese manufacturing companies are still equipment manufacturers of major international brands, and almost all of the core technologies in these fields are the intellectual property of foreign companies. In addition, the Chinese manufacturing industry lacks sufficient R & D investment and technological and innovative talent, as well as independent brands, supply chains, and marketing networks.
Fourthly, the Chinese manufacturing industry is facing increasingly severe competition in international markets. While some developing countries like India and Vietnam have highly competitive labor costs compared to China, industrial giants like the US and Germany are launching a new wave of high-tech driven industrialization to enhance their manufacturing industry, which has an impact on the Chinese manufacturing industry.
To strengthen China’s manufacturing industry, the government needs to implement separate policies to reduce overcapacity and cultivate industrial competitiveness. Preferential policies should be offered to manufacturers of high-end goods with high demands. The government should also help companies suffering from overcapacity reorganize or merge with other organizations in order to solve their overcapacity problem.
Measures such as preferential taxation and financial support should also be implemented by the government to help companies reduce their production costs. One way to help these companies overcome the problem is to encourage them to become more service-oriented and value-added businesses, which will help to increase the key competitiveness of “made in China” products.
Innovative companies and centers promoting key competitiveness should also be created to support independent research and development of the Chinese manufacturing industry.
In addition, the development of “smart manufacturing” should be accelerated with the help of “Internet Plus”. And mobile internet, cloud computing, big data and Internet of Things should be integrated into the modern manufacturing industry to promote China’s value-added industrial revolution.